U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal year ended December 31, 1998.
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______ to ________.
Commission File No.: 0-29098
NAVIDEC, INC.
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(Exact name of small business issuer as specified in its charter)
COLORADO 33-0502730
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(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
14 INVERNESS DRIVE, SUITE F-116, ENGLEWOOD, CO 80112
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, incl. area code: 303-790-7565
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK NO PAR VALUE
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Title of Class
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes (X) No ( )
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. (X)
Revenues for the issuer's most recent fiscal year ended December 31, 1998 are
$8,555,000.
As of April 5, 1999, there were 7,475,111 shares of Common Stock issued and
outstanding and the aggregate market value of the issued and outstanding Common
Stock held by non-affiliates was approximately $63,713,898.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Navidec, Inc., a Colorado corporation, (the "Company" or "Navidec") was
incorporated in 1993. The Company enables Fortune 1000 customers to address
their e-commerce initiatives. Navidec's highly experienced team rapidly develops
component- based open systems solutions. Out of this competency the Company has
launched its first vertical market that provides on-line solutions for the
automotive industry. The Company also serves as a distributor of various high
technology and other products through traditional and electronic channels. The
Company provides its services and distributes its products to over 1,300
customers as of the date of this report.
The Company's core competencies in e-business technology and traditional product
marketing and distribution form its business model of providing complete
NetSolutions. These solutions include systems and network infrastructure
architecture, software development and services, content and aggregation, and
electronic commerce. 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 manufactures.
The Company was organized as ACI Systems, Inc. in July 1993 and changed its name
to NAVIDEC, Inc. in July 1996. 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.com, Inc. ("Carwizard") and LeaseSource Online, Inc. ("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 the 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 on-line automotive presence.
Business Strategy
The Company's goal is to enhance its position as a leading provider of
comprehensive e-business, electronic commerce and E-mail messaging solutions,
and to provide global accepted Online Automotive solutions. To achieve this
objective, the Company is expanding its NetSolutions division and Online
Automotive division.
NETSOLUTIONS
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Navidec's NetSolutions Group focuses on providing e-business solutions utilizing
six primary technical environments :
SYSTEMS INFRASTRUCTURE
* Sun Hardware Integration
* Software Integration
* Network Integration
COMMUNICATION AND COLLABORATION
* Network Mail & Messaging
* E-Mail Migration Service
* Custom Messaging Applications
* Secure Messaging Solutions
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COMMERCIAL E-COMMERCE SITE DEVELOPMENT
* E-Commerce Site Development
* User Interface Design
* Database Integration
* Integration to Legacy Application
* Web/Application Hosting
* Marketing Research & Implementation Expertise
MISSION CRITICAL MANAGEMENT TOOLS
* Update Tools
* Application (RAS) Reliability Availability Scalability
* N-Tier Architecture
ENTERPRISE SOLUTIONS AND DEPLOYMENT
* Business Process Analysis & Documentation
* Intranet and Extranet Application Development
* Application Training
E-MAIL MESSAGING
* System Architecture
* System Conversions
* Implementation and Training
EXPERTISE
The Company addresses the e-business initiatives for Fortune 1000 companies
through its highly experienced team which rapidly develops component-based open
systems solutions. The Company experts can provide a wide range of open systems,
web-based solutions. Its team has the following qualifications and
certifications:
* Netscape Solutions Experts
* LDAP & Open E-mail Expertise
* Sun Java Authorized Development Center
* N-Tier Architecture Expertise
* Macromedia Certified
* Microsoft Certified System Engineers
* Sun "Elite" Certified Representatives
* Database Expertise
CAPABILITIES
Navidec provides all aspects of the development process in-house. Our creative
staff is experienced in design for the Internet space and the Company believes
the development staff represents an unparalleled skill sets. Some of the
Company's capabilities include:
* Business Process Analysis
* Graphic Design
* User Interface Design
* Database Design and Integration
* Architecture Analysis and Design
* Custom Application Development
* System Configuration
* System Integration and Installation
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PARTNERSHIPS
To deliver the most complete and insightful technology solutions available,
Navidec partners with leading technology firms to provide the highest quality
network connections, software tools and hardware. Some of the Company's partners
include:
* Sun Microsystems
* Netscape
* BEA/WebXpress
* Oblix
* Access Graphics
* Diffusion
* Resonate
* Veritas
* Oracle
* Sybase
SIGNIFICANT CLIENTS
Verio, Inc. E-Mail Infrastructure Implementation
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Industry: Internet Service Provider / Web Hoster
Description: Verio, Inc. is the world's largest domain based web hosting
company and one of the largest Internet Service Providers in the
United States. Since its inception in March 1996, Verio has
rapidly established critical mass and a global presence through
the acquisition, integration and growth of over 45 independent
ISPs that provide a comprehensive range of business Internet
services.
Dissatisfied with its existing E-mail architecture, Verio wanted
to convert to an infrastructure that would enhance its ability to
store, backup and manage business customers' e-mail and large
file attachments in a cost-effective and encrypted manner.
Technology: Navidec partnered with Netscape to implement Netscape's advanced
messaging platform. Numerous members of Navidec's technical staff
were contracted to work on-site to assist in the implementation
and architecture of the solution.
Architecture Benefits:
By converting Verio's e-mail architecture to the Netscape
advanced messaging platform Navidec provided the following
benefits:
* Enhanced ability to store, backup and manage e-mail and
large file attachments
* Virtual office technology provides global e-mail access from
any web browser
* Provides Verio customers with IMAP-based e-mail, web-mail
and unified messaging
* Allows Verio to centralize operations, reducing management
and ownership costs
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Richmond American Homes Web Site
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Industry: Homebuilding and Mortgage Finance
Description: Richmond American Homes, a subsidiary of MDC Holdings, Inc., is
one of the nation's largest homebuilders. Over the past 25 years,
Richmond American has built over 56,000 homes, generating revenue
of $8.5 billion. MDC also provides mortgage financing through its
wholly owned subsidiary HomeAmerican Mortgage Corporation.
Richmond American Homes wanted a web site that would not just be
on par with its online competition, but surpass it. The company
wanted to target new audiences and provide a new information
source for potential homebuyers and investors.
The expected goals and benefits of the site were:
* Increased sales
* Gain a competitive advantage
* Expand marketing reach to targeted audiences
Technology: Navidec developed the site using Bluestone Inc.'s Sapphire/Web
Application Server. In creating the Quick Home Search, Navidec
used JavaScript to provide immediate results and ensure that
users never received a zero result from their search criteria. By
storing the regional home inventories in a Sybase relational
database, Richmond American Homes will be able to automate its
inventory updates through its internal system.
Development Features:
Keeping with Richmond American Homes' corporate image, Navidec
placed heavy emphasis on crisp visuals with clean and simple site
navigation. The homepage uses Java applets to create the illusion
of a working fireplace and to run a slide show of different homes
offered in all of the company's markets.
Other key features on the site include:
* Searchable database of home inventories
* Quarterly updated Java applet slide show of homes
* Mortgage Calculator figuring financing options
* Java pop-up mouse events
PENTAX Corporation Web Site
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Industry: Optical
Description: To address the growing demand for Internet shopping, Navidec
worked closely with the PENTAX team to develop a web site that
allows customers to research features for its line of cameras,
binoculars, lenses and accessories. Camera and binocular shoppers
also can visit PENTAX University to get useful tips on how to
take better photographs or how to buy the right binoculars. The
site was named one of Lycos TOP 5%, a selective directory of
top-shelf web sites.
Technology: Navidec created an architecture that adheres to open standards
methodology, making the web site portable in the event that
PENTAX wants to host it internally. BEA's WebLogic Application
Server was selected so that templated content pages could rapidly
be changed on the site, promoting ease of use and performance.
The project also allowed Navidec to leverage its extensive Java
development expertise.
To facilitate the need for PENTAX to be self sufficient in
maintaining the site, Navidec created a web-based update tool
that allows PENTAX to instantaneously update the product and
dealer database. The PENTAX site is hosted on a Sun 450
Production Server running a Netscape Enterprise Web Server.
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Development features:
* Access specifications, pricing and reviews for all PENTAX
products
* Download product information via PDF files to take with you
when shopping at a dealer
* Compare up to three products side-by-side and
feature-for-feature from aperture to weight
* Once you've found the right product, you can search for a
PENTAX dealer near you
* Subscribe to very active (3500 messages are posted each
month) E-mail discussion lists with discussions on
photography, photographic techniques and tips on using
PENTAX products
* Visit PENTAX University to get useful tips on how to take
better photographs and how to buy the right binoculars
Columbine JDS / Spotdata Web Site
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Industry: Broadcast media invoice clearinghouse
Description: Columbine JDS (CJDS) is the national leader in distributing
invoices between broadcast outlets and advertising agencies. The
company collects invoices from broadcast outlets nationwide,
compiles and distributes them to advertising agencies. CJDS
wanted to streamline this process and move to a paperless
E-billing system.
To meet CJDS' requirements, Navidec developed Spotdata.com a
full-service, business-to-business, E-commerce application. The
site allows registered users to securely download invoices or
view and print them from a web browser.
Technology: Beyond hosting the site on a secure Netscape server, Navidec
ensured world-class security on Spotdata.com with VeriSign's
digital certificates. Spotdata is actually more secure than many
online banking applications. Users register from the site and
must log in with the digital certificate to access their data.
The solution uses the LDAP directory standard to maintain an
updateable user list that is integrated with the certificates.
Navidec also customized the Oblix CSA application to provide
users and administrators with easy access to their directory
information.
With Java and BEA/WebXpress' WebLogic application server, Navidec
dynamically creates a .pdf file that is easily printed. The PDF
allows for better formatting than HTML and better performance
than a dynamically generated image.
Development features:
* Subscriber authentication established through a public-key
certificate infrastructure
* Deploy VeriSign On-Site services to create the certificates
* Subscriber authentication and authorization is managed
through extensive use of LDAP directory services and the
Oblix environment
* Users view invoices as PDF files displayed by Adobe Acrobat
Reader
* All PDF files are securely generated on the fly from a live
database
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Bryan Memorial Hospital Intranet
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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 Memorial'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.
Navidec 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.
Technology: 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 storage. Desktop clients were TCP/IP enabled.
Development Features Include:
* 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)
Major Financial Institution Infrastructure
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Industry: Financial Services Institution
Description: A world-leading financial services institution enlisted Navidec
to migrate their Internet site from a problematic Microsoft
NT/IIS architecture to a Sun/Netscape architecture. Expected
benefits of the migration were higher performance and
scalability, less down-time and an environment based on
open-systems specifications (e.g. Java, UNIX Operating System).
Additionally, Navidec provided on-site web administrators for the
existing IIS as well as web masters for the new Sun/Netscape
infrastructure. Navidec also engineered the web architecture and
firewall architecture for the new environment.
Technology: Navidec implemented the Resonate software package to help the new
architecture run faster. Resonate sits in front of two servers
and analyzes both servers to route information requests to the
server that can best handle the request. Additionally, we
provided the customer with complete integration, operational and
support documentation. By teaming with the client's technical
staff for two weeks, Navidec's engineering team was able to fully
familiarize the client's staff with the solution.
Primary technologies used on the project include:
* CheckPoint
* Netscape
* Sun
* Resonate
* Navidec's Java University Client Mentoring Program
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Major Public Utility
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Industry: Public Utility Company
Description: Navidec's Java University is a six-tier education program where
our Java experts train the client's technical staff in using Java
in the enterprise. In this program, we take clients through the
architecture, development, launch and evaluation processes of a
real enterprise-level project. Every facet of creating the
solution is covered from Java theory and programming to Java
application server techniques and enterprise development.
A major Colorado-based public utility company benefited greatly
from Java University. The public utility company brought Navidec
in to help them use Java to create an enterprise application
development tool that allows multiple departments to request
specific development resources.
Technology: Navidec utilized Netscape enterprise servers and BEA/WebXpress'
WebLogic application server. The Netscape server sends requests
to be processed by the WebLogic server. Additionally, servlets
and JHTML interface with RMI servers and Enterprise Java Beans
(EJBs) to complete the application.
Creating the application in this manner provides the following
benefits:
1. One WebLogic server is able to serve many web sites.
2. JHTML separates graphics and content in the development
phase.
3. JHTML also allows for updating on the fly so that the
client will never have to take the server down for
updates.
INTERNET/INTRANET INDUSTRY OVERVIEW
The Internet
The Internet has emerged as a global medium for communication, content delivery
and e-commerce and Internet use continues to rapidly increase. According to 1998
Nielson Media Research/Commerce Net, 34.9% of American adults are online and 20
million of 48 million online shoppers said they purchased online. International
Data Corporation estimates that the number of users worldwide with access to the
Internet will increase to over 319 million by 2002. As consumers have become
increasingly adept at utilizing the Internet for evaluating and purchasing a
wide variety of goods, the dollar volume of online commerce transactions has
risen dramatically. Forrester Research 1998 estimates that the volume of goods
and services purchased over the Internet will increase from $5 billion today to
$327 billion in 2002. Navidec's own 1998 CyberShopper Survey represented that
95% of online shoppers were satisfied with the purchases made online. In
addition to providing the basic medium for e-commerce, the Internet offers
online retailers the opportunity to market and respond to consumer preferences
and behavior directly. Jupiter Communications, Inc. estimates that the dollar
volume of online advertising will increase from $1.9 billion in 1998 to $7.7
billion in 2002. Because the Internet offers "point-to-point" communications,
online advertisers are able to present messages to specific, predetermined
audiences and interact immediately with these targeted individuals. In this way,
online retailers can target, measure and manage abroad consumer base rapidly and
economically, while establishing and maintaining direct consumer relationships
more easily. Consumers benefit from improved overall convenience, better
information regarding available products and services, enhanced sales
interactions and, often, more competitive pricing.
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Commercial Uses of the Internet
Commercial uses of the Internet include business-to-business and
business-to-consumer transactions, product marketing, advertising,
entertainment, electronic publishing, electronic services and Internet support.
The Company views the Internet as presenting significant opportunities for
electronic commerce. In the Company's view, the Internet's benefits include:
- - Low cost in comparison to other marketing channels
- - Direct marketing of products and services
- - Audio/visual display and demonstration of products
- - Ability to capture orders electronically at significantly lower personnel
costs than traditional order-taking
- - Provision of client services such as order tracking and trouble-shooting
- - Immediate fulfillment and satisfaction of certain orders, such as software
and information deliverable electronically
- - Customer convenience (24-hour, 7 days a week access)
- - Potential for narrowly-targeted marketing
A number of companies have developed systems to maintain the security of
transactions on the Internet and the Company has developed its 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
Because of the ease of use and widespread acceptance of Internet protocols, HTML
and other scripting languages and tools, a number of companies have implemented
internal networks, or Intranets, based on such protocols. The use of these
protocols allows employees using personal computers and Web browser software to
access and interact with a broad range of information sources within their
company, independent of physical location and underlying computer and database
design, on the familiar platform of Web browser software.
ONLINE AUTOMOTIVE SOLUTIONS
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The Company believes that the following business strengths provide it with a
competitive advantage in the on-line automotive industry.
* Consumer-Centric Versus Dealer-Centric. Today's Internet automotive
services are, for the most part, entirely dealer-centric. As a result,
services add little value to customers once they pass them off to a dealer.
The Company has discovered that this process alienates and disappoints
customers and does little to generate repeat or referral visits to the
Company's site. Perhaps less obvious is the inevitable erosion of
participating dealers caused by the proliferation of competing
dealer-centric systems. With consumers submitting leads from up to three
different automotive sites at times, dealers are more likely to pay
multiple services for the same customer lead. This results in obvious
dealer dissatisfaction. To compound matters, most dealers close a low
percentage of their Internet leads. This contributes materially to
dissatisfaction among dealers who perceive little value and great risk in
shifting their resources from traditionally successful sales practices to
Internet sales. High dealer turnover results in instability and substantial
losses for Internet automotive services that dedicate significant resources
attempting to "train" their affiliate dealers in the art of closing
Internet sales. The Company's new strategy eliminates each of these
problems. The Company is implemented a on-line automotive solution in which
the Company can receive automotive purchase and lease requests from its
affinity partners' websites and the Company will fulfill those requests
without the consumer having to negotiate with the auto dealer. By regaining
control over the transaction, the Company can ensure that customers are
treated courteously and effectively throughout the transaction. In the
process the Company meets Internet consumers' expectations and enables them
to avoid head-to-head negotiations with a dealer. This results in higher
consumer satisfaction and repeat business. In addition, the Company does
not need to devote resources to training dealers or managing their
expectations in connection with lead quality. The Company produces sales,
not leads.
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* TotalOn-line Solution. Using its proprietary technology and broad-based
industry relationships, the Company has created a complete on-line solution
that enables consumers to conveniently purchase vehicles using a process
that is faster, better and easier than either traditional means or
prevailing Internet methods. The Company's sites enable consumers to
thoroughly research and compare all different makes and models available in
the United States. Once their research is complete, consumers will be able
to access the Company's DealWizard module, which gives them instant online
quotes on vehicles the consumers construct themselves. The process is
satisfying for the consumer, who can manipulate vehicle options and
financing terms to arrive at an ideal automobile package. This process is
currently unavailable anywhere on the Internet. Once the automobile package
is complete, the consumer can actually follow through with the purchase and
buy or lease the vehicle created on-screen for the prices and payments
shown.
* Superior Automotive Content. A critical component of the Company's solution
is the accuracy of its content. To enable consumers to effectively research
vehicles and generate valid purchase requests, the Company's automobile
pricing, optioning and technical data is updated weekly and of the highest
professional caliber. In addition, the Company's sites feature Automotive
Lease Guide ("ALG") automobile leasing residual values, Motor Trend driving
reviews, NHTSA safety information, Reuter's automotive news, and advice
from nationally recognized automobile finance experts. The Company has been
successful in licensing its content on the auto "channels" of Excite,
Netscape, WebCrawler, Prodigy, and Magellan as well as on CBS.com,
WomanMotorist.com, and TheCarConnection.com. The Company's sites also have
been highly recommended in numerous national publications, including,
Kiplinger's Personal Finance Magazine, Automobile Magazine, Smart Money
Magazine, Money Magazine, Consumers Digest, The New York Times, USA Today,
and The Detroit News.
* Technology Based Solutions. The Company has in the development of its
Online Automotive solutions effectively leveraged its experience in
providing on-line business solutions to Fortune 1000 companies. The group's
world class expertise has led to the development of the Data Harvester
application that can access legacy information systems and extract data
essential to financial institutions, dealers and inventory-based automotive
solutions. The Data Harvester enables dealers to manage inventory, customer
lists, and service requests. The Data Harvester can, in hours, extract
marketing data from dealer legacy systems that would otherwise take months
and cost thousands of dollars to accumulate.
* Partners and Industry Relationships. The Company has established a number
of strategic relationships that have enabled it to obtain and keep a
significant presence in the Internet marketplace. The Company has two
content partnership agreements with Excite, Inc. Those agreements have
resulted in the Company's content and vehicle inventory being featured on
the Excite, Netscape Netcenter, Prodigy, WebCrawler and Magellan portals,
as well as Excite Classifieds. The Company's relationship with CBS New
Media has resulted in the CBS.CarWizard.com automotive service on CBS.com.
The Company's long-term agreement with Bank One Credit Company and more
than 13 broadcast and print media companies has fueled the launch of six
regional Wheels sites with additional regions in process. The Company has a
marketing agreement with ALG under which ALG has agreed to promote the
Company's CarWizard application to the top 25 financial institutions in the
United States.
Company-Operated Sites
The Company currently owns and operates the USWheels.com, CarWizard.com and
LeaseSource.com Internet Sites. In combination, these sites receive in excess of
120,000,000 page views annually, entertaining in excess of 13,000,000 visitors.
On average, the sites generate more than 10,000 customer purchase requests per
month. The Company earns revenue from site advertisements as well as from the
handling of customer purchase request.
Affinity Solutions
Overview: The core of the Company's retail business is driven by the affinity
solution paradigm. The Company licenses partial or complete automotive content
modules to affinity organizations that wish to provide timely and accurate auto
<PAGE>
buying/leasing information and advice to their members and customers. At the
affinity partner's request, the Company can also provide dealer inventory from
the affinity partner's dealer network. In addition to content, the Company also
offers lead fulfillment services. For organizations that maintain their own
dealer network, the Company provides a software tool to intelligently harvest
and distribute leads among member dealers. For affinity groups without a dealer
network, the Company can provide a complete dealer network. With this modular
approach, the Company can offer a wide range of retail automotive solutions
depending on the individual needs of the affinity organization.
Financial, Portal, Media and Other Affinity Solutions: The Company has segmented
its affinity relationships into three major categories; media organizations,
Internet portals and financial institutions. For newspaper and broadcast media
organizations, the Company offers the regional Wheels solution. For Internet
portals, the Company offers a private-label solution or a "CarWizard" branded
solution to enable portals to enhance their content offering and sell the
resulting customer leads. The Company's content currently appears on Excite.com,
Netscape.com, WebCrawler.com, Prodigy, CBS.com, MotorTrend.com,
WomanMotorist.com and TheCarConnection.com. The solution for financial
institutions is particularly powerful because financial institutions have a
vested interest in pairing site visitors with their automobile lease and loan
packages.
Custom Automotive Solutions
The Company also earns revenue through the development and license of
"back-office" technology. The Company typically licenses wholesale solutions to
financial institutions, dealer groups and organizations whose business depends,
in whole or in part, upon the timely harvesting of marketing or product
information from legacy business systems.
Market opportunity
The Company believes the market opportunity for its Online Automotive solutions
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. The
proliferation of Internet use and statistics about online retailing reveal the
potential impact of the Internet on the automotive industry.
The Market for Vehicles and Related Products and Services
The global proliferation of cars and light trucks ("vehicles") and related
products and services has served to make the automotive industry one of the
largest in the world. The Polk Company, an automotive research firm, estimates
that there were over 192 million registered vehicles in the United States as of
December 31, 1997. CNW Marketing/Research, a market research firm, estimates
that approximately 15 million new and 41 million pre-owned vehicles were sold in
the United States in 1997, translating into a market that exceeded $670 billion.
A large market also exists for automotive-related products and services, such as
insurance and financing. According to A.M. Best, an insurance research firm,
total automobile insurance premiums were expected to exceed $136 billion in
1998. In addition, the U.S. Federal Reserve Board estimates that the automotive
consumer credit market totaled approximately $440 billion as of November 1998.
Combining these market size estimates, the total United States market for
vehicles and automotive-related products and services exceeds $1 trillion.
The new and pre-owned vehicle market suffers from an aging distribution
infrastructure that is fragmented and inefficient for both consumers and
dealers. Automotive News estimates that there are approximately 22,000
franchised dealerships (excluding independent dealerships) in the United States,
representing about 49,000 franchises (a dealership selling Ford, Lincoln and
Mercury vehicles would have three franchises). The unit sales of the top ten
dealership groups, as reported by Automotive News, accounted for only about 4%
of the approximately 31 million new and pre-owned vehicles that CNW
Marketing/Research reports as having been sold by franchised dealerships in
1997. The recent consolidation of some major dealership groups has done little
to reduce the considerable fragmentation in the industry, and no national dealer
brand has emerged. The Company believes that a combination of the highly
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competitive dealership landscape and a salesperson compensation system based on
sales dollar volume rather than sales unit volume has contributed to an
unpleasant buying experience for consumers and a decline in profit margins for
dealers. As a result, consumers often view dealerships as pressure-filled
environments where they must make significant purchase decisions with incomplete
information. Further, when purchasing pre-owned vehicles as compared to new
vehicles, consumers are confronted with a vehicle that has a unique price, set
of accessories, mileage, history of use and maintenance record. The higher
profit contribution to the dealer from the sale of a pre-owned vehicle, as
compared to that of a new vehicle, further increases the pressure for the dealer
to complete a sale and often makes the process more difficult for the consumer.
In addition, consumers historically have not had access to competitively priced
automotive-related products and services in a single centralized location.
Growth of Online-Automotive acceptance
The following are highlights from the Navidec's own CyberShopper 1998 survey.
- - 75% of online users likely to purchase a new or used car or truck in the
next year are likely to use the Internet to gather vehicle information
prior to buying.
- - Users who shopped online for a vehicle visited an average of 7 sites to
gather information, with the minimum being 1 and the maximum being 60.
- - Price is the key reason for shopping for or buying a vehicle online, with
47% of online users who already shopped or purchased online saying prices
were reasonable or lower than traditional methods of buying an automobile.
- - Of those who said they are likely to use the Internet to gather information
for their next automotive purchase, 56% would search for new vehicle
information, and 21% who would search for used vehicle information.
- - 92% of those who had shopped for or purchased a vehicle online said they
were at least somewhat satisfied with the experience.
- - When asked to name the top three reasons why they shopped for a vehicle
online:
* 87% of respondents said being able to comparison shop about different cars
or trucks;
* 85% said to get the absolute lowest price; and,
* 70% said getting a guaranteed price on a car or truck before visiting a
dealer.
- - When asked to name the top three kinds of information online shoppers would
like to see on automotive web sites:
* 86% said obtaining the dealer invoice and selling prices of the vehicles;
* 81% said being able to price out different combinations of options; and,
* 75% said being able to compare a car feature-by-feature.
- - Nearly two-thirds of online users (61%) who provided personal information
to a dealer about a particular vehicle would like the dealer to respond to
them by e-mail.
- - Nearly one-half of respondents (44%) said they would use the Internet to
find vehicle information three months or more in advance of their purchase.
The Online Automotive Opportunity
The Company believes that vehicle manufacturers, dealers and vendors of related
products and services increasingly desire to use the Internet to improve
consumer interaction, information management and sales. According to JD Power
and Associates, 16% of new vehicle purchasers used the Internet to assist with
their purchases in 1997 and this figure is expected to increase to approximately
50% by 2000. The Doring Co. reported that 63% of all respondents to a recent
study would use the Internet to obtain information about the vehicles that they
are considering for purchase. However, to avail themselves of the Internet
opportunity, dealers, vehicle manufacturers and related vendors must address the
need for sophisticated Web site development and maintenance, increased demand
for electronic consumer interaction and support, and integration of their Web
sites with existing internal systems. For consumers, while the Internet
substantially increases the amount of information available for researching and
evaluating automotive purchase decisions, this information is often not
<PAGE>
aggregated at a central, organized source. In addition, a large portion of this
information is located on automotive manufacturers' own Websites, which we
believe frequently do not provide complete or unbiased content. The Company has
formulated a strategy that address the automotive industry's technological
obstacles by providing inventory and vehicle specification solutions and
providing the vehicle information on a real time basis in a functional format
for the consumer while simultaneously providing the consumer reliable,
independent information. There are numerous online automotive sales Web sites on
the Internet today, but none that employ the same total solution strategy like
the Company. Other online automotive sales products include Carpoint,
Auto-by-Tel, Autoweb, 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,
including important add-ons such as touch-screen kiosks and mobile sales
laptops. Another important distinction is that the Company understands the auto
sales process and even trains dealers to help them sell more autos from the
leads generated by Wheels. The Company has over 25,000 hours into the
development of the wheels solution.
Potential applications 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 Navidec has not
begun selling its technology into other vertical markets, it is examining its
potential applications.
DISTRIBUTION AND RELATED SERVICES
The Company distributes high technology systems and components manufactured by
third parties. Product distribution clients range from small businesses to
Fortune 100 companies. Significant product distribution clients include Lockheed
Martin, Johnson Controls, Hughes Aircraft and US West. The Company serves 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. The Company focuses its distribution efforts towards
selling specialized, higher margin products. The Company has begun to expand its
product distribution activities into electronic channels, including sales over
the Internet on the Company's Web site.
Distribution activities usually involve the receipt by the Company of orders for
equipment from prospective purchasers and the delivery and/or installation of
the equipment by the Company. The Company purchases the equipment directly from
the manufacturer or vendor and resells it to the purchaser at a price which
includes the Company's cost and a profit margin. The Company specializes in high
tech components, graphics products and supplies.
EMPLOYEES
There are currently 75 full-time employees of the Company. These include 13 in
Professional Services, 8 in Creative Services, 23 in Software Development, 4 in
Marketing Services, 17 in sales, and 10 in management and administration.
The Company expects to hire forty five additional full-time employees in the
twelve months following this report. The Company currently anticipates 17 new
hires dedicated to sales, 3 new hires dedicated to professional services, 20 new
technical employees and 5 new hires in administration.
COMPETITION
Existing competitors to the NetSolutions business include EarthWeb, Inc. (NASDAQ
EWBX), Critical Path, Inc. (NASDAQ CPTH) and USWeb, Inc. (NASDAQ USWB), as well
as a large number of regional firms providing similar services to those of the
Company. Potential competitors in this business include browser software
vendors, PC and UNIX software vendors and on-line service providers. Additional
competition comes from numerous client/server companies, database companies,
multimedia companies, advertising agencies, document management companies,
networking software companies, network management companies and educational
software companies. In a broader sense, the Company may compete with the more
traditional advertising and distribution mediums, such as radio, television and
mail order outlets.
<PAGE>
Potential competition also comes from the Company's clients, who could choose to
address their Internet/Intranet needs through in-house personnel. Some of the
Company's current and many of the Company's potential competitors have longer
operating histories, greater name recognition, larger installed customer bases
and significantly greater financial, technical and marketing resources than
those of the Company. Competitive factors in the Internet/Intranet Solutions
business include core technology, breadth of services offered, creative and
artistic ability, marketing and distribution resources, customer service and
support and price.
Competitors in the automotive market
There are numerous online automotive sales Web sites on the Internet today, but
none that employ the same total solution strategy as Navidec. Other online auto
sales products include Carpoint, Auto-by-Tel (NASDAQ ABTL), AutoWeb (NASDAQ
AWEB), AutoConnect, and Cars.com. 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, including important
add-ons such as touch-screen kiosks and mobile sales laptops.
Navidec has hired a team of experts well versed in the automotive business, and
has the president of Denver's largest independently owned dealership group (Burt
Automotive) on its board of directors. These experts enable Navidec's access to
the latest industry information and a deep understanding of the automotive
business and its processes.
Both the Internet/Intranet Solutions business and the high technology product
distribution business are characterized by low financial barriers to entry and
frequent introductions of new products. The Company therefore expects
competition in each of its businesses to increase in the future. There can be no
assurance that the Company will be able to successfully compete in its
businesses. Although the Company believes that it has the requisite management,
technical and creative abilities to successfully compete, the intense level of
competition in each of the Company's businesses could materially adversely
affect the Company's future operating results and financial condition.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's headquarters are located at 14 Inverness Drive, Building F, Suite
116, Englewood, Colorado, in a 13,000 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 and providing for
a current monthly lease rate of $15,708. The Company also leases space at 1300
Plaza North, Suite 101, Lafayette, CO, in a 1,500 square foot facility. The
facility is occupied under a lease with an unaffiliated party expiring in June
1999 and providing for a monthly lease rate of $2,180. The Company may lease
additional office space if needed to support the growth in traditional and
on-line product distribution.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1998.
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock commenced trading on the Nasdaq SmallCap Market
under the symbol "NVDC" on February 11, 1997. The Company also had a class of
common stock purchase warrants ("Warrants") listed on the Nasdaq SmallCap Market
under the symbol "NVDCW." The Warrants also commenced trading on February 11,
1997, but were called by the Company under terms of the warrants on February 12,
1999, and ceased trading on March 16, 1999.
<PAGE>
Common Stock
------------------------
Quarter Ended High Low
- ------------- ---- ---
March 31, 1997 $5.625 $5.125
June 30, 1997 $6.000 $3.250
September 30, 1997 $7.000 $5.250
December 31, 1997 $7.000 $4.063
March 31, 1998 $7.125 $3.000
June 30, 1998 $6.813 $5.750
September 30, 1998 $7.219 $2.438
December 31, 1998 $6.000 $2.063
(b) Holders
As of April 9, 1999, the Company estimates the number of beneficial owners of
common stock to be 900.
(c) Dividends
The Company has not declared any cash dividends on its common shares for the
last two fiscal years. The Company currently intends to retain funds from
earnings, if any, from future growth and therefore does not intend to pay any
cash dividends in the foreseeable future on its Common Stock. The Company is not
currently a party to any agreement restricting the payment of dividends.
(d) Recent Sales of Unregistered Securities
On February 16, 1998 the Company 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 the Company issued a total of
250,000 options to Joseph Charles & Associates and its designees in
consideration for the services performed by them. Those options are exercisable
at $3.50 per share and expire on February 15, 2003. 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.
On August 31, 1998, in consideration for a $800,000 loan from VSI Holdings Inc.,
the Company granted to VSI Holdings Inc. options to purchase 177,175 shares of
the Company's common stock at $4.50 per share that expire on September 25, 1999
and options to purchase 354,350 shares of the Company's common stock at $6.50
per share that expire on December 31, 1999. The Company issued its securities in
that transaction under Section 4(2) of the Securities Act of 1933 as an offering
not involving any public offering. VSI Holdings Inc. agreed with the Company in
March 1999 to cancel 100,000 of the options exercisable at $6.50 as part of an
agreement for the Company to repay the loan from VSI Holdings Inc.
On November 24, 1998, the Company completed an offering of 700,000 shares of its
Common Stock to twenty investors. The Company raised $1,330,000 from that
offering net of offering costs of $70,000. 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. In addition, in 1999, the Company issued warrants to
purchase 70,000 shares of its Common Stock to four persons who agreed to render
services to the Company. Those warrants were issued pursuant to Section 4(2) of
the Securities Act of 1933 as an offering not involving any public offering and
are exercisable at $2.00 per share during the five-year period commencing on
November 24, 1998.
<PAGE>
On December 28, 1998, the Company issued a total of 250,000 shares of its common
stock to the shareholders of CarWizard, Inc. and LeaseSource Online, Inc. in
exchange for all of their ownership interests of those companies. The Company
also issued options to purchase 83,334 shares of its Common Stock to Michael
Kranitz as part of that transaction. Those options are exercisable at $5.08 per
share for a five year period commencing on December 31, 1998. The Company issued
its securities in that transaction under Section 4(2) of the Securities Act of
1933 as an offering not involving any public offering.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 manufactures. 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 the 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 infrastructure 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 of 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.
<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 entitles 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.
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. Products 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.
The following table shows the breakdown of these three segments for 1998 and
1997
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
--------------------------------------------------- ----------------------------------------------------
1998 1997
--------------------------------------------------- ----------------------------------------------------
NetSolutions Auto Products Corp. Total NetSolutions Auto Products Corp Total
------------ ---- -------- ----- ----- ------------ ---- -------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 5,443 $ 939 $ 2,173 $ 8,555 $ 2,359 $ 223 $ 3,426 $ 6,008
Cost of Goods Sold 4,009 243 1,618 5,870 1,412 37 2,770 4,219
------- ------- ------- ------- ------- ------- ------- -------
Gross Profit $ 1,434 $ 696 $ 555 $ 2,685 $ 947 $ 186 $ 656 $ 1,789
Operating Expense
Product Development $ 542 $ 1,292 $ 0 $ 1,834 $ 835 $ 827 $ 0 $ 1,662
Selling & Marketing 217 665 39 921 123 79 35 237
Impairment of Goodwill 0 1,305 1,305
General & Admin 1,857 890 379 353(1) 3,479 1,177 548 486 257(1) 2,468
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Operating Expenses $ 2,616 $ 2,847 $ 418 $ 353 $ 6,234 $ 3,440 $ 1,454 $ 521 257 5,672
Operating (Loss) Income $(1,182) $(2,151) $ 137 $ (353) $(3,549) $(2,493) $(1,268) $ 135 ($ 257) ($3,883)
(1) Represents depreciation expense on property and equipment, which can not be
directly identified to a particular segment.
</TABLE>
<PAGE>
Net sales for fiscal 1998 were $8,555,000 which represents an increase of 42%
over net sales of $6,008,000 in fiscal 1997. The increase is primarily
attributed to increased sales in NetSolutions and Automotive. NetSolutions sales
were $5,443,000 which represents an increase of 131% over net sales of
$2,359,000 in fiscal 1997. Automotive sales were $939,000 on a stand alone basis
and $1,546,000 on a pro-forma combined basis with LeaseSource and CarWizard
representing an increase of 321% or 693% respectively over net sales of $223,000
in fiscal 1997. The increase in these two areas is primarily attributed to
increase market acceptance and marketing activities. 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. The Company's Automotive division online presence
increased from one site at the beginning of 1998 to 14 on December 31, 1998.
This increase has resulted in automotive purchase requests increasing from 350
for the month of January to in excess of 11,000 for the month of December of
1998. This increase has resulted in increased revenue and will be the primary
source of increased revenues in 1999.
Net sales in Products were $2,173,000 a decrease of 37% from net sales of
$3,426,000 in fiscal 1997. The decrease in sales is attributed to the
discontinuation of distribution products that did not have strong gross profit
and/or recurring sales. The Company projects product sales to remain stable in
1999.
Gross Profit was $2,685,000 during fiscal 1998, an increase of 50% over a gross
profit of $1,789,000 in fiscal 1997. As a percent of sales gross profit
increased to 31.4% from 29.8% an increase of 1.6%. The increase in the Company's
gross margin was attributable to the increased sales in Automotive. Automotive
had a gross profit as a percent of sales of 74.1% in 1998, while NetSolutions
had gross profit of 26.3% and Products had 25.5% for the same period. The
Company plans for its Automotive division to make up a larger percentage of
sales in 1999, and thus gross profit as a percentage of sales is projected to
increase accordingly.
Operating expenses for fiscal 1998 were $6,234,000 or 72.9% of sales compared
with $5,672,000 or 94.4% of sales for fiscal 1997. General and administrative
expenses for fiscal 1998 were $3,479,000 an increase of $1,011,000 or 41.0% over
general and administrative expenses of $2,468,000 for fiscal 1997. This increase
is primarily attributed to increased personnel expenses, and increased legal
expenses related to the VSI merger negotiations that were discontinued by the
Company in 1998. General and administrative expenses are projected to increase
in 1999 with the expansion of the Automotive and NetSolutions. Selling and
marketing expenses for fiscal 1998 were $921,000 an increase of $684,000 or 289%
over selling and marketing expenses of $237,000 for fiscal 1997. The Company is
projecting significant increase in selling and marketing expenses in 1999 as a
result of producing brand awareness for Automotive solutions. Product
development expenses for fiscal 1998 were $1,834,000 an increase of $172,000 or
10% over product development expenses of $1,662,000 in fiscal 1997. Product
development expenses are projected to increase in the automotive division in
1999, due to the acceptance of online solutions in the automotive industry.
NetSolutions is also projecting an increase in product development as it
continues with the Company's philosophy of turning solutions into products. In
1997 the Company recorded $1,305,000 in expense for the impairment of goodwill.
The goodwill was the result of the merger with IPI in 1996 and the acquisition
of TS in 1997.
Net interest expense for fiscal 1998 was $414,000 compared with $236,000 for
fiscal 1997. The increase was a result of increased borrowings to fund the
growth of the Company. The Company expects interest expense to decrease in 1999.
Liquidity and Capital Resources
Through December 31, 1998, the Company funded its operations primarily through
equity investments, through the Company's IPO and subsequent Private Placements,
and revenues generated from operations, loans from principal shareholders and
employees, lines of credit and factoring arrangements made available by banks.
As of December 31, 1998, the Company had cash and cash equivalents of $711,000
and a net working capital of $286,000. This compares with cash and cash
equivalents of $369,000 and a working capital $678,000 as of December 31, 1997.
In March of 1999, the Company completed a warrant call that resulted net cash of
approximately $13.8 million. In 1999 the Company expects to have capital
expenditures of approximately $1.8 million for its Automotive division and $1.1
million for NetSolutions. The increase in capital expenditures is projected due
to further implementation of the Automotive business model and increased network
activities for the NetSolutions division.
<PAGE>
Cash used in operating activities for the Company totaled $3,050,000 and
$3,659,000 for fiscal 1998 and 1997, respectively. Cash used in investing
activities for the Company totaled $470,000 and $500,000 for fiscal 1998 and
1997, respectively. Cash used in investing activities consisted primarily of
expenditures for property and equipment.
Cash provided by financing activities in fiscal 1998 was $3,862,000 consisting
primarily of advances from factoring arrangements of $3,515,000 net of
repayments of $3,502,000, proceeds from the issuance of common stock of
$2,806,000, exercise of warrants of $292,000, exercise of employee stock options
of $284,000, borrowings of $885,000 net of payments of $478,000. This compares
to cash provided by financing activities in fiscal 1997 of $4,297,000 consisting
primarily of advances from factoring arrangements of $634,000 net of repayments
of $444,000, proceeds from the issuance of common stock of $4,153,000,
borrowings of $333,000 net of payments of $369,000.
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.
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.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
NAVIDEC, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Navidec, Inc.:
We have audited the accompanying consolidated balance sheet of NAVIDEC, INC., (a
Colorado corporation) and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Navidec, Inc. and
subsidiaries, as of December 31, 1998, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 23, 1999.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
NAVIDEC, Inc.
Englewood, Colorado
We have audited the balance sheet of NAVIDEC, Inc., as of December 31, 1997 (not
separately included herein) and the accompanied related statements of
operations, changes in stockholders' equity, and cash flows for the year ended
December 31, 1997. 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 audit.
We conducted our audit 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 audit provides 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 year then
ended in conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
March 5, 1998.
<PAGE>
<TABLE>
<CAPTION>
NAVIDEC, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
------
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $ 711,000
Accounts receivable, net of allowance for doubtful accounts of $125,000 2,167,000
Costs and estimated earnings in excess of billings 107,000
Inventories 341,000
Restricted cash 280,000
Prepaid expenses and other 52,000
-----------
Total current assets 3,658,000
-----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $717,000 981,000
-----------
OTHER ASSETS:
Goodwill and intangibles, net of accumulated amortization of $100,000 619,000
Other 7,000
-----------
Total other assets 626,000
-----------
$ 5,265,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,851,000
Accrued liabilities 423,000
Payable to factor 203,000
Notes payable 821,000
Current capital lease obligations 74,000
-----------
Total current liabilities 3,372,000
-----------
CAPITAL LEASE OBLIGATIONS 94,000
COMMITMENTS AND CONTINGENCIES (Notes 1, 3 and 7)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 20,000,000 shares authorized,
4,709,000 shares issued and outstanding 8,059,000
Warrants for common stock 2,891,000
Accumulated deficit (9,151,000)
-----------
Total stockholders' equity 1,799,000
-----------
$ 5,265,000
===========
The accompanying notes to consolidated
financial statements are an integral part of
these statements.
</TABLE>
<PAGE>
NAVIDEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
----------------------------
1998 1997
---- ----
REVENUE $ 8,555,000 $ 6,008,000
COST OF REVENUES 5,870,000 4,219,000
----------- -----------
GROSS MARGIN 2,685,000 1,789,000
----------- -----------
OPERATING EXPENSES:
Product development 1,834,000 1,662,000
General and administrative 3,479,000 2,468,000
Selling and marketing 921,000 237,000
Impairment of goodwill -- 1,305,000
----------- -----------
Total operating expenses 6,234,000 5,672,000
----------- -----------
LOSS FROM OPERATIONS (3,549,000) (3,883,000)
----------- -----------
OTHER (EXPENSE) INCOME:
Interest expense (414,000) (236,000)
Other, net 30,000 12,000
----------- -----------
Other expense, net (384,000) (224,000)
----------- -----------
NET LOSS $(3,933,000) $(4,107,000)
=========== ===========
BASIC AND DILUTED NET LOSS PER SHARE $ (1.10) $ (1.47)
=========== ===========
BASIC AND DILUTED WEIGHTED-AVERAGE
COMMON SHARES OUTSTANDING 3,578,000 2,800,000
=========== ===========
The accompanying notes to consolidated
financial statements are an integral part of
these statements.
<PAGE>
<TABLE>
<CAPTION>
NAVIDEC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Warrants
Common Stock for
------------------------- Common Accumulated
Shares Amount Stock Deficit Total
------ ------ ----- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1996 1,701,000 $ 401,000 $ -- $(1,111,000) $ (710,000)
Conversion of unsecured promissory
notes to common stock 349,000 1,133,000 305,000 -- 1,438,000
Issuance of common stock and warrants
in a public offering, net
of $1,094,000 of expenses 755,000 2,473,000 963,000 -- 3,436,000
Issuance of common stock for the
acquisition of TouchSource 207,000 776,000 -- -- 776,000
Issuance of common stock and warrants
in a private placement, net
of $132,000 of expenses 189,000 574,000 143,000 -- 717,000
Net loss -- -- -- (4,107,000) (4,107,000)
----------- ----------- ----------- ----------- -----------
BALANCES, December 31, 1997 3,201,000 5,357,000 1,411,000 (5,218,000) 1,550,000
Issuance of common stock and warrants
in a private placement, net
of $350,000 of expenses 406,000 131,000 1,345,000 -- 1,476,000
Issuance of warrants in connection
with debt borrowing -- -- 300,000 -- 300,000
Issuance of common stock in a private
placement, net of $70,000 of expenses 700,000 1,330,000 -- -- 1,330,000
Issuance of common stock for acquisition
of CarWizard and LeaseSource 250,000 500,000 -- -- 500,000
Exercise of employee stock options 69,000 284,000 -- -- 284,000
Exercise of warrants 83,000 457,000 (165,000) -- 292,000
Net loss -- -- -- (3,933,000) (3,933,000)
----------- ----------- ----------- ----------- -----------
BALANCES, December 31, 1998 4,709,000 $ 8,059,000 $ 2,891,000 $(9,151,000) $ 1,799,000
=========== =========== =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAVIDEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
--------------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(3,933,000) $(4,107,000)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 522,000 865,000
Discount on note payable 300,000 --
Provision for bad debt 75,000 41,000
Impairment of goodwill -- 1,305,000
Changes in operating assets and liabilities-
Accounts receivable (1,377,000) (627,000)
Costs and estimated earnings in excess of billings (1,000) (106,000)
Inventories 208,000 (315,000)
Restricted cash 20,000 (300,000)
Other assets 27,000 (52,000)
Accounts payable 857,000 (92,000)
Accrued liabilities 252,000 (271,000)
----------- -----------
Net cash used in operating activities (3,050,000) (3,659,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (538,000) (475,000)
Cash assumed in acquisitions 68,000 7,000
Acquisition costs incurred -- (32,000)
----------- -----------
Net cash used in investing activities (470,000) (500,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from factoring of accounts receivable 3,515,000 634,000
Payments to factor (3,502,000) (444,000)
Proceeds from issuance of common stock and warrants 3,226,000 5,379,000
Payment for offering and deferred financing costs (420,000) (1,236,000)
Proceeds from exercise of employee stock options 284,000 --
Proceeds from exercise of warrants 292,000 --
Proceeds from notes payable 885,000 333,000
Proceeds from related party note receivable 60,000 --
Payments on notes payable and capital leases (478,000) (369,000)
----------- -----------
Net cash provided by financing activities 3,862,000 4,297,000
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 342,000 138,000
CASH AND CASH EQUIVALENTS, beginning of period 369,000 231,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 711,000 $ 369,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 109,000 $ 79,000
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Equipment acquired with capital leases $ 72,000 $ --
=========== ===========
Issuance of common stock in connection with acquisitions $ 500,000 $ 776,000
=========== ===========
Conversion of unsecured promissory notes to common stock $ -- $ 1,438,000
=========== ===========
Net liabilities assumed in acquisitions $ 39,000 $ 83,000
=========== ===========
The accompanying notes to consolidated
financial statements are an integral part of
these statements.
</TABLE>
<PAGE>
NAVIDEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) ORGANIZATION AND NATURE OF BUSINESS
- ---------------------------------------
Navidec, Inc., a Colorado corporation, (the "Company") was incorporated in 1993.
The Company's experienced team develops open systems, component-based solutions,
to enable customers to address their e-business initiatives. Out of this
competency, the Company has launched its first vertical market that provides
on-line solutions for the automotive industry. The Company also serves as a
distributor of various high technology and other products through traditional
and electronic channels.
The Company owns 100% of each of the following subsidiaries: Interactive Planet,
Inc. ("IPI"), TouchSource Inc., CarWizard.com Inc. ("CarWizard") and LeaseSource
Online Inc. ("LeaseSource"). IPI is a designer and developer of Internet sites.
TouchSource is a designer and developer of interactive kiosks. CarWizard and
LeaseSource are automotive information web site businesses.
The Company is subject to various risks and uncertainties frequently encountered
by companies in the early stages of development, particularly companies in the
new and rapidly evolving market for Internet-based products and services. Such
risks and uncertainties include, but are not limited to, its limited operating
history, an evolving and unpredictable business model and the management of
rapid growth. To address these risks, the Company must, among other things,
maintain and increase its customer base, implement and successfully execute its
business and marketing strategy, continue to develop and upgrade its technology,
provide superior customer service and attract, retain and motivate qualified
personnel. There can be no guarantee that the Company will be successful in
addressing such risks.
To date, substantially all of the Company's revenue has been derived from
services related to internet/intranet solutions and the resale of computer
equipment , high technology peripherals and electronic components manufactured
by independent vendors. The Company's strategy is to increase revenue generated
by its two core competencies: 1) Internet/Intranet solutions, which are focused
in five major market areas, including computer and network infrastructure
architecture and equipment, software development and services, content
aggregation, electronic commerce and order fulfillment, and 2) product
distribution. There can be no guarantee that the Company will be successful in
marketing its current products or other new or enhanced products. In addition,
the market for the Company's services is characterized by rapid technological
developments, frequent new product introductions and evolving industry
standards. The changes require the Company to continually improve the
performance, features, and reliability of its products, particularly in response
to competition. There can be no assurance that the Company will be successful in
responding to these changes.
The Company expects that its growth may require significant external financing
within the next year. While the Company believes that it will be able to obtain
such external financing from third parties or from existing shareholders, there
can be no guarantee that it can do so at terms acceptable to the Company. If the
Company is unable to raise the necessary financing, the Company's business,
results of operations and financial condition could be materially affected.
Subsequent to December 31, 1998, the Company raised $13.8 million (Note 12).
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions may affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
----------------------------
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
restricted cash and accounts receivable. The Company has no significant
off-balance sheet concentrations of credit risk, such as foreign exchange
contracts, option contracts or hedging arrangements. The Company maintains its
cash balances in the form of bank demand deposits and money market accounts with
financial institutions that management believes are creditworthy. Accounts
receivable are typically unsecured and are derived from transactions with and
from customers primarily located in the United States. The Company performs
ongoing credit evaluations of its customers and maintains reserves for potential
credit losses. The Company maintains an allowance for doubtful accounts based
upon the expected collectibility of accounts receivable.
Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments consist of cash equivalents, short-term
trade receivables and payables, and notes payable. The carrying values of the
cash equivalents and short-term trade receivables and payables approximate their
fair values. Based on borrowing rates currently used by the Company for
financing, the carrying value of the note payable approximates its estimated
fair value.
Cash Equivalents
----------------
For cash flow purposes, the Company considers all highly liquid instruments
purchased with an original maturity of 90 days or less to be cash equivalents.
Restricted Cash
---------------
Restricted cash represents amounts withheld from employees for their 401(k)
profit sharing plan of $231,000 and the minimum cash reserve for receivables
sold to a bank of $49,000. Included in accrued liabilities on the accompanying
balance sheet is the $231,000 obligation for the employees 401(k).
<PAGE>
Costs and Estimated Earnings in Excess of Billings
--------------------------------------------------
Costs and estimated earnings in excess of billings as of December 31, 1998 is
comprised of the following:
Costs incurred on contracts in progress $ 31,000
Estimated earnings 76,000
--------
107,000
Less progress billings --
--------
$107,000
========
Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out) or market, and
consist primarily of products held for resale.
Property and Equipment
----------------------
Property and equipment is stated at cost and depreciation is provided using the
straight-line method over estimated useful lives of three to seven years.
Computer equipment and purchased software is depreciated over three years and
furniture and office equipment is depreciated over five years. Maintenance and
repairs are expensed as incurred and major additions, replacements and
improvements are capitalized.
Leasehold improvements are amortized using the straight-line method over the
shorter of the useful life or the life of the lease.
The components of property and equipment as of December 31, 1998 are as follows:
Computer equipment and purchased software $ 1,451,000
Furniture and office equipment 204,000
Leasehold improvements 43,000
-----------
1,698,000
Less- accumulated depreciation (717,000)
-----------
$ 981,000
===========
Depreciation expense was $353,000 in fiscal 1998 and $257,000 in fiscal 1997.
Goodwill and Intangibles
------------------------
Goodwill and intangibles are recorded at the date of acquisition at their
allocated cost. Amortization is provided over the estimated useful lives of five
years for both the goodwill and the intangible assets. At December 31, 1998,
goodwill and intangibles of $619,000 is entirely from the CarWizard and
LeaseSource acquisition, which closed on December 28, 1998. Amortization will be
provided for these assets over their useful lives of five years. During 1997,
the Company recorded an impairment expense of $1,305,000 on goodwill (see Note
3).
<PAGE>
Impairment of Long-Lived Assets
-------------------------------
The Company reviews its long-lived assets, including goodwill and intangibles,
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company evaluates the
recoverability of its long-lived assets based on estimated undiscounted future
cash flows and provides for impairment if such undiscounted cash flows are
insufficient to recover the carrying amount of the long-lived asset.
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 two of the
Company's shareholders. As of December 31, 1998, the face amount of receivables
factored was $246,000 with a recourse obligation of $203,000. For financial
presentation purposes, the related receivable and outstanding recourse liability
have been included as an asset and liability, respectively, on the accompanying
balance sheet.
Revenue Recognition
-------------------
The Company generally recognizes revenues upon delivery from its
Internet/Intranet and kiosk solutions and product distribution goods.
Internet/Intranet and kiosk solutions generally begin with short-term
arrangements, which are billed on a time and materials basis or percentage of
completion method on fixed bid projects. Frequently, customers elect to update
and expand their Web sites, and 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 upon completion of these sales.
Revenues 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.
Revenues from long-term contracts are recognized on the percentage of completion
method for individual 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
contract costs. Changes in job performance, estimated profitability and final
contract settlements may result in revisions to costs and income in the period
in which the revisions are determined. Provisions for any estimated losses on
uncompleted contracts are made in the period in which such losses are
determinable.
<PAGE>
Contract costs include all labor costs and those direct costs related to
contract performance.
Product Development
-------------------
Costs incurred in the development of new products and enhancements to existing
products and services are charged to expense as incurred.
Advertising Costs
-----------------
Advertising costs are expensed as incurred and are included in selling and
marketing expenses in the accompanying statements of operations. The Company
does not incur any direct-response advertising costs. Advertising expense
totaled $256,000 and $156,000 in 1998 and 1997, respectively.
Income Taxes
------------
Deferred tax assets and liabilities are recorded for the estimated future tax
effects of temporary differences between the tax basis of assets and liabilities
and amounts reported in the accompanying balance sheets, and for operating loss
and tax credit carryforwards. The change in deferred tax assets and liabilities
for the period measures the deferred tax provision or benefit for the period.
Effects of changes in enacted tax laws on deferred tax assets and liabilities
are reflected as adjustments to the tax provision or benefit in the period of
enactment. The Company's deferred tax assets have been reduced by a valuation
allowance to the extent it is more likely than not, that some or all of the
deferred tax assets will not be realized.
Stock-Based Compensation
------------------------
The Company accounts for its employee stock option plans and other stock-based
compensation arrangements using the intrinsic value method under which no
compensation expense is recognized unless the fair value of the underlying stock
is less than the stock option exercise price on the date of grant. The Company
accounts for equity instruments issued to non-employees at fair value on the
date of grant.
Net Loss Per Share
------------------
Basic net loss per share is computed by dividing net loss available to common
shareholders for the period by the weighted average number of common shares
outstanding for the period. Diluted net loss per share is computed by dividing
the net loss for the period by the weighted average number of common and
potential common shares outstanding during the period if the effect of the
potential common shares is dilutive. The Company has excluded the weighted
average effect (using the treasury stock method) of common stock issuable upon
conversion of all warrants and stock options from the computation of diluted
earnings per share as the effect of all such securities is anti-dilutive for all
periods presented. The shares excluded are approximately 294,000 and 26,000 for
fiscal 1998 and 1997, respectively.
<PAGE>
Comprehensive Income
--------------------
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes
standards for reporting comprehensive income and its components in financial
statements. Comprehensive income, as defined, includes all changes in equity
(net assets) during a period from non-owner sources. From its inception through
December 31, 1998, the comprehensive income (loss) has been the same as net
income (loss).
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
Company has not yet determined the impact, if any, of adopting SOP No. 98-1 in
fiscal 1999.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities ("SOP 98-5"). In general, SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred and specifies that
initial application of SOP 98-5 should be reported as the cumulative effect of a
change in accounting principle. The provisions of SOP 98-5 are effective for
fiscal years beginning after December 15, 1998 and will be adopted by the
Company during the year ended December 31, 1999. The Company believes the
adoption of SOP 98-5 will 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"). The Company is required to
adopt SFAS No. 133 in the year ended December 31, 2000. SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities. The
Company does not believe adoption of SFAS No. 133 will have a material impact
upon its financial statements.
Reclassifications
-----------------
Certain prior years' balances were reclassified to conform to current year
presentation.
(3) 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.
<PAGE>
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 July 1, 1996, the Company acquired 100% of the stock of IPI by issuing
679,000 shares of the Company's common stock and a $75,000 note payable. The
total purchase price was valued by issuing $750,000 of the Company's common
stock and the assumption of $100,000 of net liabilities, resulting in goodwill
of $850,000 being recorded. The acquisition was accounted for under the purchase
method of accounting, and accordingly the operating results of IPI have been
included in the accompanying consolidated financial statements from the
effective date of the acquisition. Subsequent to the acquisition, 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, during the fourth
quarter of 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 in fiscal 1997, resulting in a
remaining net balance of $20,000 as of December 31, 1997. This remaining
goodwill was amortized completely in 1998.
<PAGE>
The following table sets forth the unaudited condensed pro forma operating
results of the Company for the CarWizard and LeaseSource, and the TouchSource
business combinations, as if each transaction occurred on January 1 of the
preceding year for each acquisition. Adjustments are reflected for additional
amortization of goodwill and intangibles:
For the Years Ended
December 31,
-------------------------
1998 1997
---- ----
Revenues $ 9,162,000 $ 6,407,000
=========== ===========
Net loss $(4,142,000) $(4,501,000)
=========== ===========
Basic and diluted loss per share $ (1.08) $ (1.42)
=========== ===========
Basic and diluted weighted-average common
shares outstanding 3,828,000 3,170,000
=========== ===========
The condensed pro forma results are not necessarily indicative of the results of
operations had the acquisitions been consummated on the earlier date, and may
not necessarily be indicative of future performance. The purchase price
allocation for the CarWizard and LeaseSource acquisition is preliminary and may
change in the near future based upon completed valuations of assets and
liabilities acquired by the Company.
(4) NOTES PAYABLE
- -----------------
Notes payable consist of the following as of December 31, 1998:
Notes payable to VSI Holdings; interest at 9%, due in part
in September 1998 and December 1998, secured by assets
of the Company $ 721,000
Note payable; interest at 9%, due on October 18,
1999, secured by assets of LeaseSource 100,000
---------
821,000
Less- current portion (821,000)
---------
Long-term portion $ --
=========
In September and December 1998, the Company granted a total of 531,525 of
detachable warrants to VSI Holdings in connection with the above borrowing. The
warrants were valued at $300,000, using the Black-Scholes option pricing model,
and accounted for as a discount on the note. The discount has been fully
amortized into interest expense as of December 31, 1998.
<PAGE>
The above notes payable to VSI Holdings were in default as of yearend. However,
on January 13, 1999, these notes were converted into 160,267 shares of
unregistered common stock at a price of $4.50 per share. On March 22, 1999, the
Company entered into a settlement and release agreement with VSI Holdings where
the 160,267 shares will be cancelled and the Company will retire the notes and
accrued interest for cash of approximately $745,000 by April 5, 1999.
(5) CAPITAL LEASE OBLIGATIONS
- -----------------------------
The Company has entered into several capital leases for equipment. The leases
are for terms ranging from 24 to 60 months, expiring at various times through
2001. Interest on the Company's capital lease obligations is at rates ranging
from 9% to 21% at December 31, 1998. The capital lease obligations are
collateralized by the related equipment.
Equipment purchased under capital leases is included in the cost of property and
equipment. The following is a summary of property and equipment purchased under
capital leases as of December 31, 1998:
Computer equipment $ 247,000
Less- accumulated depreciation (78,000)
---------
Net book value $ 169,000
=========
As of December 31, 1998, future minimum lease payments under capitalized lease
obligations are as follows:
Year ended December 31-
1999 $ 92,000
2000 82,000
2001 31,000
----------
205,000
Less- amounts representing interest ( 37,000)
----------
Total obligation 168,000
Less- current portion (74,000)
----------
Long-term capital lease obligation $ 94,000
=========
Interest expense under such leases was $24,000 and $27,000 for the years ended
December 31, 1998 and 1997, respectively.
(6) INCOME TAXES
- ----------------
At December 31, 1998, for income tax purposes, the Company has approximately
$7.5 million of net operating loss carryforwards. Such net operating losses
expire between the years 2011 to 2018. Management believes that it is more
likely than not that the deferred tax assets will not be realized. Accordingly,
a valuation allowance was recorded against the entire net deferred tax asset.
<PAGE>
The Tax Reform Act of 1986 contains provisions which may limit the net operating
loss carryforwards available to be used in any given year if certain events
occur, including significant changes in ownership interests.
The provision (benefit) for income taxes consists of the following:
1998 1997
---- ----
Current: $ -- $ --
Deferred:
Federal (1,224,000) (866,000)
State (189,000) (134,000)
Valuation allowance 1,413,000 1,000,000
----------- -----------
$ -- $ --
=========== ===========
The provision (benefit) for income taxes differs from the federal statutory rate
of 34% for the following reasons:
1998 1997
---- ----
Expected rate (34.0)% (34.0)%
State taxes, net of federal deduction (3.2) (2.2)
Nondeductible goodwill amortization and impairment 0.9 12.8
Valuation allowance 35.9 24.3
Other 0.4 (0.9)
----- -----
0% 0%
===== =====
The components of the net deferred income tax asset at December 31, 1998 are as
follows:
Deferred tax assets:
Net operating loss carryforwards $ 2,801,000
Bad debt reserve 46,000
Vacation accrual 17,000
Deferred tax liabilities:
Accumulated depreciation (77,000)
Prepaids (7,000)
-----------
2,780,000
Less valuation allowance (2,780,000)
-----------
$ --
===========
<PAGE>
(7) COMMITMENTS AND CONTINGENCIES
- ---------------------------------
Operating Lease Obligations
---------------------------
The Company leases certain facilities and equipment under operating leases that
expire at various times through 2001. Future minimum lease payments for such
operating leases are as follows as of December 31, 1998:
Year ended December 31-
1999 $204,000
2000 191,000
2001 79,000
--------
$474,000
========
Rental expense related to these leases was $125,000 and $97,000 for the years
ended December 31, 1998 and 1997, respectively.
Litigation
----------
In the normal course of business, the Company is subject to, and may become a
party to, litigation. There are no matters currently in litigation which
management believes will have a material impact on the Company's financial
position or results of operations.
(8) RELATED PARTY TRANSACTIONS
- ------------------------------
In December 1998, the Company entered into employment agreements with a
shareholder. The agreements provide for payments totaling $150,000 per year
through 2000 and include covenants not to compete during the term of employment
and for one year thereafter.
The Company entered into a service agreement with a shareholder that 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. During fiscal 1998, the
shareholder exercised 69,000 of these options. 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 and secured by the options discussed above. The note was paid in
full during 1998.
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 warrants for the Company's stock. These warrants will be priced
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. As a result of this agreement, 14,862
warrants are outstanding at December 31, 1998.
<PAGE>
In February 1998, the Company entered into an additional service agreement with
this shareholder to provide financial and banking services. For this agreement,
the shareholder received a consulting fee of 250,000 warrants to purchase common
stock at $3.50 per warrant. During fiscal 1998, the shareholder exercised 83,000
of these warrants.
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.
(9) 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
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 (see Note 12). 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 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 (see Note 12). 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 of warrants to brokers or registered representatives as part of the
offering cost.
<PAGE>
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. No warrants were issued
in connection with this offering.
Warrants
--------
In connection with the above equity transactions, the Company issued warrant
units to purchase one share of the Company's common stock. For accounting
purposes, all warrants were valued utilizing the Black-Scholes option pricing
model, assuming a volatility factor of 97%, risk free interest rate of 5.6% and
expected lives outstanding of 1.5 to 2 years. The following table summarizes the
warrants outstanding as of December 31, 1998:
Exercise Remaining
Warrants Units Price Value Contractual Life
-------- ----- ----- ----- ----------------
A 2,043,626 $7.20 - $7.38 $1,723,000 Called 2/5/99
B 14,862 $4.50 57,000 4.25 years
C 166,500 $3.50 329,000 4.25 years
D 61,520 $4.50 164,000 4.25 years
E 118,849 $4.50 318,000 4.25 years
F 531,525 $4.50 - $6.50 300,000 One year or less
--------- ----------
2,936,882 $2,891,000
========= =========
Stock Option Plan
-----------------
The Company adopted the Stock Option Plan (the "Plan") under which the Company
is authorized to grant incentive and non-qualified stock options to acquire up
to 1,000,000 shares of the Company's common stock to employees and directors of
the Company. On February 15, 1999, the authorized stock options were increased
to 2,000,000 as approved by the board of directors. Under the Plan, the exercise
price per share of a non-qualified stock option must be equal to at least 50% of
the fair market value of the common stock on the date of grant, and the exercise
price per share of an incentive stock option must equal the fair market value of
the common stock on the date of grant. Options granted vest over various terms
with a maximum vesting period of five years and expire after a maximum of 10
years.
<PAGE>
The following table summarizes the Plan at December 31, 1998 and 1997, and
activity during the years then ended:
1998 1997
------------------- ----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
Outstanding, beginning of year 297,000 $4.58 -- $--
Granted 1,390,000 4.17 297,000 4.58
Forfeited or canceled (150,000) 4.43 -- --
Exercised (69,000) 4.12 -- --
---------- ----- -------- -----
Outstanding, end of year 1,468,000 $4.23 297,000 $4.58
========== ===== ======== =====
Exercisable, end of year 263,000 $4.45 -- $--
========== ===== ======== =====
Weighted average fair value of
options granted during the year $2.20 $3.42
===== =====
The status of stock options outstanding and exercisable under the Plan as of
December 31, 1998 is as follows:
Stock Options Outstanding Stock Options Exercisable
----------------------------------------------------------------
Weighted
Average Weighted
Range of Remaining Weighted Average
Exercise Number of Contractual Average Number of Exercise
Prices Shares Life Exercise Price Shares Price
------ ------ ---- -------------- ------ -----
$2.34 - $3.00 452,000 4.9 $2.93 -- $ --
$3.56 - $5.06 496,000 4.8 4.08 183,000 3.88
$5.44 - $5.88 520,000 5.9 5.49 80,000 5.75
--------- --- ----- ------ -----
1,468,000 5.2 $4.23 263,000 $4.45
========= === ===== ======= =====
<PAGE>
Pro Forma Fair Value Disclosures
--------------------------------
The fair value of each option grant is calculated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
Years Ended
December 31,
------------------------
1998 1997
---- ----
Risk-free interest rate 5.0% 5.5%
Expected dividend yield 0% 0%
Expected lives outstanding 4.0 years 4.4 years
Expected volatility 76% 104%
Cumulative compensation costs recognized in pro forma net income or loss with
respect to options that are forfeited prior to vesting are adjusted as a
reduction of pro forma compensation expense in the period of forfeiture.
Had compensation cost for the Plan been determined based upon the fair value on
the date of grant, the Company's net loss would have been increased to the
following pro forma amounts for the years ended December 31, 1998 and 1997:
1998 1997
---- ----
Net loss:
As reported $ (3,933,000) $ (4,107,000)
============ =============
Pro forma $ (5,569,000) $ (4,227,000)
============ =============
Basic and diluted net loss per share:
As reported $ (1.10) $ (1.47)
============ =============
Pro forma $ (1.56) $ (1.51)
============ =============
(10) 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.
<PAGE>
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 Year Ended December 31, 1998
----------------------------------------------------------------
(In thousands)
Net- Product
Solutions Automotive Distribution Corporate Total
--------- ---------- ------------ --------- -----
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $ 5,443 $ 939 $ 2,173 $ -- $ 8,555
======= ======= ======= ======= =======
(Loss) income from operations $(1,182) $(2,151) $ 137 $ (353)(1) $(3,549)
======= ======= ======= ======= =======
Identifiable assets $ 1,607 $ 987 $ 640 $ 2,031(2) $ 5,265
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
--------------------------------------------------------------------
(In thousands)
Net- Product
Solutions Automotive Distribution Corporate Total
--------- ---------- ------------ --------- -----
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $ 2,359 $ 223 $ 3,426 $ -- $ 6,008
======= ======= ======= ======= =======
(Loss) income from operations $(2,493)(3) $(1,268) $ 135 $ (257)(1) $(3,883)
======= ======= ======= ======= =======
(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.
(3) Included in NetSolutions loss from operations in fiscal 1997 is the
impairment of goodwill for $1,305,000.
</TABLE>
<PAGE>
(11) DEFINED CONTRIBUTION PLAN
- ------------------------------
The Company has a 401(k) profit sharing plan (the "401K Plan"). Eligible
employees may make voluntary contributions to the 401K Plan. The amount of
employee contributions is limited as specified in the Plan. The Company may, at
its discretion, make additional contributions to the 401K Plan. The Company made
no contributions in 1998 or 1997.
(12) SUBSEQUENT EVENT
- ---------------------
On February 12, 1999, the Company issued notice of a call regarding 2,043,626 of
redeemable warrants to purchase common stock. As discussed above in Note 9,
these warrants are redeemable by the Company at $0.05 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. Each warrant could be exercised during the notice period for one
common share at a price of $7.20 per share. The exercise period for the warrants
expired on March 16, 1999 and as of the close of trading, 1,920,940 warrants
were exercised for common stock generating approximately $13,808,000 of net
proceeds to the Company.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 1, 1999, Navidec, Inc. (the "Company") engaged Arthur Andersen LLP
to replace Hein + Associates, LLP as the Company's independent accountant to
audit the Company's financial statements for the year ended December 31, 1998.
Hein + Associates, LLP was dismissed as the Company's independent accountant on
the same date. The Audit Committee of the Company's Board of Directors approved
the change in the Company's independent accountant.
The independent auditor's report of Hein + Associates, LLP dated March 5,
1998, for the Company's financial statements for the year ended December 31,
1997, did not contain an adverse opinion or a disclaimer of opinion, and was not
modified as to uncertainty, audit scope, or accounting principles.
During the Company's two most recent fiscal years and through the date of
the dismissal of Hein + Associates, LLP, the Company did not have any
disagreements with Hein + Associates, LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLAINCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
MANAGEMENT
Directors and Officers
The following table sets forth the name, age and position of each of the
Company's officers and directors as of the date of this report.
Period from
Name Age Position Which Served
- ---- --- -------- ------------
Ralph Armijo 45 President, Chief Executive 7/93
Officer and Director
Patrick R. Mawhinney 35 Chief Financial Officer, 7/96
Treasurer and Director
Harold Anderson II 34 Vice President of Automotive 7/96
Kenneth P. Bero 44 Vice President of Sales 12/97
Michael Kranitz 38 Vice President of Strategic 12/98
Development and Director
Andrew Davis 45 Director 4/97
Lloyd G. Chavez, Jr. 48 Director 4/97
Gerald A. Marroney 46 Director 4/97
James Hosch 45 Director 6/98
<PAGE>
The officers are elected by the Board of Directors at the first meeting
after each annual meeting of the Company's shareholders and hold office until
their successors are duly elected and qualified in accordance with the Company's
Bylaws.
RALPH ARMIJO has served as the Company's President, Chief Executive Officer
and as one of the Company's directors since its 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.
PATRICK R. MAWHINNEY served as the President of Interactive Planet, Inc.
from its inception until its merger with the Company in July 1996. Since that
time he has served as the Company's Chief Financial Officer, Treasurer and as
one of the Company's 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.
MICHAEL KRANITZ has been one of the Company's directors and the Company's
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.
HAROLD ANDERSON II served as Vice President of Business Development for
Interactive Planet, Inc. from July 1995 until its merger with the Company in
July 1996. He served as the Company's Vice President of Business Development
from July 1996 until June 1997. Since June 1997 Mr. Anderson has served as the
Company's 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 the Company's 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.
ANDREW DAVIS has been one of the Company's directors since December 1997.
Mr. Davis has served as Director of Global & Strategic Accounts for InFocus
Systems. Since December 1997, Mr. Davis served as the Company's Vice President
of Sales and Marketing from May 1996 until December 1997. He became one of the
Company's 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.
<PAGE>
LLOYD G. CHAVEZ, JR. became one of the Company's 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 the Company's 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.
JAMES HOSCH has been one of the Company's directors since June 1998. Since
November 1998, Mr. Hosch has been an independent representative for Bathgate
McColley Capital Group LLC, a NASD registered broker dealer. From September 1995
until November1998 Mr. Hosch was a Senior Vice President of Joseph Charles &
Associates, Inc., a NASD registered broker dealer. From January 1993 until
September 1995, he was Executive Vice President of Cohig & Associates, Inc., a
NASD registered broker dealer. From 1989 until January 1993, he was President of
Kober Corporation, a publicly traded real estate firm.
None of the Company's directors or executive officers are related to any
other director or executive officer. None of the Company's officers or directors
hold any directorships in any other public company.
Compliance with Section 16(a) of the Exchange Act
Under U.S. securities laws, directors, certain executive officers and persons
holding more than 10 percent of Navidec's common stock must report their initial
ownership of the common stock and any changes in that ownership to the SEC. The
SEC has designated specific due dates for those reports and Navidec must
identify in this report those persons who did not file those reports when due.
Based solely on Navidec's review of copies of the reports filed with the SEC and
written representations of its directors and executive officers, Navidec
believes that all persons subject to reporting filed the required reports on
time in 1998.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the annual compensation paid to the
Company's Chief Executive Officer and one other executive officer of the
Company, for the last three fiscal years and to one executive officer of the
Company during 1998. No other executive officer has received annual compensation
in excess of $100,000.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
- ------------------------------------------------------------------------------------------------------------------------------------
Other
Name and Principal Position Annual Restricted Securities All Other
Compen- Stock Underlying LTIP Compen-
Year Salary ($) Bonus ($) sation ($) Award(s) Options/SARs(#) Payouts ($) sation ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ralph Armijo, CEO 1998 $172,133 $0 $0 $0 146,000 $0 $9,600(2)
(1)
1997 $156,141 $12,869 $0 $0 0 $0 $9,600(2)
1996 $124,384 $0 $0 $0 0 $0 $9,000(2)
Hal Anderson,
VP Automotive 1998 $ 89,708 $20,000 $0 $0 50,000 $0 $0
(3)
1997 $ 80,000 $19,958 $0 $0 22,000 $0 $0
(3)
1996 $ 39,666 $0 $0 $0 0 $0 $0
Ken Bero,
VP Sales(5) 1998 $104,706 $25,000 $0 $0 125,000 $0 $0
(4)
</TABLE>
(1) The number indicated represents the number of stock options granted to Mr.
Armijo during 1998.
(2) Consists of an automobile allowance.
(3) The number indicated represents the number of stock options granted to Mr.
Anderson during 1998 and 1997.
(4) The number indicated represents the number of stock options granted to Mr.
Bero during 1998.
(5) Mr. Bero commenced working with the Company in December 1997 but did not
receive any compensation from the Company until after January 1, 1998.
<PAGE>
Option/SAR Grants in Last Fiscal Year
The following table sets forth information concerning individual grants of
stock options made during the year ended December 31, 1998 to the Company's
Chief Executive Officer and two other named executive officers.
Individual Grants
- --------------------------------------------------------------------------------
Number of
Securities % of Total Options
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted Fiscal Year Price ($/Sh) Date
- --------------------------------------------------------------------------------
Ralph Armijo 146,000 12% $3.00 2/13/03
Ken Bero 75,000 6% $3.00 2/13/02
Ken Bero 50,000 4% $3.00 10/31/05
Hal Anderson 50,000 6% $2.44 9/11/03
Aggregate Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
The following table sets forth information concerning each exercise of
stock options during the year ended December 31, 1998 by the Company's Chief
Executive Officer and two other named executive officers, and the fiscal
year-end value of unexercised options held by him.
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized Unexercisable Unexercisable
- --------------------------------------------------------------------------------
Ralph Armijo 0 (1) 0 146,000/0 $301,125/$0
Ken Bero 0 (1) 0 50,000/75,000 $103,125/$154,687
Hal Anderson 0 (1) 0 22,000/50,000 $0/$131,125
(1) Messrs. Armijo, Bero and Anderson did not exercise any of the stock options
they held during 1998.
The value indicated was calculated by determining the difference between the
fair market value of the Company's common stock underlying the stock options and
the exercise price of those options at December 31, 1998.
Director Compensation
None of the Company's 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 Company's stock option
plan.
Employment Agreements and Termination of Employment and Change-in-Control
Arrangements
<PAGE>
The Company 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 the Company provide the other with notice of its intent to not renew
the agreement at least 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 the Company through
the first anniversary date of the agreement, the Company must pay Mr. Armijo a
special bonus (the "Special Bonus") in the event that there is a "Change in
Control" of the Company. "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
* the annual bonus paid or payable for the most recently completed
fiscal year during the term of the agreement, and
* the average of the bonuses paid or payable to Mr. Armijo in respect of
1998, 1997 and 1996.
The higher of the two numbers is referred to as the "Highest Annual Bonus." The
agreement provides that if the Company terminates 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, the Company must pay Mr. Armijo a lump sum cash payment equal to
* his annual salary through the date of termination,
* the Highest Annual Bonus through the date of termination,
* the Special Bonus, if any, and
* an amount equal to the product of two times his then effective annual
salary, the Highest Annual Bonus and the Special Bonus, if any.
The Company 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
The Company has 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. The Company may, at its discretion, make
additional contributions to the plan. The Company did not make any contributions
in 1998.
Stock Option Plan
The Company's officers and directors may receive stock options issued under the
Company's stock option plan.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT
The following table sets forth information as of April 9, 1999, concerning the
beneficial ownership of the Company's common stock by each person who
beneficially owns more than five percent of the common stock; by each of the
Company's 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........................... 978,659(3) 12.8%
Patrick R. Mawhinney................... 206,357(3) 2.7%
Harold Anderson II..................... 83,073(3) 1.1%
Kenneth P. Bero........................ 50,000(3) (1)
Michael Kranitz........................ 333,334(3)(6) 4.4%
Andrew Davis........................... 21,250(3) (1)
Lloyd G. Chavez, Jr.................... 14,250(3)(4) (1)
Gerald A. Marroney..................... 10,000(3) (1)
James Hosch............................ 51,096(5) (1)
All directors and executive officers as
a Group (Nine Persons).............. 1,748,019 22.2%
<PAGE>
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 includes 50,500 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.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1997, Pat Mawhinney made a $30,000 loan to the Company, evidenced by
a promissory note dated October 5, 1997, which did not bear interest. The loan
was repaid in November 1997.
In October 1997, Ralph Armijo guaranteed a line of credit in the amount of
$750,000 extended to the Company by USA Funding, Dallas, Texas. No compensation
was paid by the Company for such personal guarantee.
In March 1998, Pat Mawhinney made a $40,000 loan to the Company, evidenced by a
promissory note dated March 13, 1998, which did not bear interest. The loan was
repaid on March 31, 1998.
In October 1998, Pat Mawhinney made a $45,000 loan to the Company, evidenced by
a promissory note dated October 2, 1998, which did not bear interest. The loan
was repaid on November 25, 1998.
James Hosch, a former Executive Vice President of Joseph Charles & Associates,
Inc., has been one of the Company's 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 the Company's 10% 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 the Company's
initial public offering of securities. The Company offered 1,000,000 units in
that offering consisting of one share of the Company's 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
755,000 warrants were sold by the Company and 245,000 units were sold by certain
of the Company's 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. The Company 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. The Company 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.
<PAGE>
The Company also entered into an engagement letter with Joseph Charles &
Associates to assist the Company 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. In consideration for its
services, the Company agreed to pay Joseph Charles & Associates a sales
commission of 10% of the funds raised in the offering. Joseph Charles &
Associates also was 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 was 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 to investors and 59,450 units
being sold to Joseph Charles & Associates and its designees.
On February 16, 1998 the Company 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 the Company 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.
The Company entered into an agreement with Bathgate McColley Capital Group LLC
on December 21, 1998, pursuant to which Bathgate McColley will provide financial
and investment banking services to the Company on a non-exclusive basis. James
Hosch, a director of the Company, is an independent representative for Bathgate
McColley.
On December 28, 1998, the Company issued a total of 250,000 shares of its common
stock to the shareholders of CarWizard, Inc. and LeaseSource Online, Inc. in
exchange for all of their ownership interests of those companies. The Company
also issued options to purchase 83,334 shares of its common stock to Michael
Kranitz as part of that transaction. Those options are exercisable at $5.08 per
share for a five year period commencing on December 28, 1998. Mr. Kranitz was an
executive officer and principal owner of LeaseSource Online, Inc. and CarWizard,
Inc.
Although some of the foregoing transactions were determined without arm's length
negotiations and involved conflicts of interest between the interests of the
related parties and the Company, the Company believes that all of these
transactions were entered into on terms no less favorable to the Company than
could have been obtained from independent third parties.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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.*
10.1 Form of Confidentiality and Non-Disclosure Agreement between the
Company and its significant technical employees.*
<PAGE>
Exhibit Number Description
- -------------- -----------
10.2 Lease Agreement dated February 23, 1996 for the premises located
at 14 Inverness Dr., Building F, Suite 116, Englewood, Colorado
80112.*
10.3 Netscape Commercial Applications Partner Program (NCAPP)
Guidelines.*
10.4 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.*
10.5 Wheels license agreement with the Denver Post.**
10.6 Wheels license agreement with KOIN TV.**
10.7 The Company's stock option plan.***
10.8 Agreement to provide services with John McKowen.****
10.9 Engagement letter dated October 27, 1997 with Joseph Charles &
Associates.****
10.10 Engagement Agreement dated February 16, 1998 with Joseph Charles
& Associates.****
10.11 Employment Agreement between NAVIDEC, Inc. and Ralph Armijo dated
May 1, 1998.****
10.12 Employment Agreement between NAVIDEC, Inc. and Hal Anderson dated
May 1, 1998.****
10.13 Employment Agreement between NAVIDEC, Inc. and Patrick Mawhinney
dated May 1, 1998.****
10.14 Employment Agreement between NAVIDEC, Inc. and Kenneth Bero dated
December 15, 1997.****
10.15 Agreement between the Company and Bathgate McColley Capital Group
LLC dated December 21, 1998. Filed herewith.
10.16 Agreement between the Company and Verio Inc. dated January 23,
1999. Filed herewith.
10.17 Agreement by and between the Company, LeaseSource Online, Inc.
and CarWizard, Inc. Filed herewith.
23.1 Consent of Arthur Andersen LLP. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
- -----------------
* Incorporated by reference from the like numbered exhibit to the Company's
Registration Statement on Form SB-2 declared effective February 10, 1997
(SEC File Number 333-14497).
** Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997.
*** Incorporated by reference from the Company's preliminary proxy statement
for the 1998 Annual Shareholders' Meeting.
**** Incorporated by reference from the Company's Registration Statement on Form
SB-2 declared effective July 22, 1998 (SEC File Number 333-59019).
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last quarter of
1998.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NAVIDEC, INC.
Date: April 15, 1999 By: /s/ Ralph Armijo
------------------------------------
Ralph Armijo, President,
Chief Executive Officer and Director
<PAGE>
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Ralph Armijo
- ----------------------------- President, Chief April 15, 1999
Ralph Armijo Executive Officer
and Director
/s/ Patrick R. Mawhinney
- ----------------------------- Chief Financial Officer, April 15, 1999
Patrick R. Mawhinney Treasurer and Director
/s/ Michael Kranitz
- ----------------------------- Vice President of Strategic April 15, 1999
Michael Kranitz Development and Director
/s/ Andrew Davis
- ----------------------------- Director April 15, 1999
Andrew Davis
/s/ Lloyd G. Chavez, Jr.
- ----------------------------- Director April 15, 1999
Lloyd G. Chavez, Jr.
/s/ Gerald A. Marroney
- ----------------------------- Director April 15, 1999
Gerald A. Marroney
/s/ James Hosch
- ----------------------------- Director April 15, 1999
James Hosch
December 21, 1998
Mr. Ralph Armijo
President and CEO
Navidec, Inc.
14 Inverness Drive, Building F, Suite 116 Englewood, CO 80112
Re: Engagement Agreement
Dear Ralph:
This letter (the "Engagement Letter" or "Agreement") will confirm the engagement
of Bathgate McColley Capital Group LLC (BMCG) by Navidec, inc. ("the Company")
to render financial and investment banking services on a non-exclusive basis as
described below.
In connection with this engagement, the Company will furnish BMCG such
information and data (the "information") relating to the Company as BMCG
reasonably requests and will provide BMCG with reasonable access to the
Company's officers, directors, employees, counsel and independent accountants.
BMCG may rely upon the Information without independently verifying it and does
not assume responsibility for its accuracy or completeness. BMCG will not make
an independent appraisal of the assets of the company but will familiarize
itself with the business operations, financial condition and prospects of the
Company, and will review such corporate documents involving the Company as BMCG
in its sole discretion deems necessary.
BMCG will provide the following services under this investment banking
agreement; BMCG will work with the Company in developing a long term financial
strategy which will include advice regarding private placements, future public
offerings and/or strategic acquisitions and partnerships. In addition, BMCG will
work with the various other consultants of the Company in an effort to broaden
the exposure of the company in the financial marketplace.
In consideration of BMCG's services, the Company agrees to pay BMCG a consulting
fee of $60,000, payable $48,000 with the execution of the Engagement Letter and
$3,000 per month beginning February 1, 1999 ending May 1, 1999. In addition, the
Company agrees to pay a consulting fee of 45,000 warrants exercisable at $2.00
per share. The Company also agrees to reimburse BMCG for any reasonable
out-of-pocket expenses incurred by BMCG in connection with services under this
engagement, provided all such expenses are approved in advance by the Company.
BMCG will be paid a Lehman formula fee in the event the company acquires any
entity or the substantial assets of any entity introduced by BMCG. Other
transactions will be negotiated on a case-by-case basis.
<PAGE>
1. Liability of BMCG. In furnishing the Company with advice and other services
as herein provided, neither BMCG nor any officer, director or agent thereof
shall be liable to the company or its creditors for errors of judgment or
anything except willful malfeasance, bad faith or gross negligence in the
performance of its duties or the reckless disregard of its obligations and
duties under the terms of this agreement.
It is further understood and agreed that BMCG may rely solely upon information
furnished to it by the company reasonably deemed to be accurate and reliable and
that, except as herein provided, BMCG shall not be accountable for any loss
suffered by the Company by reason of the Company's non-action on the basis of
any advice, recommendation or approval of BMCG, its partners, employees or
agents.
2. Representations & Indemnification. The Company represents and warrants to
BMCG that: the Company will not cause or knowingly permit any action to be taken
in connection with transactions which violates the Securities Act of 1933 or any
state securities laws; the Company will cooperate with BMCG so as to permit the
transactions to be conducted in a manner consistent with the applicable state
and federal securities to be conducted in a manner consistent with the
applicable state and federal securities laws; that all information and
statements provided by the Company in the transactions will be true and correct;
that the transactions will not be misleading or violative of the Anti-fraud
provisions of the Securities and Exchange Act of 1934; current company
management as disclosed to BMCG will continue in place after the transactions
for a reasonable period of time; the Company does not know of any facts
adversely affecting the company's current business strategy; the Company has
prepared and delivered to the undersigned its most recent estimate of sales,
earnings, cash flow and agrees to update those estimates on a monthly basis
during the pendency of the engagement and any transactions. The Company agrees
to indemnify and hold BMCG and its attorneys accountants, agents and employee,
officers and disectors, free and harmless from any liability, cost and expense,
including attorneys' fees in the event of a breach of this representation and
warranty. The Company shall also assume responsibility for the indemnitees'
defense in any such matters, except where a conflict exists such that they are
required to retain separate legal counsel, in which event, the Company shall pay
the legal fees and expenses, as and when occurred, of separate legal counsel
retained by the Indemnitees to provide such defense.
3. Other Activities of BMCG. The Company recognizes that BMCG now renders and
may continue to render consulting, financial and other services to other
companies which may or may not have policies and conduct similar to those of the
Company. BMCG shall be free to render such advice and other services and the
company hereby consents thereto. BMCG shall not be required to devote its full
time and attention to the performance of its duties under this agreement, but
shall only devote so much of its time and attention as it deems reasonable or
necessary for such purpose. BMCG does not intend to be engaged by a direct
competitor of the company without prior written approval.
4. Control. Nothing contained herein shall be deemed to require the company to
take any action contrary to its Certificate of Incorporation or By-Laws, or any
applicable statute or regulation, or to deprive its Board of Directors of their
responsibility for any control of the conduct or the affairs of the Company.
<PAGE>
5. Conditions of Performance by BMCG. Notwithstanding anything to the contrary
hereinabove set forth, the performance of the obligations of BMCG as provided in
the Engagement Letter is specifically subject to and conditioned upon the
following:
(a) successful completion of investigative procedures to be conducted by
BMCG in respect to the Company, its operations and general performance as well
as its officers, and directors (commonly referred to as "due diligence"
procedures).
(b) results of the due diligence procedures employed by BMCG satisfactory
to BMCG in its sole determination; and
(c) receipt by BMCG of the compensation referred to hereinabove.
The term of this Agreement will be six months with the date of your acceptance
of this Engagement Letter as evidenced below. BMCG or the Company may cancel
this Agreement upon 30 days written notice. Notwithstanding anything to the
contrary in the prior sentence hereto, the Company will remain obligated to pay
BMCG compensation as set forth above.
This Engagement Letter set forth the entire understanding of the parties
relating to the subject matter hereof and supersedes and cancels any prior or
contemporaneous communications, understandings or agreements between the
parties. This Agreement cannot be modified or changed, nor can any of its
provisions be waived, except by written agreement signed by all parties hereto.
This Agreement shall be governed by and construed to be in accordance with the
laws of the State of Colorado applicable to contracts made and to be performed
solely in such State by citizens thereof. The parties hereto shall deliver
notices to each other by personal delivery or by registered mail (return receipt
requested) at the address set forth herein.
All controversies or claims between the parties hereto or arising out of or
relating to the business contemplated by this Agreement including but not
limited to the making or enforcement of documents relating thereto, shall be
resolved by arbitration in accordance with the applicable rules of the American
Arbitration Association. Judgment on the arbitrators' award may be entered into
any court having jurisdiction. If any action or proceeding is brought to enforce
the terms if this Agreement, the prevailing party shall be entitled to recover
all of its reasonable attorneys' fees and costs.
If the terms and conditions of this Engagement Agreement confirm our agreement
and understanding, please execute the copy of this Engagement Agreement in the
space provided below and return it to us.
Very truly yours,
BATHGATE MCCOLLEY CAPITAL GROUP LLC
By: /s/ Eugene McColley
-----------------------
Eugene McColley
Agreed to and accepted this 21st day of December, 1998.
NAVIDEC, INC.
By: /s/Ralph Armijo
-------------------
Ralph Armijo
President and CEO
<TABLE>
<CAPTION>
Purchase Order
Date: 1/29/1999
---------------------------------------------
Verio Southern California Purchase Order Revision Page
Verio Southern California
8001 Irvine Center Drive 01 -0000006607 2
Suite 1200 ---------------------------------------------
Irvine, CA 92618-2933 Payment Terms Freight Terms Ship via
USA ---------------------------------------------
Net 30 Receiving Location asap
---------------------------------------------
Buyer Leonard, Troy
---------------------------------------------
Ship To: Verio Southern California
Vendor: 0000004021 8001 Irvine Center Drive
Navidec, Inc. Suite 1200
14 Inverness Drive East Irvine, CA 92618-2933
F116
Englewood, CO 80112 Bill To: Verio
USA 8005 South Chester Street
Fax: 303/790-8845 Suite 200
Englewood, CO 90112
USA
Tax Exempt? N Tax Exempt ID:
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Line-Schd Item Description Mfg. ID Quantity UOM PO Price Extended Amt Due date
- ---------------------------------------------------------------------------------------------------------------------
2 -3 Netscape Mail system license 450,000 EA 2.14 972,890.00 2/1/1999
Schedule Total 972,000.00
Item Total Netscape Mail system license 972,000.00
2 -1 Netscape Mail system Maint. 450,000.00 EA 0.32 144,000.00 2/1/1999
Schedule Total 144,000.00
Item Total Netscape Mail system Maint. 144,000.00
----------
Total PO Amount $1,116,000.00
=============
Verio will remit payment for this purchase to Navidec at the
address as printed on this purchase order's remit to field regardless
of any written or oral instructions to the contrary.
REMIT TO:
Navidec, Inc.
1426 Pearl Street
Boulder, CO 80302
- --------------------------------------------------------------------------------
All shipments, shipping papers, Invoices and correspondence must be identified
Authorized Signature with our Purchase Order Number. Overshipments will not be
accepted unless authorized by Buyer prior to shipment.
Authorized Signature
____________________________________
</TABLE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the "Merger
Agreement") is made effective as of December 31, 1998, by and between
LeaseSource Online, Inc., an Ohio corporation ("LSI"), CarWizard, Inc., an Ohio
corporation ("CarWizard") and sometime collectively ("Acquirees"), the
undersigned shareholders of LSI and CarWizard (the "Shareholders") and Navidec,
Inc., a Colorado corporation ("NAV"). LSI, CarWizard and NAV are sometimes
referred to as the "Constituent Corporations," with reference to the following
facts:
A. The authorized capital stock of NAV consists of 20,000,000 shares of no
par value common stock. The authorized capital stock of both LSI and CarWizard
consists of eight hundred fifty (850) shares of common stock, no par value.
B. There are currently 3,606,221 shares of stock of NAV outstanding and
options and warrants to purchase an additional ____________ shares of common
stock.
C. LSI and CarWizard both have no subsidiaries, and each has a total of 100
shares of no par value common stock issued and outstanding, and there are no
options or other rights to acquire any newly issued shares available to any
person. The undersigned Shareholders are the sole Shareholders of LSI and
CarWizard.
D. The directors of the Constituent Corporations deem it advisable and to
the advantage of such corporations that LSI and CarWizard merge into NAV upon
the terms and conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan of merger encompassed
by this Merger Agreement and do hereby agree that the Acquirees shall merge with
and into NAV on the following terms, conditions, and other provisions:
1. TERMS AND CONDITIONS OF PLAN OF MERGER
1.1 Merger. The Acquirees shall be merged with and into NAV(the "Merger"),
and NAV shall be the surviving corporation (the "Surviving Corporation")
effective upon the later of the date when this Merger Agreement or a Certificate
of Merger is filed with the Secretaries of State of Colorado and Ohio or
December 31, 1998 (the "Effective Date").
1.2 Closing. The closing of the Merger (the "Closing") will take place on
or before December 16, 1998 at 10:00 a.m. MDT at the offices of Cohen Brame &
Smith Professional Corporation, 1700 Lincoln Street, Suite 1800, Denver,
Colorado, unless another date or place is agreed to in writing by the parties
hereto.
<PAGE>
1.3 Succession. On the Effective Date, NAV shall continue its corporate
existence under the laws of the State of Colorado, and the separate existence
and corporate organization of LSI and CarWizard, except insofar as it may be
continued by operation of law, shall be terminated and cease.
1.4 Transfer of Assets and Liabilities. On the Effective Date, the rights,
privileges, powers and franchises, both of a public as well as of a private
nature, of each of the Constituent Corporations shall be vested in and possessed
by the Surviving Corporation, subject to all of the disabilities, duties and
restrictions of or upon each of the Constituent Corporations; and all singular
rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, of each of the
Constituent Corporations, and all debts due to each of the Constituent
Corporations on whatever account, and all things in action or belonging to each
of the Constituent Corporations shall be transferred to and vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest, shall be thereafter the property
of the Surviving Corporation as they were of the Constituent Corporations, and
the title to any real estate vested by deed or otherwise in either of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the Merger; provided, however, that the liabilities of the Constituent
Corporations and of their stockholders, directors and officers shall not be
affected and all rights of creditors and all liens upon any property of either
of the Constituent Corporations shall be preserved unimpaired, and any claim
existing or action or proceeding pending by or against either of the Constituent
Corporations may be prosecuted to judgments as if the Merger had not taken place
except as they may be modified with the consent of such creditors and all debts,
liabilities and duties of or upon each of the Constituent Corporations shall
attach to the Surviving Corporation, and may be enforced against it to the same
extent as if such debts, liabilities and duties had been incurred or contracted
by it.
1.5 Manner of Accomplishing Merger. The Merger shall be accomplished by way
of the exchange of 100% (100 shares) of the issued and outstanding shares of LSI
for 125,000 shares of the common stock of NAV, 100% of the issued and
outstanding shares of CarWizard for an additional 125,000 shares of the Common
Stock of NAV. The transfer agent will automatically be instructed to issue new
certificates of NAV to each of the shareholders of LSI and CarWizard in
accordance with Exhibit A attached hereto, at the address listed in the register
of LSI shareholders. No fractional shares will be issued, but each fractional
share will be rounded up to the next share and a certificate for NAV will be
issued to each record holder of LSI accordingly. The exchange will be
accomplished pursuant to an exemption from registration provided by Section 4(2)
of the Securities Act of 1933.
1.6 Rights of Appraisal. This Merger shall be subject to the unanimous
approval by the Shareholders and there shall be no outstanding dissenter's or
appraisal rights.
1.7 Obligations of the Acquirees Not to Issue its Securities. As of the
date of this Merger Agreement and until the date of closing, the Acquirees shall
not issue any additional shares of its common stock to any person or entity
whatsoever, including as a result of having previously issued any warrants to
acquire common stock, any options to acquire its securities as a result of any
employee stock option plan or otherwise, or pursuant to any employee benefit
plan. The Acquirees further represent that the capitalization, as set forth in
paragraph C of the preamble to this Agreement, is true and accurate in all
respects.
<PAGE>
1.8 Pre Effective Date Assignments. On the Effective Date the Acquirees
shall assign all existing accounts payable, all existing accounts receivable and
all cash or cash equivalents to the Shareholders who shall be responsible for
the payment of all Acquirees' debt accrued as of December 31, 1998 except the
Note Payable to the Computer Group, Inc. as defined in Section 5.2 which NAV
shall assume and pay.
2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation and Bylaws. The Articles of Incorporation
of NAV in effect on the Effective Date shall continue to be the Articles of
Incorporation of the Surviving Corporation. The Bylaws of NAV shall be the
Bylaws of the Surviving Corporation, as they may be amended from time to time.
2.2 Directors. The directors of NAV immediately preceding the Effective
Date shall become the directors of the Surviving Corporation on and after the
Effective Date to serve until the expiration of their terms and until their
successors are elected and qualified and Michael S. Kranitz shall be appointed
as the seventh member of NAV's board of directors and so long as he is eligible,
shall be nominated for re-election at NAV's next annual meeting of shareholders.
2.3 Officers. The officers of NAV immediately preceding the Effective Date
shall remain the officers of the Surviving Corporation on and after the
Effective Date to serve at the pleasure of its Board of Directors.
3. REPRESENTATION AND WARRANTIES
3.1 Representations and Warranties by the Acquirees. As a material
inducement to NAV to execute and perform its obligations under this Agreement,
the Acquirees and the Shareholders hereby jointly and severally represent and
warrant to NAV that except as disclosed on Schedule 3.1:
(1) Organization and Standing of the Acquirees. The Acquirees are
corporations duly organized and validly existing and in good standing under the
laws of the State of Ohio. They have all requisite corporate power and authority
to carry on its business as now being conducted, to enter into this Agreement
and to carry out and perform the terms and provisions of this Agreement. The
Acquirees have no direct or indirect interest, either by way of stock ownership
or otherwise, in any other firm, corporation, association or business.
(2) Capitalization. The Acquirees are both duly and lawfully
authorized by its Articles of Incorporation, as amended, to issue 850 shares of
common stock, no par value per share, of which 100 shares of each Acquiree are
validly issued and outstanding on the date of this Agreement. LSI has 400 shares
of treasury stock. All of the outstanding shares of the Acquirees' common stock
have been duly authorized and validly issued and are fully paid and
nonassessable. There are no outstanding subscriptions, options, warrants, calls,
contracts, demands, commitments, convertible securities or other agreements or
arrangements of any character or nature whatever under which the Acquiree is or
may be obligated to issue or purchase shares of its capital stock.
<PAGE>
(3) Ownership of the Acquirees' Common Stock. The shares of the
Acquirees' common stock are held by the Shareholders in the amounts set forth
opposite their signatures.
(4) The Acquirees' Authority. The execution, delivery and performance
of this Agreement shall have been duly authorized by all requisite corporate
action. This Agreement constitutes a valid and binding obligation of the
Acquirees and the Shareholders enforceable in accordance with its terms (except
as limited by bankruptcy, insolvency or other laws affecting the enforcement of
creditors' rights). No provision of the Articles of Incorporation or any
amendments thereto, Bylaws or any amendments thereto, minutes or share
certificates of the Acquirees, or of any contract to which the Acquirees are a
party or otherwise bound, prevents the Shareholders from delivering good title
to their shares of such capital stock in the manner contemplated herein.
(5) Due Diligence. The Acquirees have furnished NAV with all
financial, corporate and business records requested by NAV.
(a) Financial Statements. The financial statements furnished by
the Acquirees were prepared in accordance with generally accepted accounting
principles applied on a consistent basis and present fairly the financial
condition of the Acquirees at such dates and the results of its operations for
the periods therein specified. Specifically, but not by way of limitation, the
financial statements presented disclose all of the assets, debts, liabilities
and obligations of any nature (whether absolute, accrued, contingent or
otherwise and whether due or to become due) of the Acquirees at the date thereof
and include appropriate reserves for all taxes and other liabilities accrued or
due at such date, but not yet payable. Except as may have been disclosed to NAV,
there has not been any material change to the financial condition of the
Acquirees since the date of the last financial statements delivered.
(b) Litigation. Except as may have been disclosed to NAV in
writing, there are no legal actions, suits, arbitrations or other legal or
administrative proceedings pending or threatened against the Acquirees which
would materially affect it or its properties, assets or business; and the
Acquirees are not aware of any facts which to its knowledge might result in any
action, suit, arbitration or other proceeding which in turn might result in any
material adverse change in the business or condition (financial or otherwise) of
the Acquirees or their properties or assets. The Acquirees are not in default
with respect to any judgment, order or decree of any court or any government
agency or instrumentality.
(c) Compliance With the Law and Other Instruments. To the best of
the Acquirees' knowledge, the business operations of the Acquirees have been and
are being conducted in material compliance with all applicable laws, rules and
regulations of all authorities. The Acquirees are not in violation of, or in
default under, any term or provision of its Articles of Incorporation, as
amended, or its Bylaws, as amended, or of any license, lien, mortgage, lease,
agreement, instrument, order, judgment or decree, or subject to any restriction,
contained in any of the foregoing, of any kind or character which materially
adversely affects in any way the business, properties, assets or prospects of
the Acquirees, or prevents consummation of the exchange of securities
contemplated by this Agreement.
<PAGE>
(d) Title to Properties and Assets. The Acquirees have good and
marketable title to all their properties and assets, including without
limitation those reflected in the Acquirees' financial statements and those used
or located on property controlled by the Acquirees, subject to no mortgage,
pledge, lien, charge, security interest, encumbrance or restriction except a
security interest granted to the Computer Group, Inc. by LSI pursuant to the
Promissory Note defined in Section 5.2. The buildings and equipment of LSI are
in good condition and repair, reasonable wear and tear excepted. LSI has not
been, to the knowledge of any officer of LSI, threatened with any action or
proceeding under any building or zoning ordinance, regulation. Neither LSI or
CarWizard own and they are not therefore conveying title to all intellectual
property rights in and to the book, Look Before You Lease: Secrets to Smart
Vehicle Leasing (Library of Congress Catalog Card Number 97-76990 and previous
editions) and intellectual property rights in and to the LeaseWizard(R)Lease and
Loan Software and related trademarks belonging to Kranitz Enterprises, Inc.
(e) Contracts and Other Obligations. The Acquirees have provided
NAV with copies of all material contracts to which it is a party, including all
leases for real or personal property. The Acquirees have in all material
respects performed all obligations required to be performed by it to date and is
not in material default under any of the contracts to which it is a party or by
which it is otherwise bound. To the best of Acquirees' knowledge, all parties
with whom the Acquirees have contractual arrangements are in material compliance
therewith and are not in default thereunder, except as otherwise disclosed to
NAV.
(f) Records. The books of account, minute books, stock
certificate books and stock transfer ledgers of the Acquirees are complete and
correct, and there have been no transactions involving the business of the
Acquirees which properly should have been set forth in the respective books,
other than those set forth therein.
(6) Brokers or Finders. All negotiations on the parts of the Acquirees
relative to this Agreement and the transactions contemplated hereby have been
carried on by the Acquirees without the intervention of any person or as the
result of any act of the Acquirees in such manner as to give rise to any valid
claim against the Acquirees, NAV or the Shareholders for a brokerage commission,
finder's fee or other like payment.
(7) Taxes. The Acquirees have duly filed all federal, state, county
and local income, franchise, excise, real and personal property and other tax
returns and reports (including, but not limited to, those relating to social
security, withholding, unemployment insurance and occupation (sales) and use
taxes) required to have been filed by the Acquirees up to the date hereof. All
of the foregoing returns are true and correct in all material respects and the
Acquirees have paid all taxes, interest and penalties shown on such returns or
reports as being due. The Acquirees have paid or made adequate provision in the
Acquirees' financial statements or its books and records for all taxes payable
in respect of all periods ending on or before the date hereof. The Acquirees
have no material liability for any taxes, interest or penalties of any nature
whatsoever, except for those taxes which are not yet due.
<PAGE>
(8) Indemnification Liabilities. There are no existing liabilities or
facts known to the Acquirees which would require the Acquirees to indemnify
their officers or directors for acts or omissions by such persons acting on
behalf of the respective companies.
(9) Full Disclosure. The Acquirees and the Shareholders have made full
disclosure to NAV concerning all material elements of the business of the
Acquirees.
3.2 Representations and Warranties by NAV. As a material inducement to the
Acquirees and the Shareholders to execute and perform their obligations under
this Agreement, NAV hereby represents and warrants that except as disclosed in
NAV's Financial Statements or on Schedule 3.2:
(1) Organization and Standing of NAV. NAV is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Colorado. It has all requisite corporate power and authority to carry on its
business as now being conducted, to enter into this Agreement and to carry out
and perform the terms and provisions of this Agreement. NAV has no direct or
indirect interest, either by way of stock ownership or otherwise, in any other
firm, corporation, association or business.
(2) Capitalization. NAV is duly and lawfully authorized by its
Articles of Incorporation, as amended, to issue 20,000,000 shares of common
stock, no par value per share. 3,606,221 shares of the common stock are issued
and outstanding as of the date hereof. NAV has no treasury stock and no other
authorized series or class of stock. All the outstanding NAV common shares have
been duly authorized and validly issued and are fully paid and nonassessable and
free of preemptive rights. There are outstanding subscriptions, options,
warrants and other agreements or arrangements under which NAV is or may be
obligated to issue or purchase shares of its capital stock.
(3) NAV's Authority. The execution, delivery and performance of this
Agreement shall have been duly authorized by all requisite corporate action.
This Agreement constitutes a valid and binding obligation of NAV enforceable in
accordance with its terms (except as limited by bankruptcy, insolvency or other
laws affecting the enforcement of creditors' rights). No provision of the
Articles of Incorporation and any amendments thereto, Bylaws and any amendments
thereto, minutes or share certificates of NAV, or of any contract to which NAV
is a party or otherwise bound, prevents NAV from delivering good title to the
shares of common stock to be issued pursuant to this Agreement.
(4) Brokers or Finders. All negotiations on the part of NAV relative
to this Agreement and the transactions contemplated hereby have been carried on
by NAV without the intervention of any person or as the result of any act of NAV
in such manner as to give rise to any valid claim against NAV, the Acquirees or
the Shareholders for a brokerage commission, finder's fee or other like payment.
<PAGE>
(5) Financial Statements. NAV has furnished to the Acquirees its
audited balance sheets as of December 31, 1997 and 1996, its audited statements
of income and retained earnings and cash flows for each of the three years ended
December 31, 1997, its unaudited balance sheet as of September 30, 1998, and its
unaudited statements of income and cash flows for the nine months ended
September 30, 1998 (collectively, the "NAV Financial Statements"). All of the
NAV Financial Statements present fairly the financial position of NAV as of the
respective balance sheet dates, and the results of its operations and cash flows
for the respective periods therein specified. The NAV Financial Statements were
prepared in accordance with generally accepted accounting principles applied
upon a basis consistent with prior accounting periods.
(6) Litigation. Except as disclosed in the NAV Financial Statements or
in Schedule 3.2, there are no legal actions, suits, arbitrations, or other legal
or administrative proceedings pending or threatened against NAV which would
reasonably be expected to have a material adverse effect upon it, its
properties, assets, or business; and NAV is not aware of any facts which to its
knowledge would reasonably be expected to result in any action, suit,
arbitration, or other proceeding which in turn would reasonably be expected to
result in any material adverse change in the business or condition (financial or
otherwise) of NAV or its properties or assets. NAV is not in default of any
judgment, order, or decree of any court or, in any material respect of, any
requirements of a government agency or instrumentality, except as set forth in
the NAV Financial Statements.
(7) Compliance With the Law and Other Instruments. To the best of
NAV's knowledge, the business operations of NAV have been and are being
conducted in substantial compliance with all applicable laws, rules, and
regulations of all authorities. NAV is not in violation of, or in default under,
any term or provision of its Certificate of Incorporation, as amended, or its
Bylaws, as amended, or in any material respect of any lien, mortgage, lease,
agreement, instrument, order, judgment, or decree, or subject to any
restriction, contained in any of the foregoing, of any kind or character which
materially adversely affects the business, properties, assets, or prospects of
NAV, or which would prohibit NAV from entering into this Agreement.
(8) Title to Properties and Assets. NAV has good and marketable title
to all of its material properties and assets, including without limitation those
reflected in the NAV Financial Statements and those used or located on property
controlled by NAV in its business (except assets leased or sold in the ordinary
course of business), subject to no mortgage, pledge, lien, charge, security
interest, encumbrance, or restriction except those which (a) are disclosed in
the NAV Financial Statements as securing specified liabilities; or (b) do not
materially adversely affect the use thereof.
(9) Records. The books of account, minute books, stock certificate
books, and stock transfer ledgers of NAV are complete and correct, and there
have been no transactions involving the business of NAV which properly should
have been set forth in said respective books, other than those set forth
therein.
<PAGE>
(10) Absence of Certain Changes or Events. Since September 30, 1998,
there has not been any material adverse change in, or event or condition
materially and adversely affecting the condition (financial or otherwise),
properties, assets, liabilities or, to the knowledge of NAV, the business or
prospects of NAV, except for conditions generally affecting the segments of the
oil and gas industry in the locales in which NAV conducts its business.
(11) Taxes. NAV has duly filed all federal, state, county and local
income, franchise, excise, real and personal property and other tax returns and
reports (including, but not limited to, those relating to social security,
withholding, unemployment insurance, and occupation (sales) and use taxes)
required to have been filed by NAV up to the date hereof. All of the foregoing
returns are true and correct in all material respects and NAV has paid or
provided for all taxes, interest and penalties shown on such returns or reports
as being due. NAV has no liability for any material amount of taxes, interest or
penalties of any nature whatsoever, except for those taxes which may have arisen
up to the Closing Date in the ordinary course of business and are properly
accrued on the books of NAV as of the Closing Date.
(12) Full Disclosure. To NAV's knowledge and belief, this Agreement,
NAV's periodic public reports filed with the SEC pursuant to the requirements of
the Exchange Act, and any schedules and certificates delivered by NAV in
connection herewith or with the transactions contemplated hereby, taken as a
whole, neither contain any untrue statement of a material fact nor omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. To NAV's knowledge and belief, there are no facts which
(individually or in the aggregate) materially adversely affect the business,
assets, liabilities, financial condition or operations of NAV that have not been
set forth in this Agreement, the Schedules hereto, the periodic public reports
of NAV or in other documents delivered by NAV in connection herewith or
disclosed orally by an executive officer of NAV.
3.3 Representations and Warranties of the Shareholders. In connection with
the establishment of the availability of an exemption from registration under
the Act and the securities laws of the state of Ohio, the Shareholders make the
following representations and warranties to NAV:
(1) The Shareholders own free and clear of any mortgage, lien, claim
or rights of any third party whatsoever the shares being acquired by NAV in this
Merger and no consent or authority of any other party is required to convey
clear title thereto.
(2) The Shareholders are aware and understand that there are
substantial investment risks incident to acquisition of the NAV Shares. No
federal or state agency has made any finding or determination as to the fairness
of the Share Exchange, nor any recommendation or endorsement, of the NAV Shares.
(3) The Shareholders acknowledge that the NAV Shares have not been
registered under the Act or the blue sky laws of any state and, therefore,
cannot be resold unless they are subsequently registered under the Act or
applicable state blue sky laws or an exemption from such registration is
available and a favorable opinion of counsel satisfactory to NAV to that effect
is obtained. Certificates evidencing ownership of the NAV Shares will be
endorsed with a legend providing that the transfer thereof is restricted, except
in compliance with the Act.
<PAGE>
(4) Each of the Shareholders has been furnished all materials and
information he desires on NAV, its current and proposed activities and the
offering of the NAV Shares to enable him to make an informed investment
decision.
(5) The Shareholders have had the opportunity to ask questions of and
receive answers from NAV and its management and to obtain any additional
information necessary to verify the accuracy of the information received
concerning NAV and the Share Exchange.
(6) Each Shareholder is acquiring the NAV Shares for investment
purposes only and not with a view to any "distribution" of such shares within
the meaning of the Securities Act except in compliance with the provisions
thereof.
(7) Each Shareholder has such knowledge and experience in financial,
investment and business matters that he is capable of evaluating the merits and
risks of his acquisition of the NAV Shares and of making an informed decision in
acquiring such shares.
4. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
For purposes of this Article 4 only, any party or other person seeking to
enforce, or claiming the benefit of, any representation and warranty hereunder
is called a Claimant, and any party or other person against which right is
claimed is called a Defendant. All representations and warranties of the parties
shall survive the Closing and all inspections, examinations or audits on behalf
of the parties; provided however that all representations and warranties shall
terminate and expire, and be without further force and effect whatever from and
after one year from the date of the Closing, hereinafter referred to as the
Expiration Date, and neither party hereto shall have liability whatsoever on
account of any inaccurate representation or warranty or for any breach of
warranty, unless Claimant shall on or prior to such date, serve written notice
on Defendant, with a copy to Defendant's counsel herein, setting forth in
reasonable detail any claims (and to the extent possible an estimate of the
damages) which Claimant may have under this Agreement.
5. OTHER AGREEMENTS
5.1 Earn-Out Provision. The current shareholders of CarWizard and
LeaseSource shall receive a distribution of profits from the continuing
operation of LeaseSource and CarWizard through the end of the year 2000 ("Earn
Out"). The Earn Out shall be calculated solely with reference to Exhibit 5.1.
The Earn Out at the end of calendar year 1999 shall be equal to 60% of the
difference between the "Earn Out Amount" set forth in Exhibit 5.1 and $275,000.
The Earn Out at the end of calendar year 2000 shall be equal to 55% of the
difference between the "Earn Out Amount" set forth in Exhibit 5.1 and $300,000,
provided the previous year's Earn Out Amount was equal to or greater than
$275,000. The Earn Out shall be paid to Michael Kranitz, who shall be
responsible for dividing said amounts between himself and his wife based upon
their shares in LeaseSource and CarWizard.
<PAGE>
5.2 Indemnification of Personal Liability. As part of the consideration to
shareholders of LSI, Navidec shall assume and indemnify Michael Kranitz against
any personal liability pursuant to a Promissory Note dated October 18, 1997
executed by Michael Kranitz for the benefit of The Computer Group as Payee in
the amount of $100,000.
5.3 Board of Directors. Upon Closing, the NAV directors shall cause the
Board of Directors to be enlarged to seven directors and the vacancy created by
such enlargement shall be filled by Michael S. Kranitz. Mr. Kranitz shall be
nominated as a director at NAV next annual meeting of shareholders so long as he
qualifies for a director seat without adverse disclosure requirements.
5.4 Employment Agreement. At Closing, Michael S. Kranitz shall be offered
an employment agreement substantially in the form attached as Schedule 5.4.
Additionally, at Closing Kranitz shall be reimbursed for expenses related to his
family's relocation to the Denver, Colorado metro area in an amount not to
exceed $15,000.
6. MISCELLANEOUS
6.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, by action taken or authorized by the Board of Directors of the
terminating party or parties, whether before or after approval of the matters
presented in connection with the Merger by the shareholders of NAV or LSI or
CarWizard:
(a) By mutual written consent of NAV and the Acquirees, by action of their
respective Boards of Directors;
(b) By either the Acquirees or NAV if the Effective Time shall not have
occurred on or before the elapse of one month from the date of this Agreement
(the "Termination Date"); provided, however, that the right to terminate this
Agreement under this Section 6.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement (including without
limitation Section 4.3) has to any extent been the cause of, or resulted in, the
failure of the Effective Time to occur on or before the Termination Date.
6.2 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the shareholders of the Acquirees. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
6.3 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. The failure of any party to
this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
<PAGE>
6.4 Assignment. Neither this Agreement nor any right created hereby shall
be assignable by the parties hereto without the prior written consent of the
others, except by the laws of succession. Nothing in this Agreement, as
expressly set forth herein, is intended to confer upon any person, other than
the parties hereto and their respective successors, assigns, heirs, executors,
administrators or personal representations, any rights or remedies under or by
reason of this Agreement.
6.5 Notices. Any notice, communication, request, reply or advice,
hereinafter severally and collectively called "notice," in this Agreement
provided or permitted to be given, made, or accepted by either party to the
other must be in writing and may be given or be served by depositing the same in
the United States mail, addressed to the party to be notified, postage prepaid
and registered or certified with return receipt requested, or by delivering the
same in person to an officer of such party. Notice deposited in the mail in the
manner hereinabove described shall be effective only if and when received by the
parties to be notified. For purposes of notice the addresses of the parties
shall, until changed as hereinafter provided, be as follows:
(1) If to NAV:
Ralph Armijo, President
Navidec, Inc.
14 Inverness Drive
Bldg. F, Suite 116
Englewood, CO 80112
Fax: (303) 790-8845
With a copy to:
Roger V. Davidson, Esq.
Cohen Brame & Smith Professional Corporation
1700 Lincoln Street, Suite 1800
Denver, Colorado 80203
(2) If to LSI, CarWizard or the Shareholders:
Michael S. Kranitz
7163 Mayfield Ct.
Parker, Colorado 80134
with a copy to :
[--------------]
<PAGE>
6.6 Parties in Interest. This Agreement shall be binding on and inure to
the benefit of the parties hereto, their respective heirs, executors,
administrators, legal representatives, successors and assigns except as
otherwise expressly provided herein.
6.7 Attorneys' Fees. If any action at law or inequity, including an action
declaratory relief, is brought to enforce or interpret the provisions of this
Agreement, the prevailing party shall be entitled to recover reasonable
attorney's fees from the other party, which fees may be set by the court in the
trial of such on or may be enforced in a separate action brought for that
purpose, and which fees shall be in addition to any other relief which may be
awarded.
6.8 Governing Law. This Agreement shall be governed by the laws of the
State of Colorado. Any action brought to enforce this Agreement or any term
thereof shall be brought in a court of competent jurisdiction in Denver,
Colorado and each party hereto affirmatively agrees to submit to the
jurisdiction in that city and state.
6.9 Severability. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
6.10 Counterparts. This Agreement and all other copies of this Agreement
insofar as they relate to the rights, duties and remedies of parties, shall be
deemed to be one agreement. This Agreement may be executed concurrently in one
or more counterparts, each which shall be deemed an original, but all which
together shall constitute one and the same instrument. Facsimile signatures
shall be treated as original until replaced by the original copy which shall
then be substituted.
6.11 Integrated Agreement. This Agreement constitutes the entire agreement
between the parties hereto, and there are no agreements, understandings,
restrictions, warranties or representations between the parties other than those
set forth herein or herein provided for.
IN WITNESS WHEREOF, this Agreement and Plan of Share Exchange has been
executed the day and year set forth above.
NAVIDEC, INC.
By: /s/ Ralph Armijo
-------------------------
Ralph Armijo
LEASESOURCE ONLINE, INC.
By: /s/ Michael S. Kranitz
-------------------------
Michael S. Kranitz, President
CARWIZARD, INC.
By: /s/ Michael S. Kranitz
-------------------------
Michael S. Kranitz, President
<PAGE>
SHAREHOLDERS OF LEASESOURCE ONLINE, INC.
/s/ Michael S. Kranitz
----------------------------
Michael S. Kranitz ... 51 shares
/s/ Abby Kranitz
----------------------------
Abby Kranitz ... 49 shares
SHAREHOLDERS OF CARWIZARD, INC.
/s/ Michael S. Kranitz
----------------------------
Michael S. Kranitz ... 100 shares
ARTHUR ANDERSEN LLP
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated march 23, 1999
included in the Company's Form 10-KSB for the year ended December 31, 1998 and
to all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
Denver, Colorado
April 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 711,000
<SECURITIES> 0
<RECEIVABLES> 2,292,000
<ALLOWANCES> 125,000
<INVENTORY> 341,000
<CURRENT-ASSETS> 3,658,000
<PP&E> 1,698,000
<DEPRECIATION> 717,000
<TOTAL-ASSETS> 5,265,000
<CURRENT-LIABILITIES> 3,372,000
<BONDS> 0
0
0
<COMMON> 8,059,000
<OTHER-SE> (6,260,000)
<TOTAL-LIABILITY-AND-EQUITY> 5,265,000
<SALES> 8,555,000
<TOTAL-REVENUES> 8,555,000
<CGS> 5,870,000
<TOTAL-COSTS> 6,234,000
<OTHER-EXPENSES> 4,000
<LOSS-PROVISION> 75,000
<INTEREST-EXPENSE> 414,000
<INCOME-PRETAX> (3,933,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,933,000)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
