<PAGE> 1
U.S. 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 period ended June 30, 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 IRS
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 June 30, 1999, Registrant had 7,393,614 shares of common stock
outstanding
Transitional Small Business Disclosure Format. Yes No X
--- ---
<PAGE> 2
NAVIDEC, INC.
INDEX
PART I. FINANCIAL INFORMATION
=============================
Item 1. Financial Statements
Balance Sheets as of December 31, and June 30, 1999
Statements of Operations, Three months and Six months
ended June 30, 1998 and 1999
Statements of Cash Flows,
Six months ended June 30, 1998 and 1999
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
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
==============================
Item 1. Financial Statements
NAVIDEC, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31 June 30
1998 1999
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 711,000 $ 12,785,000
Accounts receivable, net of allowance for doubtful
accounts of $125,000 as of December 31, 1998 and
$185,000 as of June 30, 1999 2,167,000 1,780,000
Costs and estimated earnings in excess of billings 107,000 118,000
Inventories 341,000 440,000
Restricted cash 280,000 491,000
Prepaid expenses and other 52,000 231,000
------------ ------------
Total current assets 3,658,000 15,845,000
------------ ------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $717,000 as of December 31, 1998
and $912,000 as of June 30, 1999 981,000 1,667,000
------------ ------------
OTHER ASSETS:
Goodwill and intangibles, net of accumulated
amortization of $100,000 as of December 31, 1998
and $162,000 as of June 30, 1999 619,000 557,000
Other 7,000 1,000
------------ ------------
Total other assets 626,000 558,000
------------ ------------
TOTAL ASSETS $ 5,265,000 $ 18,070,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,851,000 $ 581,000
Accrued liabilities 423,000 571,000
Payable to factor 203,000 0
Notes payable 821,000 100,000
Current capital lease obligations 74,000 136,000
------------ ------------
Total current liabilities 3,372,000 1,388,000
------------ ------------
CAPITAL LEASE OBLIGATIONS, net current portion 94,000 305,000
SHAREHOLDERS' EQUITY:
Common stock, no par value, 20,000,000 shares authorized,
4,709,000 and 7,394,000 shares issued and outstanding
as of December 31, 1999 and June 30, 1999, respectively 8,059,000 27,526,000
Warrants for common stock 2,891,000 364,000
Accumulated deficit (9,151,000) (11,513,000)
------------ ------------
Total shareholders' equity 1,799,000 16,377,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,265,000 $ 18,070,000
============ ============
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
3
<PAGE> 4
NAVIDEC, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
---------------------------- ----------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUE $ 1,837,000 $ 3,776,000 $ 3,539,000 $ 8,233,000
COST OF REVENUE 1,284,000 2,247,000 2,339,000 5,016,000
----------- ----------- ----------- -----------
GROSS PROFIT 553,000 1,529,000 1,200,000 3,217,000
OPERATING EXPENSES
Product Development 315,000 779,000 642,000 1,520,000
General & Administrative 658,000 1,175,000 1,341,000 2,156,000
Selling & Marketing 145,000 1,282,000 247,000 2,016,000
----------- ----------- ----------- -----------
Total Operating Expenses 1,118,000 3,236,000 2,230,000 5,692,000
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (565,000) (1,707,000) (1,030,000) (2,475,000)
OTHER INCOME (EXPENSES)
Interest, net 12,000 120,000 (4,000) 112,000
Other (5,000) (13,000) (5,000) 1,000
----------- ----------- ----------- -----------
Total Other Income (expense) 7,000 107,000 (9,000) 113,000
----------- ----------- ----------- -----------
NET LOSS $ (558,000) $(1,600,000) $(1,039,000) $(2,362,000)
=========== =========== =========== ===========
NET LOSS PER SHARE BASIC
AND DILUTED $ (.16) $ (.22) $ (.30) $ (.37)
BASIC AND DILUTED WEIGHTED-
AVERAGE COMMON SHARES
OUTSTANDING 3,585,000 7,349,000 3,410,000 6,353,000
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
4
<PAGE> 5
NAVIDEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
<TABLE>
<CAPTION>
June 30,
1998 1999
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,039,000) $ (2,362,000)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 307,000 257,000
Provision for bad debt 24,000 60,000
Changes in operating assets and liabilities-
Accounts receivable (318,000) 327,000
Costs and estimated earnings in excess of billings (197,000) (11,000)
Inventories 197,000 (99,000)
Restricted cash -- (211,000)
Other assets (8,000) (173,000)
Accounts payable 23,000 (1,270,000)
Accrued liabilities 69,000 148,000
------------ ------------
Net cash used in operating activities (942,000) (3,334,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (430,000) (581,000)
------------ ------------
Net cash used in investing activities (430,000) (581,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from factoring of accounts receivable 752,000 257,000
Payments to factor (846,000) (460,000)
Proceeds from issuance of common stock and warrants 1,551,000 16,940,000
Proceeds from related party note receivable 40,000 --
Payments on notes payable and capital leases (87,000) (748,000)
------------ ------------
Net cash provided by financing activities 1,410,000 15,989,000
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 38,000 12,074,000
CASH AND CASH EQUIVALENTS, beginning of period 369,000 711,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 407,000 $ 12,785,000
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 18,000 $ 57,000
------------ ------------
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Equipment acquired with capital leases $ -- $ 300,000
------------ ------------
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
5
<PAGE> 6
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 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.
6
<PAGE> 7
(3) SHAREHOLDERS' EQUITY
Warrants and Options Exercised and 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. 1,918,000 warrants were exercised prior to the expiration
date of March 15, 1999. The warrants generated $13,809,000 net of offering costs
of approximately $100,000. In addition the Company issued 200,000 warrants to
representatives for solicitation for the exercise of the warrants.
During the first six months of 1999, VSI Holdings exercised a warrant 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 six months of 1999, the Company had
322,000 warrants exercised resulting in net proceeds of $1,295,000 and 268,000
employee options exercised resulting in $1,039,000.
(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
six-month periods ended June 30, 1998 and 1999.
(5) NOTES PAYABLE
Notes payable consist of the following as of June 30, 1999:
<TABLE>
<S> <C>
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 $ --
=========
</TABLE>
(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.
7
<PAGE> 8
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 Three Months Ended
June 30, 1999
(In thousands)
--------------------------------------------------------------
Net- Product
Solutions Automotive Distribution Corporate Total
--------- ---------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers.................. $2,510 $ 875 $ 391 $ -- $ 3,776
====== ======= ====== ========== =======
Loss from operations......... $ (450) $ (964) $ (131) $ (162)(1) $(1,707)
====== ======= ====== ========== =======
Identifiable assets.......... $1,565 $ 622 $ 708 $ 15,175(2) $18,070
====== ======= ====== ========== =======
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended
June 30, 1998
(In thousands)
--------------------------------------------------------------
Net- PRODUCT
Solutions Automotive Distribution Corporate Total
--------- ---------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers.................. $1,051 $ 139 $ 647 $ -- $ 1,837
====== ======= ====== ========== =======
(Loss) income from
operations................. $ (248) $ (345) $ 77 $ (49)(1) $ (565)
====== ======= ====== ========== =======
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 1999
----------------------------------------------
(In thousands)
Net- Product
Solutions Automotive Distribution Corporate Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 5,601 $ 1,582 $ 1,050 $ -- $ 8,233
======== ======== ======== ======== ========
Loss
from operations $ (358) $ (1,838) $ (22) $ (257)(1) $ (2,475)
======== ======== ======== ======== ========
Identifiable assets $ 1,565 $ 622 $ 708 $ 15,175(2) $ 18,070
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 1998
----------------------------------------------
(In thousands)
Net- Product
Solutions Automotive Distribution Corporate Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 1,839 $ 504 $ 1,196 $ -- $ 3,539
======== ======== ======== ======== ========
(Loss) income
from operations $ (486) $ (461) $ 135 $ (218)(1) $ (1,030)
======== ======== ======== ======== ========
</TABLE>
(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.
8
<PAGE> 9
(7) SUBSEQUENT EVENTS
On July 23, 1999, WFC Holdings Corporation ("WFC"), a subsidiary of Wells Fargo
& Company, committed to make a strategic investment of $25 million in the
Company and DriveOff.com. Closing of the transactions is subject to customary
closing conditions and, also, the execution of a co-marketing agreement and long
term consulting agreement under which the Company and DriveOff.com will provide
additional services to Wells Fargo. The parties expect to close both
transactions in August of 1999.
For its $10 million investment in the Company, WFC will receive 380,000 shares
of common stock and a $6.2 million promissory note convertible into 620,000
shares of the Company's voting or non-voting stock. For its $15 million
investment in DriveOff.com, WFC will receive a note convertible into 3.2 million
shares or twenty percent of DriveOff.com's common stock outstanding as of the
closing of the transaction. WFC will also receive a five-year warrant for an
additional 160,000 shares of DriveOff.com, exercisable one year after the
transaction's closing at $6.5625 per share.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We are a provider and incubator of innovative e-businesses solutions and
services. We provide e-business services to a wide range of customers, from
start-up enterprises to Fortune 1000 businesses. Our services enable our
customers to transform their Internet, intranet and extranet operations from a
basic web presence to an integrated e-business.
We were organized in July 1993 as ACI Systems, Inc. as a value added reseller of
computer products. In July 1996, we merged with Interactive Planet, Inc., a
designer and developer of Internet web sites and subsequently changed our name
to Navidec, Inc. In July 1997, we acquired TouchSource, Inc., a designer and
developer of interactive kiosks. Through the merger and the acquisition, we
significantly enhanced our business model by combining expertise in traditional
marketing and distribution and Internet/Intranet technology. In December 1998,
we acquired CarWizard.com and LeaseSource.com, two prominent online automotive
sites, in order to expand our online automotive presence.
Currently, we derive revenue from three divisions: Internet solutions, online
automotive solutions and product distribution. The majority of our Internet
solutions revenue is generated from fixed-price, fixed-time contracts. We
consider many factors in developing the fixed-price and fixed-time of a
contract, including the technical complexity of the engagement, the resources
required to complete the engagement and the extent to which we will be able to
deploy internally developed software tools to deliver the solution. Since most
of our solutions are delivered within a 90 to 120-day time frame, revenue is
recognized using percentage-of-completion accounting based on the ratio of labor
hours incurred as compared to the estimated total labor hours needed to complete
the engagement. We plan to expand our Internet solutions revenue base to
incorporate applications management and hosting services, which will generate
recurring revenues.
Our online automotive solutions' revenue is primarily derived from the sale of
leads generated by our CarWizard.com, LeaseSource.com and USWheels.com web
sites. During the second quarter of 1999, we contributed substantially all of
the assets associated with our online automotive solutions division to a new
subsidiary, DriveOff.com, Inc. Currently, we are selling sales leads to dealers;
however, once DriveOff.com's web site is launched in the third quarter of 1999,
we will change our revenue model. DriveOff.com expects to enter into an
exclusive contract with the IADMA. Under the terms of the proposed contract, all
vehicle transactions generated by DriveOff.com will be delivered to IADMA member
dealers in return for a marketing fee. In addition, DriveOff.com will earn a fee
on each lease or loan associated with an IADMA supplied automobile, as well as
various fees from the sale of after-market products such as credit life
insurance, gap insurance and warranties.
Our product distribution business generates revenue through the resale of third
party software and hardware components, graphical printers and supplies. Since
product distribution is not related to our core strategy, we expect that revenue
from this business will become a smaller percentage of total revenue as our
Internet and online automotive solutions businesses continue to grow.
Our operating expenses typically consist of product development costs, general
and administrative expense and selling and marketing expense.
Product development costs include salaries and out-of-pocket expenses incurred
in developing new technologies for our own use and for future customer
applications generally, as opposed to customer-specific development expenses.
General and administrative expense consists primarily of salary and benefit
expenses for our 100 employees. It also includes lease expenses associated with
our office facility and various equipment. Selling and marketing expense
includes advertising costs, costs associated with participation in trade shows
and related travel expenses.
OUR OPPORTUNITY
The growth of the Internet as a new channel of distribution has resulted in
several significant issues and opportunities for all types of businesses, as
well as e-business solutions providers. Solutions and services that enable
corporate customers and entrepreneurs to transform their businesses to
e-businesses are technically complex. These solutions require high degrees of
architectural consulting, software development, creative design and project
management expertise, as well as ongoing maintenance and support. In addition to
the technical components, successful e-business solutions require business
models that address brand and imaging strategies and partnerships, as well as
site content. Few Internet solutions providers or in-house information
technology departments are able to provide the combined multiple discipline
expertise and the experience required to rapidly develop and implement complex
Internet sites, from highly technical to the highly creative, as well as the
project management skills.
9
<PAGE> 10
OUR STRATEGY
Our goal is to be become the leading provider and incubator of innovative
Internet business solutions and services. To achieve our objective we will:
o expand geographically;
o increase Internet consulting revenues;
o expand our presence as an application service provider;
o expand depth of client relationships;
o continue develop technology capabilities;
o attract and retain experienced professionals;
o continue to foster incubation of new businesses.
RECENT DEVELOPMENTS
On July 23, 1999, WFC Holdings Corporation ("WFC"), a subsidiary of Wells Fargo
& Company, committed to make a strategic investment of $25 million in the
Company and DriveOff.com. Closing of the transactions are subject to customary
closing conditions and, also, the execution of a co-marketing agreement and long
term consulting agreement under which the Company and DriveOff.com will provide
additional services to Wells Fargo. The parties expect to close both
transactions in August of 1999.
For its $10 million investment in the Company, WFC will receive 380,000 shares
of common stock and a $6.2 million promissory note convertible into 620,000
shares of the Company's voting or non-voting stock. For its $15 million
investment in DriveOff.com, WFC will receive a note convertible into 3.2 million
shares or twenty percent of DriveOff.com's common stock outstanding as of the
closing of the transaction. WFC will also receive a five-year warrant for an
additional 160,000 shares of DriveOff.com, exercisable one year after the
transaction's closing at $6.5625 per share.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, SIX MONTHS ENDING JUNE 30,
1997 1998 1998 1999
------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C>
Revenue:
- --------
Internet solutions $ 2,359 $ 5,443 $ 1,839 $ 5,601
Online automotive solutions 223 939 504 1,582
Product distribution 3,426 2,173 1,196 1,050
------- ------- ------- -------
Total revenues 6,008 8,555 3,539 8,233
Cost of revenues: 4,219 5,870 2,339 5,016
- ----------------- ------- ------- ------- -------
Gross profit 1,789 2,685 1,200 3,217
Operating Expense:
- ------------------
Product development 1,662 1,834 642 1,520
General and administrative 2,468 3,479 1,341 2,156
Selling and marketing 237 921 247 2,016
Impairment of goodwill 1,305 0 0 0
------- ------- ------- -------
Total operating expenses 5,672 6,234 2,230 5,692
Loss from operations $(3,883) $(3,549) $(1,030) $(2,475)
</TABLE>
RESULTS OF OPERATIONS AS A PERCENTAGE OF REVENUES
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, SIX MONTHS ENDING JUNE 30,
1997 1998 1998 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue:
- --------
Internet solutions 39.3% 63.6% 52.0% 68.0%
Online automotive solutions 3.7 11.0 14.2 19.2
Product distribution 57.0 25.4 33.8 12.8
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues: 70.2 68.6 66.1 60.9
- ----------------- ---- ---- ---- ----
Gross Margin 29.8 31.4 33.9 39.1
Operating Expense:
- ------------------
Product Development 27.7 21.4 18.1 18.5
General & Admin 41.1 40.7 37.9 26.2
Selling & Marketing 3.9 10.8 7.0 24.5
Impairment of Goodwill 21.7 -- -- --
---- ---- ---- ----
Total Operating Expenses 94.4 72.9 63.0 69.1
Loss from Operations (64.6%) (41.5%) (29.1%) (30.1%)
</TABLE>
Revenue for the six months ended June 30, 1999 increased 132.6% over
the same period in 1998, from $3.5 million to $8.2 million. Revenue for the
three months ended June 30, 1999 increased by 105.5% over the same period in
1998, from $1.8 million to $3.8 million. The increase was due to increased
revenues from Internet solutions and online automotive solutions businesses.
Internet solutions revenue for the six months ended June 30, 1999
increased 204.6% over for the same period in 1998, from $1.8 million to $5.6
million. Internet solutions revenue for the three months ended June 30,
10
<PAGE> 11
1999 increased 138.7% over for the same period in 1998, from $1.0 million to
$2.5 million. The increase in Internet solutions was primarily due to increased
project size as we perform more complex and comprehensive solutions for our
clients. A typical Internet solutions project lasts between 90 and 120 days.
Online automotive solutions revenue for the six months ended June 30,
1999 increased 213.9% over the same period of 1998, from $504,000 to $1.6
million. Online automotive solutions revenue for the three months ended June 30,
1999 increased 529.5% over the same period of 1998, from $139,000 to $875,000.
The increase in Online automotive solutions revenue was a result of increased
traffic to our web sites and a corresponding increase in purchase requests and
advertising revenues. Our automotive solutions division's online presence
increased from two sites at the beginning of 1998 to 14 as of June 30, 1999.
This increase has resulted in 64,000 automotive purchase requests for the six
months ended June 30, 1999, an increase of 2,033.3% over 3,000 purchase request
for the same period 1998. Page views for the six months ended June 30, 1999 were
56.4 million versus 865,000 for the same period of 1998. For the six months
ended June 30, 1999 our online automotive solutions division's web sites
attracted 3.6 million unique visitors, versus 96,000 for the same period of
1998.
Revenue from our product distribution division for the six months ended
June 30, 1999, decreased by 12.2% over the same quarter of 1998, from $1.2
million to $1.0 million. Revenues from our product distribution division for the
three months ended June 30, 1999, decreased by 39.6% over the same quarter of
1998, from $647,000 to $391,000 . The decrease in sales was due to our decision
to focus less on product distribution and devote more resources to Internet
solutions and online automotive solutions.
Gross profit for the six months ended June 30, 1999 increased $2.0
million or 168.1% over gross profit for the same period in 1998, from $1.2
million to $3.2 million. As a percent of revenue, gross margin increased from
33.9% to 39.1% as a result of a changing mix of sales. Our online automotive
solutions' division's gross margin for the six months ended June 30, 1999
increased 2.0 percent from the same period in 1998, from 77.4% to 79.4%. Our
Internet solutions division's gross margin for the six months ended June 30,
1999 increased 2.3% over gross margin for the same period in 1998, from 27.7% to
30.0%. Gross profit for the three months ended June 30, 1999 increased 176.5%
over gross profit for the same period in 1998, from $553,000 to $1.5 million. As
a percent of sales, gross margin increased from 30.1% to 40.5% as a result of a
changing mix of sales. Our online automotive solutions' division's gross margin
for the three months ended June 30, 1999 increased from 72.7% to 84.7% from the
same period in 1998. The increase was primarily a result of our ability to reuse
previously developed modules in new projects, which resulted in higher gross
profits for the subsequent projects.
Operating expenses for the six months ended June 30, 1999 were $5.7
million, or 69.1% of sales, compared with $2.2 million, or 63.0% of sales, for
the same quarter in 1998. Operating expenses for the three months ended June 30,
1999 were $3.2 million, or 85.7% of sales, compared with $1.1 million, or 60.9%
of sales, for the same quarter in 1998.
Product development costs were $1.5 million, or 18.5% of sales, for the
six months ended June 30, 1999 compared to $642,000, or 18.1% of sales, for the
same period 1998. Product development costs were $779,000, or 20.6% of sales,
for the three months ended June 30, 1999 compared to $315,000, or 17.1% of
sales, for the same period 1998. Product development costs are projected to
increase during the remainder of 1999 as we expand our product sets.
General and administrative expenses for the six months ended June 30,
1999 were $2.2 million, or 26.2% of sales, compared to $1.3 million, or 37.9% of
sales, for the same period in 1998. General and administrative expenses for the
three months ended June 30, 1999 were $1.2 million, or 31.1% of sales, compared
to $658,000, or 35.8% 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.
Selling and marketing expenses were $2.0 million, or 24.5% of sales,
for the six months ended June 30, 1999 compared to $247,000, or 7.0% of sales,
for the same period of 1998. Sales and marketing expenses were $1.3 million, or
33.9% of sales, for the three months ended June 30, 1999 compared to $145,000,
or 7.9% of sales, for the same period of 1998. The increase in sales and
marketing expenses is the result of our attempt to expand brand recognition and
is projected to increase in 1999 as we expand our marketing for our Internet
Solutions products and services provided by DriveOff.com.
11
<PAGE> 12
Other income was $113,000 for the six months ended June 30, 1999 an
increase, from other expense of $9,000 for the same period of 1998. Other income
was $107,000 for the three months ended June 30, 1999 an increase, from other
income of $7,000 for the same period of 1998. The increase was a result of
decreased borrowings and larger cash balances.
LIQUIDITY AND CAPITAL RESOURCES
From our inception through June 30, 1999, we funded our operations
primarily from the following sources:
o equity investments through our initial public offering and
subsequent private placements of our securities,
o revenues generated from operations,
o loans from principal shareholders and employees,
o lines of credit,
o and accounts receivable factoring arrangements made available by
banks.
As of June, 1999, we had cash and cash equivalents of $12.8 million and
net working capital of $14.5 million. This compares with cash and cash
equivalents of $711,000 and net working capital of $286,000 as of December 31,
1998 and cash and cash equivalents of $369,000 and a working capital $678,000 as
of December 31, 1997. In March 1999, we completed a warrant call that resulted
in net cash to us of approximately $13.8 million. During the remainder of 1999
we expect to have capital expenditures of approximately $1.2 million for
DriveOff.com and $800,000 for Internet solutions. The capital expenditures will
be used for the further implementation of the DriveOff.com business model and
increased network activities for our Internet solutions business.
Cash used in our operating activities totaled $3.3 million for the six
months ended June 30, 1999, $942,000 for the same period of 1998. Cash used in
our investing activities totaled $581,000 for the six months ended June 30,
1999, $430,000 for same period of 1998. Cash used in our investing activities
during those periods consisted primarily of expenditures for property and
equipment.
Cash provided by our financing activities was $16.0 million during the
six months ended June 30, 1999. That amount was raised primarily through the
issuance of our common stock as a result of warrants and options being
exercised, which generated $16.9 million. Cash used in financing activities for
the six months ended June 30, 1999 consisted of advances from factoring
arrangements of $257,000, less repayments of $460,000, and the repayment of
notes/leases payable of $748,000. Cash provided by our financing activities was
$1.4 million in the first six months of 1998. In connection with the Wells
Fargo transaction, in August 1999 we expect to receive approximately $24.1
million. We plan to fund our operations during 1999, funds from continuing
operations and funds from the recent investment of Wells Fargo.
Through June 30, 1999 we had a net operating loss of $9.5 million. Our
ability to utilize these net operating loss carry forwards to offset future
taxable income will be limited, possibly significantly, by certain provisions of
the Internal Revenue Code of 1986, and, in particular, Section 382 of the Code
relating to certain ownership changes of corporations which have losses. We
believe that it is more likely than not that a significant portion of the
benefits of these net operating loss carry forwards (i.e., tax assets) will not
be realized. Accordingly, a valuation allowance has been recorded against the
entire deferred tax asset as of December 31, 1998 in our financial statements
for the period then ended.
12
<PAGE> 13
INFLATION
We do not believe that inflation will have a material impact on our
future operations.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
such computer applications could fail or create erroneous results by or at the
Year 2000. We are currently identifying which of our information technology and
non-information technology systems will be affected by Year 2000 issues.
Our Year 2000 compliance program consists of three phases:
identification and assessment; remediation; and testing. For any given system,
the phases occur in sequential order, from identification and assessment of Year
2000 problems, to remediation and, finally, to testing our solutions. However,
as we acquire additional businesses, each information technology and
non-information technology system of the acquired business must be independently
identified and assessed. As a result, all three phases of our Year 2000
compliance program may occur simultaneously as they relate to different systems.
Each phase may have a varying timetable to completion, depending upon the system
and the date when a particular business was acquired by us.
We have completed the identification and assessment of most of our
information technology systems, and those systems address or have been modified
to address Year 2000 problems. We will continue to assess the information
technology systems of businesses that we may acquire in the future. We are in
the identification and assessment phase with respect to non-information
technology systems of currently-owned businesses. We have received assurances
from our vendors and suppliers that their products and businesses are Year 2000
compliant. However, we have no direct control over these third parties and
cannot assure you that any third-party software and hardware systems will be
timely converted. The failure of certain individual vendors or suppliers, or a
combination of vendors or suppliers, to make their systems Year 2000 compliant
could have a material adverse effect on our financial results.
We anticipate completing all phases of our Year 2000 compliance program
by September, 1999, with the possible exception of the remediation and testing
phases for certain of our non-information technology systems. We cannot assure
you, however, that recently acquired businesses will be Year 2000 compliant.
However, to the extent feasible, we review the Year 2000 status of acquisition
candidates before we complete an acquisition.
In addition, we rely on third party network infrastructure providers to
gain access to the Internet. If such providers experience business interruptions
as a result of their failure to achieve Year 2000 compliance, our ability to
provide our services could be impaired, which could harm our business, financial
conditions and operating results.
Our costs to date for our Year 2000 compliance program have not been
material. Although we have not completed our assessment of non-information
technology systems, we do not currently believe that the future costs associated
with our Year 2000 compliance program will be material.
We are currently unable to determine our most reasonably likely worst
case Year 2000 scenario, because we have not identified and assessed all of our
non-information technology systems. Because most of our information technology
systems address or have been modified to address Year 2000 problems and because
most of our businesses do not employ a high degree of process of plant
automation, we do not anticipate that the Year 2000 will
13
<PAGE> 14
have a significant impact on our operations. However, a failure to address all
of our Year 2000 issues successfully could have a material adverse effect on our
business, results of operations and financial condition.
OTHER RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on accounting for the cost of such software. SOP No. 98-1 is effective
for financial statements for fiscal years beginning after December 15, 1998. The
adoption of SOP No. 98-1 in fiscal 1999 by the Company did not have a material
impact on the financial statements.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs
of Start-Up Activities ("SOP No. 98-5"). In general, SOP No. 98-5 requires costs
of start-up activities and organization costs to be expensed as incurred and
specifies that initial application of SOP No. 98-5 should be reported as the
cumulative effect of a change in accounting principle. The provisions of SOP No.
98-5 are effective for fiscal years beginning after December 15, 1998. The
adoption of SOP No. 98-5 in fiscal 1999 did not have a material impact on the
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). Navidec is required to
adopt SFAS No. 133, as amended by SFAS No. 137 in June 1999, in the year ending
December 31, 2001. SFAS No. 133 establishes methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. Navidec does not believe adoption of SFAS No.
133 will have a material impact upon its financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily to
our investment portfolio and long-term debt obligations. We do not use
derivative financial instruments in our investment portfolio. We place our
investments with high credit quality issuers and by policy is averse to
principal loss and ensures the safety and preservation of its invested funds by
limiting default risk, market risk and reinvestment risk. As of June 30, 1999
our investments consisted of short-term money market funds and commercial paper.
Our interest expense is sensitive to changes in the general level of U.S.
interest rates. Our debt is fixed rate in nature and mitigates the impact of
fluctuations in interest rates. The fair value of our debt approximates the
carrying amount at June 30, 1999. We believe the potential effects of near-term
changes in interest rates on our fixed rate debt is not material.
FORWARD LOOKING INFORMATION
Information contained in this report, other than historical information, should
be considered forward looking and reflects management's current views of future
events and financial performance that involve a number of risks and
uncertainties. The factors that could cause actual results to differ materially
include, but are not limited to, the following: general economic conditions and
developments within the Internet and Intranet industries; competition; market
acceptance of our products and services; length of sales cycle; variability of
sales order flow; management of growth; and other risk factors identified from
time to time in the Company's filings with the Securities and Exchange
Commission. These filings are available on-line at http://www.sec.gov.
PART II - OTHER INFORMATION
===========================
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
14
<PAGE> 15
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On June 17, 1999, our Annual Meeting of Shareholders
was held. At that meeting, the following matters were approved by our
shareholders by the votes indicated below:
(1) The following directors were elected to constitute our entire Board of
Directors:
<TABLE>
<CAPTION>
Shares For Shares Withheld
<S> <C> <C>
Ralph Armijo 5,889,052 41,460
Andrew Davis 5,817,822 113,090
Patrick R Mawhinney 5,886,852 44,060
Lloyd G. Chavez, Jr. 5,865,552 65,360
Gerald A Marroney 5,865,352 65,560
James Hosch 5,836,822 94,090
Michael Kranitz 5,889,052 41,860
</TABLE>
(2) A proposal to increase from one million to two million the number of
shares of our common stock issuable upon the exercise of options
granted under our Stock Option Plan received 2,590,414 shares voting in
favor of the proposal, 136,291 shares voting against the proposal, and
32,308 shares abstaining.
Item 5. Other Information
None
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,
1996 and the Company's Quarterly report for the
quarter ended June 30, 1997
27 Financial Data Schedule
(b) Reports on Form 8-K
There are no reports on Form 8-K filed during the
quarter for which this report is filed.
15
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAVIDEC, INC.
Date: August 5, 1999
By /S/ RALPH ARMIJO
Ralph Armijo
President and CEO
Date: August 5, 1999
By /S/ PAT MAWHINNEY
Pat Mawhinney
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,785,000
<SECURITIES> 0
<RECEIVABLES> 1,965,000
<ALLOWANCES> 85,000
<INVENTORY> 440,000
<CURRENT-ASSETS> 15,845,000
<PP&E> 2,579,000
<DEPRECIATION> 912,000
<TOTAL-ASSETS> 18,070,000
<CURRENT-LIABILITIES> 1,388,000
<BONDS> 0
0
0
<COMMON> 27,526,000
<OTHER-SE> (11,149,000)
<TOTAL-LIABILITY-AND-EQUITY> 18,070,000
<SALES> 8,233,000
<TOTAL-REVENUES> 8,233,000
<CGS> 5,016,000
<TOTAL-COSTS> 5,692,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,000
<INTEREST-EXPENSE> 113,000
<INCOME-PRETAX> (2,362,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (2,362,000)
<EPS-BASIC> (.37)
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