BPZ RESOURCES, INC. - 10-K - 20000414 - BALANCE_SHEET
HEIN + ASSOCIATES LLP
Denver, Colorado
March 5, 1998.
F-3
NAVIDEC, INC.
-------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands)
December 31,
--------------------------
ASSETS 1998 1999
------ ------- -------
CURRENT ASSETS:
Cash and cash equivalents $ 711 $35,860
Investment in debt securities -- 9,855
Accounts receivable, net 2,167 4,371
Costs and estimated earnings in excess of billings 107 148
Inventory 341 846
Restricted cash 280 --
Prepaid expenses and other 59 885
------- -------
Total current assets 3,665 51,965
PROPERTY, EQUIPMENT AND SOFTWARE, net 981 7,398
GOODWILL AND INTANGIBLE ASSETS, net of accumulated
amortization of $100 and $244, respectively 619 1,175
DEFERRED FINANCING COSTS, net of accumulated amortization of $0
and $45, respectively -- 901
INVESTMENTS -- 3,199
INVESTMENT IN IADMA -- 390
------- -------
Total assets $ 5,265 $65,028
======= =======
The accompanying notes to consolidated financial
statements are an integral part of these balance sheets.
F-4
NAVIDEC, INC.
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CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands)
December 31,
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1999
------------------------------------ -------- --------
CURRENT LIABILITIES:
Accounts payable $ 2,054 $ 3,437
Bank overdrafts -- 149
Accrued liabilities 423 1,692
Notes payable 821 --
Current portion of capital lease obligations 74 423
-------- --------
Total current liabilities 3,372 5,701
CAPITAL LEASE OBLIGATIONS, net of current portion 94 356
CONVERTIBLE DEBT OBLIGATIONS -- 19,876
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 20,000 shares authorized,
4,709 and 10,855 shares issued and outstanding, respectively 8,059 54,910
Warrants for common stock 2,891 1,207
Other comprehensive income -- 290
Accumulated deficit (9,151) (17,312)
-------- --------
Total stockholders' equity 1,799 39,095
-------- --------
Total liabilities and stockholders' equity $ 5,265 $ 65,028
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-5
NAVIDEC, INC.
-------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In thousands, except per share amounts)
----------------------------------------
Year Ended
December 31,
1997 1998 1999
----------- ----------- -----------
REVENUE $ 6,008 $ 8,555 $ 18,966
COST OF REVENUE 4,219 5,870 10,745
----------- ----------- -----------
GROSS PROFIT 1,789 2,685 8,221
OPERATING EXPENSES:
Product development 1,662 1,834 2,858
General and administrative 2,468 3,479 6,262
Sales and marketing 237 921 8,149
Impairment of goodwill 1,305 -- --
----------- ----------- -----------
5,672 6,234 17,269
----------- ----------- -----------
Loss from operations (3,883) (3,549) (9,048)
OTHER (EXPENSE) INCOME:
Interest income 13 19 919
Interest expense (236) (414) (685)
Realized gain on investment -- -- 652
Other (expense) income (1) 11 1
----------- ----------- -----------
(224) (384) 887
----------- ----------- -----------
NET LOSS $ (4,107) $ (3,933) $ (8,161)
=========== =========== ===========
BASIC AND DILUTED NET LOSS PER SHARE $ (1.47) $ (1.10) $ (1.08)
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING,
basic and diluted 2,800 3,578 7,574
=========== =========== ===========
The accompanying notes to consolidated
financial statements are an integral part of these statements.
F-6
NAVIDEC, INC.
------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
(In thousands)
--------------
Warrants
Common Stock for Other Total
------------------- Common Comprehensive Accumulated Comprehensive Stockholders'
Shares Amount Stock Income Deficit Loss Equity
------- -------- --------- --------- ---------- ------- -------------
Balances, December 31, 1996 1,701 $ 401 $ -- $ -- $ (1,111) $ (710)
Conversion of unsecured
promissory notes
to common stock 349 1,133 305 -- -- 1,438
Issuance of common stock and
warrants in a public
offering, net of offering
expenses of $1,094 755 2,473 963 -- -- 3,436
Issuance of common stock
for the acquisition of
TouchSource 207 776 -- -- -- 776
Issuance of common stock and
warrants in a private
placement, net of offering
expenses of $132 189 574 143 -- -- 717
Net loss -- -- -- -- (4,107) (4,107)
Comprehensive income (loss) (4,107)
========
-------- -------- -------- -------- -------- --------
Balances, December 31, 1997 3,201 5,357 1,411 -- (5,218) 1,550
Issuance of common stock and
warrants in a private
placement, net of offering
expenses of $350 406 131 1,345 -- -- 1,476
Issuance of warrants in connection
with borrowings -- -- 300 -- -- 300
Issuance of common stock in a
private placement, net of
offering expenses of $70 700 1,330 -- -- -- 1,330
Issuance of common stock for
acquisition of CarWizard
and LeaseSource 250 500 -- -- -- 500
Exercise of employee stock options 69 284 -- -- -- 284
Exercise of warrants 83 457 (165) -- -- 292
Net loss -- -- -- -- (3,933) (3,933)
Comprehensive income (loss) (3,933)
========
-------- -------- -------- -------- -------- --------
Balances, December 31, 1998 4,709 8,059 2,891 -- (9,151) 1,799
Issuance of common stock and
warrants, net of issuance
costs of $406 380 3,394 780 -- -- 4,174
Issuance of common stock in a
public offering, net of
offering costs of $2,555 2,625 21,726 -- -- -- 21,726
Beneficial conversion featur
on convertible debt -- 285 285
Issuance of warrants -- -- 1,356 -- -- 1,356
Unrealized gain on investments,
net of taxes of $0 -- -- -- 290 -- 290 290
Exercise of warrants 2,820 20,251 (3,820) -- -- 16,431
Exercise of employee stock options 321 1,195 -- -- -- 1,195
Net loss -- -- -- -- (8,161) (8,161) (8,161)
--------
Comprehensive income (loss)
-------- -------- -------- -------- -------- -------- --------
Balances, December 31, 1999 10,855 $ 54,910 $ 1,207 $ 290 $(17,312) (7,871) $ 39,095
======== ======== ======== ======== ======== ======== ========
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-7
NAVIDEC, INC.
-------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
--------------
Year Ended
December 31,
1997 1998 1999
--------- -------- --------
Cash flows from operating activities:
Net loss $ (4,107) $ (3,933) $ (8,161)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 865 522 1,094
Discount on note payable -- 300 --
Provision for bad debt expense 41 75 182
Charge for beneficial conversion feature -- -- 285
Stock received for services rendered -- -- (206)
Realized gain on investment -- -- (652)
Earnings on marketable debt securities -- -- (73)
Amortization of convertible debt discount
and deferred financing costs -- -- 111
Impairment of goodwill 1,305 -- --
Changes in operating assets and liabilities:
Accounts receivable (627) (1,377) (2,386)
Costs and estimated earnings in excess of billings (106) (1) (41)
Inventory (315) 208 (505)
Restricted cash (300) 20 280
Prepaid expenses and other assets (52) 27 (826)
Accounts payable (92) 857 1,586
Bank overdrafts -- -- 149
Accrued liabilities (271) 252 129
-------- -------- --------
Net cash used in operating activities (3,659) (3,050) (9,034)
-------- -------- --------
Cash flows from investing activities:
Purchase of property, equipment and software (475) (224) (3,548)
Capitalized software development costs -- (314) (2,979)
Cash assumed in acquisitions 7 68 --
Acquisition costs incurred (32) -- --
Investment in IADMA -- -- (390)
Purchase of marketable debt securities -- -- (9,782)
Purchase of equity investments -- -- (2,051)
-------- -------- --------
Net cash used in investing activities (500) (470) (18,750)
-------- -------- --------
Cash flows from financing activities:
Payments on notes payable and capital lease obligations (369) (478) (1,050)
Proceeds from notes payable 333 885 --
Proceeds from issuance of common stock and warrants 5,379 3,226 28,081
Proceeds from issuance of convertible debt -- -- 21,200
Proceeds from exercise of stock options -- 284 1,195
Proceeds from exercise of warrants -- 292 16,619
Payment for offering and deferred financing costs (1,236) (420) (2,909)
Proceeds from related party note receivable -- 60 --
Proceeds from factoring of accounts receivable 634 3,515 257
Payments to factor (444) (3,502) (460)
-------- -------- --------
Net cash provided by financing activities 4,297 3,862 62,933
-------- -------- --------
Net increase in cash and cash equivalents 138 342 35,149
Cash and cash equivalents, beginning of year 231 369 711
-------- -------- --------
Cash and cash equivalents, end of year $ 369 $ 711 $ 35,860
======== ======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-8
NAVIDEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
Navidec, Inc., a Colorado corporation, (the "Company") was incorporated in 1993.
The Company's experienced team develops open system, 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 through its wholly-owned
subsidiary DriveOff.com, Inc. ("DriveOff"). DriveOff was formed in June 1999 and
provides an Internet automobile retailing platform that allows consumers to
purchase or lease a new automobile and complete all details of the transaction,
including financing, online. This platform is supported by the Internet Auto
Dealers Marketing Association ("IADMA"), which is a committed dealer base of
over 2,000 franchises. The Company owns a 15% interest in IADMA. The Company
also serves as a distributor of various high-technology and other products
through traditional and electronic channels.
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 E-solutions, automotive 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) E-solutions, which are focused in e-commerce
consulting and solutions design, building of solutions and the management of
e-solutions and 2) automotive solutions. 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.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
Minority investments in entities over which the Company exercises significant
influence through its board representation or ownership of equity securities are
accounted for using the equity method.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions. These estimates and assumptions may affect the reported amounts
of assets and liabilities, 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.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers cash and cash
equivalents to include highly liquid investments with original maturities of 90
days or less that are readily convertible into cash and are not subject to
significant risk from fluctuations in interest rates.
F-9
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk include cash and cash equivalents, marketable debt
securities and accounts receivable. The Company maintains its cash and
investment balances in the form of bank demand deposits, money market accounts,
commercial paper and short term notes 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 evaluations of its customers' financial condition
and generally does not require collateral, except for billings in advance of
work performed, and maintains reserves for potential credit losses. Accounts
receivable are shown net of allowance for doubtful accounts of $125,000 and
$307,000 at December 31, 1998 and 1999, respectively.
Investment in Debt Securities
The Company has investments in debt securities, consisting of short term notes
and commercial paper, which have original maturities of 90 days or more. The
investments are recorded at their amortized cost, which approximates fair value
due to their short term nature. Debt securities are held to maturity, with
maturities ranging from one to five months from December 31, 1999. Included in
cash and cash equivalents are investments in debt securities of $ 0 and
$35,665,000 at December 31, 1998 and 1999, respectively.
Investments
Investments in publicly traded equity securities over which the Company does not
exercise significant influence are recorded at market value. Investments in
non-publicly traded equity securities or non-marketable equity securities are
stated at the lower of cost or estimated realizable value. Investments in equity
securities included the following for the year ended December 31, 1999:
The Company received common stock with a fair value of $702,000 in exchange for
common shares with a carrying value of $50,000 during 1999.
During 1999, the Company received equity securities valued at $206,000 for
services it provided to a customer.
Inventory
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.
Property, Equipment and Software
Equipment is stated at cost and depreciation is provided using the straight-line
method. Leasehold improvements are amortized using the straight-line method over
the shorter of the useful life of the improvement or the minimum term of the
lease. Maintenance and repairs are expensed as incurred and major additions,
replacements and improvements are capitalized.
F-10
Internal use software is amortized on a straight-line basis over its expected
economic life.
Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. A long-lived asset is considered impaired when estimated future
cash flows related to the asset, undiscounted and without interest, are
insufficient to recover the carrying amount of the asset. If deemed impaired,
the long-lived asset is reduced to its estimated fair value.
Long-lived assets to be disposed of are reported at the lower of their carrying
amount or estimated fair value less cost to sell.
Goodwill and Intangible Assets
Goodwill and intangible assets are amortized on a straight line basis over their
estimated useful lives of five years. Amortization expense was $608,000,
$100,000 and $144,000 for 1997, 1998 and 1999, respectively.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, trade receivables and payables
approximated their fair value because of their short-term nature. Investments in
debt securities are recorded at their amortized cost which approximates fair
value because of their short-term maturity. Investments in marketable equity
securities are recorded at fair value based upon quoted market prices.
Investments in non-marketable equity securities are based upon recent sales of
similar securities by the investee and approximate their carrying value. The
greater of the marketable value of the shares to be received upon the conversion
of debt or the discounted cash flows of the remaining principal and interest
payments, based on the current interest rates available to the Company, were
used to determine the fair value of the Company's borrowings.
Revenue Recognition
Contract revenues
Revenues from fixed price long-term contracts and time and materials contracts
are recognized on the percentage of completion method for individual contracts.
Revenues for fixed price contracts are recognized once 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. Contract costs include all labor costs and those
direct costs related to contract performance. Changes in job performance,
estimated profitability and final contract settlements may result in revisions
to costs and revenues 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. In instances when the work
performed on fixed price agreements is of relatively short duration, the Company
uses the completed contract method of accounting whereby revenue is recognized
when the work is completed.
Product sales
Revenues from hardware sales are recognized upon shipment, or when title passes
to the customer. Estimates of returns and allowances are recorded in the period
of the sale based on the Company's historical experience and the terms of
individual transactions.
Other revenues
Revenues from hosting, maintenance and support agreements are recognized on a
straight-line basis over the life of the related agreement.
F-11
The Company frequently receives a percentage royalty derived from the gross
revenue generated on its clients' Web sites from advertising and merchandise
sales. These royalties are recorded when the amounts become fixed and
determinable.
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 when the advertisement is released and are
included in sales and marketing expenses in the accompanying statements of
operations. Advertising expense totaled $156,000, $256,000 and $1,643,000 in
1997, 1998 and 1999, respectively. Included in prepaid expenses at December 31,
1999, are prepaid advertising costs of $687,000 for advertising to be aired
or printed in fiscal 2000.
Income Taxes
The current provision for income taxes represents actual or estimated amounts
payable on tax return filings each year. 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 was deemed
more likely than not, that some or all of the deferred tax assets would not be
realized.
Stock-Based Compensation
The Company accounts for its employee stock-based compensation arrangements
using the intrinsic value method under which compensation expense related to
employee stock grants is recorded if the fair value of the underlying stock
exceeds the exercise price on the measurement date.
Net Loss Per Share
Basic net loss per share is computed by dividing the net loss 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. As a
result of the Company's net losses, all potentially dilutive securities, as
indicated in the table below, would be anti-dilutive and are excluded from the
computation of diluted loss per share.
Comprehensive income (loss) includes all changes in equity (net assets) during a
period from non-owner sources.
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
Effective January 1, 1999, the Company adopted the provisions of SOP 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 establishes standards for the
capitalization of costs related to internal use software. Costs incurred during
the development stage are capitalized, while the costs incurred during the
preliminary project and post-implementation stages are expensed. The adoption of
SOP 98-1 did not have a significant effect on the Company's results of
operations or financial position. The Company has capitalized $314,000 and
$2,979,000 in 1998 and 1999, respectively, related to internal use software for
DriveOff.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). The Statement 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 measure those instruments at fair value. In June 1999,
the FASB issued SFAS 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 fiscal years beginning after June 15, 2000. Management
believes the adoption of SFAS 133 will not have a significant affect on the
Company's financial condition or results of operations.
In December 1999, the Securities and Exchange Commission Staff released Staff
Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in financial statements. SAB 101 must be applied to financial statements no
later than the second fiscal quarter of 2000. The Company is currently reviewing
SAB 101 to determine what impact, if any, adoption of this SAB will have on its
financial position or results of operations.
Reclassifications
Certain reclassifications to prior year financial statements have been made to
conform to the current year's presentation.
(3) ACQUISITIONS
1998 Acquisitions
Effective December 28, 1998, the Company acquired 100% of the stock of both
CarWizard and LeaseSource. The combined purchase consideration was $539,000 and
consisted of $500,000 of the Company's common stock and the assumption of
$39,000 of net liabilities. 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. At December 31, 1999, the Company accrued $700,000 related to the
earn-out.
1997 Acquisition
Effective July 31, 1997, the Company acquired 100% of the stock of
TouchSource. The purchase consideration was $859,000 and consisted of $776,000
of the Company's common stock and the assumption of $83,000 of net liabilities.
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 reduced the expected future cash flows associated with the
TouchSource technology. Furthermore, the Company has integrated the TouchSource
technology with its other products and markets it primarily to the automotive
industry, which was not a market focus of TouchSource. As such, the Company
F-13
assessed the recoverability of the unamortized goodwill related to this
acquisition and a previous acquisition and recorded an impairment charge of
$1,305,000 in fiscal 1997.
The following pro forma results of operations assumes the 1998 acquisitions were
completed on January 1, 1998:
Actual 1998 Pro Forma 1998
----------- --------------
Revenue $ 8,555,000 $ 9,162,000
Net loss $ (3,933,000) $ (4,142,000)
Basic and diluted loss per share $(1.10) $(1.08)
Basic and diluted weighted-average common
shares outstanding 3,578,000 3,828,000
(4) PROPERTY, EQUIPMENT AND SOFTWARE
Property, equipment and software consists of the following:
December 31,
Useful Lives 1998 1999
------------- --------------
Computers and equipment 3 to 4 years $1,137,000 $ 4,025,000
Software purchased and developed for DriveOff 3 years 314,000 3,293,000
Furniture and office equipment 4 to 5 years 204,000 757,000
Leasehold improvements Lease term 43,000 831,000
1,698,000 8,906,000
Less accumulated depreciation (717,000) (1,508,000)
------------ -------------
Net property, equipment and software $ 981,000 $ 7,398,000
============= ==============
Depreciation expense was $257,000, $422,000 and $950,000 for 1997, 1998 and
1999, respectively.
The Company's policy is to amortize capitalized software costs over three
years. It is reasonably possible that this estimate of the remaining economic
life of the software product will be reduced significantly in the near term due
to competitive pressures. As a result, the carrying amount of the $2,831,000 of
capitalized software costs may be reduced in the near term.
(5) NOTES PAYABLE AND CONVERTIBLE DEBT
Notes payable and convertible debt consist of the following:
December 31,
1998 1999
----------- -----------
Notes payable to VSI Holdings; interest at 9%, secured
by assets of the Company $ 721,000 $ -
Note payable; interest at 9% 100,000 -
Navidec convertible debt to Wells Fargo; interest at
3%, principal and interest due in December 2004,
convertible into 701,081 shares of Navidec
common stock - 6,200,000
DriveOff convertible debt to Wells Fargo; interest at
3%, principal and interest due in December 2004,
convertible into 3,200,000 shares of DriveOff
common stock - 15,000,000
Unamortized discount - (1,324,000)
-------------- --------------
821,000 19,876,000
Less - current portion (821,000) -
-------------- --------------
Long term portion $ - $ 19,876,000
============== ==============
F-14
In September and December 1998, the Company granted a total of 531,525
detachable warrants with exercise prices ranging from $4.50 to $6.50 to VSI
Holdings in connection with the above borrowing. The warrants were valued at
$300,000, using the Black-Scholes option pricing model assuming a fair value of
the Company's common stock on the grant date of $2.85, volatility of 76%, a 5%
risk free interest rate, 0% expected dividend yield and a contractual term of
one year. These warrants were accounted for as a discount on the note, which was
fully amortized into interest expense during 1998. During 1999, the warrants
were exercised and resulted in proceeds to the Company of $2,450,000.
On September 30, 1999, Navidec, Inc. and DriveOff entered into several
agreements with Wells Fargo and its affiliated companies (together, "WFC"). In
connection with the Stock and Note Purchase Agreement between Navidec and WFC
and the Credit Agreement between DriveOff, Navidec and WFC (together, the
"Agreement") all dated July 23, 1999, WFC has funded a $10 million investment in
Navidec and a $15 million investment in DriveOff.
WFC purchased 380,000 shares of the Company's common stock for $3,800,000 and
funded $6,200,000 in debt that was initially convertible into 620,000 shares of
the Company's common stock. Based on the terms of the Agreement, adjustments to
the conversion occured if the per share price received by the Company in its
October 1999 secondary offering was less than $10 per share. Because the
secondary offering price was $9.25 per share, the number of shares the debt can
be converted into was adjusted to 701,081 shares of Navidec common stock or
$8.84 per share. Accordingly, the Company accounted for this $285,000 beneficial
conversion feature as additional interest expense on the convertible debt and an
increase to additional paid-in capital, as the debt is immediately convertible.
For its $15 million investment in DriveOff, WFC received a note convertible into
3.2 million shares of either Series A-1 Preferred Stock ("Series A-1") or Series
A-2 Preferred Stock ("Series A-2") (representing twenty-percent of DriveOff's
common stock outstanding as of the closing of the transaction, on an
as-converted basis). The holders of Series A-1 are entitled to a dividend of
$0.1410 per share in preference to the holders of common stock, if and when any
such dividends are declared and paid upon any other class of preferred stock or
common stock. The Series A-1 is entitled to a liquidation preference equal to
$4.6875 per share if DriveOff is liquidated or dissolved and also upon a
reorganization, sale or merger of DriveOff. The Series A-1 is also entitled to
participate with the holders of DriveOff common stock in any liquidation
proceeds after its preference, on an as-converted basis. DriveOff must redeem
the Series A-1 if (i) there is no initial public offering of DriveOff securities
with at least $15 million in net proceeds by October 31, 2001 (a "Qualified
IPO"), (ii) J. Ralph Armijo is no longer a Director of DriveOff or an executive
officer of the Company or Michael Kranitz is no longer one of DriveOff's
executive officers and (iii) upon the sale or merger of DriveOff.com. The
redemption price is equal to $4.6875 per share, subject to adjustment for
certain dilutive issuances. The shares of Series A-1 can be converted into
shares of DriveOff common stock, on a one-for-one basis, subject to adjustment
for certain dilutive issuances, at any time. However, the Series A-1 is
automatically converted into DriveOff common stock upon a Qualified DriveOff IPO
or on December 31, 2004. Each share of the Series A-1 is entitled to vote, along
with the DriveOff common stock, on an as-converted basis. The Series A-2 has all
the same rights and preferences as the Series A-1, however, the holders of
Series A-2 are not entitled to vote on any matters that come before the
stockholders, except as otherwise provided by law. Subject to the Bank Holding
Company Act (the "BHA"), WFC can elect whether it receives shares of Series A-1
or Series A-2 upon any conversion.
WFC also received a warrant to purchase an additional 160,000 shares of
DriveOff, exercisable one year after the transaction's closing at $6.5625 per
share. The warrants were valued at $440,000 using the Black-Scholes option
pricing model assuming a fair value of the common stock on the grant date of
$4.69, volatility of 76%, 5% risk free interest rate, 0% expected dividend yield
and a contractual term of five years. This warrant was accounted for as a
discount on the DriveOff convertible debt and is being amortized to interest
expense over the related debt's maturity.
F-15
Principal and accrued interest on both convertible debt instruments is to be
repaid at December 31, 2004, if not converted earlier into equity or put back to
the Company. The $6.2 million convertible note issued by the Company is
convertible into shares of common stock at the option of the holder at any time.
If the Company does not amend its Articles of Incorporation to create a class of
non-voting common stock (the "Articles Amendment") by December 31, 2000, the
holder has the option to put the note to the Company and be paid, in cash, an
amount equal to the product of (i) the number of shares into which the note is
convertible into and (ii) the ten (10) day average closing price of the
Company's common stock for the ten (10) trading days ending on the day
immediately preceding the delivery date of the holder's put notice. As soon as
the Articles Amendment takes place, subject to the BHA, the note will be
converted into shares of the Company's common stock. The holder can elect
whether it receives shares of common stock or the newly-created non-voting
common stock.
In connection with the WFC transaction, the Company issued a warrant to a
securities firm to purchase 125,000 shares of common stock of the Company at an
exercise price of $9.25 per share over the next five years. The warrants were
valued at $780,000 using the Black-Scholes option pricing model assuming a fair
value of the common stock on the grant date of $9.25, 76% volatility, 5% risk
free interest rate, 0% expected dividend yield and a contractual term of five
years.
The estimated fair value of the Company's borrowings was $821,000 and
$23,413,000 million at December 31, 1998 and 1999, respectively. Cash paid for
interest was $79,000, $109,000 and $251,000 in 1997, 1998 and 1999,
respectively.
(6) CAPITAL LEASE OBLIGATIONS
The Company has entered into several capital lease obligations for furniture,
computers and equipment. The leases are for terms ranging from 36 to 60 months,
expiring at various times through 2004. Interest on the Company's capital lease
obligations is at rates ranging from 8% to 16%.
Equipment purchased under capital leases is included in the cost of property and
equipment and secures the repayment of the capital lease obligations. The
following is a summary of property and equipment purchased under capital leases
as of December 31, 1999:
December 31,
----------------------------
1998 1999
----------- ----------
Furniture, computers and equipment $ 247,000 $1,087,000
Less - accumulated depreciation (78,000) (265,000)
----------- ----------
Net book value $ 169,000 $ 822,000
=========== ==========
As of December 31, 1999, future minimum lease payments under capitalized lease
obligations are as follows:
Year ended December 31 -
2000 $ 517,000
2001 339,000
2002 28,000
2003 20,000
2004 7,000
---- ------------
Total minimum lease payments 911,000
Less amount representing interest (132,000)
------------
Total obligation 779,000
Less - current portion (423,000)
------------
Long-term capital lease obligation $ 356,000
============
The Company acquired property of $72,000 and $840,000 in 1998 and 1999,
respectively, under capital lease arrangements. The fair value of the Company's
capital lease obligations approximated their carrying amount at December 31,
1998 and 1999.
F-16
(7) INCOME TAXES
The provision for income taxes consists of the following:
Year Ended
December 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
Current:
Federal $ -- $ -- $ --
State -- -- --
----------- ----------- -----------
Total current provision -- -- --
----------- ----------- -----------
Deferred:
Federal (866,000) (1,224,000) (2,616,000)
State (134,000) (189,000) (395,000)
Valuation allowance 1,000,000 1,413,000 3,011,000
----------- ----------- -----------
Total deferred provision -- -- --
----------- ----------- -----------
Total provision $ -- $ -- $ --
=========== =========== ===========
Differences between the income tax expense reported in the statements of
operations and the amount reported by applying the statutory federal income tax
rate (35%) to earnings before income taxes are as follows:
Year Ended
December 31,
-----------------------------------------
1997 1998 1999
-------- ---------- ----------
Expected rate (35.0)% (35.0)% (35.0)%
State taxes, net of federal deduction (2.1) (3.1) (3.1)
Nondeductible goodwill amortization and impairment 12.8 0.9 0.6
Other permanent items - 1.3 0.6
Valuation allowance 24.3 35.9 36.9
-------- ---------- ----------
0% 0% 0%
======== ========== ==========
The components of the net deferred income tax assets (liabilities) are as
follows:
December 31,
----------------------------
1998 1999
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 2,883,000 $ 6,907,000
Bad debt reserves 46,000 114,000
Vacation accrual 17,000 30,000
Deferred tax liabilities:
Accumulated depreciation (77,000) (204,000)
Capitalized software (89,000) (1,056,000)
----------- -----------
Total net deferred tax assets 2,780,000 5,791,000
Valuation allowance (2,780,000) (5,791,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
At December 31, 1999, for income tax purposes, the Company has approximately
$18.5 million of net operating loss carryforwards. Such net operating losses
expire between the years 2011 to 2019. 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. During 1998 and 1999, the Company increased its valuation
allowance by $1,413,000 and $3,011,000, respectively, due mainly to uncertainty
relating to the realizability of the net operating loss carryforwards. The
F-17
amount of the deferred tax assets considered realizable could be adjusted in the
near term if future taxable income becomes reasonably assured.
The Company has paid no income taxes during the three years ended December 31,
1999.
(8) COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under operating leases that
expire at various times through 2004. Future minimum lease payments for such
operating leases are as follows as of December 31, 1999:
Rental expense related to these leases was $97,000, $125,000 and $244,000 for
1997, 1998 and 1999, respectively.
Litigation
In the normal course of business, the Company is subject to, and may become a
party to, litigation. An entity has filed an action against the Company
asserting the breach of a written contract related to a finder's fee agreement.
The Company denies liability and is vigorously defending the action. No outcome
of the matter can be predicted at this time. Management believes there are no
matters currently in litigation which will have a material impact on the
Company's financial position or results of operations.
(9) RELATED PARTY TRANSACTIONS
In April 1997, the Company entered into a service agreement with a shareholder.
This agreement provides for 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 were 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 with an exercise
price of $4.50 are outstanding at December 31, 1999.
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 1998 and 1999, the shareholder exercised
83,000 and 165,000 of these warrants, respectively.
(10) 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 were redeemable by the
Company at $.05 per warrant upon 30 days notice if the market price of the
common stock for 20 consecutive trading days within the 30-day period preceding
the date the notice is given equals or exceeds $8.40. As discussed below, these
warrants were called by the Company on February 12, 1999. The Company also sold
F-18
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 and 1998
During 1997 and 1998, the Company raised $2,193,000 in a private placement, net
of offering costs of $482,000, by issuing 594,500 units (comprised of one share
of common stock and one warrant) at $4.50 per unit. Each warrant allows the
holder to purchase one share of common stock at an exercise price of $7.20 for a
period extending through February 10, 2002. The warrants were redeemable by the
Company at $.05 per warrant upon 30 days notice if the market price of the
common stock for 20 consecutive trading days within the 30-day period preceding
the date the notice is given equals or exceeds $8.40. As discussed below, these
warrants were called by the Company on February 12, 1999. Offering costs
associated with the private placement include underwriter commissions and
non-accountable expense allowances totaling 13% of proceeds, as well as
placement agent warrants to purchase 10% of the units sold for five years from
the date of closing at $4.50 per unit. In addition, the Company agreed to issue
any broker or registered agent who places four or more placement units
(consisting of 6,000 units or $27,000 each) one broker warrant for each $20 sold
at a price of $4.50. Accordingly, 118,849 of warrants were issued during 1998 to
brokers and registered agents. During 1999, 24,000 of these warrants were
exercised resulting in proceeds to the Company of $115,000. 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. During 1998, the
Company issued 61,520 of warrants to brokers or registered representatives as
part of the offering cost, of which 58,000 were exercised during 1999, resulting
in proceeds to the Company of $259,000.
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 private placement.
Warrant Call
On February 12, 1999, the Company called all publicly traded warrants. Each
warrant entitled the holder to purchase one share of common stock for $7.20. In
total, 1,918,000 warrants were exercised prior to the expiration date of March
15, 1999. The warrants generated $13,810,000, net of offering costs of $100,000.
In addition, the Company issued 200,000 warrants with exercise prices ranging
from $4.00 to $6.031 to representatives for solicitation for the exercise of the
warrants. These warrants were valued at $1,356,000 using the Black-Scholes
option pricing model assuming a fair value of the common stock on the grant date
of $11.00, a 115% volatility, a 4.5% risk free interest rate, 0% expected
dividend yield and a contractual life of seven months. These warrants were
accounted for as additional offering costs of the warrant call.
Public Offerings
In October 1999, the Company completed a public stock offering of 2,500,000
shares of common stock and an over-allotment of 125,000 shares of common stock.
The offering provided proceeds to the Company of $21,726,000, net of offering
costs of $2,555,000.
Warrants
The following table summarizes the warrants outstanding for the Company's common
stock as of December 31, 1999:
Exercise Remaining
Warrants Units Price Value Contractual Life
--------- -------- -------- ------------- ----------------
A 17,350 $7.38 $ 15,000 3.25 years
B 14,862 $4.50 57,000 3.25 years
C 1,538 $3.50 3,000 3.25 years
D 3,788 $4.50 10,000 3.25 years
E 95,274 $4.50 254,000 3.25 years
F 40,500 $2.00 88,000 4.0 years
G 125,000 $9.25 780,000 4.75 years
------- ------------
298,312 $ 1,207,000
======= ============
As of December 31, 1999, 160,000 warrants to purchase common stock of DriveOff
were outstanding with an exercise price of $6.5625 per share.
F-19
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 2,000,000 shares of the Company's common stock to employees and directors of
the Company. 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.
The following table summarizes the Plan for Navidec:
1997 1998 1999
------------------------- --------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning of year - $ - 297,000 $4.58 1,468,000 $4.23
Granted 297,000 4.58 1,390,000 4.17 477,000 9.45
Exercised - - (69,000) 4.12 (334,000) 3.98
Forfeited and canceled - - (150,000) 4.43 (61,000) 5.17
------------- ------------ ------------- --------- ------------- --------
Outstanding at end of year 297,000 $4.58 1,468,000 $4.23 1,550,000 $5.70
============= ============ ============= ========= ============= ========
Exercisable at end of year - - 263,000 $4.45 709,000 $4.01
============= ============ ============= ========= ============= ========
Weighted average fair value
of options granted during year $3.42 $2.20 $6.97
============= ============== ============
The status of stock options outstanding and exercisable under the Plan as of December 31, 1999 is as follows:
Stock Options Outstanding Stock Options Exercisable
--------------------------------------------- -----------------------------------------------
Weighted Weighted
Weighted Average Weighted Average
Range of Average Remaining Average Remaining
Exercise Number of Exercise Contractual Number of Exercise Contractual
Prices Shares Price Life (Years) Shares Price Life (Years)
------ ------ ----- ------------ ------ ----- ------------
$2.34 - $3.00 446,000 $2.92 5.52 414,000 $2.96 4.56
$3.56 - $5.06 204,000 4.35 5.00 175,000 4.42 4.25
$5.37 - $7.81 472,000 5.59 6.61 80,000 5.73 5.25
$8.31 - $12.37 411,000 9.71 5.19 40,000 9.72 5.00
$12.68 - $13.50 17,000 13.08 5.00 - - -
-------------- -------------- -------------- -------------- ------------- --------------
1,550,000 $5.70 5.69 709,000 $4.01 4.59
============== ============== ============== ============== ============= ==============
F-20
Pro Forma Fair Value Disclosures
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998 and 1999, respectively: risk-free interest
rate of 5.00 and 5.69 percent, no expected dividend yields, expected lives of
4.0 years, and expected volatility of 76 and 104 percent, respectively. Fair
value computations are highly sensitive to the volatility factor assumed; the
greater the volatility, the higher the computed fair value of options granted.
Cumulative compensation costs recognized in pro forma net 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 options granted been determined consistent with SFAS
123, the Company's net loss would have been increased to the following pro forma
amounts:
1997 1998 1999
----------------------- ---------------------- ----------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ----- -------- ----- -------- -----
Net loss $(4,107,000) $(4,227,000) $(3,933,000) $(5,569,000) $(8,161,000) $(15,469,000)
=========== =========== =========== =========== =========== ============
Basic and diluted net
loss per share $(1.47) $(1.51) $(1.10) $(1.56) $(1.08) $(2.04)
=========== =========== =========== =========== =========== =============
During 1999, the Company adopted the DriveOff Stock Option Plan (the "DriveOff
Plan") under which DriveOff is authorized to grant incentive and non-qualified
stock options to acquire up to 2,000,000 shares of DriveOff's common stock to
employees and directors of DriveOff. Under the DriveOff 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.
The following table summarizes the DriveOff Plan at December 31, 1999 and
activity during the year then ended:
Weighted Average
Exercise
Shares Price
-------------- ----------------
Outstanding at beginning of year - $ -
Granted 2,301,000 4.69
Exercised - -
Forfeited and canceled - -
-------------- ----------------
Outstanding at end of year 2,301,000 $ 4.69
============== ================
Exercisable at end of year 1,501,000 $ 4.69
============== ================
Weighted average fair value of options
granted during year $ 3.44
==============
As of December 31, 1999, the weighted average remaining contractual life for
DriveOff options was 9.68 and 9.74 years for outstanding and exercisable,
respectively.
The fair value of each DriveOff option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999: risk-free interest rate of 5.77 percent, no
expected dividend yield, expected life of 4.0 years, and 104 percent volatility.
Fair value computations are highly sensitive to the volatility factor assumed;
the greater the volatility, the higher the computed fair value of options
granted. Pro forma expense of $4,789,000 has been included above in the
Company's pro forma fair value disclosure in 1999.
F-21
(11) BUSINESS SEGMENT INFORMATION
The Company operates in three different segments: E-Solutions, DriveOff
(formerly, "Automotive"), and Product Distribution. Management has chosen to
organize the Company around these segments based on differences in products and
services.
E-Solutions provides custom solutions, including the architecture, design,
development and integration of high-tech solutions, utilizing Web technology.
DriveOff 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:
Year Ended December 31, 1997
(in thousands)
Product
E-Solutions DriveOff Distribution Corporate Total
----------- -------- ------------ --------- -----
Revenues from external
Customers $ 2,359 $ 223 $ 3,426 $ - $ 6,008
Gross profit 947 186 656 $ - $ 1,789
(Loss) income from operations $(2,493) (3) $(1,268) $ 135 $ (257) (1) $ (3,883)
Year Ended December 31, 1998
(in thousands)
Product
E-Solutions DriveOff Distribution Corporate Total
----------- -------- ------------ --------- -----
Revenues from external
Customers $ 5,443 $ 939 $ 2,173 $ - $ 8,555
Gross profit $ 1,434 $ 696 $ 555 $ - $ 2,685
(Loss) income from operations $(1,113) $ (2,151) $ 137 $ (422) (1) $ (3,549)
Identifiable assets $ 1,607 $ 987 $ 640 $ 2,031 (2) $ 5,265
Year Ended December 31, 1999
(in thousands)
Product
E-Solutions DriveOff Distribution Corporate Total
----------- -------- ------------ --------- -----
Revenues from external
Customers $ 13,745 $ 3,277 $ 1,944 $ - $ 18,966
Gross profit $ 5,099 $ 2,613 $ 509 $ - $ 8,221
(Loss) income from operations $ (614) $ (7,338) $ (146) $ (950) (1) $ (9,048)
Identifiable assets $ 8,592 $ 12,691 $ 421 $43,324 (2) $ 65,028
F-22
(1) Corporate loss from operations represents depreciation expense.
(2) Corporate assets are those that are not directly identifiable to a
particular segment and can include cash and cash equivalents,
investment in debt securities, restricted cash, property and
equipment, prepaids and other assets, and investments.
(3) Included in E-Solutions loss from operations in fiscal 1997 is the
impairment of goodwill for $1,305,000.
(12) DEFINED CONTRIBUTION PLAN
The Company has a 401(k) profit sharing plan (the "Plan"). Eligible employees
may make voluntary contributions to the Plan. The amount of employee
contributions is limited as specified in the Plan. The Company may, at its
discretion, make additional contributions to the Plan. The Company made no
contributions in 1997, 1998 or 1999.
(13) SUBSEQUENT EVENTS
In January 2000, the Company lent $1.2 million in the form of a promissory note,
with a stated interest rate of 6%, to the Company that acts as the clearing
house for creating loan and lease agreements and other vehicle related documents
for DriveOff. In a separate agreement, the Company subscribed to purchase $1.2
million convertible preferred stock in this Company.
In March 2000, the Company entered into a Joint Venture with Avis Europe to sell
nearly new cars in the United Kingdom. The Joint Venture is owned 35% by
Navidec, Inc. and 65% by Avis Europe. ty and equipment, prepaids and other
assets, and investments.
F-23
ITEM 9. 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 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table shows the name, age and position of each officer and
director of Navidec.
Name Age Position
---- --- --------
J. Ralph Armijo......... 47 President, Chief Executive Officer and Director
Patrick R. Mawhinney.... 36 Chief Financial Officer, Treasurer, Secretary and
Director
Kenneth P. Bero......... 45 Chief Operating Officer
Brad E. Nixon........... 40 Vice President-Technology
Greg Hanchin............ 39 Vice President-Sales
Michael S. Kranitz...... 38 Director
Andrew S. Davis......... 46 Director
Lloyd G. Chavez, Jr..... 50 Director
Gerald A. Marroney...... 47 Director
Our officers are elected by the board of directors at the first meeting
after each annual meeting of our shareholders and hold office until their
successors are duly elected and qualified under our bylaws.
J. Ralph Armijo has served as our President, Chief Executive Officer and as
one of our directors since our inception in 1993. Since June 1999, Mr. Armijo
has served as the Chairman of the Board of DriveOff.com. From 1981 to 1993, Mr.
Armijo was employed by Tektronix, Inc., a communications company which also
produces testing and measuring equipment, most recently as its Western Regional
Manager. 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 has served as our Chief Financial Officer, Treasurer
and as a director since July 1996. Mr. Mawhinney has served as our Secretary
since August 1999. Prior to that he served as the President of Interactive
Planet, Inc. from its inception in May 1995 until its merger with us in July
1996. 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. He received his B.S.
from Colorado State University.
Kenneth P. Bero has served as our Chief Operating Officer since July 1999
and before that was our Vice President of Sales since December 1997. From July
1996 to December 1997, Mr. Bero was Director of Sales, SGI Business Group at
Access Graphics, a wholesale distributor of UNIX based hardware and software
products. From September 1989 to June 1996, Mr. Bero held various sales and
sales management positions at Tektronix, Inc. including Business Development
Manager, Major Account Group Manager and National Reseller Group Manager for the
Display Products Division. Mr. Bero received his B.A. from Bates College and his
M.B.A. from Northeastern University.
Brad E. Nixon has served as our Vice President of Technology since July
1999. From January 1998 to July 1999, Mr. Nixon served as our Director of
Software Development. From January 1997 to January 1998, Mr. Nixon served as a
partner of Securalarm, Inc., a residential security business. From May 1993 to
January 1997, Mr. Nixon was Director of Technical Services for a non-profit
organization. Mr. Nixon earned his B.S. from Iowa State University.
Greg Hanchin has served as our Vice President of Sales since July 1999.
From December 1997 to July 1999, Mr. Hanchin was Director of Sales for our
E-Solutions division. From May 1996 to December 1997, Mr. Hanchin served as
Regional Sales Manger for Netscape. From June 1989 to May 1996, Mr. Hanchin held
various sales and marketing positions at Access Graphics. Mr. Hanchin received
his B.S. from Minot State University.
Michael S. Kranitz has served as a director since December 1998. Since June
1999, Mr. Kranitz has served as President of DriveOff.com. From October 1997
until December 1998, Mr. Kranitz served as the Chief Executive Officer and
President of LeaseSource Online, Inc., an automotive leasing information
company. 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.
Mr. Kranitz received a B.S. from the University of Florida and a J.D. from
Vanderbilt School of Law.
Andrew S. Davis has served as a director since April 1997. Mr. Davis has
served as Director of Global & Strategic Sales for InFocus Systems, Inc., a
manufacturer of high resolution projection systems since November 1997. Mr.
Davis served as our Vice President of Sales and Marketing from May 1996 until
November 1997. From January 1994 to May 1996, Mr. Davis was manager of wholesale
distribution at InFocus Systems. From September 1982 to January 1994, Mr. Davis
held various sales and marketing positions at Tektronix, Inc., including
Director of Marketing for the Interactive Technologies Division. Mr. Davis
attended the University of Denver where he studied business management and
marketing.
Lloyd G. Chavez, Jr. has served as a director since 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, intellectual property acquisitions, strategic
planning and market research. From 1982 to 1983, Mr. Chavez held the position of
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. from the University of Colorado, his M.A. from Denver
Seminary, his Ph.D. from the University of Virginia and was a post-doctoral
Fellow in Chemistry at Cornell University.
Gerald A. Marroney has served as a director since April 1997. He has served
as a State of Colorado District Court Judge in Pueblo County, Colorado since
1990. Before that time he was a practicing attorney in Pueblo, Colorado. Mr.
Marroney received his B.S. from Southern Colorado State College and his J.D.
from Oklahoma City University.
Kenneth P. Bero failed to file a Form 3 at the time he became an officer of the
Company in 1998. Mr. Bero timely filed a Form 4 in April 2000 in connection with
the exercise of his options, which represent his only securities in the Company.
Brad E. Nixon failed to file a Form 3 at the time he became an officer of the
Company in July 1999. Mr. Nixon has filed a Form 5, reflecting a grant of
options to him during 1998. The Form 5 filing was not made on a timely basis.
Greg Hanchin failed to file a Form 3 at the time he became an officer of the
Company in July 1999. Mr. Hanchin has filed a Form 5, reflecting the grant of
options to him during 1998 and 1999. The Form 5 filing was not made on a timely
basis.
Michael S. Kranitz failed to file a Form 3 at the time he became an officer and
director of the Company in December 1998. Mr. Kranitz has filed a Form 5,
reflecting the acquisition of securities in 1998 and the grant of options in
1999 for which a Form 4 should have been filed. The Form 5 filing was not made
on a timely basis.
Andrew S. Davis failed to file a Form 3 at the time he became a director of the
Company in 1997. Mr. Davis has filed a Form 5 reflecting the acquisition and
sale of securities during 1997, 1998 and 1999, and the grant of options in 1998
and 1999, for which Form 4 filings were required. The Form 5 filing was not made
on a timely basis.
Lloyd G. Chavez, Jr. failed to file Form 4s in connection with five separate
option grants to him during 1998 and 1999. Mr. Chavez has filed a Form 5 with
respect to the grants. The Form 5 filing was not made on a timely basis.
Gerald A. Marroney failed to file a Form 4 in connection with five separate
option grants to him during 1998 and 1999.
Except as set forth above, the Company believes that its current officers and
directors are in compliance with Section 16(a).
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the annual compensation paid to Navidec's Chief
Executive Officer and other executive officers of the company, for the last
three fiscal years.
(1) The number indicated represents the number of shares of common stock
underlying stock options granted to Mr. Armijo during 1998.
(2) The number indicated represents the number of shares of common stock
underlying stock options granted to Mr. Bero during 1998.
(3) Mr. Bero commenced working with the Company in December 1997 but did not
receive any compensation from the Company until after January 1, 1998.
(4) The number indicated represents the number of shares of common stock
underlying stock options granted to Mr. Kranitz during 1999.
(5) The numbers indicated represent the number of shares of common stock
underlying stock options granted to Mr. Mawhinney during 1998 and 1999.
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, 1999 to the Company's Chief
Executive Officer and the other named executive officers. The Company has issued
no stock appreciation rights.
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 150,000 31.4% $ 9.25 9/21/2004
Ken Bero
Greg Hanchin 20,000 8.2% $ 4.06 1/5/2004
Pat Mawhinney 50,000 10.5% $ 9.25 9/21/2004
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, 1999 by the Company's Chief Executive
Officer and the 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
Shares at FY-End (#) at FY-End ($)
Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized Unexercisable Unexercisable(1)
---- ----------------------- ------------- ----------------
Ralph Armijo 0 0 146,000/150,000 $1,314,000/$412,500
Ken Bero 0 0 125,000/0 $1,125,000/0
Greg Hanchin 0 0 70,000/0 $158,800/$328,000
Michael Kranitz 0 0 83,334/0 $578,000/0
Pat Mawhinney 0 0 57,000/50,000 $513,000/$137,500
(1) The value indicated was calculated by determining the difference between the
fair market value of the Company's common stock underlying the stock options on
December 31, 1999 and the exercise price of those options.
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. Non-employee members of
the Board of Directors received options to purchase 10,000 shares of common
stock issued under the Company's stock option plan.
Employment Agreements and Termination of Employment and Change-in- Control
Arrangements
The Company entered an Employment Agreement with Mr. Armijo effective May 1,
1998. The term of that agreement is for one year and it renews 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 $250,000 and his salary is reviewed
annually. The agreement also provides that Mr. Armijo will be paid an annual
bonus. Because Mr. Armijo remained 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, as 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 1999, 1998 and 1997. If a change of control occurred, as of April 1,
2000 Mr. Armijo would receive $312,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 1, 2000, 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.
NUMBER OF
SHARES OF
COMMON STOCK PERCENT OF
NAME AND ADDRESS OF BENEFICIALLY BENEFICIAL
BENEFICIAL OWNER(2) OWNED OWNERSHIP
------------------- ----- ---------
Ralph Armijo 805,649(3) 7.4%
Patrick R. Mawhinney 156,357(3) 1.4%
Kenneth P. Bero 125,000(3) 1.1%
Michael Kranitz 333,334(3)(8) 3.1%
Greg Hanchin 20,000(3) (1)
Andrew Davis 31,250(3) (1)
Lloyd G. Chavez, Jr 24,250(3)(4) (1)
Gerald A. Marroney 20,000(3) (1)
All directors and executive
officers as a Group
(Eight Persons) 1,565,840 15.1%
J. Carlo Cannell 529,000(5)(6) 5.11%
Cannell Capital Management
600 California Street
San Francisco, CA 94108
Franklin Resources Inc. 666,000(5)(7) 8.9%
901 Marines Island Blvd., 6th Floor
San Mateo, CA 94404
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 business address for each person is 6399 S.
Fiddler's Green Circle, Suite 300 Greenwood Village, CO 80111.
(3) The number of shares indicated includes shares of common stock underlying
options that are currently exercisable, as of April 1, 2000 which are held by
the following persons in the amounts indicated: Mr. Armijo (146,000); Mr.
Mawhinney (57,000); Mr. Bero (125,000); Mr. Hanchin (20,000) Mr. Davis (20,000);
Mr. Marroney (20,000); Mr. Chavez (20,000); 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) Represents a beneficial owner of more than 5% of the Common Stock based on
the owner's reported ownership of shares of common stock in filings made with
the Securities and Exchange Commissioner pursuant to Section 13(g) of the
Securities Exchange Act of 1934, as amended. Information with respect to each
beneficial owner is as of the date of the most recent filing by the beneficial
owner with the Securities and Exchange Commissioner and is based solely on
information contained in such filings.
(6) J. Carlo Cannell d/b/a Cannell Capital Management is a registered investment
adviser which furnishes advice to several institutional clients which hold the
shares that are reported on this chart. J. Carlo Cannell d/b/a Cannell Capital
Management may be deemed to be the beneficial owner of common stock held by
these clients
(7) Franklin Resources, Inc. is a parent holding company of various investment
advisory subsidiaries which have all investment and/or voting power over the
shares that are reported on this chart. Charles P. Johnson and Rupert H.
Johnson, Jr. each own in excess of ten percent of the outstanding common stock
of Franklin Resources, Inc. and are the principal shareholders of Franklin
Resources, Inc. Franklin Resources, Inc. and Messrs. Johnson and Johnson may be
deemed to be the beneficial owners of the common stock over which Franklin
Resources, Inc.'s subsidiaries have investment and/or voting power, but they
disclaim ownership of the common stock.
(8) 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 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1997, Ralph Armijo guaranteed a line of credit in the amount of
$750,000 extended to us by USA Funding, Dallas, Texas. No compensation was paid
by Navidec for the personal guarantee. The line of credit was repaid in
September, 1999.
Although the foregoing transaction was determined without arm's length
negotiations and involved conflicts of interest between the interests of the
related party and the Company, the Company believes that the transaction was
entered into on terms no less favorable to the Company than could have been
obtained from independent third parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K.
(a)1. Index to Financial Statements
Report of Independent Public Accountants
Independent Auditor's Report
Consolidated Balance Sheets as of December 31, 1998 and 1999
Consolidated Statements of Operations for the years ended December 31,
1997, 1998 and 1999
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1998 and 1999
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999
Notes to Consolidated Financial Statements
(a)2. Index to Financial Statements Schedules
(a)3.
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 the Company*
10.1 Form of Confidentiality and Non-Disclosure Agreement between the Company
and its significant technical employees.*
10.2 The Company's stock option plan.***
10.3 Employment Agreement between the Company and Ralph Armijo dated May 1,
1998.****
10.4 Agreement between the Company and Bathgate McColley Capital Group LLC
dated December 21, 1998.*****
10.5 Agreement between the Company and Verio Inc. dated January 23, 1999.*****
10.5 Agreement by and between the Company, LeaseSource Online, Inc. and
CarWizard, Inc. *****
10.6 Underwriting Agreement dated October 20, 1999 among the Company, First
Security Van Kasper, Advest, Inc. and various selling shareholders,
incorporated by reference from the Company's Form 8-K filed October 20,
1999.
10.7 Stock and Note Purchase Agreement dated as of July 23, 1999 by and
between the Company and WFC Holdings Corporation.******
10.8 Credit Agreement dated as of July 23, 1999 by and among DriveOff.com,
Inc., the Company and WFC Holdings Corporation.******
10.9 Form of Note of the Company payable to the order of WFC Holdings
Corporation.******
10.10 Form of Term Note of DriveOff.com, Inc. payable to the order of WFC
Holdings Corporation.******
10.11 Form of Guarantee of the Company in favor of WFC Holdings
Corporation.******
10.12 Form of Registration Rights Agreement by and between the Company and WFC
Holdings Corporation.******
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP. Filed herewith.
23.2 Consent of Hein + Associates 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).
***** Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1998.
****** Incorporated by reference from the Company's Form 8-K filed July 29,
1999.
(b) Reports on Form 8-K
Form 8-K filed October 15, 1999 in connection with the consummation of WFC
Holdings Corporation's (i) $10,000,000 investment in the Company and (ii)
$15,000,000 investment in the Company's subsidiary, DriveOff.com, Inc., and the
related signing of a Co-Branding Agreement, Master Consulting Agreement, License
Agreement and Confidentiality Agreement. The Form 8-K also addressed an
announcement made by Sun Microsystems, Inc. of its intention to purchase up to
$3,000,000 of the Company's common stock in the Company's secondary public
offering.
Form 8-K filed October 20, 1999 for purposes of filing the form of Underwriting
Agreement among the Company, First Security Van Kasper, Advest, Inc. and various
selling shareholders, relating to the Company's secondary public offering of
2,500,000 shares of its common stock.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NAVIDEC, INC.
Dated: April 12, 2000 By: /s/ J. Ralph Armijo
--------------------- -----------------------
J. Ralph Armijo
President, Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated. This report may be signed in
multiple identical counterparts all of which, taken together, shall constitute a
single document.
Dated: April 12, 2000 By: /s/ J. Ralph Armijo
--------------------- -----------------------
J. Ralph Armijo
President, Chief Executive Officer and
Director
Dated: April 12, 2000 By: /s/ Patrick R. Mawhinney
--------------------- ----------------------------
Patrick R. Mawhinney
Chief Financial Officer, Secretary and
Director
Dated: April 12, 2000 By:
Michael S. Kranitz
Director
Dated: April 12, 2000 By:
Andrew S. Davis
Director
Dated: April 12, 2000 By:
Lloyd G. Chavez, Jr.
Director
Dated: April 12, 2000 By:
Gerald A. Marroney
Director
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