As filed with the Securities and Exchange Commission, February 16, 1999
Securities Act File No. 333-____________; Exchange Act File No. 0-29098
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
NAVIDEC, INC.
---------------------------------------------
(Name of small business issuer in its charter)
Colorado 7373 33-0502730
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Classification Identification
incorporation or Code Number) Number)
organization)
14 Inverness Drive, Suite F-116
Englewood, CO 80112
(303) 790-7565
(Address and telephone number
of principal executive offices)
---------------------
14 Inverness Drive, Suite F-116
Englewood, CO 80112
(Address of principal place of business or
intended principal place of business)
Patrick R. Mawhinney, Chief Financial Officer
NAVIDEC, Inc.
14 Inverness Drive, Suite F-116
Englewood, CO 80112
(303) 790-7565
(Name, address and telephone number of agent for service)
--------------------
Copies of Communications to:
Roger V. Davidson, Esq.
Ballard Spahr Andrews & Ingersoll, LLP
1225 17th Street, Suite 2300
Denver, Colorado 80202
(303) 292-2400
Approximate date of commencement of proposed sale to public:
As soon as practicable after the registration statement becomes effective
--------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Securities to be Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered (2) Share(1) Price Registration Fee
- ---------------------------------------- ----------------------- -------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Common Stock, no par value held by Selling
Security Holders 700,000 Shares $9.96875 $6,978,125 $1,940
- ---------------------------------------- ----------------------- -------------------- --------------------- -------------------
Common Stock underlying Warrants held by
Selling Security Holders 70,000 Shares $9.96875 $ 697,812 $ 194
======================================== ======================= ==================== ===================== ===================
TOTALS 770,000 Shares $7,675,937 $2,134
======================================== ======================= ==================== ===================== ===================
</TABLE>
(1) The proposed maximum offering price is estimated solely for the purpose of
determining the registration fee and calculated pursuant to Rule 457(c).
The average of the high and low prices of the Common Stock as reported by
the Nasdaq SmallCap Market on February 11, 1999 were used for the estimate.
(2) This registration statement covers an additional indeterminate number of
shares of common stock which may be issued in accordance with Rule 416.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Subject to Completion, dated February 16, 1999
PROSPECTUS
NAVIDEC, Inc.
770,000 Shares of Common Stock
The shares of our common stock covered by this prospectus are being sold by
the security holders listed under the heading "Selling Security Holders." These
selling security holders previously received the shares of common stock from us
or will receive these shares of common stock from us by exercising previously
issued common stock purchase warrants. We will not receive any of the proceeds
from the sales of the shares of common stock by the selling security holders.
The selling security holders may sell these shares from time to time on the over
the counter market in regular brokerage transactions, in transactions directly
with market makers or in certain privately negotiated transactions.
Our common stock is traded on the Nasdaq SmallCap Market under the trading
symbol "NVDC." The closing sales price of our common stock on February 5, 1999,
as reported by the Nasdaq SmallCap Market was $10.50.
There are certain risks involved with the ownership of our common stock,
including risks related to our business and the markets for our common stock.
(See "Risk Factors" beginning on page 4.)
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed. The
selling security holders may not sell these securities until the registration
statement filed with the SEC is effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
The date of this prospectus is _____________ ,1999
<PAGE>
TABLE OF CONTENTS
Page
----
About this Prospectus 2
Information Made Available to You 2
Prospectus Summary 3
Risk Factors 4
Use of Proceeds 10
Our Business 11
Management's Discussion & Analysis of Financial
Condition and Results of Operations 31
Management 36
Executive Compensation 38
Security Ownership of Certain Owners and Management 39
Selling Security Holders 40
Plan of Distribution 42
Certain Transactions 43
Description of Securities 45
Shares Eligible for Future Sale 46
Market for Common Stock and Related Shareholder Matters 46
Legal Matters 47
Experts 47
Securities And Exchange Commission Positio
on Certain Indemnification 47
Index to Financial Statements F-1
ABOUT THIS PROSPECTUS
You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling security holders are offering to sell,
and seeking offers to buy, shares of common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of common stock.
INFORMATION MADE AVAILABLE TO YOU
This prospectus is part of a Registration Statement on Form SB-2 that we
filed with the Securities and Exchange Commission. Certain information in the
Registration Statement has been omitted from this prospectus in accordance with
the rules of the SEC.
We file annual reports, quarterly reports and current reports, proxy
statements and other information with the SEC. Our file number is 0-29098.
You may read and copy materials that we have filed with the SEC, including
the registration statement, at the following SEC public reference rooms:
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450 Fifth Street, N.W. Northwest Atrium Center 7 World Trade Center
Room 1024 500 West Madison Street Suite 1300
Washington, D.C. 20549 Suite 1400 New York, New York 10048
Chicago, Illinois 60661
You can call the SEC at 1-800-732-0330 for further information about the
public reference room.
We are required to file electronic versions of these documents with the
SEC. Those documents may be accessed through the SEC's Internet site at
http://www.sec.gov. Our common stock is quoted on the Nasdaq SmallCap Market.
Reports, proxy and information statements and other information concerning us
may be inspected at the Nasdaq Stock Market at 1735 K Street, NW, Washington,
D.C. 20006.
Information about us is also available at our Internet site at
http://www.navidec.com.
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PROSPECTUS SUMMARY
This is only a summary and does not contain all the information that may be
important to you. You should read the more detailed information contained in
this prospectus, including but not limited to, the risk factors beginning on
page 4.
About Us
We are based in Englewood, Colorado. We are a provider of products and
solutions that use Web-based technologies to achieve our customers' business
objectives. We help customers nationwide define, develop and deploy successful
online solutions. We provide our services and distribute our products to over
700 customers. We also serve as a distributor of various high computer
technology and other computer related products through traditional and
electronic channels.
Our core abilities in Internet/Intranet technology and traditional computer
related product marketing and distribution form our business model of providing
complete Internet/Intranet solutions. Those solutions include the following:
o commercial Web site development,
o design and implementation of intranet and extranet applications
and tools,
o computer and network infrastructure equipment,
o software and services,
o content creation and aggregation of information located on
the Internet or intranet,
o electronic commerce, and
o product warehousing and delivery.
Our principal sources of revenue are from the following:
o product distribution from the resale of computer equipment, high
computer technology peripherals and electronic components
manufactured by independent vendors,
o services related to Internet/Intranet solutions, and
o license fees from recurring lead generation from our Wheels
solution.
Wheels primarily is a Internet solution for an online automotive sales Web
site and is more fully described under "Our Business".
Our principal business office is located at 14 Inverness Drive, Suite
F-116, Englewood, CO 80112. The telephone number at that address is (303)
790-7565.
Forward-Looking Statements
This prospectus contains forward-looking statements that concern our
business. All statements, other than statements of historical facts, included in
this prospectus that address activities, events or developments that we expect,
believe or anticipate will or may occur in the future, including the following
matters are forward looking statements:
o future capital costs of research and development,
o the size of various markets,
o market share,
o project margins,
o repayment of debt,
o business strategies, and
o expansion and growth of our operations.
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These statements are based on certain assumptions and analyses made by us in
light of our experience and our perception of the following:
o historical trends,
o current conditions,
o expected future developments, and
o other factors we believe are appropriate in the circumstances.
Such statements are subject to:
o a number of assumptions including the following,
o risks and uncertainties, including the risk factors in this
prospectus,
o general economic and business conditions,
o the business opportunities that may be presented to and pursued
by us,
o changes in laws or regulations and other factors, many of which
are beyond our control, and
o availability to obtain project financing on favorable conditions.
You are cautioned that any such statements are not guarantees of future
performance and that actual results or developments may differ materially from
those projected in the forward-looking statements.
The Offering
Shares of common stock outstanding prior to this offering 4,960,024
Shares of common stock offered by this prospectus, including
common stock underlying warrants 770,0000
Nasdaq SmallCap Market symbol for our common stock NVDC
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Summary Financial Information
The following tables set forth summary financial information and other
equity information about us. You should read this summary information in
conjunction with the more detailed financial statements and related notes in
this prospectus. The information provided below is in thousands, except share
and per share data.
Fiscal Year Ended Nine Months Ended
Statement of Operations Data December 31, 1997 September 30, 1998
- ---------------------------- ----------------- -------------------
Net Revenues $ 6,008 $5,678
Operating Loss (2,578) (1,551)
Net Loss (4,107) (1,656)
Loss Per Share (1.47) (.50)
Weighted Average Shares
Outstanding 2,799,526 3,335,000
Balance Sheet Data
- ------------------
Cash $369 $395
Working Capital 678 922
Total Assets 3,099 3,907
Long-Term Liabilities 310 69
Stockholders' Equity 1,550 1,745
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RISK FACTORS
Prior to making an investment decision, you should carefully consider,
together with the other information contained in this prospectus, the following
factors risk factors.
We Are Subject to the Risks Associated with a New Business Enterprise
Although we have been in business since July 1993, our business has only
recently expanded into the following businesses relating to the Internet and
intranets:
o infrastructure equipment,
o software and services,
o content creation and aggregation of information located on the
Internet or intranet, and
o electronic commerce and distribution.
As a result of this expansion, we are subject to all the risks associated with a
new business enterprise. The likelihood of our success should be considered
relative to the problems frequently encountered in connection with the operation
and development of a new business and the competitive environment in which we
operate.
We Have Incurred Operating Losses and We May Incur Continued Losses for the
Foreseeable Future
We have only a very limited operating history in our Internet/Intranet
solutions business upon which to base any evaluation of our performance and
prospects in such business. Although there has been growth in annual revenue, we
incurred losses and experienced negative cash flow during the year ended
December 31, 1997 and for the nine months ended September 30, 1998. We plan to
focus in the near future on growing our Internet/Intranet solutions business and
increasing our distribution activities. In order to do so, we must increase
significantly our expenses for personnel, marketing, equipment and other product
purchases. In addition, we may experience fluctuations in future operating
results due to a variety of factors including the following:
o general economic conditions,
o specific economic conditions in the Internet industry,
o capital and other costs relating to the expansion of operations,
and
o the mix of services and distribution channels offered by us.
Many of those factors are out of our control. There can be no assurance that our
operations will generate sufficient revenues to become profitable.
We May Be Required to Seek Additional Financing or Curtail Our Operations
Our capital requirements have been and will continue to be significant.
Prior to our initial public offering, we had been dependent primarily on bank
loans and loans from our affiliates and employees to fund our capital
requirements. We have more recently depended on proceeds from offerings of our
securities to fund our ongoing operations. We anticipate that the proceeds from
those offerings, together with the projected cash flow from our operations, will
be sufficient to fund our operations during 1999.
We however may be required to seek additional financing or curtail our
operations and/or expansion activities if any of the following occur:
o in the event that our business plans change,
o there are any delays in expanding our business,
o our projections prove to be inaccurate, or
o the proceeds from our recent offerings of securities prove to be
insufficient.
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Any additional equity financing may involve substantial dilution to our
then-existing shareholders. We have no current arrangements for, or readily
available sources of, additional financing. There also can be no assurance that
additional financing will be available to us when needed or, if available, that
it can be obtained on commercially reasonable terms. Even if we are able to
expand our business, there is no assurances that we will be successful or that
investors will derive a profit from an investment in us.
We Operate in A Developing Market and the Market for Our Products is Unproven
The Internet represent markets for our products and services which have
only recently begun to develop. These markets are rapidly evolving and are
characterized by low barriers to entry and an increasing number of market
entrants who have introduced or developed a wide variety of products and
services for communication, information and commerce. As is typical in the case
of a new and rapidly evolving industry, demand and market acceptance for new
products and services are subject to a high level of uncertainty. Moreover,
critical issues concerning the commercial use of the Internet remain unresolved
and may impact the growth of Internet and Web use. Those issues include the
following:
o security,
o reliability,
o compatibility,
o cost,
o difficulty in obtaining user demographic information,
o difficulty of use and access, and
o quality of service
There can be no assurance that marketing or commerce over the Internet will
become widespread, or that products and services which we are developing for use
on the Internet will become accepted. In particular, enterprises that have
already invested substantial resources in other means of conducting commerce and
exchanging information may be reluctant to adopt a new strategy that could make
their existing products and infrastructure obsolete. Because the market for our
products and services is new and evolving, it is also difficult to predict with
any assurance the future growth rate, if any, and the size of the market for our
products. There can be no assurance of the following:
o that the market for our products and services will continue to
expand,
o that the Company's products or services will be accepted,
o that individual personal computer users in business or at home
will use the Internet, or
o that people will use our products and services for commerce,
information and communication.
If a significant market develops more slowly than expected or becomes
saturated with competitors, or if our products do not achieve market acceptance,
our business, operating results and financial condition will be materially
adversely affected.
Risks Relating to Our Competition and the Dynamic Market in Which We Operate
General Characteristics of Our Competitors
Existing competitors to our Internet/Intranet solutions business include
Online Systems Services, Inc., Eagle River Interactive, Inc. and Open Market,
Inc. All of these companies are public companies traded on the NASDAQ system. We
also compete with a large number of regional firms providing similar services.
Potential competitors in this business include browser software vendors, PC and
UNIX software vendors and on-line service providers. Additional competition
comes from the following:
o numerous client/server companies,
o database companies,
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o multimedia companies,
o advertising agencies,
o document management companies,
o networking software companies,
o network management companies, and
o educational software companies.
In a broader sense, we may compete with the more traditional advertising
and distribution mediums, such as radio, television and mail order outlets.
Potential competition also comes from our clients, who could choose to
address their Internet/Intranet needs through in-house personnel. Some of our
current and many of our potential competitors have the following
characteristics:
o longer operating histories,
o greater name recognition,
o larger installed customer bases, and
o significantly greater financial,
o technical and marketing resources than ours.
A large number of companies act as re-marketers of computer networks,
graphics equipment and components, and our competition in the high computer
technology product distribution business is therefore also intense. In some
instances, we, in acting as a re-marketer, may compete with the original
manufacturer.
The market in which we operate is are characterized by low financial
barriers to entry and frequent introductions of new products. We therefore
expect competition in our business to increase in the future. There can be no
assurance that we will be able to successfully compete in our business. Although
we believe that we have the requisite management, technical and creative
abilities to successfully compete, the intense level of competition in our
business could materially adversely affect our future operating results and
financial condition.
Competition in Our Internet/Intranet Solutions Business
There is a risk that our competitors may out perform us in the competitive
factors affecting our Internet/Intranet solutions business. Those factors
include the following:
o core technology,
o breadth of services offered,
o creative and artistic ability,
o marketing and distribution resources,
o customer service and support, and
o price.
Competition in Our Product Distribution Business
There is a risk that our competitors may out perform us in the competitive
factors affecting our product distribution business. Those factors include the
following:
o technical expertise,
o breadth of products offered,
o product quality,
o performance and reliability,
o price,
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o name recognition,
o customer service and support, and
o access to distributon channels.
Competition in Our Automotive Solutions Business
There are numerous online automotive sales Web sites on the Internet with
which we compete. Other online auto sales products include Carpoint,
Auto-by-Tel, AutoConnect, and AutoVantage. A few Internet developers are also
attempting to sell online sales products to media, but none offer the total
sales solution that Wheels offers to ensure that dealers sell vehicles. Wheels
includes important add-ons such as touch-screen kiosks that maybe located in
various public places and mobile sales laptops that may be carried by auto
salespersons. Another important distinction is that we understand the auto sales
process and even train dealers to help them sell more autos from the leads
generated by Wheels.
Our Products are Affected by Rapid Obsolescence and Technological Change
The market for our Internet/Intranet solutions is characterized by rapidly
changing technology, frequent introductions of new products and evolving
industry standards. Those factors result in product obsolescence and short
product life cycles. Accordingly, our success is dependent upon our ability to
anticipate technological changes in the industry. We must continually identify,
obtain and successfully market new products and services that satisfy evolving
technologies, customer preferences and industry requirements. There can be no
assurance that competitors will not market products and services which have
perceived advantages over our products or which render products and services to
be offered by us obsolete or less marketable.
We Depend on Internet Infrastructure and Access
Our revenues will depend in large part upon a robust industry and
infrastructure for providing Internet access and carrying Internet traffic.
Notwithstanding current interest and worldwide subscriber growth, the Internet
may not prove to be a viable commercial marketplace because of inadequate
development of the necessary infrastructure or complementary products, such as
high speed modems. Because global commerce and on-line exchange of information
on the Internet and other open area networks are new and evolving, it is
difficult to predict with any assurance whether the Internet will prove to be a
viable commercial marketplace. There can be no assurance that the infrastructure
or complementary products necessary to make the Internet a viable commercial
marketplace will be developed or, if developed, that the Internet will in fact
become a viable commercial marketplace. If the necessary infrastructure or
complementary products are not developed, or if the Internet does not become a
viable commercial marketplace, our business, operating results and financial
condition will be materially adversely affected.
Effectively Managing Our Growth May Be Difficult
Our rapid growth and plans for further growth have placed, and are expected
to continue to place, a significant strain on our administrative, operational
and financial resources. Our ability to sustain growth effectively will depend
on our ability to manage growth and to train, motivate and manage our employees.
Currently, we rely on a limited staff which is responsible for all of our
activities, including the following:
o sales and promotion,
o client planning,
o product distribution, and
o technical development of products for clients.
Many of the staff members are currently performing a combination of these
functions. Our continued growth will require us to recruit and hire new
technical, sales and marketing personnel so that the staff can be better
specialized to market our services and serve client needs. Market competition
for the services of the limited number of people who are capable of performing
our technical services is intense. The inability to recruit, hire and retain
necessary personnel or unexpected expansion difficulties could adversely affect
our business, operating results and financial condition.
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We Depend on Relationships With Our Clients and Suppliers
We maintain many important relationships with our clients and suppliers.
These relationships often result in opportunities for expanding the Company's
client base, technical capability and revenue base. The most significant of
these relationships are with Banc One, Bluestone, Sun Micro Systems, Netscape
and Sybase. While we have contracts with most of these companies, none of the
contracts are exclusive and for the most part these companies are free to
terminate their relationship with us at any time. The termination or
deterioration of one or more of these relationships could have a material
adverse effect on our business, operating results and financial condition.
We Depend on Recurring Revenues
A substantial part of our income is derived from the recurring revenues
associated with sales of supplies to existing clients and periodic maintenance
and upgrades to Internet and Intranet sites. Our clients are not required to
purchase supplies from us and may find another source for such supplies. Our
clients' need for such supplies may also diminish or disappear as a result of
technological advances or changes in customer use of hardware. In addition, most
of our Internet/Intranet solutions clients are not required to utilize us for
periodic maintenance and updates to their Internet and Intranet sites. Although
many of the sites designed for our clients contain proprietary tools licensed by
us to such clients only so long as we maintain such sites, such clients are
nonetheless free to take the information content of their sites to their own
servers or servers maintained by our competitors. The loss of clients who
provide recurring revenues could have a material adverse effect on us.
We May Not Be Able to Protect Our Proprietary Rights and We May Infringe the
Proprietary Rights of Others
We presently have no patents with respect to our proprietary technology.
Instead, we currently rely upon the following to protect our proprietary
technology:
o copyright and trademark laws,
o trade secrets,
o confidentiality procedures, and
o contractual provisions.
Those items afford only limited protection to protect our proprietary
technology. There can be no assurance that our measures to protect our current
proprietary technology will be adequate to prevent misappropriation of such
technology. There is also no assurance that our competitors will not
independently develop or patent technology that is substantially equivalent or
superior to our technology.
Although we believe that our products and technology do not infringe upon
the proprietary rights of any third parties, there can be no assurance that
third parties will not assert infringement claims against us. Similarly,
infringement claims could be asserted against products and technology that we
license, or have the rights to use, from third parties. Any such claims, if
proved, could materially and adversely affect our business and results of
operations. Although any such claims may ultimately prove to be without merit,
the time management spends addressing such claims and the legal costs associated
with such claims could materially and adversely effect our business and results
of operations.
Dependence on Key Personnel
Our success depends to a significant extent on the continued service of
certain key management personnel. In particular, we rely on Ralph Armijo, our
President and Chief Executive Officer. The loss or interruption of Mr. Armijo's
services, for whatever reason, would have a material adverse effect on us. In
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the event of the loss of services of Mr. Armijo, no assurance can be given that
we will be able to obtain the services of adequate replacement personnel. The
loss or interruption of the services of any of our other senior management
personnel would also have an adverse effect on us. We have entered into an
employment agreement dated May 1, 1998 with Mr. Armijo. We also currently
maintain a $2 million life insurance policy on his life. However, no assurance
can be given that we will be able to keep such policy in effect. We do not
maintain life insurance policies for any of our other executive officers.
Government Regulation and Legal Uncertainties
We currently are not subject to direct regulation by any government agency,
other than regulations applicable to businesses generally. However, due to the
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations may be adopted with respect to the Internet, covering the
following issues:
o user privacy,
o unsolicited marketing,
o pricing and characteristics, and
o quality of products and services.
The adoption of any such laws or regulations may decrease the growth of the
Internet. Such laws could in turn cause the following:
o decrease the demand for our products,
o increase our cost of doing business, or
o or otherwise have an adverse effect on our business, operating
results or financial condition.
Moreover, the applicability to the Internet of existing laws governing
issues such as real and intellectual property ownership, libel and personal
privacy is uncertain. That uncertainty may affect our business, operating
results and financial condition.
Elimination of Our Directors' Liability
Our Articles of Incorporation contain a provision eliminating a director's
liability to us or our shareholders for monetary damages for a breach of
fiduciary duty. However, a director's liability is not eliminated in
circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. Our Articles of Incorporation also
obligate us to indemnify our directors and officers to the fullest extent
permitted under Colorado law. While we believe that these provisions are very
standard and necessary to assist us in attracting and retaining qualified
individuals to serve as directors, they could also serve to insulate our
directors against liability for actions which damage us or our shareholders.
We May Be Significantly Influenced by the Stock Ownership of Our Officers and
Directors
Based upon the 4,960,024 shares of common stock being outstanding as of
February 8, 1999, our officers and directors, as a group, beneficially owned and
controlled 28.0% of outstanding common stock. In addition, cumulative voting is
not permitted with respect to our common stock. Cumulative voting provides that
a shareholder can cast votes in the election of directors equal to the number of
shares owned by such shareholder multiplied by the number of directors to be
elected to a single candidate or among the candidates as the shareholder wishes.
As a result, our officers and directors acting together, will be able to
exercise significant influence over all matters requiring stockholder approval
even though they do not own a majority of our common stock. Those matters
include the election of directors and the approval of significant corporate
transactions.
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No Dividends on Our Common Stock
We have not previously paid any cash or other dividends on our common stock
and do not anticipate payment of any dividends for the foreseeable future. We
anticipate that any earnings would be retained by us to finance our operations
and future growth and expansion.
The Price of Our Common Stock is Volatile
The trading prices of our common stock could be subject to wide
fluctuations in response to the following:
o quarterly variations in actual or anticipated results of our
operations,
o changes in analysts' earnings estimates,
o announcements of technological innovations or new products or
services by us or our competitors,
o general conditions in the Internet or other high computer
technology industries, or
o other factors.
In addition, the securities markets frequently experience extreme price and
volume fluctuation which affect market prices for securities of companies
generally, and technology companies in particular. Such fluctuations are often
unrelated to the operating performance of the affected companies. Broad market
fluctuations may adversely affect the market price of our common stock.
Possible Adverse Effects on Our Common Stock Due to Shares Eligible for Future
Sale
We currently have 4,960,024 shares of common stock outstanding. 1,948,128
shares of our common stock are freely tradable without restriction or further
registration. The remaining 3,012,076 shares of common stock are "restricted
securities" as that term is defined under Rule 144 of the Securities Act of 1933
and may only be sold by a registration statement under the Securities Act or
under another exemption under the Securities Act. No prediction can be made as
to the effect, if any, that sales of shares of common stock or even the
availability of such shares for sale will have on the market prices of the our
common stock prevailing from time to time. The possibility that substantial
amounts of our common stock may be sold in the public market may adversely
affect prevailing market prices for our common stock and could impair our
ability to raise capital through the sale of our equity securities. See "Shares
Eligible for Future Sale."
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock by the selling security holders.
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OUR BUSINESS
Overview
We were organized as ACI Systems, Inc. in July 1993 and changed our name to
NAVIDEC, Inc. in July 1996. We merged with Interactive Planet, Inc., a designer
and developer of Internet World Wide Web sites, in July 1996. We issued an
aggregate of 678,877 shares of common stock to the shareholders of IPI and a
promissory note in the amount of $75,000 to one shareholder of IPI in exchange
for all of the issued and outstanding stock of IPI. We acquired TouchSource,
Inc., a designer and developer of interactive Kiosks, in July 1997. We issued an
aggregate of 207,000 shares of common stock to the shareholders of TS and TS was
merged into us in exchange for all of the issued and outstanding stock of TS.
The merger and acquisition were consummated in order to expand our business
model of combined expertise in traditional marketing and distribution and
Internet/ Intranet technology. Effective as of December 31, 1998, we acquired
Lease Source, Inc. and Car Wizard, Inc., two automotive information web site
businesses. See "Recent Developments."
Our strategy is to increase revenue generated by our two core businesses of
Internet/Intranet solutions and product distribution. We have built and intend
to continue to build an infrastructure that assumes this strategy will succeed.
Management believes that, based on the current product mix, our Wheels solution
provided for the majority of our increased revenues in 1998 and will continue to
for years to follow. The Wheels solution combines our two core businesses of
Internet/Intranet solutions and product distribution. Wheels is designed on a
state of the art platform that allows it to distribute electronic information
out to consumers through the following:
o regional Wheels Web sites,
o individual dealer Web sites,
o remote automotive kiosks, and
o in mobile sales laptops.
Our failure to achieve this strategy could have a material adverse effect
on our business, financial condition, and results of operations.
We recognize revenue upon delivery of our Internet/Intranet solutions and
product distribution goods. Internet/Intranet solutions generally begin with
consulting arrangements that are billed on an hourly basis and progress to a bid
for a proposed project. Deposits are then taken upon acceptance of the bid. Most
of our customers elect to update and expand their Web sites frequently. Clients
are billed monthly on a time and materials basis for those services. Additional
sources of ongoing revenue include the following:
o revenue from advertising sold by our clients' Web sites,
o revenue from sales of merchandise, and services over our clients'
Web sites, and
o revenue from maintenance and hosting of our clients' Web sites.
RECENT DEVELOPMENTS
On August 5, 1998, we announced that we signed a letter of intent to merge
with VSI Holdings Inc. VSIH is engaged in the business of providing the
following technology and systems for relationship marketing,
o entertainment products,
o education and training for clients.
On August 20, 1998, we announced that discussions relating to the potential
merger with VSIH were suspended and that we do not have any plans to renew the
negotiations. On August 31, 1998 in consideration for a $800,000 loan from VSIH,
we granted options to purchase 177,165 shares of our common stock at $4.50 per
share and 354,350 shares of our common stock at $6.50. All of those options
become exercisable on December 31, 1999. We determined that the fair market
value of the options was $300,000 and accordingly discounted the VSIH loan of
$800,000 to $500,000. The $300,000 loan discount is being amortized over the
four month term of the loan.
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Effective as of December 31, 1998, we acquired Ohio-based LeaseSource, Inc.
and CarWizard, Inc. We believe these companies operate two of the Internet's top
automotive information web sites-LeaseSource.com and CarWizard.com. That
acquisition brings certain existing relationships of LeaseSource, Inc. and
CarWizard, Inc. with industry leaders into our successful Automotive Group.
Those relationships are with the following companies:
o Excite,
o Netscape,
o Prodigy, and
o Motor Trend.
We acquired the two companies for 250,000 shares of our common stock. In
addition, shareholders of LeaseSource and CarWizard will be entitled to an
earn-out based on the profitability of the two companies. We will continue
operating LeaseSource.com and CarWizard. com, while expanding the custom
relicensing of the content and technology behind the sites. We believe that the
new technology will make us one of the nation's leading providers of retail
automotive Internet solutions when combined with Navidec's existing USWheels.com
program. There is not however any assurance that our beliefs will prove to be
correct.
LeaseSource.com offers consumers general leasing information as well as
current information on leasing, specials and industry-standard residual values.
The site was named Kiplinger's automotive leasing site of the year in 1997 and
is also recommended in numerous publications including Consumer Reports, Motor
Trent, Automobile and Money.
Launched in early 1998 and already receiving more than 4.5 million page
views per month, CarWizard.com offers Internet users accurate research available
on new and used vehicles. The site quickly has become one of the top auto
information sites on the web and is the automotive research provider for our
USWheels.com Auto Research Center.
Founded by nationally recognized consumer leasing expert Michael Kranitz in
October 1997, LeaseSource, Inc. and CarWizard, Inc. achieved a 275 percent
increase in monthly revenues with expected 1998 revenues of more than $600,000.
The companies were profitable from their inception with gross margins of 80
percent. As divisions of ours, they are expected to generate revenue in excess
of $1.7 million in 1999.
As part of the acquisition, both companies became a part of our Automotive
Group and Michael Kranitz became a vice president and board member for us.
We are considering a plan to establish a separate entity for our Internet
based auto buying solutions which include USWheels.com, CarWizard.com and
LeaseSource.com. We may decide to spin off the automotive group to take
advantage of the high demand for online car buying providing consumers with a
convenient method to research, find and finance new and used cars.
BUSINESS STRATEGY
Our goal is to enhance our position as a leading provider of comprehensive
networking and electronic marketing and distribution solutions to regional,
national and international clients. To achieve this objective, we are pursuing
the following strategies:
We Leverage Our Expertise and Core Competencies
We leverage our expertise in two core businesses, high computer technology
product distribution and Internet/Intranet solutions, into complete electronic
marketing and networking solutions. Our solutions span all segments of the
commercial Internet industry, including the following:
o networking equipment and routers,
o Internet software,
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o Internet/Intranet design and implementation,
o Internet/Intranet content creation and aggregation, and
o promotion.
We believe that our ability to offer this full range of Internet/Intranet
products and services as well as traditional distribution and marketing services
is unique in our industry.
We Exploit Recurring Revenue Streams
We emphasize ongoing services to our Internet/Intranet solutions clients.
Those services are a source of recurring revenues often well in excess of the
fees associated with initial Web site development. Our primary focus has been on
our Wheels solution. Wheels provides recurring revenues from lead fees paid by
automotive dealers, and hosting and maintenance fees paid by our media partner
such as a regional newspaper, television or radio station. Wheels was introduced
in the fourth quarter of 1997. The Wheels solution is more thoroughly described
under "Wheels."
We Develop Strategic Relationships
We have developed technology, marketing and distribution relationships with
a number of leading companies. Important relationships include those with the
following companies:
o Banc One Credit,
o AT&T,
o Silicon Graphics,
o Sybase, and
o Netscape.
Our USWheels.com regional online auto shopping network is sponsored by us
and Banc One Credit in markets nationwide. In December 1998, we entered into a
five year contract with Banc One to continue a national rollout of USWheels.com
auto shopping web sites. Banc One Credit has offices in 48 states. Banc One
Credit Company is a subsidiary of Banc One Corporation headquartered in
Columbus, Ohio. It is one of the largest finance companies in the United States
and is a holding company of eight units. Banc One chose our "Wheels" solution
after two years of reviewing other automotive solutions. The choice of our
solution was based on our ability to sell cars for dealers, and Banc One's
belief that Wheels could increase its indirect automotive lending.
As a result of our technical expertise, we have been designated as a
Netscape Commercial Applications Products Provider Partner. That designation is
Netscape's top reseller designation and allows us to offer all of Netscape's
high-end commercial Internet software products to our clients. These and other
strategic relationships have fueled much of our recent growth. Management
expects those relationships to continue to generate additional clients and
revenue. The Wheels solution provides us revenue from one time fees and
recurring monthly fees. The one time fees come from license fees for each
region, one time setup fees from dealers, and training fees. Recurring fees come
from customer lead and lookup fees, monthly fees which come from dealers and
monthly fees charged to regional media partners.
We Emphasize Client Return on Investment
We furnish clients with solutions which are designed to provide a return on
their investment through the following:
o generation of leads,
o increased sales,
o reduced personnel expenses, and/or
o improved communications within their company.
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We also intend to emphasize hardware solutions such as on - and off-site
free standing kiosks which include a computer terminal linked to the Wheels Web
site of the client. Those kiosks are designed to expand the audience for the
client's electronic marketing presence.
We Promote Intranets
We believe that many companies can benefit from the ease of use and
familiarity of a Web-style interface for their internal networks. Intranets can
provide an open, non-proprietary enterprise interface to a closed, proprietary
existing database system. Intranets thereby avoid the need to replace the entire
existing system when an updated enterprise interface is desired. We have
implemented a major Intranet system for KN Energy and Merrick Engineering and
intend to promote our expertise in this area to other large companies with a
need for an easy to use internal network interface.
We Expand Traditional Distribution Channels
To date, distribution of high computer technology products and related
services have accounted for the substantial majority of our revenue. We intend
to expand our high computer technology product distribution business through
solution selling, which will combine our software development and hardware
sales. We also plan to implement and promote our own Internet Web site for
direct sales of high computer technology products.
Internet/Intranet Industry Overview
The Internet Generally
The Internet is a network of computer networks that are both commercially
and publicly owned. The networks all use a common set of nonproprietary
networking protocols. This commonality of protocols provides what appears to the
Internet user to be a seamless, integrated virtual network notwithstanding the
differences in the computer hardware and communications systems underlying the
Internet. Although the individual networks comprising the Internet are privately
owned, no one organization owns or controls the Internet. Any network may join
or remove itself from the Internet at any time and this open access has allowed
the Internet to grow exponentially as a resource in the United States and
world-wide. Each new network (or individual connecting through a network)
becomes not only a consumer of information available on the Internet but also a
potential information or content provider to other users of the Internet.
Internet networks are connected in a variety of ways, including the following:
o regular analog phone lines,
o high-speed digital lines, and
o fiber optic links.
The Internet permits users to do the following:
o communicate electronically,
o share or publish information,
o download software, and
o participate in commercial transactions.
Internet data packets are transferred through flexible routing protocols which
allow signals to reach their destinations even though portions of the network
may be down or overburdened. Nonetheless, because of the rapidly growing traffic
on the Internet, users sometimes report significant delays in data transfer and
some loss of data. There is a risk that as the Internet grows in popularity, its
infrastructure will become overwhelmed to the point where its functionality is
impaired, perhaps significantly. Most Internet users connect to the Internet
through one of a rapidly growing number of local and national Internet Service
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Providers because connecting directly to the Internet requires expensive
equipment and considerable technical expertise Those ISPs include the major
on-line services such as America Online and CompuServe. We are not an ISP.
The World Wide Web Generally
Much of the recent growth in Internet use has been attributable to a
network of servers and information available via open protocols known as the
World Wide Web. The Web can be accessed through software programs such as
Netscape Navigator and Microsoft Explorer. Those browsers allow non-technical
users to exploit the capabilities of the Internet. The Web enables users to
find, retrieve and link to multimedia content on the Internet with easy to use
graphical interfaces. Electronic documents are published on Web servers in a
common format called hypertext markup language, or HTML. Web software browsers
can retrieve these documents across the Internet by making requests through a
standard communications protocol called Uniform Resource Locators, or URLs.
The technical capabilities of the Web together with the increasing
availability of user-friendly navigational and utility tools and search engines
such as Yahoo, Excite, Webcrawler, Magellan and Alta Vista are responsible for
the rapid growth in the popularity of the Web as a distribution channel. In
March 1997, International Data Corporation estimated the number of commercial
sites on the World Wide Web is doubling every six months and came to more than
45,000 in 1996 and predicted that the number of business sites would reach
100,000 by 2000.
The term Web site is commonly used to describe the computer screen layouts
and the file server computer that are accessible by users of the Web. Typically,
a Web site has a collection of Web pages which may contain the following:
o text,
o graphics,
o pictures,
o sound,
o animation,
o video, or
o other multimedia content.
One important feature of the HTML format is that it allows a Web user to
travel to other sites simply by selecting with a mouse or other pointing device
a text or graphic marker on the current Web page. In this manner, users can
quickly and effortlessly connect to Web pages that are part of the same Web site
or to Web pages located on servers in another continent. Web sites vary
significantly in their complexity and interactivity. A simple Web site may have
only text in outline form. More complex sites may have full multimedia content.
Web sites may also vary in their level of interactivity with the user. Many Web
sites are for information only, while others allow the user to interact with,
enter and process information.
Commercial Uses of the Internet
Commercial uses of the Internet include the following:
o business-to-business and business-to-consumer transactions,
o product marketing,
o advertising,
o entertainment,
o electronic publishing,
o electronic services, and
o Internet support.
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We view the Internet and in particular the Web as presenting significant
opportunities for electronic marketing, sale and distribution of products. In
our view, the Internet's benefits include:
o Low cost in comparison to other marketing channels.
o Direct marketing of products and services.
o Audio/visual display and demonstration of products.
o Ability to capture orders electronically at significantly lower
personnel costs than traditional order-taking.
o Provision of client services such as order tracking and
trouble-shooting.
o Immediate fulfillment and satisfaction of certain orders, such as
software and information deliverable electronically.
o Customer convenience (24-hour, 7 days a week access).
o Potential for narrowly-targeted marketing.
A number of companies have developed systems to maintain the security of
transactions on the Internet and we have developed our own proprietary
merchandise engine which provides security for order-taking functions. There can
however be no assurance that breaches in transaction security will not have an
adverse effect on the growth and viability of on-line commerce.
Intranets
A number of companies have implemented internal networks, or Intranets,
because of the ease of use and widespread acceptance of Internet protocols, HTML
and other scripting languages and tools. The use of those protocols allows
employees using personal computers and Web browser software to access and
interact with a broad range of information sources within their company on the
familiar platform of Web browser software, independent of physical location and
underlying computer and database design.
Our Internet/Intranet Solutions Business Units
We provide our Internet/Intranet solutions through six business units:
o Business Development Services,
o World Wide Web Services,
o Marketing Services,
o Media Services,
o Client Services, and
o Channel Services.
Those units function as a team in providing solutions for clients. The
Internet/Intranet solutions provided to clients often also involve one or more
of the traditional product distribution services offered by us.
Business Development Services
Business Development Services are delivered through consulting engagements,
generally billed on an hourly basis, in which our professionals analyze client
business requirements and recommend comprehensive solutions for the client's
Internet or Intranet requirements. Proposed solutions offered by us include one
or more of the following components:
o Network solutions.
o Web site specifications.
o Private Intranets - Web distribution strategies.
o Traditional channel strategies.
o Integrated marketing.
o Image development.
o Product introduction.
o Project management.
o Graphic design.
o Product distribution.
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World Wide Web Services
World Wide Web Services provide the design and implementation of a Web site
based upon specifications developed by us and the client. Our World Wide Web
Services also include the design and implementation of private Intranets,
including hardware and software implementation.
We design many of our Web sites with database system integration, which
allows the Web site to act as an interface to selected portions of the client's
internal existing or enterprise systems. Such integration allows the Web site to
reflect continuously the most current information concerning the client.
We have developed a set of proprietary software tools for implementation on
client Web sites. These tools are licensed to clients for use on the particular
site for so long as the site is maintained by us.
Marketing Services and Media Services
Marketing Services and Media Services include digital image capture,
post-processing services for scanned images and graphic arts production. We
offer these services to assist clients in developing a uniform company image
that spans both traditional and electronic media. We provide actual out put
services including photographic quality prints, color transparencies and printed
output in all sizes. We typically bill Marketing Services and Media Services on
a project basis.
Client Services
Client Services include the following:
o technical support,
o network implementation,
o Web site maintenance and evolution,
o hosting of Web sites on our Internet server,
o database management,
o product support, and
o electronic messaging implementation.
We charge a variety of fees for these services, ranging from a specific one
time fee for change requests to a monthly fee for site maintenance.
Channel Services
Channel Services include all of the functions necessary to implement an
Internet marketing and distribution plan, including on-line sales of
merchandise, warehousing and order fulfillment. We generate revenues from these
services principally through sales commissions which vary depending upon the
level of our involvement in the distribution plan.
Wheels is One of Our Internet/Intranet Solutions Tools
The Persons that use Wheels
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Wheels provides the first comprehensive regional automotive Internet
solution to the television and newspaper publishing industries. Wheels addresses
the online sales needs of media organizations, automotive dealers and consumers
in the following ways:
Media's Use of Wheels
With the growing impact of online media on traditional media, television
stations and newspapers are looking to secure revenue from online activities and
gain a competitive advantage in their markets. Wheels offers media organizations
a new online revenue stream from their existing dealer advertiser relationships.
Wheels also proactively positions media organizations with these important
advertisers.
Automotive Dealers' Use of Wheels
Wheels offers dealers a total online automotive solution that allows them
to integrate their complete new and pre-owned inventory across dealer franchises
and multiple existing systems. Wheels will automatically update that inventory
on the Web, touch-screen kiosks and mobile sales laptops. This solution
complements a dealer's existing traditional media advertising strategy and helps
them sell more vehicles.
Consumers' Use of Wheels
Consumers can use Wheels to search both new and pre-owned car inventories
of dealers in their region, view digital photographs and maintain personal
interest lists. Wheels allows consumers to search multiple dealer inventories by
the following characteristics:
o make,
o model,
o year,
o price range, and
o mileage.
It also allows consumers to request that dealers assist them in their search for
a specific vehicle.
Market Opportunity for Wheels
We believe the market opportunity for Wheels is extremely promising. The
massive automotive market has quickly been impacted by Internet technology as
consumers have adopted the Internet as an important tool for making automotive
purchase decisions. The Internet allows consumers to collect the large amount of
information necessary to choose an auto from the comfort and convenience of home
or work. According to Toyota, Internet auto shoppers buy within two to three
days of visiting a dealership. Prior to the Internet, consumers bought only
after two to three weeks of shopping. Following are statistics about online
buying and its potential impact on the automotive industry:
Online Auto Buying
o 63 percent of all respondents to a recent study would use the
Internet to obtain information about the vehicles they are
considering for purchase. The Dohring Co.
o 2.5 million people shopped for cars or parts over the Internet in
the last half of 1996. CommerceNet/Nielson Media.
o Chrysler believes that 25 percent of its vehicle sales will
happen online within four years. The Economist, March 8, 1997.
Automotive Market
o The automotive market in the U.S. generates in excess of $600
billion each year.
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o Auto dealers spend approximately $300 in advertising to sell each
vehicle in their inventory. Reynolds & Reynolds.
o Wheels significantly lowers cost of sales for each participating
dealer.
Growth Potential of Wheels
We believe we are well-positioned to experience significant growth from
Wheels. ColoradoWheels (www.coloradowheels.com), our first Wheels
implementation, has far exceeded initial expectations for the following:
o participating dealers,
o customer leads,
o auto sales, and
o consumer acceptance.
In December 1997, ColoradoWheels included the inventory of 35 separate
dealer franchises in Denver and generated 84 percent more leads to those dealers
than anticipated. Our resulting revenue was also 97 percent higher than
budgeted.
In addition to ColoradoWheels, we have active USWheels.com sites in
Dallas/Ft. Worth (www.metroplexwheels.com), Phoenix (www.arizonawheels.com),
Portland (www.northwestwheels.com), and Salt Lake City (www.utahwheels.com). We
also are currently developing additional sites in Kansas City. Los Angeles,
Oklahoma, San Francisco and York, Pennsylvania. We believe that by the year
2000, the USWheels.com network will contain active sites in at least 30 markets
nationwide.
Competitive Positioning of Wheels
Wheels has several features that make it unique in the marketplace today.
First, it is a regional solution. Traditionally consumers have shopped for autos
within five to 10 miles of their home. Our experience has shown that the
Internet does not change a shopper's desire to purchase a vehicle from a near by
dealer. Consumers use the Internet as a tool to make a purchase decision and
generally want to see and drive the vehicle they are interested in. Second,
Wheels was the first online automotive sales solution to be licensed to media
partners. Wheels provides the sponsoring media partner with a method to generate
ongoing revenue from new media and secure a competitive position in a market.
Media partnerships ensure that Wheels is heavily promoted in each market. We do
not pay the advertising costs to draw consumers to the Wheels site in each
market--all promotion is provided by our media partner.
Market Entry for Wheels
We developed the software framework of Wheels based on our experience and
the proven solution we created for the Burt Automotive Group in Denver. Burt
sells more than 46,000 automobiles each year and its 1996 sales were $813
million. Burt sells 100 cars each month from the Internet. Our development of
Burt's online solution allowed us to use our development for Burt as a research
and development tool for Wheels. Wheels has now been launched with all of the
functionality required for future markets. Wheels can literally be launched in
additional markets within days, limiting the time-to-market issues that have
traditionally plagued software launches. The ability to easily roll out markets
also enables us to enter new markets quickly prior to other solutions.
The Products of LeaseSource Will Be Integrated Into the Wheels Solution
LeaseSource provides consumers, industry professional and media outlets
with automobile buying and leasing information, tools and advice over the
internet. Its primary strengths currently lie in the quality and accuracy of its
information and functionality of its tools. LeaseSource's primary products are
its two internet sites, LeaseSource.com and CarWizard.com. In addition to being
products in and of themselves, the content and functionality of these sites are
also re-licensed to third parties. The sites content is primary directed towards
end users.
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Leasesource.com
LeaseSource's primary customers include the following:
o Motor Trend,
o Excite,
o Netscape,
o WebCrawler, and
o Prodigy.
Through these relationships, LeaseSource's content either resides on or is
promoted and directly accessible through the following:
o Motor Trend Online,
o Excite's Auto Channel,
o Netscape's Auto Channel,
o Prodigy's Auto Channel,
o Web Crawler's Auto Channel, and
o our network of "Wheels" sites.
The Lease Source site provides consumers with the most reliable auto
leasing data, information and advice from anywhere on or off of the Internet.
The site includes five information modules:
o Lease Workshop -- Decision tools, residual values, money
factors and calculators.
o Matchmaker - Buying, leasing, insurance and finance
services.
o Leasing Newsroom -- News and commentary from the leasing
industry.
o Lease Classroom -- Leasing fundamentals
o Essential Links -- Links to useful financial and automotive
sites
Carwizard.com
CarWizard features the following:
o Professional-grade pricing information updated on a weekly basis.
o Fully functional optioning tool with automated option rules and
pricing logic.
o ALG residual values and average market money factors.
o NHTSA crash test safety information.
o Full vehicle technical specifications.
o Manufacturer warranty information.
o Manufacturer to consumer incentives.
o Motor Trend "Quick Look" driving review for virtually all new
model.s
o Compare two vehicle side by side.
o Search for any used vehicle from 1990 through the present, with
prices adjustable for mileage, condition and regional variations.
The Wheels Solution Will be Used to Develop CBS.carwizard.com
Using the Wheels solution as their model, CBS has licensed from us our
Automotive Information and Auto Locator, to create CBS.carwizard.com. The
primary function of CBS.carwizard.com will be to provide visitors to CBS.com
with access to the highest quality automobile buying and leasing information and
advice available on the Internet.
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CBS.carwizard.com will be designed to distribute leads to automobile
dealerships nationwide. It will be promoted by CBS using the following:
o national and local on-air promotion messages,
o network-developed on-air program content, and
o CBS.com web-based promotional messages.
The promotional messages will ultimately serve to drive consumers to
CBS.carwizard.com. Bank One has an excellent opportunity to participate in this
venture on several fronts:
o provide exclusive financing services on the site,
o leverage the Bank One dealer network to exclusively distribute
leads, and
o to participate in a high profile promotional campaign.
Wheels Is Part of the Automotive Solution We Provide to the Auto Industry
We provide the total online automotive solution that include the following:
o regional Wheels Web sites,
o individual dealer Web sites,
o touch-screen kiosks, and
o mobile sales laptops.
These tools use the same vehicle management technology to present a
dealer's inventory through multiple points of presence. Once the dealer's
inventory is available on Wheels, it can easily be channeled into unique dealer
websites, kiosks or laptops. The kiosks provide dealers or Wheels partners an
avenue to reach non-Internet users and consumers in high traffic locations such
as banks and malls. The mobile sales laptops create a portable inventory manager
for a dealer to take to fleet sales calls or trade shows. Both are powerful
tools to leverage Wheels participation and drive more new vehicle sales.
Potential Applications for Wheels in Other Vertical Markets
Wheels is an inventory management system and its framework could be adapted
to manage and sell a vast array of inventory over the Web. Though we have not
begun selling our technology into other vertical markets, we are examining its
potential applications.
Our Other Internet/Intranet Solution Tools
We have developed other Internet/intranet solution tools. A brief
description of those tools is as follows.
Navidex
The Navidex tool is a dynamic, database driven table of contents that
allows the user to intuitively navigate the Web site.
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Navimap
The Navimap tool is a graphical representation of site information with
links to other areas on the site.
Merchandise Engine
The Merchandise Engine creates an on-line catalog of products available for
sale through the Web site. The Merchandise Engine also contains a secure method
for transmitting credit card information. It is also capable of capturing
contact and marketing information from customers placing orders.
Calendar Tool
The Calendar Tool provides a visual interface for searching through a
database of date oriented activities, announcements, meetings or other events.
E-Mail Tool
The E-Mail Tool is an e-mail engine which allows e-mail to be sent from the
Web site to e-mail addresses designated by the client for purposes such as
customer feedback, customer information capture and customer service inquiries.
Administration Tools
Administration Tools provide clients with the means to maintain and update
their sites themselves.
Our Major Internet/Intranet Solutions Clients
Our major Internet/Intranet solutions clients include the following:
Account: Regional Wheels Accounts
- -------- ------------------------
Industry: Retail Automobile Market
Description: We develop our regional Wheels solutions to allow consumers
to search for new and pre-owned cars from the inventories of
multiple auto dealers in the region in which the consumer is
located.
Our vision was to develop a system that would generate sales
leads to enable automobile dealers to sell cars using the
Internet as a new distribution channel. The vision includes
working with media partners within local metropolitan
markets who create awareness of the Web site through
advertising. Bank One is our national partner to produce
Wheels in markets nationwide.
The first regional Wheels site, Colorado Wheels,
coloradowheels.com, was unveiled in late 1997, and is
promoted by The Denver Post.
Shoppers who access the regional Wheels sites can search for
autos using a variety of criteria, including make, model,
year and price.
Those sites contain an inventory of thousands of new and
pre-owned vehicles, representing virtually all automobile
manufacturer makes and models. In addition to determining
which dealers have desired vehicles in inventory, shoppers
may view digital photos of the autos. Inventory is updated
on a daily basis to reflect additions and subtractions due
to sales or the arrival of additional vehicles.
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The system provides a new incremental distribution channel
for auto dealers, which generates highly qualified sales
leads. The system generates recurring revenues for us and
the regional partner.
Architecture: The regional Wheels solution sites were written in Java,
using high performance Java servlets. The servlet
architecture enables complex query functions to be handled
on the server end of the system. Sybase is the underlying
database used for those sites.
Development
Features: o Locate a vehicle yourself or request an assisted search.
Search by the following criteria:
o Range according to your zip code
o Year, make, model, type & price
o Construct an interest list based on your search results
o Search for dealers within your range based on your zip
code
o Java development allows vendor and system independence
o Shared common code baseline and database with dealer Web
sites and our Interactive Auto Sales Kiosks allow
synchronized updates across multiple systems
o Highly responsive query capabilities
Account: Denver Metro Convention and Visitor's Bureau
Industry: Conference Marketing and Reservations
Description: The Denver Metro Convention and Visitor's Bureau's (DMCVB),
primary responsibility is to market and promote the city of
Denver, Colo., as a prime convention location to businesses,
organizations and individuals worldwide.
The bureau's vision was to develop and implement a Web site
that would help market Denver to potential conventioneers
and visitors as well as to provide meeting planners,
visitors and local members with information regarding
Denver. The goal was to provide users with a single
comprehensive resource for information.
Highlights of the site include information about Denver and
the Rocky Mountain region. Detailed information is available
on the following items located in Denver:
o shopping,
o restaurants and menus,
o accommodations,
o attractions, and
o other services of interest to convention groups and
visitors to the city and region.
A database driven event calendar provides local events
listings.
Architecture: The Web site is hosted on a Unix server running Netscape
Enterprise server. All of the software was developed using
HTML, CGI script, and Javascript. Functionality was cutting
edge when the site was developed in 1996.
Development
Features: The DMCVB Web site is comprehensive with a vast breadth of
information. Key features of the site include:
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o Database driven events calendar
o Database of convention bureau membership
o Searchable by type of product or service
o Searchable by name
o Database driven directories for the following local
information:
o Dining
o Accommodations
o Transportation
o Attractions
o Art & Culture
o Recreation
o Services & Relocation
o Kid Stuff
o Shopping
o Meeting planning assistance
o Maps for convention sites
o Online booking services
o Rotating banner ads
o Interactive map constrains database driven searches
by region
Account: Primestar by TCI
Industry: Broadcast/Entertainment
Description: Primestar by TCI is a division of TCI Satellite
Entertainment, Inc. Primestar markets satellite television
services to approximately 40 percent of the United States.
The majority of its customers primarily are families
residing in rural parts of the country as opposed to major
metropolitan areas. Primestar's current offerings include
160 video and audio viewing channels, equipment to receive
and display television satellite signals which may be
purchased or rented, high quality digital picture or sound,
in-home service, 24-hour customer service and support, and a
full line of accessory products.
Primestar by TCI's vision was to build a Web site to market
its products to new markets, particularly metropolitan
markets. The goal was to design a family oriented site that
presents Primestar systems and programming as the premium
product on the market.
We used state-of-the-art 3D rendered graphics to design a
colorful, three-dimensional Primestar Town. The Web site
created a typical small town setting, including such
features as the town hall, schoolhouse, newsstand, and
shopping mall.
Web site users are able to navigate around the town and into
buildings to receive up-to-date information about Primestar.
The site also allows users to participate in events like the
Virtual Town Meeting to address family issues and provide
information feedback to Primestar on such issues as
TVratings and current program airings.
After perusing the most in-depth information available for
Primestar products, users can initiate their purchase with
an online order form or request a demo.
Architecture: The Primestar Web site is hosted on a Unix system using
Netscape Enterprise server. Navigation and mouse-over events
were designed using Java applets. The zip code search and
validation functions are database driven.
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3D rendered artwork was used to maximize the adaptability
for changes and updates. For example, a holiday 'Layer'
could be created for every scene and scheduled during the
holiday season. Or, Primestar could change a light source to
be driven by the time the user logs on. For example, if a
user logs on in the A.M., the sun is in the east, and if the
user logs on at night, the town is moonlit. The screen shot
on the previous page shows an empty lot on the left side.
That lot is reserved for a sports complex where users can
get the latest information on sports programming. When
ready, we can plug the stadium module into the existing
artwork.
Development
Features: o 3D rendered graphics
o Java pop-up mouse events
o Java content driven button bar navigation
o Zip code validation database
o Zip code driven marketing data collection
o Online order form
o Demo request form
o Town meeting forum
Account: Live Entertainment
Industry: Broadcast/Entertainment
Description: Live Entertainment is a diversified company that specializes
in the marketing and distribution of media entertainment
both within the United States and internationally. Live's
primary business focus is the selling of motion pictures and
related movie merchandise used to promote and advertise
films.
Live Entertainment's goal was to develop a site which would
enable Live to provide information to the public as well as
enable users to purchase directly from the Live inventory of
videocassettes, interactive CDs and movie-related
merchandise.
We designed the Live Web site to appear as a 3D store.
Visitors to the site enter the store and are able to click
on a piece of clothing merchandise to determine colors,
sizes and pricing prior to ordering online. The site also
has a home theater, enabling visitors to view video clips of
Live movies. Users also have access to Club Live, a video
club where site visitors can register and join to get new
information about special Live Entertainment movie,
merchandise and promotional offerings.
Architecture: The Web site is hosted on a Silicon Graphics Challenge-S
running the Irix operating system. The Web server software
is Netscape Enterprise Server 3.0. The animation was
developed using Macromedia Director 6.0. A Verity search
engine, Quicktime video and an MSQL Database are other
technologies used to develop and support the site.
Development
Features: o Registration database with a variety of client
reporting tools
o Suite of page update tools
o Career opportunities
o Home page text
o Financial form
o International page(s)
o Web site monitoring and statistics
o Keyword search capability
o Shockwave animation throughout the site o Awarded
Shocked Site of the Day 3/16/97
o Custom secure E-Commerce engine, developed by us
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Account: Destination Hotels & Resorts
Industry: Travel
Description: Destination Hotels and Resorts (DH&R) is the management
corporation for world-class luxury hotel and resort
properties located throughout the country. The distinctive
properties are designed to restore your spirit and stir your
imagination. The properties also include spacious and
well-designed conference facilities for business meetings.
This service enables users to shop for gift shop merchandise
from DH&R resorts.
DH&R's vision was to develop a unique, comprehensive Web
site which would enable potential customers the ability to
obtain the latest information regarding DH&R's resort
properties and provide them with tools for planning their
vacations and business travel. In addition to providing a
trip planning tool, DH&R also wanted to give customers who
had stayed at their properties as well as potential
customers the ability to relive or dream about their
vacations through online purchases of resort merchandise.
Architecture: The DH&R E-Commerce system is based on AT&T's Secure Buy.
This was one of the first Secure Buy systems implemented in
the country. In addition to providing access to the DH&R
Destination Express site via the Web, we developed on-site
kiosks, which were deployed throughout DH&R's resort
properties.
Development
Features: Key information and features of the DH&R Web site include:
o Resort properties
o Offer special resort value packages (coming soon)
o On line access to the DH&R site via kiosks located
at resorts On line store for purchasing merchandise
o We are also the fulfillment agent
Account: Bryan Memorial Hospital
Industry: Healthcare
Description: Bryan Memorial Hospital is the largest healthcare provider
in the state of Nebraska. In addition to providing
healthcare services for its customer base, the hospital
interfaces with numerous private and governmental agencies.
Bryan Memorial processes information and performs thousands
of data transactions in paper formats everyday.
Bryan's vision is to implement a state-of-the-art, open
systems solution to provide an effective, highly secure way
to perform all of its business transactions electronically.
Its goal is to operate much more efficiently and
productively and save operating costs in the process.
We have installed a 700 seat pilot solution using Netscape
servers. This Netscape pilot replaced Bryan Memorial's
previous proprietary Novell GroupWare system. The pilot
program enables Bryan Memorial to implement new e-mail,
calendar, and Web capabilities for internal and external
communication. Netscape Directory Services with LDAP and the
Certificate Server provide ease of administration and the
security needed to perform electronic data transfers. Annual
overall savings for Bryan Memorial are expected to be in
excess of $200,000.
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Architecture: The 700 seat pilot program involved the installation of
seven Netscape servers on a DEC Alpha server running NT 4.0
SP3. The server was a two processor configuration with 512MB
of RAM and RAID 5 backup. Desktop clients were TCP/IP
enabled.
Development
Features: Open TCP/IP E-Mail (No gateways to Internet) Open
Calendaring (Unified LDAP Directory) Open Web Publishing
(Secure, controlled access) LDAP Directory Services (Single,
unified resource directory) Proxy Services (User
authentication & secure data transactions) Desktop
Management Services (consistent desktop user interface with
remote administration capabilities)
Account: Merrick & Company
Industry: Engineering
Description: Merrick & Company is a multi-discipline engineering and
architectural firm headquartered in Denver, Colo. Merrick
serves a variety of clients including Advanced Technologies,
Government, Light Industry and Heavy Industry. Merrick
employs a professional base of nearly 500 and has offices
throughout the United States.
Merrick's vision for its corporate intranet was the
comprehensive integration of all corporate systems and
organizations. Key corporate information is integrated from
the following:
o HR,
o Marketing,
o Project Management,
o Administration,
o Accounting, and
o Project Tracking and Information Systems organizations.
The goals and expected benefits of the Merrick Intranet are
as follows:
o Reduce operating costs
o Improve the accuracy and distribution of critical
information
o Improve service to employees Automate key processes
o Migrate from paper to electronic management of vital
corporate information
o Control increasing data synchronization, management and
security problems
Architecture: We developed a completely custom intranet solution supported
by a data warehouse integrating data from seven existing
systems. The intranet was developed using Microsoft Web
technology exclusively due to the client's requirements. All
departments and information driven functions are integrated
or impacted by the intranet.
Development
Features: The solution was developed on the Microsoft IIS Web server
on an NT system. We developed custom applications for
complex, state driven, multiple user functions in Java. We
developed the data warehouse in MS-SQL and integrated a
total of seven Oracle, MS Access and proprietary database
systems. The data warehouse will ultimately replace all of
the minor existing systems and provides the quality control
gate for synchronizing data between the primary databases.
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That custom application is database driven and includes the
following:
o Online organization charts
o Function and role based 'Yellow Pages' for the online
help desk
o Bid and proposal generation and tracking
o Project creation and tracking system
o Key corporate financial information
o Marketing and forecast reports
o Quality assurance procedure, including training and
tracking
Other sites developed by us include the following:
o Sunstrand Fluid Handling (http://www.sfh.com),
o Richmond American Homes (http://richmondamerican.com) currently
under development,
o Denver Metro Convention & Visitors Bureau
(http://www.denver.org),
o Christopher Dodge (http://www.cdodge.com),
o Plastiprint (http://plastiprint.com),
o On Sale Online (http://onsaleoneline.com),
o Lakewood Hospitality Association (http://denverwesthotels.com),
o Kloppenberg (http://kloppenber.com ),
o Belmar Pharmay (http://www.belmarpharmacy.com),
o Kimmon Electric Co., Ltd. (http://www.kimmon.com),
o KUSA-9 News (http://www.9news.com),
o Colorado Recreation (http://www.coloradorecreation.com), and
o American Animal Hospital Association (http://
www.healthypet.com).
DISTRIBUTION AND RELATED SERVICES
Generally
We distribute high computer technology systems and components manufactured
by third parties. We also provide related services such as system integration
and installation. Product distribution clients range from small businesses to
Fortune 100 companies. Significant product distribution clients include the
following:
o Lockheed Martin,
o Johnson Controls,
o Hughes Aircraft, and
o US West.
We serve both as a national manufacturer's representative for the products
of certain international manufacturers and as a reseller of selected computer
products in the Rocky Mountain region. We focus our distribution efforts towards
selling specialized, higher margin products. We intend to expand our product
distribution activities into electronic channels, including sales over the
Internet on our Web site.
Distribution activities usually involve our receipt of orders for equipment
from prospective purchasers and our delivery and/or installation of the
equipment.
We purchase the equipment directly from the manufacturer or vendor and
resell it to the purchaser at a price which includes the cost and a profit
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margin. With the exception of graphics supplies and certain imported components,
we do not generally maintain an inventory of products we distribute. We
specialize in the following components:
o lasers,
o graphics,
o supplies, and
o systems integration.
Components
We represent and distribute component products from several Japanese
manufacturers. However, we principally represent and distribute Hayashi Denko
and Sunmoulon. Products include temperature sensors, push-button switches and
numerous other specialized components. These products are sold primarily through
phone sales as well as through a national network of manufacturer's
representatives. Most of these components are sold to original equipment
manufactures OEMs which incorporate these components into their product designs.
Key industries for our component products include:
o industrial process control,
o heating,
o ventilation and air conditioning,
o energy management,
o food processing,
o consumer appliances, and
o medical monitoring.
Graphics
We sell graphics products focused in the areas of data capture and color
output. The area of data capture includes the following:
o scanning,
o digital cameras, and
o X-terminals.
The area of color output includes color printers and LCD projection devices. The
sale of many of these products is through territorial authorizations granted to
us by the manufacturers. We have significant manufacturer alliances with the
following companies:
o Xerox,
o Tektronix,
o Sony,
o InFocus, and
o Hewlett Packard.
Graphics products are sold primarily to end-user customers by a direct sales
team operating both in the field as well as through an inside sales group which
takes orders from existing customers.
Supplies
We sell consumable supplies for color graphic output devices. We stock an
inventory of popular consumables in order to provide prompt response for
customer orders. In addition, the supplies division sells third-party extended
warranty agreements for all hardware products.
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Systems Integration
We offer network design and implementation services to corporate customers
in the Rocky Mountain region. Those services often include the acquisition and
location of network equipment and servers. Those services are performed by a
direct sales team. The primary manufacturers of network equipment and servers
distributed by us are the following:
o Compaq,
o IBM, and
o Hewlett Packard.
EMPLOYEES
We currently employ 73 full-time employees. These employees include the
following:
o nine in Client Services,
o five in creative services,
o thirteen in World Wide Web Services,
o two in Marketing Services,
o fourteen in sales, and
o eight in management and administration.
COMPETITION
We compete with many other businesses as set forth in "RISK FACTORS - Risks
Relating to Our Competition and the Dynamic Market in Which We Operate."
PROPERTIES
Our headquarters are located at 14 Inverness Drive, Building F, Suite 116,
Englewood, Colorado. That facility is a 8,900 square foot facility, which
includes approximately 1,500 square feet in warehouse space. The facility is
occupied under a lease with an unaffiliated party expiring in June 2001. That
lease provides for a current monthly lease rate of $8,150. We also lease space
at 1300 Plaza North, Suite 101, Lafayette, Colorado.
That is a 1,500 square foot facility. The facility is occupied under a lease
with an unaffiliated party expiring in June 1999. That lease provides for a
monthly lease rate of $2,180. We may lease additional warehouse and office space
if needed to support the growth in traditional and on-line product distribution.
LEGAL MATTERS
We currently are not involved in any material legal proceedings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
From August through October, 1996, we raised net proceeds of approximately
$1,233,000 from the sale of 10% Unsecured Subordinated Convertible Promissory
Notes (the "Bridge Promissory Notes") in a private placement (the "Bridge
Private Placement"). These notes were converted by their terms into an aggregate
of 349,126 units upon consummation of our public offering described below. The
units were identical to the units offered in our public offering.
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On February 14, 1997, we consummated an initial public offering of
1,000,000 units consisting of one share of common stock and one common stock
purchase warrant. Each warrant entitles the holder to purchase one share of
common stock at a price of $7.20 per share until February 10, 2002. The warrants
are redeemable at our option, at $.05 per Warrant, at any time on or after
February 10, 1998 or such earlier date as may be determined by Joseph Charles &
Associates. Joseph Charles & Associates was the underwriter for that offering.
Of the 1,000,000 shares of common stock and 1,000,000 warrants included in that
offering, 755,000 shares of Common Stock and 1,000,000 Warrants were sold by us.
We received net proceeds of approximately $3,436,000 after subtracting the
underwriting discount and other expenses of the offering. The remaining 245,000
shares of common stock were sold by the investors in the Bridge Private
Placement.
From November 1997 to April 1998, we raised net proceeds of approximately
$2,229,750 from the issuance of 594,500 shares of common stock and warrants from
a private placement. Each warrant entitles the holder to purchase one share of
common stock at a price of $7.20 per share until February 10, 2002. The warrants
are redeemable at our option, at $.05 per warrant, at any time on or after
February 10, 1998 when the our common stock on 20 consecutive trading days has
closed above $8.40 per share and there is an effective registration statement on
file with the SEC.
On November 24, 1998, we completed a private placement offering of our
common stock. We raised $1,305,000 from the issuance of 700,000 shares of common
stock in that offering.
Results of Operations
The following tables set forth for the periods indicated the percentage of
net sales represented by certain line items included in our statements of
operations.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31 Sept 30
1997 1996 1998 1997
Sales
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Solutions $2,657,000 44% $1,519,000 28% $3,121,000 55% $2,065,000 42%
Wheels 232,000 4% -0- -0-% 806,000 14% 25,000 1%
Product 3,113,000 52% 3,951,000 72% 1,751,000 31% 2,787,000 57%
Net Sales 6,008,000 100% 5,470,000 100% $5,678,000 100% $4,877,000 100%
COGS 4,219,000 70% 4,425,000 81% 3,733,000 66% 3,234,000 66%
Gross Profit 1,789,000 30% 1,045,000 19% 1,945,000 34% 1,643,000 34%
Operating Expenses 4,367,000 73% 2,259,000 40% 3,496,000 62% 2,959,000 61%
Other Expense (1,529,000) (25)% (201,000) (3)% (105,000) (2)$ (254,000) (5)%
Net Loss $(4,107,000) (68)% $(1,415,000) (24)% $(1,656,000) (29)% $(1,570,000) (32)%
</TABLE>
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Nine Months Ended September 30, 1998 and 1997
Net sales for the nine months ended September 30, 1998 were $5,678,000.
That represents an increase of $801,000 or 16% over net sales of $4,877,000 for
the first nine months of 1997. The increase is primarily attributed to increased
sales of NetSolutions (Internet/Intranet solutions). NetSolutions accounted for
$3,121,000 or 55% of total sales for the first nine months in 1998. That
represented an increase of $1,056,000 or 51% over net sales of $2,065,000 during
the first nine months of 1997. Sales of our Wheels solution, increased from
$25,000 in 1997 to $806,000 for the nine months ended September 30, 1998. Those
sales accounted for 14% of the total sales in that period. The increase in net
sales in both categories was primarily attributable to
o increased marketing activities,
o greater market acceptance, and
o greater market penetration.
Net sales in the Product Distribution Division were $1,751,000 for the
first nine months of 1998. That represented a decrease of 37% from net sales of
$2,787,000 during the first nine months of 1997. The decrease in sales is
attributed to the discontinuation of products that did not have strong gross
profit and or recurring sales.
Overall ross margin for the US was 34% during nine months ended September
30, 1998. That gross margin was the same during the same period in 1997. Our
gross margin continues to remain strong which is attributed to management's
elimination of several distribution products that carried low gross margin and
the strong gross margin on NetSolutions and Wheels.
Operating expenses for the first nine months of 1998 were $3,496,000 or 62%
of sales. That compares with $2,959,000 or 61% for the same period in 1997. The
increase in operating expenses was primarily the result of an increase in staff
and marketing activities associated with expanding the Wheels product and our
market area. Operating expenses are expected to remain stable as we continue to
invest in the development of high end Internet/Intranet solutions.
Net interest expense for first nine months of 1998 was $101,000. That
compares with $255,000 for the first nine months of 1997. The decrease was a
result of the Bridge Promissory Notes that were converted in February of 1997.
We expect interest expense to increase due to the use of debt to finance growth
during the remainder of 1998.
Years Ended December 31, 1997 and 1996
Net sales for fiscal 1997 were $6,008,000. That represents an increase of
10% over net sales of $5,470,000 in fiscal 1996. The increase is primarily
attributed to sales of Net Solutions. Those sales were $2,657,000 which
represents an increase of 75% over net sales of $1,519,000 in fiscal 1996.
Wheels which was introduced in the fourth quarter of 1997 had sales of $232,000
during the quarter. The increase in net sales in the two categories was
primarily attributable to increased marketing activities and greater market
penetration.
Net sales in the Product Disstribution Division were $3,113,000. That
represents a decrease of 21% from net sales of $3,951,000 in fiscal 1996. The
decrease in sales is attributed to the discontinuation of distribution products
that did not have strong gross profit and or recurring sales. In 1997 Kimmon
Electric, Inc., our supplier of laser products, began marketing its lasers
directly in the United States through Kimmon Electric USA, Inc. This resulted in
a decrease in sales of $863,000. The decrease affected our net sales but due to
the lower margins of distribution did not materially adversely effect the gross
margin for 1997.
Overall gross margin for us was 30% during fiscal 1997. That represents an
increase of 11% over a gross margin of 19% in fiscal 1996. The increase in our
gross margin was attributed to management's elimination of several distribution
products that carried low gross margin and the strong gross margin on
Internet/Intranet solutions. The gross margin on Internet/Intranet solutions was
57%.
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Operating expenses for fiscal 1997 were $4,367,000 compared with $2,259,000
for fiscal 1996. The increase in operating expenses was primarily the result of
an increase in staff and marketing activity and legal and consulting fees.
Operating expenses are expected to remain stable as we continue to invest in the
development of high end Internet/Intranet solutions.
Net interest expense for fiscal 1997 was $236,000 compared with $204,000
for fiscal 1996. The increase was a result of the Bridge Promissory Notes.
In 1997 we experienced $1,305,000 in expense for the impairment of
goodwill. The goodwill was the result of the merger with Interactive Planet,
Inc. in 1996 and the acquisition of TouchSource in 1997.
Liquidity and Capital Resources
Through September 30, 1998, we funded our operations primarily through the
following:
o equity investments from our IPO,
o a subsequent private placement that was completed in April of
1998,
o revenues generated from operations, lines of credit made
available by banks and other institutions, and
o factoring arrangements made available to us by banks.
During 1997, we funded our operations primarily through the following:
o equity investments,
o our IPO and subsequent private placements,
o revenues generated from operatons,
o loans from our principal shareholders and employees,
o lines of credit and factoring arrangements made available to us
by banks.
On September 30, 1998 we had cash and cash equivalents of $395,000 and a
net working capital of $922,000. That compares to cash and cash equivalents of
$369,000 and a net working capital of $678,000 as of December 31, 1997.
Cash used in our operating activities totaled $1,940,000 for the first nine
months of 1998 and $3,224,000 for the same period in 1997. Cash used in our
investing activities during the first nine months of 1998 consisted of
expenditures for property and equipment. Capital expenditures increased to
$432,000 in first nine months of 1998 from $403,000 during first nine months of
1997. Capital expenditures increased to $475,000 in fiscal 1997 from $472,000
during fiscal 1996.
Cash from our financing activities during the first nine months of 1998
consisted of advances from the following:
o factoring arrangements of $1,059,000 and repayments of
$1,047,000,
o proceeds from the issuance of common stock of $1,551,000, and
o proceeds from notes payable of $840,000 and repayments of
$342,000.
That compares cash from our financing activities in 1997 that included the
following:
o advances from factoring arrangements of $240,00 and of repayments
of $747,000,
o proceeds from notes payable of $300,000 and repayments of notes
of $1,202,000, and
o proceeds from the issuance of common stock of $5,349,000.
We have not recorded a deferred tax asset as we cannot conclude to date
that it is more likely than not that the deferred tax asset will be realized.
Impairment of Long-Lived Assets
Effective July 1, 1996, we acquired 100% of the stock of Interactive
Planet, Inc. for 679,000 shares of our common stock and a $75,000 note payable
in a purchase transaction. The acquisition was valued at approximately $750,000
and resulted in goodwill of approximately $850,000 being recorded. The expected
future cash flows associated with the technology previously developed by IPI
declined due to rapidly changing technologies and increased competition for
products developed with the IPI technology. In addition, during the fourth
quarter of 1997, after our introduction of new Internet solutions, management
decided to focus on our automotive solution. As such, we reevaluated the
goodwill related to this acquisition and recorded an impairment expense of
$598,000. That resulted in a remaining net balance of $20,000. This amount was
amortized during 1998.
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Effective July 31, 1997, we acquired 100% of the stock of TouchSource
for 207,000 shares of our common stock in a purchase transaction. The
acquisition was valued at approximately $760,000 and resulted in goodwill of
approximately $859,000 being recorded. Subsequent to the acquisition, Java
technologies developed far more rapidly than expected, causing us to replace a
large portion of the software developed by TS. That reduced the expected future
cash flows associated the TS technology. Furthermore, we intend to integrate the
TS technology with our other products and market it primarily to the automotive
industry. That automotive industry was not a market focus of TS. As such, we
also reevaluated the related goodwill, and recorded an impairment expense of
$707,000 resulting in a remaining net balance of $80,000. This amount was
amortized during 1998.
Inflation
We do not believe that inflation will have a material impact on our future
operations.
Year 2000
Computer programs or other embedded technology that have been written using
two digits (rather than four) to define the applicable year and that have
time-sensitive logic may recognize a date using "00" as the Year 1900 rather
than the Year 2000. That mistake could result in widespread miscalculations or
system failures. Both information technology ("IT") systems and non-IT systems
using embedded technology may be affected by the Year 2000.
We initiated an enterprise-wide program to prepare our IT systems and
applications for the Year 2000. We have completed our internal assessment phase
of our Year 2000 program. We did not incur any material costs associated with
that assessment. We believe that all of our IT systems are Year 2000 compliant.
However there is no assurance such belief is correct. We have not completed the
process of verification of whether vendors, suppliers and significant customers
with which we have material relationships are Year 2000 compliant. If we and
such third parties are unable to address Year 2000 issues in a timely manner, it
could result in material financial risk to us. That financial risk includes the
loss of revenue and substantial unanticipated costs. Accordingly, we plan to
devote all resources necessary to resolve significant Year 2000 issues in a
timely manner. In addition, we plan to develop a Year 2000 contingency plan in
the event that our IT systems and applications are not Year 2000 compliant.
We expect that we will incur internal staff costs as well as consulting and
other expenses related to the completion of our Year 2000 program. However, we
currently are not able to determine the total costs for our Year 2000 program or
whether the Year 2000 will have a material effect on our financial condition,
results of operations or cash flows.
New Pronouncements
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
was issued in June 1998. This statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for our financial statements for the year ended
December 31, 2000 and the adoption of this standard is not expected to have a
material effect on our financial statements.
SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, was issued in February 1998. This statement revises the
disclosure requirement for pensions and other postretirement benefits. This
statement is effective for our financial statements for the year ended December
31, 1998 and the adoption of this standard is not expected to have a material
effect on our financial statements.
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SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, was issued in June 1997. This statement establishes standards for
the way public business enterprises report information about operating segments.
It also establishes standards for related disclosure about products and
services, geographical areas and major customers. This statement is effective
for our financial statements for the year ended December 31, 1998 and the
adoption of this standard is not expected to have a material effect on our
financial statements.
35
<PAGE>
MANAGEMENT
Directors and Officers
The following table sets forth the name, age and position of each of our
officers and directors as of the date of this prospectus.
<TABLE>
<CAPTION>
Period from
Name Age Position Which Served
---- --- -------- ------------
<S> <C> <C> <C>
Ralph Armijo 45 President, Chief Executive 7/93
Officer and Director
Patrick R. Mawhinney 34 Chief Financial Officer, 7/96
Treasurer and Director
Andrew Davis 45 Director 4/97
Lloyd G. Chavez, Jr. 48 Director 4/97
Gerald A. Marroney 46 Director 4/97
Harold Anderson II 34 Vice President of Automotive 7/96
Kenneth P. Bero 44 Vice President of Sales 12/97
James Hosch 45 Director 6/98
Michael Kranitz 38 Director and Vice President of 12/98
Strategic Development
</TABLE>
The officers are elected by the Board of Directors at the first meeting
after each annual meeting of our shareholders and hold office until their
successors are duly elected and qualified in accordance with our Bylaws.
RALPH ARMIJO has served as our President, Chief Executive Officer and as
one of our directors since our inception in 1993. From 1981 to 1993, Mr. Armijo
was employed by Tektronix, Inc., a large communications company which also
produced testing and measuring equipment. Mr. Armijo's responsibilities at
Tektronix progressed from sales manager, to branch manager, to district manager
and, ultimately, to Western Regional Manager, a position he held for five years.
In that position, he was responsible for a $100 million budget in sales,
graphics, technical support and administration, and he was responsible for
developing new distribution channels, including reseller agreements. From 1976
to 1981, Mr. Armijo was employed by IBM Corporation, where he sold computerized
accounting and financial applications to small and medium-sized businesses. Mr.
Armijo received his B.A. from Colorado College and his M.B.A. from the
University of California, Los Angeles.
ANDREW DAVIS served as our Vice President of Sales and Marketing from May
1996 until December 1997. He became one of our directors in April 1997. From
January 1994 to May 1996, Mr. Davis was manager of wholesale distribution at
InFocus Systems, a manufacturer of high resolution projection systems. From
September 1982 to January 1994, Mr. Davis held various sales and marketing
positions in Tektronix, Inc. including Director of Marketing for the Interactive
Technologies Division. Mr. Davis attended the University of Denver from 1971 to
1974 where he studied Business Management and Marketing.
36
<PAGE>
PATRICK R. MAWHINNEY served as the President of Interactive Planet, Inc.
from its inception until its merger with us in July 1996. Since that time has
served as our Chief Financial Officer, Treasurer and as one of our directors.
From May 1995 until May 1996, Mr. Mawhinney also served as a
financial/accounting consultant for MIS\Sunguard, a provider of accounting and
investment software. Mr. Mawhinney was employed as an Assistant Vice President
of The Bank of Cherry Creek from November 1993 to May 1995; as a Vice President
of Vectra Banking Corporation from June 1989 to November 1993; and as Operations
Coordinator for Zions Bancorporation from August 1986 to June 1989. He received
his B.S. from Colorado State University.
LLOYD G. CHAVEZ, JR. became one of our directors in April 1997. He has been
a director of the Burt group of automobile dealerships in Denver, Colorado since
1988 and Director of Automotive Markets of the Burt group since 1994. From 1983
to 1994, Mr. Chavez was Vice President of Fort Dodge Laboratories, a subsidiary
of American Home Products, where he was responsible for business acquisitions,
new products and technologies, joint ventures, intellectual property
acquisitions, strategic planning, market research and sale projections. From
1982 to 1983, Mr. Chavez was Vice President of General Genetics Corporation,
where he was responsible for management of biological and pharmaceutical
research and development. Mr. Chavez received his B.A. in Molecular, Cellular,
Development Biology from the University of Colorado, his M.A. in Old Testament
Studies from Denver Seminary, his Ph.D. in Microbiology and Immunology from the
University of Virginia, and was a post-doctoral Fellow in Chemistry at Cornell
University.
GERALD A. MARRONEY became one of our directors in April 1997. He has served
as a State of Colorado District Court Judge in Pueblo County, Colorado since
1990. Prior to such time he was a practicing attorney in Pueblo, Colorado. Mr.
Marroney received his B.S. in Political Science from Southern Colorado State
College in 1973 and his J.D. from Oklahoma City University in 1976.
HAROLD ANDERSON II served as Vice President of Business Development for
Interactive Planet, Inc. from July 1995 until its merger with us in July 1996.
He served as our Vice President of Business Development from July 1996 until
June 1997. Since June 1997 Mr. Anderson has served as our Vice President of
Automotive. From September 1986 to July 1995, Mr. Anderson was employed by U.S.
West Advance Technologies and Communications, where he worked in Distributed
Technology Platform Security, served as the Technical Project Manager, and later
acted as a Product Marketing Specialist for the U.S. West Internet Services
Provider/On-line Service Project. Mr. Anderson received his B.S. degree in
Business Administration from the University of Arizona in 1986 and a Masters
degree in Computer Information Systems from the University of Denver in 1991.
KENNETH P. BERO has served as our Vice President of Sales since December
1997. From July 1996 to December 1997, Mr. Bero was Director of Sales, SGI
Business Group at Access Graphics, a wholesale distributor of UNIX based
hardware and software products. From September 1989 to June 1996, Mr. Bero held
various sales and sales management positions at Tektronix, Inc. including
Business Development Manager, Major Account Group Manager and National Reseller
Group Manager for the Display Products Division. Mr. Bero received his B.A. from
Bates College and his M.B.A. from Northeastern University.
JAMES HOSCH has been one of our directors since June 1998. Since November
1998, Mr. Hosch has been an independent representative for Bathgate McColley
Capital Group LLC, an NASD registered broker dealer. From September 1995 until
November1998 Mr. Hosch was a Senior Vice President of Joseph Charles &
Associates, Inc., an NASD registered broker dealer. From January 1993 until
September 1995, he was Executive Vice President of Cohig & Associates, Inc., an
NASD registered broker dealer. From 1989 until January 1993, he was President of
Kober Corporation, a publicly traded real estate firm.
MICHAEL KRANITZ has been one of our directors and our Vice President of
Strategic Development since December 1998. From October 1997 until December
1998, Mr. Kranitz was the CEO and President of LeaseSource, Inc. From January
1997 until October 1997, Mr. Kranitz worked with a computer company primarily on
the development of the intellectual property used by LeaseSource, Inc. and in
October 1997, Mr. Kranitz acquired from that company those intellectual property
rights. From 1994 until December 1996, Mr. Kranitz was a partner with the law
firm of Benesch, Friedlander, Coplan & Aronoff, LLP located in Cleveland, Ohio.
Mr. Kranitz is also the author of Look Before You Lease: Secrets to Smart
Vehicle Leasing. Mr. Kranitz received a BS in Economics with high honors from
the University of Florida in 1982 and a JD from Vanderbilt School of Law in
1985.
37
<PAGE>
None of our directors or executive officers are related to any other
director or executive officer. None of our officers or directors hold any
directorships in any other public company.
Director Compensation
None of our directors received any compensation during the most recent
fiscal year for serving in their position as a director. Members of the Board of
Directors may receive stock options issued under the stock option plan voted
upon at the Annual Meeting of Shareholders held June 24, 1998.
EXECUTIVE COMPENSATION
The following table sets out the annual compensation paid to Ralph Armijo
for the last three fiscal years and to Andrew Davis during the last fiscal year.
No other executive officer has received annual compensation in excess of
$100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
ANNUAL LONG TERM COMPENSATION ALL OTHER
NAME AND COMPENSATION RESTRICTED STOCK COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS OPTIONS ($)
------------------ ---- --------- -------- ------ ------- ---
<S> <C> <C> <C> <C> <C> <C>
Ralph Armijo, Chief 1997 $156,141 $12,869 0 0 $9,600(1)
Executive Officer 1996 $124,384 $ -0- 0 0 $9,000(1)
1995 $111,444 $24,000 0 0 $9,000(1)
Andrew Davis, 1997 $100,625 $ 5,250 0 0 $4,800(1)
Director (2)
</TABLE>
- ----------------------
(1) Consists of an automobile allowance.
(2) We were not a reporting company pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 at any time during 1996 or 1995.
Information concerning the compensation for 1996 or 1995 of the person
indicated has not previously been required to be reported and therefore is
not provided in this prospectus.
No officer or director received any form of compensation other than cash
during 1997 and no long term incentive, bonus or option plans were or are in
place. Our Compensation Committee may at its discretion, award discretionary
bonuses in the future.
The current annual salaries of our executive officers are as follows: Ralph
Armijo, President, $150,000; Kenneth Bero, Vice President of Sales, $85,000;
Patrick Mawhinney, Chief Financial Officer, $87,500; and Harold Anderson II,
Vice President of Automotive, $87,500. Total annual compensation for all
executive officers is $410,000.
Employment Agreements and Termination of Employment and Change-in-Control
Arrangements
We entered an Employment Agreement with Mr. Armijo that is effective May 1,
1998. The term of that agreement is for one year and it may renew automatically
for two additional one-year periods provided that neither Mr. Armijo nor we
provide the other with notice of its intent to not renew the agreement at least
38
<PAGE>
thirty days before the anniversary date of the agreement. Mr. Armijo's current
annual salary under the agreement is $150,000 and his salary is reviewed
annually. The agreement also provides that Mr. Armijo will be paid an annual
bonus. If Mr. Armijo remains employed with us through the first anniversary date
of the agreement, we must pay Mr. Armijo a special bonus (the "Special Bonus")
in the event that there is a "Change in Control" of us. "Change in Control" is
defined in the agreement. The Special Bonus will be equal to Mr. Armijo's then
effective annual salary, plus the greater of
o the annual bonus paid or payable for the most recently completed
fiscal year during the term of the agreement, and
o the average of the bonuses paid or payable to Mr. Armijo in respect of
1997, 1996 and 1995.
The higher of the two numbers is referred to as the "Highest Annual Bonus." The
agreement provides that if we terminate Mr. Armijo other than for "Cause" or
"Disability" or Mr. Armijo terminates his employment either for "Good Reason" or
without any reason during a thirty day period immediately following May 1, 1999,
we must pay Mr. Armijo a lump sum cash payment equal to
o his annual salary through the date of termination,
o the Highest Annual Bonus through the date of termination,
o the Special Bonus, if any, and
o an amount equal to the product of two times his then effective
annual salary, the Highest Annual Bonus and the Special Bonus,
if any.
We may terminate Mr. Armijo's employment for "Cause" and shall be obligated only
to pay Mr. Armijo his annual salary through the date of termination.
401(k) Plan
We have a 401(k) profit sharing plan. Eligible employees may make voluntary
contributions to the plan. The amount of employee contributions is limited as
specified in the plan. We may, at our discretion, make additional contributions
to the plan. We made no contributions in 1997.
Stock Option Plan
Our officers may receive stock options issued under our stock option plan.
SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of our common stock by each person who beneficially owns more than
five percent of the common stock; by each of our executive officers and
directors; and by all executive officers and directors as a group.
COMMON STOCK PERCENT OF
NAME AND ADDRESS OF BENEFICIALLY BENEFICIAL
BENEFICIAL OWNER(2) OWNED OWNERSHIP
------------------- ----- ---------
Ralph Armijo............................... 831,659 (3) 16.3%
Patrick R. Mawhinney....................... 149,357 (3) 3.0%
Harold Anderson II......................... 61,073 (3) 1.2%
Andrew Davis............................... 21,250 (3) (1)
Gerald A. Marroney......................... 10,000 (3) (1)
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<PAGE>
Lloyd G. Chavez, Jr........................ 14,250 (3)(4) (1)
Kenneth P. Bero............................ -0- 0%
James Hosch................................ 91,096 (5) 1.8%
Michael Kranitz............................ 333,334 (3)(6) 6.6%
All directors and executive officers as
a Group (Seven Persons).................. 1,512,019 28.0%
- ------------------------
Rule 13d-3 under the Securities Exchange Act of 1934, provides the determination
of beneficial owners of securities. That rule includes as beneficial owners of
securities, any person who directly or indirectly has, or shares, voting power
and/or investment power with respect to such securities. Rule 13d-3 also
includes as a beneficial owner of a security any person who has the right to
acquire beneficial ownership of such security within sixty days through means,
including, the exercise of any option, warrant or conversion of a security. Any
securities not outstanding which are subject to such options, warrants or
conversion privileges are deemed to be outstanding for the purpose of computing
the percentage of outstanding securities of the class owned by such person.
Those securities are not deemed to be outstanding for the purpose of computing
the percentage of the class by any other person.
(1) Less than one percent.
(2) Except as indicated herein, the address for each person is 14 Inverness
Drive, Building. F, Suite 116, Englewood, Colorado 80112.
(3) The number of shares indicated includes shares of common stock underlying
options that are currently exercisable, which are held by the following
persons in the amounts indicated: Mr. Armijo (146,000); Mr. Mawhinney
(57,000); Mr. Anderson (22,000); Mr. Davis (10,000); Mr. Marroney (10,000);
Mr. Chavez (10,000); and Mr. Kranitz (83,334).
(4) LGC Management owns 4,250 shares of common stock. Mr. Chavez is President
of LGC Management and may be deemed the beneficial owner of such shares.
(5) The number of shares indicated represents 91,096 shares of common stock
underlying options and warrants held by Mr. Hosch that are currently
exercisable.
(6) The number of shares indicated includes 61,250 shares of common stock owned
by Mr. Kranitz's wife, Abby L. Kranitz. Mr. Kranitz is deemed to
beneficially own the shares held by Ms. Kranitz.
SELLING SECURITY HOLDERS
The following table shows for the selling security holders, the following
information:
o the number shares of common stock beneficially owned by them as of
February 3, 1999,
o the number of shares of common stock covered by this prospectus, and
o the number of shares of common stock to be retained after this
offering, if any.
40
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of Number of Number of Shares of
Common Stock Shares of Common Stock
Beneficially Owned Common Stock Beneficially Owned
Name Before the Offering (1) to be Sold after the Offering (2)
---- ----------------------- ---------- ----------------------
<S> <C> <C> <C>
Stephen M. Bathgate 2,250 2,250 -0-
David Mehigan Family Trust 25,000 25,000 -0-
Thomas Dietz 30,000 30,000 -0-
John Lewis Gardner 25,000 25,000 -0-
Gillian, Gaston & Waldon, EG 25,000 25,000 -0-
Dan Hall 5,000 5,000 -0-
James M. & Jennifer L. Hall 16,500 16,500 -0-
Robert D. Hall 16,500 16,500 -0-
Thomas M. Hall 2,500 2,500 -0-
Martin Hodas 15,000 15,000 -0-
James E. Hosch(3) 91,096 40,500 50,596
Eric J. Johnson 10,000 10,000 -0-
Arthur Kassoff 10,000 10,000 -0-
Charles Kirby 25,000 25,000 -0-
Eugene C. McColley 2,250 2,250 -0-
Barbara M. Mehigan IRA 25,000 25,000 -0-
Louis Moringstar 40,000 40,000 -0-
Yiska Moser Trust 91,150 91,150 -0-
Donald R. Plante 5,000 5,000 -0-
Martin Rothstien 5,000 5,000 -0-
Frank H. Sell 10,000 10,000 -0-
Andrew Tobias 10,000 10,000 -0-
Edward Van Vliet 158,000 158,000 -0-
Edward Van Vliet IRA 25,350 25,350 -0-
Rick Wilber 150,000 150,000 -0-
41
</TABLE>
<PAGE>
- ---------------
(1) The number of shares of common stock indicated includes those shares
underlying warrants held by a selling security holder.
(2) The selling security holder will not own in excess of one (1%) percent of
our outstanding common stock subsequent to the offering when combined with
other offerings in which our common stock beneficially owned by the selling
security holder has been registered.
(3) James Hosch is one of our a directors.
PLAN OF DISTRIBUTION
We are registering the shares of our common stock covered by this
prospectus.
As used in this prospectus, the selling security holder includes donees,
pledgees, transferees or other successors in interest who will hold the selling
security holders' shares after the date of this prospectus. We are paying the
costs, expenses and fees of registering the common stock, but the selling
security holders will pay any underwriting or brokerage commissions and similar
selling expenses relating to the sale of the shares of common stock.
The selling security holders may sell our common stock at market prices
prevailing at the time of the sale, at prices related to the prevailing market
prices, at negotiated prices or at fixed prices, which may be changed. The
selling security holders may sell some or all of their common stock through:
o ordinary brokers' transactions which may include long or short sales;
o transactions involving cross or block trades or otherwise on the
Nasdaq SmallCap Market;
o purchases by brokers, dealers or underwriters as principal and resale
by those purchasers for their own accounts under this prospectus;
o market makers or into an existing market for the common stock;
o other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents;
o transactions in options, swaps or other derivatives; or
o any combination of the selling options described in this prospectus,
or by any other legally available means.
The selling security holders may enter into hedging transactions with
broker-dealers who may engage in short sales of our common stock in the course
of hedging the positions they assume. The selling security holders also may
enter into option or other transactions with broker-dealers that require the
delivery by those broker-dealers of the common stock. Thereafter, the shares may
be resold under this prospectus.
In its selling activities, the selling security holders will be subject to
applicable provisions of the Securities Exchange Act of 1934 and the Securities
Exchange Act's rules and regulations, including Regulation M, which may limit
the selling security holders' timing of purchases and sales of our common stock.
The selling security holders and any broker-dealers involved in the sale or
resale of our common stock may qualify as "underwriters" within the meaning of
Section 2(11) of the Securities Act of 1933. In addition, the broker-dealers'
42
<PAGE>
commissions, discounts or concessions may qualify as underwriters' compensation
under the Securities Act. If any selling security holders or any broker-dealer
qualifies as an "underwriter," then they will be subject to the prospectus
delivery requirements of Section 153 of the Securities Act, which may include
delivery through the facilities of the NASD.
In conjunction with sales to or through brokers, dealers or agents, the
selling security holders may agree to indemnify them against liabilities arising
under the Securities Act. We know of no existing arrangements between the
selling security holders, any other shareholder, broker, dealer, underwriter or
agent relating to the sale or distribution of our common stock.
In addition, to selling its common stock under this prospectus, the selling
security holders may:
o Transfer its common stock in other ways not involving market makers or
established trading markets, including by gift, distribution, or other
transfer; or
o Sell its common stock under Rule 144 of the Securities Act, if the
transaction meets the requirements of Rule 144.
We will amend or supplement this prospectus if required under the
Securities Act.
The selling security holders have been advised by us that during the time
each is engaged in distribution of the securities covered by this prospectus,
each must comply with Rule 10b-5 and Regulation M under the Exchange Act. They
must do all of the following under those rules:
o not engage in any stabilization activity in connection with our
securities;
o furnish each broker through which securities covered by this
prospectus may be offered the number of copies of this prospectus
which are required by each broker; and
o not bid for or purchase any securities of ours or attempt to induce
any person to purchase any of our securities other than as permitted
under the Securities Exchange Act.
Any selling security holders who may be "affiliated purchasers" of ours as
defined in Regulation M, have been further advised that they must coordinate
their sales under this prospectus with each other and us for purposes of
Regulation M.
CERTAIN TRANSACTIONS
In October 1993, Arthur Armijo, brother of our President, Ralph Armijo,
made a $119,199 loan to us. The loan was evidenced by a promissory note dated
October 1, 1993 bearing interest at the rate of 5% per year. The note was paid
in full in February 1997 out of the proceeds of our initial public offering.
In November 1993, Arthur Armijo and Ralph Armijo each personally guaranteed
a line of credit in the amount of $200,000 extended by Vectra Bank, Denver,
Colorado, to us. Such line of credit and Messrs. Armijo's personal guarantees
were terminated in February 1996. No compensation was paid by us for such
personal guarantees. In February 1996, Arthur Armijo and Ralph Armijo each
personally guaranteed the factoring arrangement of ours with Colorado State Bank
of Denver for a maximum of $750,000. No compensation was paid by us for such
personal guarantees. The factoring arrangement was terminated in February 1997.
In July 1996, Littleton Land Company made a $182,500 loan to us. The loan
was evidenced by a non-interest bearing promissory note with a maturity date of
August 31, 1996. Such note was prepaid in full on August 22, 1996. John McKowen,
an employee of ours, is an affiliate of Littleton Land Company. In August 1996,
we granted options to Mr. McKowen to purchase 212,500 shares of Common Stock at
an exercise price of $4.12 per share, exercisable from February 1999 to August
2001.
43
<PAGE>
On March 31, 1996, Patrick Mawhinney, a shareholder and director of ours
and our Chief Financial Officer, made a $45,110 loan to IPI. The loan is
evidenced by a promissory note dated March 31, 1996. That note provides for the
accrual of interest at a fixed rate of 10% per year and a maturity date of
December 31, 1997. The loan was repaid in April 1997.
In June 1996, Schneider Mawhinney & Associates, P.C. advanced $32,500 to
Interactive Planet, Inc. This advance was repayable on demand without interest.
Patrick Mawhinney's spouse is a principal of Schneider Mawhinney & Associates.
In July 1996, Mr. Mawhinney made a loan to us in the amount of $30,000,
evidenced by a promissory note dated July 26, 1996 and bearing interest at the
rate of 9.75 percent per year. These loans were repaid in February 1997 out of
the proceeds of our public offering.
In July 1996, Cindy Simmons, a principal shareholder of ours, was issued a
promissory note of ours in the amount of $75,000 as part of the purchase price
for Interactive Planet, Inc. The promissory note provides for monthly payments
of $6,250 due on the first day of each month beginning August 1, 1996 and
maturing on July 1, 1997. The note was repaid in July 1997.
In August 1996, Ralph Armijo made a loan to us in the amount of $70,000,
evidenced by a promissory note dated August 6, 1996 and bearing interest at the
rate of 9.75 percent per year. Such note was prepaid in full in October 1996.
In January 1997, Ralph Armijo and Patrick Mawhinney guaranteed a short term
promissory note of ours in the amount of $70,000. This note was repaid from the
resale of equipment which was purchased with the borrowed funds. No compensation
was paid by us for such guarantees.
In October 1997, Pat Mawhinney made a $30,000 loan to us, evidenced by a
promissory note dated October 5, 1997, which did not bear interest. The loan was
repaid in November 1997.
In March 1998, Pat Mawhinney made a $40,000 loan to us, evidenced by a
promissory note dated March 13, 1998, which did not bear interest. The loan was
repaid on March 31, 1998.
In October 1997, Ralph Armijo guaranteed a line of credit in the amount of
$750,000 extended to us by USA Funding, Dallas, Texas. No compensation was paid
by us for such personal guarantee.
James Hosch, a former Executive Vice President of Joseph Charles &
Associates, Inc., has been one of our directors since June, 1998. Joseph Charles
& Associates received $143,750 in commissions and $35,938 in expenses as the
placement agent for a private placement of an aggregate of $1,437,500 principal
amount of our10% Unsecured Subordinated Convertible Promissory Notes. The notes
were sold from August 1996 until October 18, 1996. The notes were automatically
converted into an aggregate of 349,126 units in our initial public offering of
securities.
Joseph Charles & Associates was the managing underwriter for our initial
public offering of securities. We offered 1,000,000 units consisting of one
share of our Common Stock and one common stock purchase warrant. Of the
1,000,000 shares of common stock and 1,000,000 warrants included in the
offering, 755,000 shares of common stock and 1,000,000 warrants were sold by us
and 245,000 shares of Common Stock were sold by certain of our shareholders. The
units were sold on a firm commitment basis and Joseph Charles & Associates
received a 10% discount on the public offering price of $6.00 per unit. Joseph
Charles & Associates received pursuant to the underwriting agreement for that
offering a non-accountable expense allowance equal to 3% of the total proceeds
of the offering, or $180,000. We also agreed to retain Joseph Charles &
Associates as a financial consultant for a period of two years, commencing on
February 10, 1997 for a fee of $3,000 per month. We agreed under the
underwriting agreement to sell Joseph Charles & Associates for $100, options to
purchase up to 100,000 shares of common stock. Those options are exercisable for
four years beginning on February 10, 1998 and at an exercise price of $7.38 per
share.
44
<PAGE>
We also has entered into an engagement letter with Joseph Charles &
Associates to assist us to complete an offering of up to 600,000 units, with
each unit consisting of one share of common stock and one warrant. The offering
price of the units was $4.50 per unit, or a total offering price of $2,700,000.
In consideration for its services, we have agreed to pay Joseph Charles &
Associates a sales commission of 10% of the funds raised in the offering. Joseph
Charles & Associates also is entitled to purchase a number of units equal to 10%
of the units sold in the offering for a period of five years from the date of
closing of the offering at a purchase price of $4.50 per unit. Joseph Charles &
Associates also is entitled to receive a 3% non-accountable expense allowance
based on all funds raised in the offering. That offering was closed during April
1998 with an aggregate of 594,500 units being sold. On February 16, 1998 we
entered into an agreement with Joseph Charles & Associates to engage it on an
exclusive basis to complete the private placement that was started in November
1997 and we issued a total of 250,000 options to Joseph Charles & Associates and
its designees. Those options are exercisable at $3.50 per share and expire on
February 15, 2003.
Although the foregoing transactions were determined without arm's length
negotiations and involved conflicts of interest between the interests of the
related parties and us, we believe that all of these transactions were entered
into on terms no less favorable to us than could have been obtained from
independent third parties. All future transactions by us with officers,
directors and 5% stockholders and their affiliates will be entered into only if
a majority of the outside directors determine that the terms of such
transactions are no less favorable to us than could be obtained from
unaffiliated parties. There are currently no new proposed related party
transactions contemplated by us.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 20,000,000 shares of common stock, no par value.
There are 4,960,024 shares currently outstanding. Holders of common stock are
entitled to dividends when declared by the Board of Directors. Dividends on the
common stock will be subject to any priority as to dividends for any preferred
stock that may be outstanding. There currently is no preferred stock authorized
or outstanding. Holders of common stock are entitled to cast one vote for each
share held at all stockholder meetings for all purposes including the election
of directors. Cumulative voting for the election of directors is not permitted.
The holders of a majority of the common stock are entitled to vote constitute a
quorum at meetings of stockholders. The vote of the holders of a majority of
common stock present at such a meeting will decide any question brought before
such meeting, except for the following matters that require the vote of the
holders of a majority of the common stock:
o Amendments to our Articles of Incorporation, and
o mergers or dissolutions
Upon our liquidation or dissolution, the holder of each outstanding share
of common stock will be entitled to share ratably in our net assets after the
payment of all debts and other liabilities. No holder of common stock has any
preemptive or preferential rights to purchase or subscribe for any part of any
unissued or any additional authorized stock or any of our securities convertible
into shares of our stock. No holder of common stock has redemption or conversion
rights. The outstanding shares of common stock are, and the common stock offered
hereby will be when issued and paid, fully paid and nonassessable.
Transfer Agent and Registrar
The transfer agent for our common stock is American Securities Transfer &
Trust, Inc.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
We currently have 4,960,024 shares of common stock outstanding. 1,948,128
shares of common stock are freely tradable without restriction or further
registration under the Securities Act. However, any shares purchased by an
affiliate of ours will be subject to the resale limitations of Rule 144 under
the Securities Act. An affiliate of ours is a person who has a control
relationship with us. The remaining 3,012,076 shares of common stock are
"restricted securities" as that term is defined under Rule 144 of the Securities
Act. Restricted Securities may only be sold by the following:
o a registration statement under the Securities Act,
o in compliance with the exemption provisions of Rule 144, or
o pursuant to another exemption under the Securities Act.
Rule 144 provides, in essence, that a person and including any person who
may be deemed an "affiliate" of ours, as that term is defined under the
Securities Act, who has satisfied a one-year holding period for such restricted
securities may sell within any three-month period an amount of restricted
securities which does not exceed the greater of:
o one percent of that class of our outstanding securities, or
o the average weekly trading volume of that class of securities during
the four calendar weeks prior to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about us.
In addition, pursuant to Rule 144, persons who are not affiliated with us and
who have held their restricted securities for at least two years are not subject
to the quantity limitations or the manner of sale restrictions of the rule. A
sale of shares by our current shareholders, whether pursuant to Rule 144 or
otherwise, may have a depressing effect upon the market price of our common
stock. To the extent that these shares enter the market, the value of the common
stock in the over-the-counter market may be reduced. See "Risk Factors."
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Our common stock commenced trading on the Nasdaq SmallCap Market under the
symbol "NVDC" on February 11, 1997. We also have a class of common stock
purchase warrants listed on the Nasdaq SmallCap Market under the symbol "NVDCW."
The warrants also commenced trading on February 11, 1997. The quotations set
forth below reflect inter-dealer prices, without retail mark-up, mark-down or
commission and many not represent actual transactions.
Common Stock Warrants
--------------- -----------------------
Quarter Ended High Low High Low
------------- ---- --- ---- ---
March 31, 1997 $5.625 $5.125 $0.750 $0.625
June 30, 1997 $6.000 $3.250 $0.875 $0.375
September 30, 1997 $7.000 $5.250 $1.031 $0.625
December 31, 1997 $7.000 $4.063 $1.031 $0.025
March 31, 1998 $7.125 $3.000 $0.891 $0.050
June 30, 1998 $6.813 $5.750 $1.250 $0.625
September 30, 1998 $7.219 $2.438 $1.250 $0.375
December 31, 1998 $6.000 $2.063 $0.938 $0.188
The closing price as of February 5, 1999 was $10.50 for the common stock
and $3.50 for the warrants.
As of February 8, 1999, we have 78 common shareholders of record and
believe that approximately 1,400 persons beneficial owns street named positions.
46
<PAGE>
We have not declared any cash dividends on our common shares for the last
two fiscal years. We currently intend to retain funds from earnings, if any,
from future growth and therefore do not intend to pay any cash dividends in the
foreseeable future on our common stock. We are not currently a party to any
agreement restricting the payment of dividends.
LEGAL MATTERS
Ballard Spahr Andrews & Ingersoll, LLP, will pass upon the validity of
common stock offered by this prospectus.
EXPERTS
Our financial statements for the year ended December 31, 1997 in this
prospectus have been audited by Hein + Associates LLP, independent certified
public accountants, to the extent and for the periods set forth in their report,
and are set forth in this prospectus in reliance upon such report given upon the
authority of them as experts in auditing and accounting.
SECURITIES AND EXCHANGE COMMISSION POSITION ON CERTAIN
INDEMNIFICATION
The Colorado Business Corporation Act provides for indemnification by a
corporation of costs incurred by directors, employees, and agents in connection
with an action suit, or proceeding brought by reason of their position as a
director, employee, or agent. The person being indemnified must have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation.
Our Articles of Incorporation obligate us to indemnify our directors and
officers to the fullest extent permitted under Colorado law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling us pursuant to
the foregoing provisions, we have been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
47
<PAGE>
NAVIDEC, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report................................................F-2
Balance Sheets - September 30, 1998 (Unaudited) and December 31, 1997.......F-3
Statements of Operations and Comprehensive Loss - For the Nine Months Ended
September 30, 1998 and 1997 (Unaudited), and for the Years Ended
December 31, 1997 and 1996..........................................F-4
Statements of Changes in Stockholders' Equity (Deficit) - For the
Nine Months Ended September 30, 1998 and 1997 (Unaudited),
and for the Years Ended December 31, 1997 and 1996..................F-5
Statements of Cash Flows - For the Nine Months Ended September 30, 1998
and 1997 (Unaudited), and for the Years Ended December 31,
1997 and 1996.......................................................F-6
Notes to Financial Statements...............................................F-7
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
NAVIDEC, Inc.
Englewood, Colorado
We have audited the accompanying balance sheet of NAVIDEC, Inc. as of December
31, 1997 and the related statements of operations and comprehensive loss,
changes in stockholders' equity (deficit), and cash flows for the years ended
December 31, 1997 and 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1997, and the results of its operations and its cash flows for the years ended
December 31, 1997 and 1996, in conformity with generally accepted accounting
principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
March 5, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
NAVIDEC, INC.
BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
(Unaudited)
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 395,000 $ 369,000
Accounts receivable:
Trade, net of $50,000 allowance for doubtful accounts 1,523,000 726,000
Retainage -- 21,000
Costs and estimated earnings in excess of billings 325,000 106,000
Note receivable, related party 23,000 60,000
Inventories 502,000 549,000
Prepaid expenses and other current assets 247,000 86,000
----------- -----------
Total current assets 3,015,000 1,917,000
PROPERTY AND EQUIPMENT, net 808,000 713,000
OTHER ASSETS:
Intangibles, net 84,000 169,000
Restricted certificate of deposit -- 300,000
----------- -----------
TOTAL ASSETS $ 3,907,000 $ 3,099,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 36,000 $ 37,000
Notes payable 578,000 63,000
Accounts payable 1,032,000 778,000
Accrued liabilities 245,000 171,000
Payable to factor 202,000 190,000
----------- -----------
Total current liabilities 2,093,000 1,239,000
----------- -----------
CAPITAL LEASE OBLIGATIONS, net of current portion 69,000 95,000
NOTES PAYABLE, net of current portion -- 215,000
COMMITMENTS AND CONTINGENCIES (Notes 2 and 8)
STOCKHOLDERS' EQUITY:
Common stock, no par value; 20,000,000 shares authorized;
3,606,000 and 3,201,000 shares issued and outstanding,
respectively 8,619,000 6,768,000
Accumulated deficit (6,874,000) (5,218,000)
----------- -----------
Total stockholders' equity 1,745,000 1,550,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,907,000 $ 3,099,000
=========== ===========
See accompanying notes to these financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAVIDEC, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 5,678,000 $ 4,877,000 $ 6,008,000 $ 5,470,000
Cost of sales 3,733,000 3,234,000 4,219,000 4,425,000
----------- ----------- ----------- -----------
GROSS MARGIN 1,945,000 1,643,000 1,789,000 1,045,000
Operating expense 3,496,000 2,959,000 4,367,000 2,259,000
----------- ----------- ----------- -----------
OPERATING LOSS (1,551,000) (1,316,000) (2,578,000) (1,214,000)
OTHER INCOME (EXPENSE):
Interest expense, net (101,000) (255,000) (236,000) (204,000)
Other (4,000) 1,000 12,000 3,000
Impairment of goodwill -- -- (1,305,000) --
----------- ----------- ----------- -----------
Other, Net (105,000) (254,000) (1,529,000) (201,000)
----------- ----------- ----------- -----------
NET LOSS AND COMPREHENSIVE LOSS $(1,656,000) $(1,570,000) $(4,107,000) $(1,415,000)
=========== =========== =========== ===========
NET LOSS PER SHARE
(Basic and Diluted) $ (.50) $ (.60) $ (1.47) $ (.73)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
AND EQUIVALENTS OUTSTANDING 3,335,000 2,610,000 2,799,526 1,948,000
=========== =========== =========== ===========
See accompanying notes to these financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAVIDEC, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
COMMON STOCK
------------------------- ACCUMULATED
SHARES Amount Deficit Total
------ ------ ------- -----
<S> <C> <C> <C> <C>
BALANCES, January 1, 1996 217,000 $ 63,000 $ (118,000) $ (55,000)
Exercise of stock options 805,000 2,000 -- 2,000
Compensation recognized related to
transfers of common stock to
employees -- 83,000 -- 83,000
Shares issued in acquisition of IPI 679,000 675,000 -- 675,000
Reclassification of accumulated
deficit in connection with
termination of tax status as a
Subchapter S-Corporation -- (422,000) 422,000 --
Net loss -- -- (1,415,000) (1,415,000)
----------- ----------- ----------- -----------
BALANCES, December 31, 1996 1,701,000 401,000 (1,111,000) (710,000)
Conversion of unsecured promissory
notes to common stock 104,000 1,438,000 -- 1,438,000
Issuance of common stock and
warrants in a public offering, net
of offering costs 1,000,000 3,436,000 -- 3,436,000
Issuance of common stock for
acquisition of TouchSource 207,000 776,000 -- 776,000
Issuance of common stock and
warrants in a private placement,
net of offering costs 189,000 717,000 -- 717,000
Net loss -- -- (4,107,000) (4,107,000)
----------- ----------- ----------- -----------
BALANCES, December 31, 1997 3,201,000 6,768,000 (5,218,000) 1,550,000
Issuance of warrants for loan
(unaudited) -- 300,000 -- 300,000
Issuance of common stock and
warrants in a private placement,
net of offering cost (unaudited) 405,000 1,551,000 -- 1,551,000
Net loss (unaudited) -- -- (1,656,000) (1,656,000)
----------- ----------- ----------- -----------
BALANCES, September 30, 1998
(Unaudited) 3,606,000 $ 8,619,000 $(6,874,000) $ 1,745,000
=========== =========== =========== ===========
See accompanying notes to these financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAVIDEC, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------- --------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,656,000) $(1,570,000) $(4,107,000) $(1,415,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 422,000 233,000 865,000 173,000
Impairment of goodwill -- -- 1,305,000 --
Amortization of loan discount 75,000 -- -- --
Stock based compensation -- -- -- 83,000
Provision for bad debt -- -- 41,000 59,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (776,000) (800,000) (627,000) (56,000)
Costs and estimated earnings in excess
of billings (219,000) (153,000) (106,000) --
Inventories 47,000 (105,000) (315,000) 8,000
Other assets (161,000) (66,000) (52,000) (33,000)
Increase (decrease) in:
Accounts payable and accrued liabilities 254,000 (536,000) (92,000) 352,000
Other liabilities 74,000 (227,000) (271,000) 198,000
----------- ----------- ----------- -----------
Net cash used in operating activities (1,940,000) (3,224,000) (3,359,000) (631,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Release of restricted certificate of deposit 300,000 -- -- --
Decrease (increase) in notes receivable 37,000 -- -- --
Capital expenditures for property and
equipment (432,000) (403,000) (475,000) (472,000)
Cash acquired in mergers -- 7,000 7,000 5,000
Acquisition costs incurred -- -- (32,000) (38,000)
----------- ----------- ----------- -----------
Net cash used in investing activities (95,000) (396,000) (500,000) (505,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from factoring of accounts receivable 1,059,000 240,000 634,000 491,000
Payments to factor (1,047,000) (747,000) (444,000) --
Proceeds from issuance of common stock 1,551,000 5,349,000 4,153,000 2,000
Proceeds from issuance of notes payable 800,000 300,000 333,000 5,887,000
Proceeds from notes payable - related parties 40,000 -- -- --
Payment on notes payable - related parties (40,000) -- -- --
Payment on notes payable and capital leases (302,000) (1,202,000) (369,000) (4,608,000)
Payment for deferred financing and offering costs -- (38,000) (10,000) (405,000)
----------- ----------- ----------- -----------
Net cash provided by financing activities 2,061,000 3,902,000 4,297,000 1,367,000
INCREASE IN CASH AND CASH EQUIVALENTS 26,000 282,000 438,000 231,000
CASH AND CASH EQUIVALENTS, beginning of
period 369,000 231,000 231,000 --
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 395,000 $ 513,000 $ 669,000 $ 231,000
=========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION:
Cash payments for interest $ 18,000 $ 231,000 $ 79,000 $ 155,000
=========== =========== =========== ===========
Net assets, net of cash assumed,
acquired in merger of NAVIDEC with IPI and TouchSource $ -- $ -- $ 769,000 $ 670,000
=========== =========== =========== ===========
Debentures converted to common stock $ -- $ 1,437,000 $ -- $ --
=========== =========== =========== ===========
Valued assigned to warrants attached to debt financing
$ 300,000 $ -- $ -- $ --
=========== =========== =========== ===========
See accompanying notes to these financial statements.
F-6
</TABLE>
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------------
Organization and Nature of Operations - The Company was incorporated in the
State of Colorado in 1993 and distributes various high technology and other
products through traditional and electronic channels. Effective on July 1,
1996, the Company merged with Interactive Planet, Inc. (IPI) and as a
result, the Company also provides comprehensive Internet and Intranet
solutions, including design and development of World Wide Web sites,
marketing, database integration, electronic commerce and order
fulfillments. Effective July 31, 1997, the Company acquired TouchSource,
and as a result, the Company designs and markets touch screen computer
kiosks. Subsequent to September 1998, the Company acquired CarWizard.Com,
Inc. and LeaseSource Online, Inc. (see Note 12).
Cash Equivalents - For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
Inventories - Inventories are stated at the lower of cost or market,
determined by the first-in, first-out method and consist primarily of
products held for resale.
Property and Equipment - Property and equipment is stated at cost.
Depreciation is computed over the estimated useful lives of the assets
using the 200% declining balance method generally over a three to seven
year period. Leasehold improvements are amortized on the straight-line
method over the lesser of the lease term or the useful life. Expenditures
for ordinary maintenance and repairs are charged to expense as incurred.
Upon retirement or disposal of assets, the cost and accumulated
depreciation are eliminated from the account and any gain or loss is
reflected in the statements of operations.
Intangibles - Intangibles represents organization costs and the excess of
the purchase price paid over the net liabilities acquired in the IPI and
the TouchSource acquisition, net of amortization costs and impairment loss.
The remaining balance in intangibles will be amortized during 1998.
Impairment of Long-Lived Assets - In fiscal 1997, the Company adopted
Financial Accounting Standards Board Statement No. 121, Accounting for
Impairment of Long-Lived Assets (FAS 121). In the event that facts and
circumstances indicate that the cost of assets or other assets may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value
is required. Adoption of FAS 121 had no effect on the December 31, 1997
financial statements other than to impair the goodwill associated with the
IPI and TouchSource acquisitions to the value of the expected future cash
flows associated with the acquired assets.
Fair Value of Financial Instruments - The estimated fair values for
financial instruments are determined at discrete points in time based on
relevant market information. These estimates involve uncertainties and
cannot be determined with precision. The carrying amounts of cash, trade
accounts receivable, accounts payable, and accrued liabilities approximate
fair value.
F-7
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
Revenue Recognition - The Company recognizes revenue upon delivery of its
Internet/Intranet and Kiosk Solutions and Product Distribution goods.
Internet/Intranet and Kiosk Solutions generally begin with consulting
arrangements, which are billed on an hourly basis and/or on a percentage of
completion method on fixed bid projects. Most of the Company's customers
elect to update and expand their Web site frequently, and clients are
billed monthly on a time and materials basis for these services. Additional
sources of ongoing revenue include revenue from advertising sold by the
Company on clients' Web sites, revenue from sales of merchandise and
services over clients' Web sites and revenue from maintenance of client Web
sites. The Company receives and records a percentage of the gross revenue
from advertising and merchandise sales immediately upon completion of these
sales.
Revenues from long-term contracts are recognized on the
percentage-of-completion method for indi vidual contracts, commencing when
progress reaches a point where experience is sufficient to estimate final
results with reasonable accuracy. Revenues are recognized in the ratio that
costs incurred bear to total estimated costs. Changes in job performance,
estimated profitability and final contract settlements may result in
revisions to costs and income, and are recognized in the period in which
the revisions are determined.
Contract costs include all labor costs and those indirect costs related to
contract performance. General and administrative costs are charged to
expense as incurred. Profits on short-term contracts are recorded upon
substantial completion of each contract. Revenues from time and material
contracts are recognized currently as the work is performed. At the time a
loss on a contract becomes known, the entire amount of the estimated
ultimate loss on both short and long-term contracts is accrued.
Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed. The
liability, "billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues
recognized.
Loss Per Share - Loss per share is presented in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, Earnings
Per Share (FAS 128). FAS 128 replaced the presentation of primary and fully
diluted earnings (loss) per share (EPS) with a presentation of basic EPS
and diluted EPS. Basic EPS is calculated by dividing the income or loss
available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur is securities or other contracts to issue common
stock were exercised or converted into common stock. Basic and diluted EPS
were the same for the nine months ended September 30, 1998 and 1997 and for
the years ended December 31, 1997 and 1996 because the Company had losses
from operations and therefore, the effect of all potential common stocks
was anti-dilutive.
Income Taxes - During 1996, the Company converted to a "C Corporation" and
adopted Statement of Financial Accounting Standards No. 109, which requires
recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
F-8
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
liabilities are determined, based on the difference between the financial
statements and tax bases of asset and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse.
Use of Estimates - The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes.
Actual results could differ from those estimates. The Company makes
significant estimates, including the allowance for doubtful accounts and
the life of the excess of purchase price over net assets acquired
(goodwill) in both the IPI merger and the TouchSource acquisition.
Comprehensive Income - In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income. (FAS 130). FAS 130, which is effective for fiscal
years beginning after December 15, 1997, defines comprehensive income as
all changes in shareholder equity exclusive of transactions with owners,
such as capital investments. Comprehensive income includes net income or
loss, changes in certain assets and liabilities that are reported directly
in equity such as changes in minimum pension liabilities. The Company's
comprehensive income (loss) was equal to its net income (loss) for the nine
months ended September 30, 1998 and 1997 and the years ended December 31,
1998 and 1997.
New Pronouncements - SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, was issued in June 1998. This statement establishes
accounting and reporting standards for derivative instruments and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. This statement is effective for
the Company's financial statements for the year ended December 31, 2000 and
the adoption of this standard is not expected to have a material effect on
the Company's financial statements.
SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, was issued in February 1998. This statement
revises the disclosure requirement for pensions and other postretirement
benefits. This statement is effective for the Company's financial
statements for the year ended December 31, 1998 and the adoption of this
standard is not expected to have a material effect on the Company's
financial statements.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, was issued in June 1997. This statement establishes standards
for the way public business enterprises report information about operating
segments. It also establishes standards for related disclosure about
products and services, geographical areas and major customers. This
statement is effective for the Company's financial statements for the year
ended December 31, 1998 and the adoption of this standard is not expected
to have a material effect on the Company's financial statements, however,
additional financial disclosures will be provided for financial segments.
Unaudited Information - The balance sheet as of September 30, 1998 and the
statements of operations for the nine-month periods ended September 30,
F-9
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
1998 and 1997 were taken from the Company's books and records without
audit. However, in the opinion of management, such information includes all
adjustments (consisting only of normal accruals), which are necessary to
properly reflect the Company's financial position as of September 30, 1998
and the results of operations for the nine months ended September 30, 1998
and 1997. The results of operations for the interim periods presented are
not necessarily indicative of those expected for the year.
2. LIQUIDITY:
----------
The Company has incurred net losses since inception and has experienced
negative cash flows from operations. As described in Note 9, management has
taken the following actions to improve the Company's financial position
through offerings of its common stock.
* In February 1997, the Company completed an initial public
offering for the sale of its common stock and warrants which
resulted in gross proceeds of approximately $4,555,000.
* The Company raised approximately $2,268,000 additional capital in
a private placement from November 1997 through April 1998.
* The Company raised $1,305,000 additional capital in a private
placement during October and November 1998.
* The Company received approximately $944,000 from the exercise of
stock options from October 1998 through January 11, 1998.
The Company is also aggressively working to increase revenues and improve
operating results, which will be necessary to ultimately achieve
profitability. The Company most likely will also be required to raise
additional capital to fund continuing losses. No assurances can be given
that the Company will be successful in raising additional capital or
ultimately achieving profitability.
3. ACQUISITION AND IMPAIRMENT OF IPI AND TOUCHSOURCE TECHNOLOGIES:
---------------------------------------------------------------
Effective July 1, 1996, the Company acquired 100% of the stock of IPI for
679,000 shares of common stock of the Company and a $75,000 note payable in
a purchase transaction. The acquisition was valued at approximately
$750,000 and resulted in goodwill of approximately $850,000 being recorded.
Projected future cash flows associated with the technology previously
developed by IPI declined due to rapidly changing technologies and
increased competition for products developed with the IPI technology. In
addition, in 1997, after the introduction of new Internet solutions by the
Company, management decided to focus the Company on its automotive
solution. As such, the Company reevaluated the goodwill related to this
acquisition and recorded an impairment expense of $598,000, resulting in a
remaining net balance of $20,000. This amount will be amortized during
1998.
F-10
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
Effective July 31, 1997, the Company acquired 100% of the stock of
TouchSource for 207,000 shares of common stock of the Company in a purchase
transaction. The acquisition was valued at approximately $776,000 and
resulted in goodwill of approximately $859,000 being recorded. Subsequent
to the acquisition, technologies developed more rapidly than expected,
which has reduced the expected future cash flows associated with the
TouchSource technology. Furthermore, the Company intends to integrate the
TouchSource technology with its other products and market it primarily to
the automotive industry, which was not a market focus of TouchSource. As
such, the Company also reevaluated the related goodwill, and recorded an
impairment expense of $707,000, resulting in a remaining net balance of
$80,000. This amount is being amortized during 1998.
The unaudited following pro forma information presents the effect of the
TouchSource merger as if it occurred on January 1, 1996.
For the Years Ended
December 31,
-------------------------
1997 1996
---- ----
Revenue $ 6,362,000 $ 6,046,000
=========== ===========
Net loss $(4,377,000) $(1,541,000)
=========== ===========
Loss per share $ (1.50) $ (.72)
=========== ===========
Common share and equivalents outstanding 2,920,000 2,155,000
=========== ===========
The above pro forma information is not necessarily indicative of the
financial results which would have occurred if such acquisition had taken
place at the earlier date, nor of future operating results.
4. CONCENTRATION OF CREDIT RISK:
-----------------------------
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as
contracted. Concentrations of credit risk (whether on or off balance sheet)
that arise from financial instruments exist for groups of customers or
counterparties when they have similar economic characteristics that would
cause their ability to meet contractual obligations to be similarly
effected by changes in economic or other conditions described below. The
Company intends to market a significant portion of its products to the
automotive industry in the forthcoming year. This may create a market
concentration in future years. Sales to this industry have not been
significant in the past.
A geographic concentration exists because the Company has historically sold
approximately 40% of its products and services in the State of Colorado
with remaining revenue derived from sales throughout the United States.
Financial instruments that subject the Company to credit risk consist
F-11
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
principally of accounts receivable. The Company performs periodic credit
evaluations on its customers' financial condition to reduce its exposure to
credit risks.
At December 31, 1997, the Company maintained cash balances with a
commercial bank, which were approximately $414,000 in excess of FDIC
insurance limits.
The Company is dependent on four key suppliers. The Company has contracts
with these suppliers, however, they are not exclusive and can be terminated
at any time. Management believes that while the Company may suffer a
short-term adverse impact, it would be able to replace anyone of these
suppliers.
5. CONTRACTS IN PROGRESS:
----------------------
The following applies to contracts in progress:
September 30, December 31,
1998 1997
---- ----
(Unaudited)
Costs incurred on contracts in progress $109,000 $ 30,000
Estimated earnings 216,000 76,000
-------- --------
325,000 106,000
Less progress billings -- --
-------- --------
Costs and estimated earnings in excess of billings $325,000 $106,000
======== ========
6. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment consists of the following:
September 30, December 31,
1998 1997
---- ----
(Unaudited)
Furniture, fixtures and equipment $ 1,369,000 $ 1,036,000
Leasehold improvements 43,000 41,000
----------- -----------
1,412,000 1,077,000
Less accumulated depreciation (604,000) (364,000)
----------- -----------
$ 808,000 $ 713,000
=========== ===========
F-12
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
7. NOTES PAYABLE:
-------------
Notes payable consists of the following:
September 30, December 31,
1998 1997
---- ----
(Unaudited)
Note payable, publicly held corporation, $ 575,000 $ --
at 9%, with principal and interest due
December 31, 1998, collateralized by the
assets of the Company. The Company also
issued options for the purchase of
470,000 shares of common stock to the
lender as consideration for the loan.(1)
Note payable, financial institution, due -- 275,000
in monthly principal installments of
$5,000 plus interest at prime plus 1/4%
(8.75% at December 31, 1997), due July
15, 2002, collateralized by a
certificate of deposit. The loan
agreement contains covenants, which,
among other items, restricts the Company
from incurring certain debt. As of
December 31, 1997, the Company is in
compliance with these covenants.
Other. 3,000 3,000
--------- ---------
578,000 278,000
Less current portion (578,000) (63,000)
--------- ---------
$ -- $ 215,000
========= =========
- ------------------------
(1) The estimated fair value of the options of $300,000 is treated as a
discount on the note payable and is being amortized over 4 months (the term
of the loan) using the interest method.
Note payable, due December 31, 1998 $ 800,000
Less unamortized discount at September 30, 1998 (225,000)
---------
Net carrying value $ 575,000
=========
8. COMMITMENTS AND CONTINGENCIES:
------------------------------
Capital Lease Obligations - The Company leases certain equipment under
agreements classified as capital leases. Equipment under the leases has a
F-13
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
cost of approximately $174,000 and accumulated amortization of
approximately $43,000. The following is a schedule of future minimum lease
payments under capital leases at December 31, 1997.
Future minimum lease payments $ 177,000
Less amount representing interest (45,000)
---------
Present value of net minimum lease payments 132,000
Less current portion (37,000)
---------
$ 95,000
=========
Office Leases - The Company leases its office space under operating leases
for a term expiring 2001. The lease calls for monthly payments of $10,000.
The aggregate minimum annual lease payments are as follows:
Operating
Year Ending December 31, Leases
------------------------ ------
1998 $ 121,000
1999 111,000
2000 101,000
2001 42,000
---------
Total minimum lease payments $ 375,000
=========
Receivables Factored With Recourse - In 1997, the Company entered into an
agreement with a bank to factor, with full recourse, existing and future
accounts receivable to a maximum of $750,000. The Company must maintain a
cash reserve account with the bank of up to 20% of the face amount of
receivables sold to the bank. The Company's recourse obligation is secured
by all of the Company's assets and is guaranteed by one of the Company's
shareholders. As of September 30, 1998 and December 31, 1997, the face
amount of receivables factored was $263,000 and $249,000 resulting in a
recourse obligation of $202,000 and $190,000, respectively. For financial
presentation purposes, the related receivable and outstanding recourse
liability have been included as an asset and liability, respectively, on
the balance sheet.
Employment Agreements - In July 1996, the Company entered into employment
agreements with two shareholders. The agreements provide for payments
totaling $165,000 per year through June 30, 1998 and include covenants not
to compete during the term of employment and for one year thereafter.
F-14
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
The Company entered into a service agreement with a shareholder which
commenced on August 1, 1996, and was subsequently extended through February
1999. The agreement provides for payments of approximately $5,000 per month
plus options to purchase 212,500 shares of the Company's common stock at
$4.12 per share. The options are exercisable from April 1999 to October
2001. The agreement also contains a covenant not to compete during the term
of the service agreement and for one year thereafter. During 1997, the
Company loaned $60,000 to this shareholder at 5.5% interest, due in
semi-monthly installments of $2,300 beginning January 1, 1998,
collateralized by the options discussed above.
In April 1997, the Company entered into an additional service agreement
with this shareholder. This agreement provides for additional payments of
$5,000 per month plus 2 1/2% of any capital raised as a result of the
shareholder's efforts in the form of options and warrants for the Company's
stock. These options shall be exercisable at the closing price of the
Company's stock on the date of closing of any transaction, exercisable
commencing six months after each grant and expire five years from the date
of each grant. The agreement expired on October 1, 1997. As a result of
this agreement, 14,862 and 4,717 options were outstanding at September 30,
1998 and December 31, 1997, respectively.
9. STOCKHOLDERS' EQUITY (DEFICIT):
-------------------------------
Termination of S-Corporation Status - Effective July 1, 1996, the Company
terminated its S-Corporation status and became a C-Corporation. As a
result, the Company reclassified its accumulated deficit attributable to
the S-Corporation as a reduction in common stock upon termination of
S-Corporation status.
Public Stock Offering - In February 1997, the Company completed an initial
public stock offering of 1,000,000 Units (comprised of 1,000,000 shares of
common stock and warrants for the purchase of 1,000,000 shares of common
stock) which provided gross proceeds to the Company of approximately
$4,555,000. Included in the 1,000,000 shares were 245,000 shares offered by
the holders of unsecured subordinated convertible promissory notes. Each
warrant allows the holder to purchase one share of common stock at an
exercise price of $7.20 through February 2002. The warrants are redeemable
by the Company at $.05 per warrant upon 30 days notice if the market price
of the common stock for 20 consecutive trading days within the 30-day
period preceding the date the notice is given equals or exceeds $8.40. The
Company also sold to the underwriter at the close of the public offering
underwriters warrants, at a price of $0.001 per warrant, to purchase
100,000 shares of common stock. The underwriters warrants are exercisable
through February 2002 at $7.38 per share.
Private Placement - From November 1997 to April 1998, the Company raised
additional capital in a private placement offering of 594,500 units at
$4.50 per unit (comprised of 594,500 shares of common stock and warrants
for the purchase of 594,500 shares of common stock) which provided gross
proceeds to the Company of approximately $2,268,000. Each warrant allows
the holder to purchase one share of common stock at an exercise price of
F-15
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
$7.20 for a period extending through February 10, 2002. The warrants are
redeemable by the Company at $.05 per warrant upon 30 days notice if the
market price of the Company's common stock for 20 consecutive trading days
within the 30-day period preceding the date the notice is given equals or
exceeds $8.40. Offering costs associated with the private placement
included sales commissions and non-accountable expenses totaling 13% of the
proceeds of the offering, as well as placement agent warrants to purchase
59,450 units for 5 years from the date of closing at $4.50 per unit and
warrants for the purchase of 250,000 shares of common stock for $3.50 per
share. In addition, the Company agreed to issue any broker or registered
agent who placed four or more units (consisting of 6,000 units or $27,000
each) one broker warrant for each $20 sold. During the private placement,
the Company issued 180,369 warrants to brokers or registered agents. The
warrants are exercisable at $4.50 for five years.
From October 1998 to November 1998, the Company raised additional capital
in a private placement offering of 700,000 shares at $2.00 per share of
common stock which provided gross proceeds to the Company of approximately
$1,305,000. Offering costs associated with the private placement included
sales commissions totaling 8% of the proceeds of the offering. In addition,
the Company agreed to issue any broker or registered agent who placed
50,000 or more shares, one broker warrant for each $20 sold. During the
private placement, the Company issued 70,000 broker warrants to brokers or
registered agents. The warrants are exercisable at $2.00 for five years.
Stock Split - During 1996, the Company declared a 1 for 2 reverse stock
split and 510.2041 for 1 stock split. The Company also declared a .85 for 1
reverse stock split to be effective immediately prior to the initial public
offering. Accordingly, all common stock reflected in the financial
statements and accompanying notes reflect the effect of the split and
reverse splits.
Common Stock Transfers, Warrants, and Options - In June 1996, an officer
and a shareholder transferred 83,725 shares of common stock to employees at
no cost. The Company recognized $83,000 in compensation expense related to
this transfer.
During 1994 and 1993, the Company issued stock options to an officer and
shareholder to purchase 804,881 shares of common stock at an aggregate
exercise price of $1,745. During June 1996, these options were exercised.
During September 1997, the Board of Directors granted options for the
purchase of 84,500 shares of common stock under the Stock Option Plan, at
an exercise price of $5.50 (quoted market price at grant date). As of
December 31, 1998, options for the purchase of 4,550 has been forfeited as
a result of employee terminations. All remaining options vested in
September 1998 and expire in September 2002.
The Board of Directors granted options for the purchase of 935,300 and
429,834 shares of common stock under the Stock Option Plan during the nine
months ended September 30, 1998 and subsequent to September 30, 1998,
respectively. The exercise prices of those options range from $2.44 to
$9.50 per share (quoted market price at grant date). For options granted
F-16
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
during 1998, options for the purchase of 142,300 shares of common stock
have been forfeited as a result of employee terminations. The remaining
options expire from February 2003 through March 2005. As of December 31,
1998, options for the purchase of 114,500 shares of common stock have
vested. The remaining options vest from February 1999 through October 2001.
During the nine months ended September 30, 1998, the Company borrowed
$800,000 from a publicly held entity. As consideration for the loan, the
Company issued options for the purchase of 177,165 and 354,350 shares of
common stock at $4.50 and $6.50, respectively, per share. The options
expire in December 1999 (see Note 7).
From October 1, 1998 through January 11, 1999, options for the purchase of
241,536 shares of commons stock were exercised, net proceeds of $943,980
was received by the Company.
Pro Forma Stock-Based Compensation Disclosures - The Company applies APB
Opinion 25 and related interpretations in accounting for stock options
granted to employees and directors. Accordingly, no compensation cost has
been recorded for grants of options to employees and directors where the
exercise price is not less than the fair market value of the Company's
common stock on the measurement date. Had compensation cost been determined
using the fair value method pursuant to FAS 123, the Company's net loss and
net loss per share would have increased to the pro forma amounts indicated
in the following table:
Years Ended December 31,
------------------------------
1997 1996
---- ----
Net loss
As reported $ (4,107,000) $ (1,415,000)
Pro forma (4,219,000) (1,415,000)
Net loss per common share
As reported $ (1.47) $ (.73)
Pro forma (1.51) (.73)
The fair value of all options granted was estimated as of the date of grant
using the Black-Scholes option pricing model using the following weighted
average assumptions:
Years Ended December 31,
------------------------
1997 1996
---- ----
Estimated fair value per option $ 4.33 $ --
Expected volatility 104% - %
Risk-free interest rate 5.5% 6.5%
Expected dividends -- --
Expected term (in years) 4.4 3.5
F-17
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
10. INCOME TAXES:
-------------
As of December 31, 1997, the Company has a net operating loss (NOL)
carryforward for tax reporting purposes of approximately $3,750,000. This
NOL expires in the years 2011 through 2017.
Deferred income taxes are provided for differences between the tax and book
basis of assets and liabilities as a result of temporary differences in the
recognition of revenues or expenses for tax and financial reporting
purposes, which relates primarily to certain items not currently deductible
for tax purposes until paid.
Deferred tax assets (liabilities) resulting from these differences consist
of the following:
Net operating loss carryforward $ 1,398,000
Other (30,000)
-----------
Total 1,368,000
Less valuation allowance (1,368,000)
-----------
Net deferred tax asset $ --
===========
The valuation allowance for deferred tax assets increased from $236,000 at
December 31, 1996 to $1,330,000 at December 31, 1997, due primarily to an
increase in the Company NOL carryforwards.
11. DEFINED CONTRIBUTION PLAN:
--------------------------
The Company has a 401(k) profit sharing plan (the Plan). Eligible employees
may make voluntary contributions to the Plan. The amount of employee
contributions is limited as specified in the Plan. The Company may, at its
discretion, make additional contributions to the Plan. The Company made no
contributions in 1997 and 1996.
12. SUBSEQUENT EVENTS:
------------------
Effective December 31, 1998, the Company acquired LeaseSource, Inc. and
CarWizard, Inc. in a purchase transaction for 250,000 shares of common
stock of the Company. In addition, the shareholders of LeaseSource and
CarWizard will be entitled to an earn-out based on the profitability of the
two companies. Both acquired companies operate automotive information Web
sites.
Also see Note 9 on the subsequent sale of common stock.
F-18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
------------------------------------------
The Registrant's Articles of Incorporation eliminate the personal liability
of directors to the Registrant or its stockholders for monetary damages for
breach of fiduciary duty to the extent permitted by Colorado law. The
Registrant's Articles of Incorporation and By-Laws provide that the Registrant
shall indemnify its officers and directors to the extent permitted by Colorado
law, which authorizes a corporation to indemnify directors, officers, employees
or agents of the corporation in non-derivative suits if such party acted in good
faith and in a manner such party reasonably believed to be in or not opposed to
the best interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The Colorado Business Corporation Act further provides that indemnification
shall be provided if the party in question is successful on the merits or
otherwise.
Item 25. Other Expenses of Issuance and Distribution
---------------------------------------------
The estimated expenses of the offering, all of which are to be borne by the
Registrant, are as follows:
Total Registration Fee Under Securities Act of 1933......... $ 2,134
Printing and Engraving ..................................... 25,000 *
Accounting Fees and Expenses................................ 5,000 *
Legal Fees and Expenses .................................... 15,000 *
Blue Sky Fees and Expenses (including related legal fees) .. 1,000 *
Transfer Agent Fees ........................................ 2,000 *
Miscellaneous .............................................. 1,866 *
-------
Total....................................................... $52,000
=======
*Estimated
Item 26. Recent Sales of Unregistered Securities
---------------------------------------
In July 1996, the Registrant issued an aggregate of 678,877 shares of its
common stock (the "Common Stock") to the existing shareholders of Interactive
Planet, Inc. ("IPI") in exchange for all of this issued and outstanding shares
of IPI in connection with the merger of IPI with and into the Registrant. The
Registrant relied on the statutory exemption provided by Section 4(2) of the
Securities Act of 1933 in accordance with the preliminary note of Rule 145
whereby the exchange was made with a group of 14 shareholders of IPI not
involving any public offering.
In August 1996, the Registrant issued to John McKowen, pursuant to an
employment agreement, options to purchase 212,500 shares of Common Stock at an
exercise price of $4.12 per share. Such options are exercisable after February
1, 1999 and expire August 1, 2001. This was a privately negotiated transaction
with a sophisticated investor not involving any public offering and exempt
pursuant to Section 4(2) of the Securities Act of 1933.
From August through October 1996, the Registrant consummated the sale of an
aggregate of $1,437,500 principal amount of 10% Unsecured Subordinated
Convertible Promissory Notes, due December 31, 1997, in a private placement to
investors. The Notes were automatically converted into an aggregate of 349,126
units, with each unit consisting of one share of Common Stock and one Common
Stock purchase warrant, upon the
<PAGE>
consummation of the Registrant's initial public offering. Joseph Charles &
Associates, Inc., received $143,750 in commissions and $35,938 in expenses as
placement agent in such private placement. This offering was made pursuant to
Rule 506 of Regulation D promulgated pursuant to the Securities Act of 1933 as
an offering not involving any public offering solely to accredited investors.
In June 1996, Ralph Armijo exercised options to purchase 804,881 shares of
Common Stock for an aggregate exercise price of $1,745. These options were
granted during 1993 and 1994 in lieu of salary. Mr. Armijo was and is the chief
executive officer of the Registrant and the transaction was exempt as a
transaction not involving any public offering pursuant to Section 4(2) of the
Securities Act of 1933.
From November 1997 to April 1998, the Registrant raised net proceeds of
approximately $2,229,750 from the issuance of 594,500 shares of common stock and
warrants from a private placement. Each warrant entitles the holder to purchase
one share of Common Stock at a price of $7.20 per share until February 10, 2002.
The warrants are redeemable at the option of the Registrant, at $.05 per
warrant, at any time on or after February 10, 1998. This offering was made
pursuant to Rule 506 of Regulation D promulgated pursuant to the Securities Act
of 1933 as an offering not involving any public offering solely to accredited
and sophisticated investors.
On November 24, 1998, the Registrant completed an offering of 700,000
shares of its Common Stock to twenty investors. The Registrant raised $1,305,000
from that offering. That offering was made pursuant to Rule 506 of Regulation D
promulgated pursuant to the Securities Act of 1933 as an offering not involving
any public offering solely to accredited and sophisticated investors. The
Registrant also issued warrants to purchase 70,000 shares of Common Stock to
four persons for assisting the Registrant in the placement of those securities.
Those warrants were issued pursuant to Rule 506 and are exercisable at $2.00 per
share during the five-year period commencing on November 24, 1998.
Item 27. Exhibits
The following Exhibits are filed as part of this Form SB-2 Registration
Statement pursuant to Item 601 of Regulation S-B by incorporation by reference
to other filings:
3.1 Amended and Restated Articles of Incorporation of ACI Systems, Inc.*
3.2 Amended and Restated Bylaws of ACI Systems, Inc.*
3.3 Articles of Merger and Agreement and Plan of Merger Between ACI
Systems, Inc. and Interactive Planet, Inc.*
4.1 Form of Certificate for Common Stock of NAVIDEC, Inc.*
5.1 Form of Opinion, with Consent, of Ballard Spahr Andrews & Ingersoll,
LLP. Filed herewith.
10.1 Form of "Lock Up" Letter entered into by the Registrant's current
shareholders.*
10.2 Form of Shareholders' Agreement dated July 12, 1996, among NAVIDEC,
Inc. and its shareholders on such date.*
10.3 Form of Confidentiality and Non-Disclosure Agreement between the
Registrant and its significant technical employees.*
10.4 Employment Agreement dated July 3, 1996between NAVIDEC, Inc. and Ralph
Armijo.*
10.5 Employment Agreement between NAVIDEC, Inc. and John R. McKowen.*
10.6 Lease Agreement dated February 23, 1996 for the premises located at 14
Inverness Dr., Building F, Suite 116, Englewood, Colorado 80112.*
10.7 Lease Agreement dated October 27, 1993 for the premises located at
7002 S. Revere Parkway, Suite 40, Englewood, Colorado 80112
[Terminated in December 1996].*
10.8 Promissory Note as of October 1, 1993, in the principal amount of
$119,199, from ACI Systems, Inc. payable to Arthur Armijo.*
10.9 Promissory Note as of March 31, 1996, in the principal amount of
$45,110 from Interactive Planet, Inc. payable to Patrick Mawhinney*
10.10 Promissory Note as of July 9, 1996, in the principal amount of $75,000
from NAVIDEC, Inc. payable to Cynthia Simmons.*
<PAGE>
10.11 Business/Manager Agreement and Commercial Security Agreement, each
dated February 27, 1996, between NAVIDEC, Inc. and Colorado State Bank
of Denver.*
10.12 Form of Commercial Guarantee of Ralph Armijo and Arthur Armijo in
favor of Colorado State Bank of Denver in connection with February 27,
1996 Promissory Note.*
10.13 Form of Commercial Continuing Guarantee of Ralph Armijo and Arthur
Armijo dated November 17, 1993 in favor of Vectra Bank in connection
with line of credit terminated in February 1996.*
10.14 Promissory Note as of August 6, 1996, in the principal amount of
$70,000 from NAVIDEC, INC. payable to Ralph Armijo.*
10.15 Promissory Note as of July 26, 1996 in the principal amount of $30,000
from NAVIDEC, INC. payable to Patrick Mawhinney.*
10.16 Promissory Note as of July 25, 1996, in the principal amount of
$182,500 from NAVIDEC, INC. payable to Little Land Company.*
10.17 Netscape Commercial Applications Partner Program (NCAPP) Guidelines.*
10.18 Form of Restated Agreement Not to Sell with Bridge Financing Selling
Stockholders.*
10.19 Form of Insider's Lock-up Agreement to be entered into by the
Registrant's officers, directors and 5% shareholders.*
10.20 Form of Promissory Note in the principal amount of $70,000 from
NAVIDEC, Inc. payable to Trust Company of America FBO Michael
Hendricks SEP IRA and guaranteed by Ralph Armijo and Patrick
Mawhinney.*
10.21 Wheels licence agreement with the Denver Post.**
10.22 Wheels licence agreement with KOIN TV.**
10.23 The Registrant's stock option plan.***
10.24 Agreement to provide services with John McKowen.****
10.25 Engagement letter dated October 27, 1997 with Joseph Charles &
Associates.****
10.26 Engagement Agreement dated February 16, 1998 with Joseph Charles &
Associates.****
10.27 Employment Agreement between NAVIDEC, Inc. and Ralph Armijo dated May
1 , 1998.****
10.28 Employment Agreement between NAVIDEC, Inc. and Hal Anderson dated May
1, 1998.****
10.29 Employment Agreement between NAVIDEC, Inc. and Patrick Mawhinney dated
May 1 , 1998. ****
10.30 Employment Agreement between NAVIDEC, Inc. and Kenneth Bero dated
December 15, 1997.****
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Hein & Associates LLP. Filed herewith.
23.2 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in Exhibit
5.1). Filed herewith.
----------------
* Incorporated by reference from the like numbered exhibit to the
Registrant's Registration Statement on Form SB-2 declared effective
February 10, 1997 (SEC File Number 333-14497).
** Incorporated by reference from the Registrant's Annual Report on From
10-KSB for the year ended December 31, 1997.
*** Incorporated by reference from the Registrant's preliminary proxy
statement for the 1998 Annual Shareholders' Meeting.
**** Incorporated by reference from the Registrant's Registration Statement
on Form SB-2 declared effective July 22, 1998 (SEC File Number
333-59019).
<PAGE>
Item 28. Undertakings
------------
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(4) To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereto) that, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii)to include any additional or changed material information on the plan
of distribution.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Englewood, State of Colorado on the 12th day of February, 1999.
NAVIDEC, INC.
By: /s/ Ralph Armijo
---------------------------------
Ralph Armijo, President, Chief
Executive Officer and Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
Signature Title Date
- --------- ----- ----
/s/ Ralph Armijo President, Chief February 12, 1999
- ------------------------ Executive Director
Ralph Armijo and Director
/s/ Andrew Davis Director February 12, 1999
- ------------------------
Andrew Davis
/s/ Patrick R. Mawhinney Chief Financial Officer, February 12, 1999
- ------------------------ Treasurer and Director
Patrick R. Mawhinney
/s/ Lloyd G. Chavez, Jr. Director February 12, 1999
- ------------------------
Lloyd G. Chavez, Jr.
/s/ Gerald A. Marroney Director February 12, 1999
- ------------------------
Gerald A. Marroney
/s/ James Hosch Director February 12, 1999
- ------------------------
James Hosch
/s/ Michael Kranitz Director and Vice February 12, 1999
- ------------------------ President of Strategic
Michael Kranitz Development
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
NAVIDEC, INC.
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(Name of Company as specified in charter)
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NAVIDEC, INC.
FORM SB-2 REGISTRATION STATEMENT
The following Exhibits are filed as part of the Registrant's Form SB-2
Registration Statement pursuant to Item 601 of Regulation S-B.
Exhibit Number Description
3.1 Amended and Restated Articles of Incorporation of ACI Systems, Inc.*
3.2 Amended and Restated Bylaws of ACI Systems, Inc.*
3.3 Articles of Merger and Agreement and Plan of Merger Between ACI
Systems, Inc. and Interactive Planet, Inc.*
4.1 Form of Certificate for Common Stock of NAVIDEC, Inc.*
5.1 Form of Opinion, with Consent, of Ballard Spahr Andrews & Ingersoll,
LLP. Filed herewith.
10.1 Form of "Lock Up" Letter entered into by the Registrant's current
shareholders.*
10.2 Form of Shareholders' Agreement dated July 12, 1996, among NAVIDEC,
Inc. and its shareholders on such date.*
10.3 Form of Confidentiality and Non-Disclosure Agreement between the
Registrant and its significant technical employees.*
10.4 Employment Agreement dated July 3, 1996between NAVIDEC, Inc. and Ralph
Armijo.*
10.5 Employment Agreement between NAVIDEC, Inc. and John R. McKowen.*
10.6 Lease Agreement dated February 23, 1996 for the premises located at 14
Inverness Dr., Building F, Suite 116, Englewood, Colorado 80112.*
10.7 Lease Agreement dated October 27, 1993 for the premises located at
7002 S. Revere Parkway, Suite 40, Englewood, Colorado 80112
[Terminated in December 1996].*
10.8 Promissory Note as of October 1, 1993, in the principal amount of
$119,199, from ACI Systems, Inc. payable to Arthur Armijo.*
10.9 Promissory Note as of March 31, 1996, in the principal amount of
$45,110 from Interactive Planet, Inc. payable to Patrick Mawhinney*
10.10 Promissory Note as of July 9, 1996, in the principal amount of $75,000
from NAVIDEC, Inc. payable to Cynthia Simmons.*
10.11 Business/Manager Agreement and Commercial Security Agreement, each
dated February 27, 1996, between NAVIDEC, Inc. and Colorado State Bank
of Denver.*
10.12 Form of Commercial Guarantee of Ralph Armijo and Arthur Armijo in
favor of Colorado State Bank of Denver in connection with February 27,
1996 Promissory Note.*
10.13 Form of Commercial Continuing Guarantee of Ralph Armijo and Arthur
Armijo dated November 17, 1993 in favor of Vectra Bank in connection
with line of credit terminated in February 1996.*
10.14 Promissory Note as of August 6, 1996, in the principal amount of
$70,000 from NAVIDEC, INC. payable to Ralph Armijo.*
10.15 Promissory Note as of July 26, 1996 in the principal amount of $30,000
from NAVIDEC, INC. payable to Patrick Mawhinney.*
10.16 Promissory Note as of July 25, 1996, in the principal amount of
$182,500 from NAVIDEC, INC. payable to Little Land Company.*
10.17 Netscape Commercial Applications Partner Program (NCAPP) Guidelines.*
10.18 Form of Restated Agreement Not to Sell with Bridge Financing Selling
Stockholders.*
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10.19 Form of Insider's Lock-up Agreement to be entered into by the
Registrant's officers, directors and 5% shareholders.*
10.20 Form of Promissory Note in the principal amount of $70,000 from
NAVIDEC, Inc. payable to Trust Company of America FBO Michael
Hendricks SEP IRA and guaranteed by Ralph Armijo and Patrick
Mawhinney.*
10.21 Wheels licence agreement with the Denver Post.**
10.22 Wheels licence agreement with KOIN TV.**
10.23 The Registrant's stock option plan.***
10.24 Agreement to provide services with John McKowen.****
10.25 Engagement letter dated October 27, 1997 with Joseph Charles &
Associates.****
10.26 Engagement Agreement dated February 16, 1998 with Joseph Charles &
Associates.****
10.27 Employment Agreement between NAVIDEC, Inc. and Ralph Armijo dated May
1 , 1998.****
10.28 Employment Agreement between NAVIDEC, Inc. and Hal Anderson dated May
1, 1998.****
10.29 Employment Agreement between NAVIDEC, Inc. and Patrick Mawhinney dated
May 1 , 1998. ****
10.30 Employment Agreement between NAVIDEC, Inc. and Kenneth Bero dated
December 15, 1997.****
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Hein & Associates LLP. Filed herewith.
23.2 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in Exhibit
5.1). Filed herewith.
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* Incorporated by reference from the like numbered exhibit to the
Registrant's Registration Statement on Form SB-2 declared effective
February 10, 1997 (SEC File Number 333-14497).
** Incorporated by reference from the Registrant's Annual Report on From
10-KSB for the year ended December 31, 1997.
*** Incorporated by reference from the Registrant's preliminary proxy
statement for the 1998 Annual Shareholders' Meeting.
**** Incorporated by reference from the Registrant's Registration Statement
on Form SB-2 declared effective July 22, 1998 (SEC File Number
333-59019).
Law Offices
Ballard Spahr Andrews & Ingersoll, LLP
1225 17th Street, Suite 2300
Denver, Colorado 80202-5596
(303) 292-2400
FAX: (303) 296-3956
[email protected]
, 1999
NAVIDEC, Inc.
14 Inverness Drive, Suite F-116
Englewood, Colorado 80112
Re: Form SB-2 Registration Statement relating to shares of no par value Common
Stock for Selling Security Holders
Ladies and Gentlemen:
We have acted as counsel for NAVIDEC Inc. (the "Company") in connection
with the preparation of the Form SB-2 Registration Statement to be filed by the
Company with the Securities and Exchange Commission relating to the shares of
the Company's no par value common stock (the "Common Stock") being offered for
sale by certain holders of the Company's securities. As such counsel, we have
examined and relied upon such records, documents, certificates and other
instruments and have made such other investigation as we deemed appropriate as
in our judgment are necessary or appropriate to form the basis for the opinions
hereinafter set forth.
Based upon the foregoing, we are of the opinion that the shares of Common
Stock being offered for resale in accordance with the terms set forth in the
Registration Statement will be validly issued and outstanding, fully paid and
nonassessable.
We express no opinion concerning the laws of any jurisdiction other than
the federal law of the United States of America and the State of Colorado. We
consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the Registration Statement and the Prospectus forming a part thereof.
Very truly yours,
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Registration Statement and Prospectus of NAVIDEC,
Inc. of our report datd March 5, 1998, accompanying the consolidated financial
statements of NAVIDEC, Inc. contained in such Registration Statement, and to the
use of our name and the statements with respect to us, as appearing under the
heading "Experts" in the Registration Statement.
/s/ Hein + Associates LLP
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HEIN + ASSOCIATES LLP
Denver, Colorado
February 12, 1999
