UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________________ to ______________________.
Commission file number 0-29098
NAVIDEC, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
COLORADO 33-0502730
- -------- ----------
(State or other (Employer
jurisdiction of Identification No.)
incorporation)
14 INVERNESS DRIVE, SUITE F-116, ENGLEWOOD, CO 80112
----------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number: 303-790-7565
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to filed such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of March 31, 1999, Registrant had 7,475,111 shares of common stock
outstanding
Transitional Small Business Disclosure Format. Yes ___ No X
<PAGE>
NAVIDEC, INC.
-------------
INDEX
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PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
Balance Sheets as of March 31, 1999 and December 31, 1998
Statements of Operations, Three months ended March 31, 1999 and 1998
Statements of Cash Flows, Three months ended March 31, 1999 and 1998
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
- --------------------------
Item 1. Not Applicable
Item 2. Changes in Securities and Use of Proceeds
Item 3. Not Applicable
Item 4. Not Applicable
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
<TABLE>
<CAPTION>
NAVIDEC, INC.
-------------
BALANCE SHEETS
--------------
ASSETS
------
March 31, December 31,
1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,478,000 $ 711,000
Accounts receivable, net of allowance for
doubtful accounts of $125,000 on December 31, 1998
and $150,000 on March 31, 1999 3,379,000 2,167,000
Costs and estimated earnings in excess of billings 132,000 107,000
Inventories 334,000 341,000
Restricted cash 268,000 280,000
Prepaid expenses and other 230,000 52,000
------------ ------------
Total current assets 17,821,000 3,658,000
------------ ------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $717,000 on December 31, 1998
and $812,000 on March 31, 1999 984,000 981,000
OTHER ASSETS:
Goodwill and intangibles,
net of accumulated amortization of $100,000 on
December 31, 1998 and $131,000 on March 31, 1999 588,000 619,000
Other 0 7,000
------------ ------------
Total other assets 588,000 626,000
------------ ------------
TOTAL ASSETS $ 19,393,000 $ 5,265,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,793,000 $ 1,851,000
Accrued liabilities 468,000 423,000
Payable to factor 91,000 203,000
Notes payable 100,000 821,000
Current capital lease obligations 74,000 74,000
------------ ------------
Total current liabilities 2,526,000 3,372,000
------------ ------------
CAPITAL LEASE OBLIGATIONS 82,000 94,000
STOCKHOLDERS' EQUITY:
Common stock, no par value, 20,000,000 shares authorized,
4,709,500 shares issued and outstanding as of
December 31, 1998 7,475,111 outstanding as of March 31, 1998 26,228,000 8,059,000
Warrants for common stock 470,000 2,891,000
Accumulated deficit (9,913,000) (9,151,000)
------------ ------------
Total stockholders' equity 16,785,000 1,799,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 19,393,000 $ 5,265,000
============ ============
See accompanying notes to these financial statements.
3
</TABLE>
<PAGE>
NAVIDEC, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS
ENDED MARCH 31, (UNAUDITED)
------------------------------
1999 1998
----------- -----------
NET SALES $ 4,457,000 $ 1,702,000
Cost of sales 2,768,000 1,055,000
----------- -----------
GROSS MARGIN 1,689,000 647,000
Operating Expenses
Sales & Marketing 735,000 102,000
Product Development 741,000 327,000
General & Administrative 980,000 683,000
----------- -----------
Total Operating expense 2,456,000 1,112,000
OPERATING LOSS (767,000) (465,000)
OTHER INCOME (EXPENSE):
Interest, net (9,000) (16,000)
Other 14,000 -0-
----------- -----------
Other, Net 5,000 (16,000)
----------- -----------
NET LOSS $ (762,000) $ (481,000)
=========== ===========
BASIC AND DILUTED
NET LOSS PER SHARE $ (.14) $ (.15)
=========== ===========
BASIC AND DILUTED
WEIGHTED AVERAGE COMMON
SHARES AND EQUIVALENTS
OUTSTANDING 5,497,000 3,236,000
=========== ===========
See accompanying notes to these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
NAVIDEC, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (762,000) $ (481,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 126,000 169,000
Changes in operating assets and liabilities
Accounts receivable (1,212,000) 58,000
Costs and estimated earnings in
excess of billings (25,000) (261,000)
Inventories 7,000 255,000
Other assets (166,000) (3,000)
Accounts payable, accrued liabilities
and other liabilities (13,000) (73,000)
------------ ------------
Net cash used in operating activities (2,045,000) (336,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Notes Receivable 7,000 11,000
Capital expenditures for property and equipment (98,000) (119,000)
------------ ------------
Net cash used in investing activities (91,000) (108,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from factoring of accounts receivable 257,000 402,000
Payment to factor (369,000) (382,000)
Proceeds from issuance of common stock 15,748,000 654,000
Proceeds from notes payable -related parties -- 40,000
Payment on notes payable-related parties -- (40,000)
Payment on notes payable and capital leases (733,000) (15,000)
------------ ------------
Net cash provided by financing activities 14,903,000 659,000
INCREASE IN CASH AND CASH EQUIVALENTS 12,767,000 215,000
CASH AND CASH EQUIVALENTS,
beginning of period 711,000 369,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 13,478,000 $ 584,000
============ ============
SUPPLEMENTAL SCHEDULE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 9,000 $ 16,000
============ ============
See accompanying notes to these financial statements.
5
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) Basis of Presentation and management opinion
The unaudited financial statements and related notes to the financial statements
presented herein have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The accompanying financial
statements were prepared in accordance with the accounting policies used in the
preparation of the Company's audited financial statements included in its Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1998, and should be
read in conjunction with such financial statements and notes thereto.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary for a fair presentation of operating
results for the interim period presented have been made.
(2) ACQUISITIONS
Effective July 31, 1997, the Company acquired 100% of the stock of TouchSource
by issuing 207,000 shares of the Company's common stock. The total purchase
price was valued by issuing $776,000 of the Company's common stock and the
assumption of $83,000 of net liabilities, resulting in goodwill of $859,000
being recorded. The acquisition was accounted for under the purchase method of
accounting, and accordingly the operating results of TouchSource have been
included in the accompanying consolidated financial statements from the
effective date of the acquisition. 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 reevaluated the related goodwill, and recorded
an impairment expense of $707,000 in fiscal 1997, resulting in a remaining net
balance of $80,000 as of December 31, 1997. This remaining goodwill was
amortized completely in 1998.
Effective December 28, 1998, the Company acquired 100% of the stock of both
CarWizard and LeaseSource for a total of 250,000 shares of common stock. The
combined purchased price was valued by issuing $500,000 of the Company's common
stock and the assumption of $39,000 of net liabilities, resulting in goodwill of
$539,000 being recorded. Included in the net liabilities assumed was $80,000 of
intangibles for acquired technology. The acquisition was accounted for under the
purchase method of accounting, and accordingly the operating results of
CarWizard and LeaseSource have been included in the accompanying consolidated
financial statements from the effective date of the acquisitions. The purchase
agreement includes an earn-out provision for up to an additional $1,000,000 of
purchase price, which is based on the success of Web site leads provided in 1999
and 2000.
(3) Stockholders' Equity
Initial Public 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). Included in the 1,000,000
units were 245,000 units offered by the holders of unsecured subordinated
convertible promissory notes. The offering of the 755,000 units provided
proceeds to the Company of $3,436,000, net of offering costs of $1,094,000. Each
6
<PAGE>
warrant allowed the holder to purchase one share of common stock at an exercise
price of $7.20 through February 2002. The warrants were redeemable by the
Company at $.05 per warrant upon 30 days notice if the market price of the
common stock for 20 consecutive trading days within the 30-day period preceding
the date the notice is given equaled or exceeded $8.40. As discussed below,
these warrants were called by the Company on February 12, 1999. The Company also
sold to the underwriter at the close of the public offering underwriter's
warrants, at a price of $0.001 per warrant, to purchase 100,000 shares of common
stock. The underwriter's warrants are exercisable for four years beginning in
February 1998 at $7.38 per share.
Private Placement 1997
- ----------------------
During 1997 and 1998, the Company raised $2,193,000 in a private placement, net
of offering costs of $482,000, by issuing 594,500 units (comprised of one share
of common stock and one warrant) at $4.50 per unit. Each warrant allows the
holder to purchase one share of common stock at an exercise price of $7.20 for a
period extending through February 10, 2002. The warrants were redeemable by the
Company at $.05 per warrant upon 30 days notice if the market price of the
common stock for 20 consecutive trading days within the 30-day period preceding
the date the notice is given equaled or exceeded $8.40. As discussed below,
these warrants were called by the Company on February 12, 1999. Offering costs
associated with the private placement include underwriter commissions and
non-accountable expense allowances totaling 13% of proceeds, as well as
placement agent warrants to purchase 10% of the units sold for five years from
the date of closing at $4.50 per unit. In addition, the Company agreed to issue
any broker or registered agent who places four or more placement units
(consisting of 6,000 units or $27,000 each) one broker warrant for each $20 sold
at a price of $4.50. Accordingly, 118,849 of warrants were issued during 1998 to
brokers and registered agents. During 1997, the Company completed closings on
this private placement of $717,000 net of offering costs of $132,000. During
1998, the Company completed closings on this private placement of $1,476,000 net
of offering costs of $350,000. Additionally, during 1998, the Company issued
61,520 warrants to brokers or registered representatives as part of the offering
cost.
Private Placement 1998
- ----------------------
In November 1998, the Company completed a private placement resulting in the
issuance of 700,000 shares at $2.00 per share. This offering generated
$1,330,000 in proceeds net of offering costs of $70,000. In addition the Company
issued 70,000 warrants to brokers or registered representatives as part of the
offering cost.
Warrants and Options Redeemed in 1999
- -------------------------------------
On February 12, 1999 the Company called all publicly traded warrants. These
warrants entitled the holder to purchase one share of Common Stock for each
warrant for $7.20. 1,700,000 warrants were exercised prior to the expiration
date of March 15, 1999. The warrants generated $12,180,000 net of offering costs
of $60,000. In addition the Company issued 200,000 warrants to representatives
for solicitation for the exercise of the warrants.
During the first quarter of 1999, VSI Holdings exercised an option on 177,175
shares of stock at $4.50 per share resulting in proceeds to the Company of
$797,000. In addition during the first quarter of 1999 the Company had 889,000
options and broker warrants exercised resulting in net proceeds of $2,771,000.
(4) COMPREHENSIVE INCOME
In June, 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130, 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 translation adjustments
on investments in foreign subsidiaries, and certain changes in minimum pension
liabilities. The Company's comprehensive loss was equal to its net loss for the
three month periods ended March 31, 1999 and 1998.
7
<PAGE>
(5) Notes Payable
Notes payable consist of the following as of March 31, 1999:
Note payable; interest at 9%, due on October 18,
1999, secured by assets of LeaseSource 100,000
Less- current portion (100,000)
---------
Long-term portion $ --
=========
(6) SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 requires
disclosure of operating segments, which as defined, are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
The Company operates in three different segments: NetSolutions, Online
Automotive Solutions ("Automotive"), and Product Distribution. Management has
chosen to organize the Company around these segments based on differences in
products and services.
NetSolutions provides custom solutions, including the architecture, design,
development and integration of high tech solutions, utilizing Web technology.
Automotive provides total online automotive solutions through its Web sites, in
addition to providing custom solutions to companies in or with relationships in
the automotive industry. Product Distribution provides the resale and
configuration of third party software and hardware components, graphical
printers and supplies.
Segment operations are measured consistent with the accounting policies used in
these consolidated financial statements.
The following provides information on the Company's segments:
<TABLE>
<CAPTION>
For the Quarter Ended
March 31, 1999
------------------------------------------------------------
(In thousands)
Net- Product
Solutions Automotive Distribution Corporate Total
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 3,091 $ 707 $ 659 $ -- $ 4,457
======== ======== ======== ======= ========
(Loss) income
from operations $ 92 $ (874) $ 110 $ (95)(1) $ (767)
======== ======== ======== ======= ========
Identifiable assets $ 3,607 $ 1,187 $ 633 $16,001(2) $ 17,821
======== ======== ======== ======= ========
8
<PAGE>
For the Quarter Ended
March 31, 1998
------------------------------------------------------------
(In thousands)
Net- Product
Solutions Automotive Distribution Corporate Total
------------------------------------------------------------
Revenues from
external customers $ 788 $ 365 $ 549 $ -- $ 1,702
======= ========= ======== ======= ========
(Loss) income
from operations $ (238) $ (116) $ 58 $ (169)(1) $ (465)
======= ========= ======== ======= ========
(1) Corporate loss from operations represents depreciation expense.
(2) Corporate assets are those that are not directly identifiable to a
particular segment and includes cash, restricted cash, property and
equipment and prepaids and other assets.
9
</TABLE>
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Results of Operations
Cautionary Statement Regarding Forward Looking Statements
The matters discussed in this report, when not historical matters, are forward
looking statements that involve a number of risks and uncertainties that could
cause actual results to differ materially from projected results. Such factors
include, among other things, the rapidly developing and unpredictable nature of
the Internet, intense competition in all of the Company's markets, obsolescence
of products and technological changes, the need for management of growth and the
dependence on relationships of the Company with its customers and suppliers, as
well as other risk factors described from time to time in the Company's filings
with the Securities and Exchange Commission.
Overview
The Company was organized as ACI Systems, Inc. in July 1993 and changed its name
to NAVIDEC, Inc. in July 1996. The Company's principal sources of revenue are
from the architecture, design, development and implementation of open system
solutions for Fortune 1000 companies, license fees and recurring purchase
request and advertising revenue from the Company's on-line automotive solution
and product sales of third party manufacture's. The Company merged with
Interactive Planet, Inc. ("IPI"), a designer and developer of Internet World
Wide Web sites, in July 1996. The Company 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. The Company acquired TouchSource, Inc. ("TS"), a
designer and developer of interactive Kiosks, in July 1997. The Company issued
an aggregate of 207,000 shares of Common Stock to the shareholders of TS and TS
was merged into the Company in exchange for all of the issued and outstanding
stock of TS. The merger and acquisition were consummated in order to expand the
Company's business model of combined expertise in traditional marketing and
distribution and Internet/ Intranet technology. On December 28, 1998 the Company
acquired CarWizard and LeaseSource, owners and operators of CarWizard.com and
LeaseSource.com, two prominent online automotive sites. The Company issued an
aggregate of 250,000 shares of Common Stock to th shareholders of both
Companies, and will pay an earn-out based on the success of these sites in 1999
and 2000. The acquisition was consummated in order to expand the Company's
Online Automotive presence.
The Company's strategy is to increase revenue generated by its two core
competencies: (1) NetSolutions, which are focused in five major market areas,
including computer and network infrastructure equipment, software and services,
content aggregation, electronic commerce and order fulfillment, and (2) Online
Automotive Solutions, which derives revenue from, sale of purchase requests,
advertising and the direct leasing of automobiles. The Company has built and
intends to continue to build an infrastructur that assumes this strategy will
succeed. The failure of the Company to achieve this strategy could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company recognizes revenue upon delivery goods and services. NetSolutions
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 the Company's customers elect to update and
expand their solutions 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 and hosting of client Web sites. Online Automotive
Solutions currently generates a substantial portion of its revenue through the
sale of new car leads to dealers. The Company also generates revenue through the
sale of banner and editorial advertising space.
10
<PAGE>
From August through October, 1996, the Company raised net proceeds of
approximately $1,233,000 from the sale of 10% Unsecured Subordinated Convertible
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 the Company's public offering described below. The Units were
identical to the Units offered in the public offering.
On February 14, 1997, the Company consummated a public offering of 1,000,000
Units consisting of one share of Common Stock and one Common Stock purchase
warrant ("Warrant"). Each Warrant entitled the holder to purchase one share of
Common Stock at a price of $7.20 per share until February 10, 2002. The Warrants
were redeemed by the Company on February 12, 1999, and stopped trading on March
16, 1999. 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 755,000 Warrants
were sold by the Company, for net proceeds of approximately $3,436,000 (after
subtracting the underwriting discount and other expenses of the offering). The
remaining 245,000 units were sold by the investors in the Bridge Private
Placement.
From November 1997 to April 1998, the Company raised net proceeds of
approximately $2,193,000 from the issuance of 594,500 shares of common stock and
warrants in a private placement. Each Warrant entitled the holder to purchase
one share of Common Stock at a price of $7.20 per share until February 10, 2002.
The Warrants were redeemed by the Company on February 12, 1999 and stopped
trading on March 16, 1999.
In November of 1998, the Company completed a private placement resulting in the
issuance of 700,000 shares at $2.00 per share. This offering generated
$1,330,000 in proceeds net of offering costs of $70,000.
On February 12, 1999 the Company called all publicly traded warrants. These
warrants entitled the holder to purchase one share of Common stock for each
warrant for $7.20. 1,700,000 warrants were exercised prior to the expiration
date of March 15, 1999. The warrants generated $12,180,000 net of offering costs
of $60,000.
During the first quarter of 1999, VSI holdings exercised an option on 177,175
shares of stock at $4.50 resulting in proceeds to the Company of $797,000. In
addition during the first quarter, the Company had 889,000 options and broker
warrants exercised resulting in net proceeds of $2,771,000.
Results of Operations
The Company operates its business activities in three segments: NetSolutions,
Online Automotive Solutions ("Automotive"), and Product Distribution
("Products"). NetSolutions enables customers to address their e-commerce
initiatives. Automotive provides total online automotive solutions through its
Web sites, in addition to providing custom solutions to companies in or with
relationships in the automotive industry. Product Distribution provides the
resale and configuration of third party software and hardware components,
graphical printers and supplies. Management has chosen to organize the Company
around these segments based on differences in products and services.
11
<PAGE>
The following table shows the breakdown of these three segments for the quarter
ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, March 31,
1999 1998
---------------------------------------------------- ------------------------------------------------------
Net Net
Solutions Auto Products Corp. Total Solutions Auto Products Corp. Total
---------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 3,091 $ 707 $ 659 $ 4,457 $ 788 $ 365 $ 549 $ 1,702
Cost of Goods Sold 2,143 192 433 2,768 575 69 411 1,055
------- ------- ------- ------- ------- ------- ------- -------
Gross Profit 948 515 226 1,689 213 296 138 647
Operating Expense
Product Development 369 372 0 741 168 159 0 327
Sales & Marketing 195 511 29 735 42 56 4 102
General & Admin 292 506 87 95(1) 980 241 197 76 169(1) 683
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Operating
Expenses 856 1,389 116 95 2,456 451 412 80 169 1,112
Operating Income
(Loss) $ 92 $ (874) $ 110 $ (95) $ (767) $ (238) $ (116) $ 58 $ (169) $ (465)
</TABLE>
(1) Represents depreciation expense on property and equipment, which can not be
directly identified to a particular segment.
Net sales for the Quarter ended March 31, 1999 were $4,457,000 which represents
an increase of 162% over net sales of $1,702,000 for the same period of 1998.
The increase is attributed to increased sales across all three divisions of the
Company; primarily NetSolutions and Automotive. NetSolutions sales for the
quarter ended March 31, 1999 were $3,091,000 which represents an increase of
292% over net sales of $788,000 for the same period of 1998. The increase in
NetSolutions is primarily attributed to increased project size as the Company
has begun performing mission critical solutions for its clients. NetSolutions
typical project length is 90 to 120 days. This quick turn around is resulting in
increased demand from new customers and expansion from existing customers. The
Company is projecting sales in this division to continue to increase in 1999 as
a result of this expansion. Automotive sales were $707,000 for the quarter ended
March 31, 1999 representing an increase of 94% over net sales of $365,000 for
the same period of 1998. The increase in sales for the Automotive division is a
result of increased traffic to the Company's Automotive websites. Automotive
sales in 1998 included $150,000 in one time setup fees for partners. In 1999,
the Company discontinued setup fees in order to expand the Company's market
reach at a faster rate. The Company's Automotive division online presence
increased from two sites at the beginning of 1998 to 14 on March 31, 1999. This
increase has resulted in 38,000 automotive purchase request for the quarter
ended March 31, 1999 an increase of 2,275% over 1,600 purchase request for the
same quarter 1998. Page views for the quarter ended March 31, 1999 were
30,956,589 an increase of 7,017% over page views of 435,000 for the same quarter
of 1998. For the quarter ended March 31, 1999, the Company's Automotive web
sites attracted 1,572,000 unique visitors and increase of 4,267% over visitors
of 36,000 for the same quarter of 1998. These increases have resulted in
increased revenue and the Company believes will be the primary source of
increased revenues in 1999.
Net sales in Product Distribution were $659,000 for the quarter ended March 31,
1999 an increase of 20% over net sales of $549,000 for the same quarter of 1998.
The increase in sales is attributed to a strong orders from a couple of
customers during the first quarter of 1999. The Company projects product sales
to remain stable in 1999.
Gross Profit was $1,689,000 for the quarter ending March 31, 1999 an increase of
161% over gross profit of $647,000 for the same quarter 1998. Automotive had a
gross profit as a percent of sales of 73% for the quarter ended March 31, 1999 a
decrease of 8 percentage points from gross profit of 81% for the same period
1998. The decrease is the result of one time setup fees received in 1998 that
contain higher profit margins. NetSolutions gross profit as a percent of sales
increased to 31%, an increase o 4 percentage points over gross profit as a
percentage of sale of 27% in 1998. The increase is attributed to the ability of
the Company to reuse previous developed modules in new projects, which resulted
in higher gross profits for that project.
12
<PAGE>
Operating expenses for the quarter ended March 31, 1999 were $2,456,000 or 55%
of sales compared with $1,112,000 or 65% of sales for the same quarter 1998.
General and administrative expenses for the quarter ended March 31, 1999 were
$980,000 or 22% of sales compared to $683,000 or 40% of sales for the same
quarter in 1998. General and administrative expenses decreased as a percentage
of sales due to the fixed nature of a large percentage of these expenses.
General and administrative expenses are projected to increase over 1998 expense
levels but are projected to decrease as a percentage of sales for the year.
Sales and marketing expenses were $735,000 or 17% of sales for the quarter ended
March 31, 1999 compared to $102,000 or 6% of sales for the same quarter of 1998.
The increase in sales and marketing expenses is the result of the Company
attempting to expand brand recognition and is projected to increase in 1999 as
the Company expands its marketing for Automotive and NetSolutions products.
Product development costs were $741,000 or 17% of sales for the quarter ended
March 31, 1999 compared to $327,000 or 19% of sales for the same quarter 1998.
Product development costs are projected to increase during the remainder of 1999
as the Company expands its product sets.
Net interest expense for the quarter ending March 31, 1999 was $9,000 a decrease
of 44% from interest expense of 16,000 for the same quarter of 1998. The
decrease was a result of decreased borrowings.
Liquidity and Capital Resources
Through March 31, 1999, the Company funded its operations primarily through
equity investments, through the Company's IPO, warrant exercise, private
placements, and revenues generated from operations, loans from principal
shareholders, lines of credit and factoring arrangements made available by
banks. As of March 31, 1999, the Company had cash and cash equivalents of
$13,478,000 and a net working capital of $15,295,000. This compares with cash
and cash equivalents of $711,000 and a working capital $286,000 as of December
31, 1998. During the remainder of 1999 the Company expects to have capital
expenditures of approximately $1.7 million for its Automotive division and $1.1
million for NetSolutions. The increase in capital expenditures is projected to
enable the Company to further implement the Automotive business model and
increased network activities for the NetSolutions division. The Company's
current cash position is adequate to fund current operations for the foreseeable
future.
Cash used in operating activities for the Company totaled $2,045,000 and
$336,000 for the quarters ended March 31, 1999 and 1998, respectively. Cash used
in investing activities for the Company totaled $91,000 and $108,000 for the
quarters ended March 31, 1999 and 1998, respectively. Cash used in investing
activities consisted primarily of expenditures for property and equipment.
Cash provided by financing activities for the quarter ending Mach 31, 1999 was
$14,903,000 consisting primarily of issuance of Common Stock as a result of
warrants and options being exercised which generated $15,478,000. Cash used in
financing activities for the quarter consisted of advances from factoring
arrangements of $257,000 less repayments of $369,000, and the repayment of notes
payable of $733,000. This compares to cash provided by financing activities for
the quarter ending March 31, 1998 of $659,000 consisting primarily of advances
from factoring arrangements of $402,000 less repayments of $382,000, proceeds
from the issuance of common stock of $654,000, borrowings of $40,000 net of
payments of $55,000.
The Company has not recorded a deferred tax asset as it cannot conclude to date
that it is more likely than not that the deferred tax asset will be realized.
Inflation
The Company does not believe that inflation will have a material impact on the
Company's future operations.
13
<PAGE>
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.
The Company initiated an enterprise-wide program to prepare its IT systems and
applications for the Year 2000. The Company has completed its internal
assessment phase of its Year 2000 program. The Company did not incur any
material costs associated with that assessment. The Company believes that all of
its IT systems are Year 2000 compliant. However, there is no assurance such
belief is correct. The Company has not completed the process of verification of
whether vendors, suppliers and significant customers with which the Company has
material relationships are Year 2000 compliant. If the Company and such third
parties are unable to address Year 2000 issues in a timely manner, it could
result in material financial risk to the Company. That financial risk includes
the loss of revenue and substantial unanticipated costs. Accordingly, the
Company plans to devote all resources necessary to resolve significant Year 2000
issues in a timely manner. In addition, the Company plans to develop a Year 2000
contingency plan in the event that its IT systems and applications are not Year
2000 compliant.
The Company expects that it will incur internal staff costs as well as
consulting and other expenses related to the completion of its Year 2000
program. However, the Company currently is not able to determine the total costs
for its Year 2000 program or whether the Year 2000 will have a material effect
on its financial condition, results of operations or cash flows.
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
On February 12, 1999 the Company called all publicly traded warrants.
These warrants entitled the holder to purchase one share of Common
Stock for each warrant for $7.20 per share. 1,700,000 warrants were
exercised prior to the expiration date of March 15, 1999.
The Company issued 200,000 warrants to one representative for
solicitation for the exercise of the warrants called by the Company in
February 1999. Those 200,000 warrants are exercisable at a price of
$7.20 per share of Common Stock and expire on September 15, 2003. The
Company issued those securities pursuant to Section 4(2) of the
Securities Act of 1933 as an offering not involving a public offering.
During the first quarter of 1999, VSI Holdings exercised an option on
177,175 shares of the Company's Common Stock at $4.50 per share
resulting in proceeds to the Company of $797,000. In addition during
the first quarter of 1999 the Company had 889,000 options and broker
warrants exercised resulting in net proceeds of $2,771,000. The
Company issued the shares of its Common Stock in those transactions
pursuant to Section 4(2) of the Securities Act and Rule 506 of
Regulation D under the Securities Act.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The exhibits included in the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1998.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed three Form 8-Ks during the quarter ended March 31, 1999.
The Company filed a Form 8-K reporting an event dated January 7, 1999 concerning
the closing of a private placement of securities by the Company and included
financial statements as of November 30, 1998. The Company filed a Form 8-K
reporting an event dated March 1, 1999 concerning the change in the Company's
independent accountant. The Company filed a Form 8-K reporting an event dated
March 10, 1999 concerning a press release issued by the Company.
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NAVIDEC, INC.
-------------
Date: May 12, 1999
By /S/ RALPH ARMIJO
------------------------------------
Ralph Armijo
President and CEO
By /S/ PAT MAWHINNEY
------------------------------------
Pat Mawhinney
Chief Financial Officer
16
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 13,478,000
<SECURITIES> 0
<RECEIVABLES> 3,529,000
<ALLOWANCES> 150,000
<INVENTORY> 334,000
<CURRENT-ASSETS> 17,821,000
<PP&E> 1,796,000
<DEPRECIATION> 812,000
<TOTAL-ASSETS> 19,393,000
<CURRENT-LIABILITIES> 2,526,000
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<COMMON> 26,228,000
<OTHER-SE> (9,443,000)
<TOTAL-LIABILITY-AND-EQUITY> 19,393,000
<SALES> 4,457,000
<TOTAL-REVENUES> 4,457,000
<CGS> 2,768,000
<TOTAL-COSTS> 2,456,000
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<LOSS-PROVISION> 25,000
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> (762,000)
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