<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the period ended June 30, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from January 1, 2000 to June 30, 2000.
------------------ ----------------------
Commission file number 0-29098
NAVIDEC, INC.
(Exact name of Registrant as specified in its charter)
COLORADO 33-0502730
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
6399 S. Fiddler's Green Circle, Suite 300 Greenwood Village, Colorado 80111
(Address of principal executive offices)
Registrant's telephone number: 303-222-1000
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of August 8, 2000, Registrant had 11,014,385 shares of common stock
outstanding
<PAGE> 2
NAVIDEC, INC.
INDEX
PART I. FINANCIAL INFORMATION
===============================
Item 1. Financial Statements (Unaudited)
Balance Sheets as of June 30, 2000 and December 31, 1999
Statements of Operations, three months and Six months ended June 30,
2000 and 1999
Statements of Cash Flows,
Six months ended June 30, 2000 and 1999
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
============================
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended, and is subject to the safe harbors created
by those sections. These forward-looking statements are subject to significant
risks and uncertainties, including those identified in the section of this Form
10-Q entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors That May Affect Future Operating Results,"
which may cause actual results to differ materially from those discussed in such
forward-looking statements. The forward-looking statements within this Form 10-Q
are identified by words such as "believes," "anticipates," "expects," "intends,"
"may," "will" and other similar expressions. However, these words are not the
exclusive means of identifying such statements. In addition, any statements
which refer to expectations, projections or other characterizations of future
events or circumstances are forward-looking statements. The Company undertakes
no obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or circumstances
occurring subsequent to the filing of this Form 10-Q with the Securities and
Exchange Commission ("SEC"). Readers are urged to carefully review and consider
the various disclosures made by the Company in this report and in the Company's
other reports filed with the SEC that attempt to advise interested parties of
the risks and factors that may affect the Company's business.
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NAVIDEC, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ ------------
(unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 35,860 $ 13,278
Investment in debt securities 9,855 7,396
Accounts receivable, net of allowance for doubtful
accounts of $307 and $669, respectively 4,371 6,088
Costs and estimated earnings in excess of billings 148 3,631
Inventory 846 802
Notes receivable -- 2,200
Prepaid expenses and other 885 498
-------- --------
Total current assets 51,965 33,893
PROPERTY EQUIPMENT AND SOFTWARE, net of accumulated
depreciation of $1,508 and $3,348, respectively 7,398 10,563
OTHER ASSETS:
Goodwill and other intangibles, net of accumulated
amortization of $244 and $386 respectively 1,175 1,033
Deferred financing costs less amortization of $45 and $40 901 237
Investments 3,199 4,172
Investment in IADMA 390 602
-------- --------
Total other assets 5,665 6,044
-------- --------
TOTAL ASSETS $ 65,028 $ 50,500
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,437 $ 1,084
Bank overdrafts 149 185
Accrued liabilities 1,692 1,021
Current portion of capital lease obligations 423 820
Deferred revenue -- 299
-------- --------
Total current liabilities 5,701 3,409
CAPITAL LEASE OBLIGATIONS, net of current portion 356 766
CONVERTIBLE DEBT OBLIGATIONS,
net of unamortized discount of $1,324
and $369, respectively 19,876 5,831
MINORITY INTEREST -- 844
SHAREHOLDERS' EQUITY:
Common stock, no par value, 20,000,000 shares authorized,
10,855,000 and 11,014,000 shares issued and outstanding,
respectively 54,910 55,576
Warrants for common stock 1,207 1,149
Unrealized gain 290 700
Accumulated deficit (17,312) (17,775)
-------- --------
Total shareholders' equity 39,095 39,650
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 65,028 $ 50,500
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE> 4
NAVIDEC, INC.
STATEMENTS OF OPERATIONS
(in thousands, except shares and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE $ 3,776 $ 7,648 $ 8,233 $ 14,205
COST OF REVENUE 2,247 3,862 5,016 7,289
------------ ------------ ------------ ------------
GROSS PROFIT 1,529 3,786 3,217 6,916
OPERATING EXPENSES
Product development 779 1,886 1,520 3,289
General and administrative 1,175 4,371 2,156 8,120
Sales and marketing 1,282 5,041 2,016 9,401
------------ ------------ ------------ ------------
Total operating expenses 3,236 11,298 5,692 20,810
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,707) (7,512) (2,475) (13,894)
Other income, net 107 92 113 335
DriveOff.com debt conversion expense -- (5,195) -- (5,195)
Gain on conversion of
DriveOff.com debt to equity -- 18,291 -- 18,291
------------ ------------ ------------ ------------
TOTAL OTHER INCOME, NET 107 13,188 113 13,431
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (1,600) $ 5,676 $ (2,362) $ (463)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE
Basic $ (.22) $ .52 $ (.37) $ (.04)
Diluted (.22) .49 (.37) (.04)
WEIGHTED-AVERAGE COMMON SHARES:
Basic 7,349,000 11,011,000 6,353,000 10,980,000
Diluted 7,349,000 11,702,000 6,353,000 10,980,000
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE> 5
NAVIDEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Six Months Ended
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30,
1999 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (2,362) $ (463)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 257 2,162
Provision for bad debts 60 362
Conversion of Driveoff debt into equity -- (13,096)
Other -- 109
Changes in operating assets and liabilities
Accounts receivable 327 (2,079)
Costs and estimated earnings in excess of billings (11) (3,483)
Inventory (99) 44
Restricted cash (211) --
Other assets (173) 387
Accounts payable (1,270) (2,353)
Bank overdraft -- 36
Deferred revenue -- 299
Accrued liabilities 148 (333)
-------- --------
Net cash used in operating activities (3,334) (18,408)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Funding of notes receivable -- (2,200)
Capitalized software development costs -- (1,078)
Investment in IADMA -- (212)
Sale of marketable debt securities -- 2,459
Purchase of equity investments -- (563)
Purchases of property, equipment and software (581) (3,119)
-------- --------
Net cash used in investing activities (581) (4,713)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from factoring of accounts receivable 257 --
Payments to factor (460) --
Proceeds from exercise of common stock, options and warrants 16,940 606
Payments of capital leases obligations (748) (67)
-------- --------
Net cash provided by (used in) financing activities 15,989 539
-------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 12,074 (22,582)
CASH AND CASH EQUIVALENTS, beginning of period 711 35,860
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 12,785 $ 13,278
-------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 57 $ 115
Equipment acquired under capital leases 300 875
The accompanying notes to consolidated financial statements are an integral part
of these statements
</TABLE>
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND MANAGEMENT OPINION
The unaudited financial statements and related notes to the financial statements
presented herein have been prepared by the management of Navidec, Inc. and
subsidiary (the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The accompanying financial statements
were prepared in accordance with the accounting policies used in the preparation
of the Company's audited financial statements included in its Annual Report on
Form 10-K for the fiscal year ended December 31, 1999, and should be read in
conjunction with such financial statements and notes thereto.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary for a fair presentation of operating
results for the interim period presented have been made.
(2) CONVERTIBLE DEBT OBLIGATIONS AND SHAREHOLDERS' EQUITY
On September 30, 1999, WFC Holdings Corporation ("WFC"), a subsidiary of Wells
Fargo & Company, made an investment of $25 million in the Company and
DriveOff.com. Wells Fargo purchased 380,000 shares of the Company's common stock
for $3,800,000 or $9.25 per share and received a note for $6,200,000 that is
convertible into 701,081 shares of the Company's common stock. For its $15
million investment in DriveOff.com, WFC received a note convertible into 3.2
million shares (representing twenty percent of DriveOff.com's common stock
outstanding as of the closing of the transaction). WFC also received a five-year
warrant for an additional 160,000 shares of DriveOff.com, exercisable one year
after the transaction's closing at $6.5625 per share. The Company and
DriveOff.com received the $25 million investment on October 4, 1999.
On June 30, 1999, WFC converted the note into 3.2 million common
shares of DriveOff.com at $4.69 per share.
Warrants and Options Exercised and Redeemed in 2000
During the first six months of 2000, the Company had 21,000 warrants exercised
resulting in net proceeds of $96,000 and 139,000 employee options exercised
resulting in $510,000.
(3) COMPREHENSIVE INCOME
Comprehensive income includes net income or loss, changes in certain assets and
liabilities that are reported directly in equity such as translation adjustments
on investments in foreign subsidiaries, and certain changes in minimum pension
liabilities. The Company's comprehensive income (loss) for the three months
ended June 30, 1999 and 2000 was ($1,600,000) and $6,037,000, respectively.
Comprehensive loss for the six months ended June 30, 1999 and 2000 was
(2,362,000) and (53,000), respectively.
<PAGE> 7
(4) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. It requires an entity to recognize all derivatives as either assets
or liabilities in the statement of financial position and measures those
instruments at fair value. In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - An
amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 delays the effective
date of SFAS 133 to financial quarters and financial years beginning after June
15, 2000. The Company does not typically enter into arrangements that would fall
under the scope of SFAS 133 and thus, management believes that SFAS 133 will not
significantly affect the Company's financial condition and results of
operations.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, "Revenue Recognition." SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in financial statements. The accounting impact of SAB 101 is required to be
determined no later than the Company's fourth fiscal quarter of 2000. If the
Company determines that its revenue recognition policies must change to be in
compliance with SAB 101, the implementation of SAB 101 will require the Company
to restate its first quarter 2000 results to reflect a cumulative effect of
change in accounting principle as if SAB 101 had been implemented on January 1,
2000. The Company is currently reviewing SAB 101 to determine what impact, if
any, the adoption of SAB 101 will have on its financial position and results of
operations.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN No. 44"). The
Interpretation clarifies the application of APB No. 25 for certain issues
related to equity based instruments issued to employees. FIN No. 44 is effective
on July 1, 2000, except for certain transactions, and will be applied on a
prospective basis. Management believes that FIN No. 44 will not have a
significant impact on its financial statements.
(5) Costs and Estimated Earnings in Excess of Billings
Costs and estimated earnings in excess of billings as of June 30, 2000 is
comprised of the following:
Costs incurred on contracts in progress $1,375,000
Estimated earnings 2,256,000
----------
3,631,000
Less progress billings --
----------
$3,631,000
==========
(6) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market, and
consist primarily of products held for resale and use in on-line solutions.
(7) NET 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.
A reconciliation of the shares used for basic and diluted per share
computations follows:
3 Months Ended
June 30, 2000
Weighted average shares 11,011,000
Stock options and warrants 691,000
----------
Diluted shares 11,702,000
==========
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 for the six months
ended June 30, 2000 and all periods in fiscal 1999 as the effect of all such
securities is anti-dilutive for all periods presented. Potential common shares
excluded because their effect was anti-dilutive are as follows:
3 Months Ended 6 Months Ended
6/30/99 6/30/99 6/30/00
Potential shares dilutive 856,000 836,000 964,000
<PAGE> 8
(8) SEGMENT REPORTING
The Company operates in three different segments: eSolutions, DriveOff.com
("Automotive") and Product Distribution. Management has chosen to organize the
Company around these segments based on differences in products and services.
ESolutions provides custom solutions, including the architecture, design,
development and integration of high tech solutions, utilizing web technology.
DriveOff.com provides total 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 (unaudited):
<TABLE>
<CAPTION>
For the Three Months Ended
June 30, 2000
(in thousands)
-----------------------------------
Product
eSolutions Automotive Distribution Corporate Total
---------- ---------- ------------ --------- -----
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $ 7,045 $ 261 $ 342 $ -- $ 7,648
Loss from operations $ (1,452) $ (4,918) $ (152) $ (990)(1) $ (7,512)
Identifiable assets $ 9,849 $ 6,785 $ 194 $ 33,672(2) $ 50,500
For the Three Months Ended
June 30, 1999
(in thousands)
-----------------------------------
Product
eSolutions Automotive Distribution Corporate Total
---------- ---------- ------------ --------- -----
Revenues from external
customers $ 2,510 $ 875 $ 391 $ -- $ 3,776
Loss from operations $ (450) $ (964) $ (131) $ (162)(1) $ (1,707)
Identifiable assets $ 1,565 $ 622 $ 708 $ 15,175(2) $ 18,070
For the Six Months Ended
June 30, 2000
(in thousands)
-----------------------------------
Product
eSolutions Automotive Distribution Corporate Total
---------- ---------- ------------ --------- -----
Revenues from external
customers $ 13,051 $ 516 $ 638 $ -- $ 14,205
Loss from operations $ (1,593) $(10,252) $ (261) $ (1,788)(1) $(13,894)
Identifiable assets $ 9,849 $ 6,785 $ 194 $ 33,672(2) $ 50,500
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 1999
(in thousands)
-----------------------------------
Product
eSolutions Automotive Distribution Corporate Total
---------- ---------- ------------ --------- -----
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $ 5,601 $ 1,582 $ 1,050 $ -- $ 8,233
Loss from operations $ (358) $ (1,838) $ (22) $ (257)(1) $ (2,475)
Identifiable assets $ 1,565 $ 622 $ 708 $ 15,175(2) $ 18,070
</TABLE>
(1) Corporate loss from operations represents depreciation expense.
(2) Corporate assets are those that are not directly identifiable to a
particular segment and includes cash, restricted cash, property and equipment
and prepaids and other assets.
(9) ISSUANCE OF SHARES FOR DRIVEOFF.COM
On June 30, 2000 WFC converted its promissory note with a carrying value of
$14,177,000, plus accrued but unpaid interest of $338,000 into 3,200,000 shares
of DriveOff.com. common stock at $4.69 per share. In connection with the
transaction, Drive-off.com issued 1,107,645 additional shares of its common
stock to WFC as an inducement to convert the subordinated debt into common
stock. The fair value of the additional shares, estimated at $5,195,000, has
been expensed in the accompanying statement of operations for the three months
ended June 30, 2000.
The Company recognizes gains and losses from the sale of stock by its
subsidiaries and equity method investees in its statements of operations when
realization of the gain is reasonably assured. The conversion of the
Drive-off.com debt into equity resulted in a pre-tax gain of $18.3 million.
(10) SUBSEQUENT EVENTS
On August 2, 2000, the Company entered into a definitive agreement to sell all
of its outstanding shares of DriveOff.com and its interest in the IADMA for
$95 million, comprised of CarPoint Inc. common stock and the assumption of
certain liabilities. The Investment in DriveOff.com is primarily comprised of
accounts receivable, fixed assets and accounts payable. The amount received
will be recorded in the third quarter of fiscal 2000 and will result in a gain
for the Company.
<PAGE> 10
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a provider and incubator of innovative e-businesses solutions and
services. We provide e-business services to a wide range of customers, from
start-up enterprises to Fortune 1000 businesses. Our services enable our
customers to transform their Internet operations from a basic web presence into
an integrated e-business.
We were organized in July 1993 as a value-added reseller of computer products
under the name ACI Systems, Inc. In July 1996, we merged with Interactive
Planet, Inc., a designer and developer of Internet web sites and subsequently
changed our name to Navidec, Inc. In July 1997, we acquired TouchSource, Inc., a
designer and developer of interactive kiosks. Through the acquisition, we
significantly enhanced our business model by combining expertise in traditional
marketing and distribution and Internet/Intranet technology. In December 1998,
we acquired CarWizard.com and LeaseSource.com, two prominent online automotive
sites, in order to expand our online automotive presence.
Currently, we derive revenue from three divisions: eSolutions, DriveOff.com and
product distribution. The majority of our eSolutions revenue is generated from
fixed-price, fixed-time contracts. We consider many factors in developing the
fixed-price and fixed-time of a contract, including the technical complexity of
the engagement, the resources required to complete the engagement and the extent
to which we will be able to deploy internally developed software tools to
deliver the solution. Since most of our solutions are delivered within a 90 to
120 day time frame, revenue is recognized using percentage-of-completion
accounting based on the ratio of direct costs incurred as compared to the
estimated total direct costs needed to complete the engagement. We plan to
expand our E-solutions services offerings to incorporate applications management
and hosting services, which will generate recurring revenues.
DriveOff.com's revenue is primarily derived from the sale of leads generated by
our CarWizard.com, LeaseSource.com and USWheels.com web sites. During the second
quarter of 1999, we contributed substantially all of the assets associated with
our DriveOff division to a new subsidiary, DriveOff.com, Inc. Currently, we
receive revenue from marketing and service fees from the IADMA (Internet Auto
Dealers Marketing Association) and from financing and insurance preparation
fees. Under the terms of our contract, all vehicle transactions generated by
DriveOff.com will be delivered to IADMA member dealers in return for a monthly
documentation fee. In August of 2000, we signed a definitive letter of Intent
with Carpoint for the sale of DriveOff.com
Our product distribution business generates revenue through the resale of third
party software and hardware components, graphical printers and supplies. Since
product distribution is not related to our core strategy, we expect that revenue
from this business will become a smaller percentage of total revenue as our
E-Solutions division continues to grow.
Our operating expenses consist of product development, general and
administrative and sales and marketing. Product development expenses include
salaries and out-of-pocket expenses incurred in developing new technologies for
our own use and for future customer applications generally, as opposed to
customer-specific development expenses. General and administrative expenses
consist primarily of salary and benefit expenses for our employees. It also
includes lease expenses associated with our office facility and various
equipment. Sales and marketing expenses include advertising costs, costs
associated with participation in trade shows and related travel expenses.
<PAGE> 11
RESULTS OF OPERATIONS
(in thousands)
For the Six Months Ended June 30,
1999 2000
------------------------------------------------------------------
(unaudited) (unaudited)
Revenue:
E-solutions $5,601 $13,051
DriveOff 1,582 516
Product distribution 1,050 638
----- ---
Total revenue 8,233 14,205
Cost of revenue 5,016 7,289
----- ------
Gross profit 3,217 6,916
Operating Expense:
Product development 1,520 3,289
General and administrative 2,156 8,120
Sales and marketing 2,016 9,401
----- -----
Total operating expense 5,692 20,810
Loss from operations $(2,475) $(13,894)
RESULTS OF OPERATIONS AS A PERCENTAGE OF REVENUES
For the Six Months Ended June 30,
1999 2000
-------------------------------------------------------------------
(unaudited) (unaudited)
Revenue:
E-solutions 68.0% 91.9%
DriveOff 19.2% 03.6%
Product distribution 12.8% 04.5%
----- -----
Total revenue 100.0% 100.0%
Cost of revenue 60.9% 51.3%
----- -----
Gross profit 39.1% 48.7%
Operating Expense:
Product development 18.4% 23.2%
General and administrative 26.2% 57.1%
Sales and marketing 24.5% 66.2%
----- -----
Total operating expense 69.1% 146.5%
Loss from operations (30.0)% (97.8)%
Revenue for the six months ended June 30, 2000 increased 72.5% over the same
period in 1999, from $8.2 million to $14.2 million. Revenue for the three months
ended June 30, 2000 increased by 102.5% over the same period in 1999, from $3.8
million to $7.6 million. The increase was due to increased revenues from
E-solutions.
E-solutions revenue for the six months ended June 30, 2000 increased 133.0% over
for the same period in 1999, from $5.6 million to $13.1 million. E-solutions
revenue for the three months ended June 30, 2000 increased by 180.7% over the
same period in 1999, from $2.5 million to $7.0 million. The increase in
E-solutions was the result of more project clients, more project per client and
primarily due to increased project size as we performed more complex and
comprehensive solutions for our clients.
DriveOff revenue for the six months ended June 30, 2000 decreased 67.4% over the
same period of 1999, from $1.6 million to $516,000. For the same period in 1999,
DriveOff revenue for the three months ended June 30, 2000 decreased 70.0%, from
$875,000 million to $262,000. The decrease in DriveOff revenue was a result of
the Company's change from a lead based revenue model to its current sales model.
Management made this change as it believes this model will meet customer needs
more effectively. With the sale of DriveOff.com the company will no longer
recognize revenues from this entity after final closing which is expected to
close during the third quarter.
<PAGE> 12
Revenue from the product distribution division for the six months ended June 30,
2000, decreased by 39.2% over the same period in 1999, from $1.1 million to
$638,000. For the three months ended June 30, product distribution division
revenue decreased 12.5%, from $391,000 in 1999 to $342,000 in 2000. The decrease
in sales was due to the Company's decision to focus less on product distribution
and devote more resources to E-solutions.
Gross profit for the six months ended June 30, 2000 increased $3.7 million or
115.0% over gross profit for the same period in 1999, from $3.2 million to $6.9
million. As a percent of revenue, gross margin increased from 39.1% to 48.7% as
a result of a changing mix of sales. Our E-solutions division's gross margin for
the six months ended June 30, 2000 increased 18.5 percentage points over gross
margin for the same period in 1999, from 30.0% to 48.5%. The DriveOff'
division's gross margin for the six months ended June 30, 2000 increased 5.5
percentage points from the same period in 1999, from 79.4% to 84.9%. Gross
profit for the three months ended June 30, 2000 increased 147.6% over gross
profit for the same period in 1999, from $1.5 million to $3.8 million. As a
percent of sales, gross margin for the three months ended June 30, increased
from 40.5% in 1999 to 49.5% in 2000. Our E-solutions division's gross margin for
the three months ended June 30, 2000 increased 384.1% over gross margin for the
same period in 1999, from $730,000 to $3.5 million. Our DriveOff' division's
gross margin for the three month ended June 30, 2000 decreased 69.5% from the
same period in 1999, from $742,000 to $226,000. The decrease in gross profit was
the result of lower sales due to the startup nature of the new model employed by
DriveOff.com .
Operating expenses for the six months ended June 30, 2000 were $20.8 million, or
146.5% of sales, compared with $5.7 million, or 69.1% of sales, for the same
period in 1999. Operating expenses for the three months ended June 30, 2000 were
$11.3 million, or 147.7% of sales, compared with $3.2 million, or 85.7% of
sales, for the same period in 1999.
Product development costs were $3.3 million, or 23.2% of sales, for the six
months ended June 30, 2000 compared to $1.5 million, or 18.4% of sales, for the
same period 1999. Product development costs were $1.9 million, or 24.7% of
sales, for the three months ended June 30, 2000, compared to $779,000, or 20.6%
of sales, for the same period in 1999. Product development costs are projected
to increase during the remainder of 2000 as we expand our product sets.
General and administrative expenses for the six months ended June 30, 2000 were
$8.1 million, or 57.1% of sales, compared to $2.2 million, or 26.2% of sales,
for the same period in 1999. General and administrative expenses for the three
months ended June 30, 2000 were $4.4 million, or 57.2% of sales, compared to
$1.2 million, or 31.1% of sales, compared to the same period in 1999. General
and administrative expenses increased as a percentage of sales due to the
expansion and development of the corporate infrastructure that can support
future growth.
Sales and marketing expenses were $9.4 million, or 66.2% of sales, for the six
months ended June 30, 2000, compared to $2.0 million, or 24.5% of sales, for the
same period of 1999. Sales and marketing expenses were $5.0 million, or 65.9% of
sales, for the three months ended June 30, 2000, compared to $1.3 million, or
34.% of sales, for the same period in 1999. The increase in sales and marketing
expenses is the result of our efforts to expand brand recognition and is
projected to increase in 2000 as we expand our marketing for our E-solutions
division and services provided by DriveOff.com.
Other income was $335,000 for the six months ended June 30, 2000, an increase of
$222,000 from other income of $113,000 for the same period of 1999. Other
income was $92,000 for the three months ended June 30, 2000, a decrease from
other income of $107,000 for the same period of 1999. This was a result of
increased interest income from larger cash balances and interest expense on the
WFC notes in 2000.
LIQUIDITY AND CAPITAL RESOURCES
From our inception through June 30, 2000, we funded our operations primarily
from the following sources:
- equity investments through an initial public offering and subsequent
public and private placements of our securities;
- revenues generated from operations;
- loans from principal shareholders and employees;
- lines of credit; and
- accounts receivable factoring arrangements made available by banks.
<PAGE> 13
As of June 30, 2000, we had cash and cash equivalents of $13.3 million and net
working capital of $30.5 million. This compares with cash and cash equivalents
of $35.9 million and net working capital of $46.3 as of December 31, 1999.
Cash used in our operating activities totaled $18.4 million for the six months
ended June 30, 2000 and, $3.3 million for the same period of 1999. Cash was
principally used to fund operating losses of $13.9 million and to fund a $5.6
million increase in billed and unbilled receivables. Cash used in our investing
activities totaled $4.7 million for the six months ended June 30, 2000, compared
with $581,000 for same period of 1999. Cash used in our investing activities
during fiscal 2000 consisted primarily of expenditures for property and
equipment and capitalized software, offset by proceeds of 2.5 million from the
sale of marketable debt securities.
Cash provided by our financing activities was $539,000 during the six months
ended June 30, 2000. The additional cash provided was raised primarily through
the issuance of our common stock as a result of warrants and options being
exercised. Cash provided by our financing activities was $15.9 million in the
six months ended June 30, 1999 which principally consisted of $17 million in
proceeds from our warrant call, offset by $951,000 in net debt reductions.
On June 30, 2000, WFC converted debt in Drive-off.com with a carrying value of
$14.27 million and accrued but unpaid interest of $338,000 into 3,200,000 shares
of common stock. An additional 1,107,645 common shares of Drive-off.com with a
fair value of $5.2 million was issued to WFC as an inducement to convert the
debt.
Through June 30, 2000 the Company had net operating loss carry forwards of $30.9
million. The ability to utilize these net operating loss carry forwards to
offset future taxable income will be limited, possibly significantly, by certain
provisions of the Internal Revenue Code of 1986, and, in particular, Section 382
of the Code relating to certain ownership changes of corporations which have
losses. The Company believes that it is more likely than not that these net
operating loss carry forwards (i.e., tax assets) will not be realized.
Accordingly, a valuation allowance has been recorded against the entire deferred
tax asset in the Company's financial statements.
We believe that our available cash resources will be sufficient to meet our
anticipated working capital and capital expenditure requirements for at least
the next twelve months.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES
Our exposure to market risk for changes in interest rates relates primarily to
our investment portfolio and long-term debt obligations. We do not use
derivative financial instruments in our investment portfolio. We place our
investments with high credit quality issuers and by policy are adverse to
principal loss. As of June 30, 2000, our investments consisted of short-term
money market funds and commercial paper.
Our interest expense is sensitive to changes in the general level of U.S.
interest rates. Our debt is fixed rate in nature and mitigates the impact of
fluctuations in interest rates. The fair value of our debt approximates the
carrying amount at
<PAGE> 14
June 30, 2000. We believe the potential effects of near-term changes in interest
rates on our fixed rate debt is not material.
INFLATION
The Company does not believe that inflation will have a material impact on our
future operations.
FORWARD LOOKING INFORMATION
Information contained in this report, other than historical information, should
be considered forward looking and reflects management's current views of future
events and financial performance that involve a number of risks and
uncertainties. The factors that could cause actual results to differ materially
include, but are not limited to, the following: general economic conditions and
developments within the Internet and Intranet industries; competition; market
acceptance of our products and services; length of sales cycle; variability of
sales order flow; management of growth; and other risk factors identified from
time to time in the Company's filings with the Securities and Exchange
Commission. These filings are available on-line at http://www.sec.gov.
<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On October 5, 1999, JDK & Associates, Inc., a California corporation, filed a
complaint against the Company in the Superior Court of the State of California
for Orange County. JDK & Associates claims that it is entitled to damages of at
least $15,000,000 from the Company as a result of an alleged breach of a
finder's fee agreement. The Company is vigorously defending this claim.
In the normal course of business, the Company is subject to, and may become a
party to, other litigation. Management believes there are no other matters
currently in litigation that could have a material impact on the Company's
financial position or results of operations.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None
(b) Form 8-K
None
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAVIDEC, INC.
By /S/RALPH ARMIJO
Ralph Armijo
President and CEO
Date: August 14, 2000
By /S/ PAT MAWHINNEY
Pat Mawhinney
Chief Financial Officer
Date: August 14, 2000
