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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 2002
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to ____
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Commission File Number 0-15362
NAVTECH, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-2883366
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2340 Garden Road, Monterey, California 93940
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (519) 747-1170
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 |_|
The number of shares outstanding of the issuer's common stock as of May 30, 2002
was 4,326,988 shares.
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NAVTECH, INC.
FORM 10-QSB
For the Quarter Ended April 30, 2002
INDEX
Part I. Financial Information
Item 1. Financial Statements Page
----
a) Consolidated Statements of Operations
for the Six Months and Three Months Ended
April 30, 2002 and 2001......................................... 1
b) Consolidated Balance Sheets
as of April 30, 2002 and October 31, 2001....................... 2
c) Consolidated Statements of Stockholders' Equity (Deficiency).... 3
c) Consolidated Statements of Cash Flow
for the Six Months Ended April 30, 2002 and 2001................ 4
d) Notes to Consolidated Financial Statements...................... 5
Item 2. Management's Discussion and Analysis
or Plan of Operation........................................ 8
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders......... 13
Item 6. Exhibits and Reports on Form 8-K............................ 13
Signatures................................................................. 14
Part I. Financial Information
Item 1. Financial Statements
(In US Dollars)
NAVTECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Six Months Ended Three Months Ended
April 30 April 30
2001 2002 2001 2002
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REVENUE
Service fees $ 3,078,486 $ 2,873,049 $ 1,717,315 $ 1,460,938
Software license fees - 226,311 - -
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Total revenue $ 3,078,486 $ 3,099,360 $ 1,717,315 $ 1,460,938
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COSTS AND EXPENSES
Cost of service fees 1,905,628 1,605,302 991,187 829,932
Cost of software license fees - 49,243 - -
Research and development 168,415 85,428 73,068 27,024
Sales and marketing 694,142 379,303 426,941 198,886
General and administrative 981,276 725,179 482,346 269,987
Amortization of goodwill 17,791 5,598 14,991 2,799
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Total costs and expenses 3,767,252 2,850,053 1,988,533 1,328,628
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Income (loss) from operations (688,766) 249,307 (271,218) 132,310
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Other income (expense)
Interest revenue 308 2,185 302 1,358
Interest expense (75,854) (79,772) (41,034) (33,785)
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(75,546) (77,587) (40,732) (32,427)
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Income (loss) before income taxes (764,312) 171,720 (311,950) 99,983
Income taxes (recovery) (162,011) - (45,617) -
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Net earnings (loss) $ (602,301) $ 171,720 $ (266,333) $ 99,983
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Net earnings (loss) per share
Basic and diluted $ (0.17) $ 0.04 $ (0.07) $ 0.02
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NAVTECH, INC.
CONSOLIDATED BALANCE SHEETS
----------------------------------
October 31, April 30,
2001 2002(1)
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ASSETS
Current assets
Cash $ 22,011 $ 71,463
Accounts receivable (net of allowance for bad debts of $182,907; 687,952 561,863
2001 - $144,025)
Accounts receivable - related parties (net of allowance for bad debts
of $231,778; 2001 - $231,778) 111,111 102,941
Investment tax credits receivable 22,186 22,346
Prepaid expenses and other 63,972 195,465
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907,232 954,078
Capital assets 574,384 486,256
Due from related party (net of allowance for bad debts of
$170,000; 2001 - $170,000) 30,000 30,000
Goodwill (net of accumulated amortization of $72,547;
2001 - $66,949) 98,439 92,841
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$ 1,610,055 $ 1,563,175
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LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 1,227,926 $ 1,323,212
Note payable factoring 165,519 -
Income taxes payable 34,886 51,093
Long-term debt - current portion 278,863 229,457
Obligations under capital lease - current portion 2,865 5,985
Deferred lease inducements - current portion 13,776 13,876
Deferred revenue 83,774 48,842
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1,807,609 1,672,465
Long-term debt 209,829 118,166
Obligations under capital lease 2,755 8,332
Deferred lease inducements 55,104 48,564
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2,075,297 1,847,527
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Commitments and contingencies
STOCKHOLDERS' DEFICIENCY
Share capital 4,835 4,835
Authorized - 20,000,000, Par Value $0.001,
Issued - 4,834,906 (2001 - 4,834,906)
Treasury stock (950,131) (950,504)
Additional paid-in capital 4,057,984 4,057,984
Accumulated other comprehensive income 48,466 58,009
Accumulated deficit (3,626,396) (3,454,676)
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(465,242) (284,352)
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$ 1,610,055 $ 1,563,175
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(1) Unaudited
NAVTECH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Unaudited)
Accumulated Total
Share Capital Additional Other Stockholders' Total
--------------------- Paid-In Comprehensive Treasury Accumulated Equity/ Comprehensive
Shares Amount Capital Income (Loss) Stock Deficit (Deficiency) Income (Loss)
- ---------------------------------------------------- ----------------------------------------------------- -------------------------
Balances, October 31, 2000 3,917,523 $ 3,917 $ 3,133,472 $ 45,766 $(942,686) $(1,778,490) $ 461,979
Issuance of shares 759,883 760 811,594 812,354
Stock options exercised 157,500 158 63,827 63,985
Issuance of warrants upon
acquisition of Airware
Solutions Inc. 49,091 49,091
Treasury shares (7,445) (7,445)
Translation adjustments 2,700 2,700 $ 2,700
Net loss (1,847,906) (1,847,906) (1,847,906)
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Balances, October 31, 2001 4,834,906 $ 4,835 $ 4,057,984 $ 48,466 $(950,131) $(3,626,396) $ (465,242) $(1,845,206)
- ------------------------------------------------------------------------------- ----------------------------------------------------
Treasury shares (373) (373)
Translation adjustments 9,543 9,543 $ 9,543
Net earnings 171,720 171,720 171,720
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Balances, April 30, 2002 4,834,906 $ 4,835 $ 4,057,984 $ 58,009 $(950,504) $(3,454,676) $ (284,352) $ 181,263
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3
NAVTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
---------------------------------
Six Months Ended April 30, 2001 2002
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OPERATING ACTIVITIES
Net earnings (loss) $ (602,301) $ 171,720
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation 86,461 79,802
Amortization of goodwill 17,791 5,598
Loss on sale of capital assets 818 26,381
Provision for uncollectable accounts 44,579 37,800
Deferred lease inducements (7,083) (6,839)
Changes in operating assets and liabilities
Accounts receivable (172,650) 97,164
Investment tax credits receivable 140,237 -
Prepaid expenses and other (30,798) (129,852)
Accounts payable, accrued liabilities and other liabilities 402,715 97,746
Deferred revenue - (34,999)
Income taxes payable (175,349) 15,727
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(295,580) 360,248
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INVESTING ACTIVITIES
Repayment from related party 37,164 -
Purchase of capital assets (53,487) (18,763)
Proceeds from sale of capital assets 819 2,408
Acquisition of Airware Solutions Inc. (33,500) -
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(49,004) (16,355)
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FINANCING ACTIVITIES
Redemption of shares - (373)
Repayment of factored receivables - (164,328)
Advances from bank line of credit 87,018 -
Issuance of common shares 133,046 -
Repayment of bank loans (60,395) (19,815)
Repayment of loans (181,023) (121,670)
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(21,354) (306,186)
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Effect of foreign exchange rates on cash (5,701) 11,745
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Net cash flow (371,639) 49,452
Cash, beginning of period 371,639 22,011
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Cash, end of period $ - $ 71,463
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Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ (57,801) $ (52,892)
Cash paid during the period for income taxes $ - $ -
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4
NAVTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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DESCRIPTION OF BUSINESS AND ORGANIZATION
Navtech, Inc. ("Navtech-US") was originally incorporated in the State of New
York in 1981 and then reincorporated in the State of Delaware in 1987. Navtech
Systems Support Inc. ("Navtech-Canada"), a wholly-owned subsidiary of
Navtech-US, was incorporated in the Province of Ontario in 1987. Navtech (UK)
Limited ("Navtech-UK"), a wholly-owned subsidiary of Navtech-Canada, was
incorporated in the United Kingdom in 1994. Airware Solutions Inc. ("Airware"),
a wholly-owned subsidiary of Navtech-US, was incorporated in the Province of
Quebec in 1986. When we refer to Navtech, we are speaking of Navtech-US and its
subsidiaries.
Our head office is located at 2340 Garden Road, Suite 102, Monterey, CA 93940.
We maintain a website at www.navtechinc.com. Our common stock is publicly traded
on the OTC Electronic Bulletin Board of the National Association of Securities
Dealers under the symbol "NAVH". Our Investor Relations Department can be
reached at (519) 747-1170.
We develop, market and support flight operations management systems for the
commercial aviation industry. Our systems are designed to assist commercial
passenger and cargo air carriers in the dynamic environment of their daily
flight operations.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated balance sheet as of April 30, 2002, the consolidated statement
of stockholders' equity (deficiency) for the period ended April 30, 2002, the
consolidated statements of operations for the six and three months ended April
30, 2002 and 2001, and the consolidated statements of cash flows for the six
months ended April 30, 2002 and 2001 have been prepared by us without audit. In
our opinion, all adjustments (which include only normal recurring accrual
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at April 30, 2002, and for all periods presented, have
been made.
The consolidated financial statements include the accounts of Navtech-US and its
wholly-owned subsidiaries, Navtech-Canada, Navtech-UK and Airware. All material
intercompany balances and transactions have been eliminated. In accordance with
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translations," assets and liabilities of foreign operations are translated at
current rates of exchange, while results of operations are translated at average
rates in effect for that period. Unrealized translation gains or losses are
shown as a separate component of stockholders' equity.
For information concerning our significant accounting policies, reference is
made to our Annual Report on Form 10-KSB for the year ended October 31, 2001.
Results of operations for the six months ended April 30, 2002 are not
necessarily indicative of the operating results for the full year.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS
No. 142, "Goodwill and Other Intangible Assets" ("FAS 141" and "FAS 142"). FAS
141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. FAS 141 also specifies the criteria
by which intangible assets acquired in a purchase method business combination be
recognized and reported separately from goodwill. FAS 142 will require that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually. FAS 142 will
also require the intangible assets with definite useful lives be amortized over
their respective estimated useful lives, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of".
We are required to adopt the provisions of FAS 141 effective July 1, 2001 and
FAS 142 effective November 1, 2002. Furthermore, any goodwill and any intangible
asset determined to have an indefinite useful life that are acquired in
5
NAVTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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a purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
previously existing accounting literature. Goodwill and intangible assets
acquired in a business combination completed before July 1, 2001 will continue
to be amortized prior to the adoption of FAS 142. We have not yet assessed the
impact the new standards will have on future financial statements. During the
six months ended April 30, 2002, the amortization expense associated with
goodwill was $5,598. The balance of goodwill at April 30, 2002 was $92,841.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("FAS 144") which supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("FAS 121"). FAS 144 also supersedes certain aspects of the
Accounting Principles Board Opinion No. 30 ("APB 30"), "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," as related to the
reporting of the effects of a disposal of a segment of a business. FAS 144 will
require expected future operating losses from discontinued operations to be
displayed in discontinued operations in the period incurred rather than as of
the measurement date as presently required by APB 30. Additionally, more
dispositions may qualify as discontinued operations. Adoption of FAS 144 is
required for our fiscal year beginning on November 1, 2002. We have not yet
determined the effect FAS 144 will have on our financial statements.
EARNINGS (LOSS) PER SHARE
Basic and diluted earnings (loss) per share are calculated as follows:
Six Months ended April 30, Three Months ended April 30,
---------------------------------------------------------------
2001 2002 2001 2002
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Numerator:
Net earnings (loss) (A) $ (602,301) $ 171,720 $(266,333) $ 99,883
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Denominator:
Denominator for basic earnings (loss) per share -
weighted average
number of common shares outstanding (B) 3,604,603 4,326,988 3,768,769 4,326,988
Effect of dilutive securities:
Employee stock options and warrants - 441,515 - 441,515
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Denominator for diluted earnings (loss) per share -
adjusted weighted
average number of common shares outstanding (C) 3,604,603 4,768,503 3,768,769 4,768,503
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Earnings (loss) per share - basic (A)/(B) $ (0.17) $ 0.04 $ (0.07) $ 0.02
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Earnings (loss) per share - diluted (A)/(C) $ (0.17) $ 0.04 $ (0.07) $ 0.02
- ------------------------------------------------------------------------------------------------------------------------
Dilutive securities consist of employee stock options and warrants. Specific
employee stock options and warrants are excluded if their effect is
antidilutive.
6
NAVTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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COMMITMENTS AND CONTINGENCIES
Legal Proceedings
On September 13, 1999, we received a demand from the attorneys for the Chapter
11 Creditors Committee for Southern Air Transport, Inc. for alleged preferential
payments of $88,850.09 made to Navtech-Canada within 90 days of the filing of
the bankruptcy petition by Southern Air in the United States Bankruptcy Court
for the Southern District of Ohio on October 1, 1998. The complaint was filed on
September 21, 2000; however, a summons appears to have never been filed. We have
not been served with a summons and complaint. We are of the view that the
payments received were for contemporaneous consideration and were therefore not
preferential payments. Therefore, we have not accrued for any estimated losses
resulting from this proceeding in our financial statements at April 30, 2002.
COMPARATIVE FIGURES
Certain accounts for the comparative period have been reclassified to conform
with the presentation adopted in the current year.
7
NAVTECH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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Item 2. Management's Discussion and Analysis or Plan of Operation
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements as that term is
defined in the federal securities laws. The events described in forward-looking
statements contained in this Quarterly Report may not occur. Generally these
statements relate to business plans or strategies, projected or anticipated
benefits or other consequences of our plans or strategies, projected or
anticipated benefits from acquisitions to be made by us, or projections
involving anticipated revenues, earnings or other aspects of our operating
results. The words "may," "will," "expect," "believe," "anticipate," "project,"
"plan," "intend," "estimate," and "continue," and their opposites and similar
expressions are intended to identify forward-looking statements. We caution you
that these statements are not guarantees of future performance or events and are
subject to a number of uncertainties, risks and other influences, many of which
are beyond our control, that may influence the accuracy of the statements and
the projections upon which the statements are based. Our actual results,
performance and achievements could differ materially from those expressed or
implied in these forward-looking statements. We undertake no obligation to
publically update or revise any forward-looking statements, whether from new
information, future events or otherwise. The following discussion should be read
in conjunction with the financial statements and notes found in Item 1 of Part I
of this Form 10-QSB. All financial information is based on our fiscal calendar.
Results of operations
Revenues
Revenue from service fees was approximately $2.9 million for the six months
ended April 30, 2002, as compared to approximately $3.1 million for the six
months ended April 30, 2001, a decrease of approximately 6%, or $205,000. This
decrease is primarily due to the loss of revenues of approximately $247,000 from
one-time customers or customers who terminated our services during prior
quarters. Also, we lost revenues of approximately $174,000 from customers who
ceased operations in the past year, and approximately $58,000 from existing
customers. These decreases were offset by an increase in revenues from new
customers of approximately $274,000.
Included in the decrease from one-time customers was approximately $66,000
relating to work performed for Global Weather Dynamics, a related company.
Decreases from customers who ceased operations in the past year were largely due
to fallout in our industry after September 11, 2001. However, we believe that
the industry is recovering as evidenced by the addition of new customers and the
strengthening financial condition of our existing customers. Our outlook for the
remainder of the fiscal year remains positive.
Revenue from software license fees was approximately $226,000 for the six months
ended April 30, 2002 as compared to nil during the six months ended April 30,
2001. We completed a sale of Airware's CLASS preferential bidding system in the
six months ended April 30, 2002 compared with no license sales in the six months
ended April 30, 2001. Software licensing efforts terminated in fiscal 2001 as we
moved completely to an application service provider (ASP) pricing model.
However, this customer requested a licensing pricing option when assessing our
product. The ASP model is expected to yield long-term benefits since monthly
revenues will be higher than those under a license sale philosophy. Further
explanation regarding our switch to an ASP pricing model can be found in the
"Plan of Operation - Sales Initiatives" section.
8
NAVTECH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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Costs and expenses
Cost of services decreased approximately 16%, or $300,000, from approximately
$1.9 million for the six months ended April 30, 2001 to approximately $1.6
million for the six months ended April 30, 2002. This change is primarily
attributable to a decrease in salaries and benefits of approximately $224,000, a
decrease in communications costs of approximately $126,000, a decrease in
facilities costs of approximately $10,000 as well as net decreases in other
operating expenses of approximately $4,000. Offsetting these decreases was an
increase in royalties of approximately $45,000, and an increase in expenses for
agents used in operations of approximately $19,000.
The decrease in salaries and benefits is due both to the staff reductions made
in the fourth quarter of 2001 (see "Plan of Operation - Salaries and Benefits"
below) and staff time devoted to the implementation of the CLASS system sold in
the six months ended April 30, 2002. The decrease in communication costs was
achieved through the renegotiation of contracts with our largest supplier (see
"Plan of Operation - Communications" below) and the elimination of duplication
in certain network services. We decreased the number of our facilities during
2002, from six at April 30, 2001 to three at April 30, 2002. We also decreased
the space rented in current facilities. These cost savings were mitigated by the
accrual of additional costs in the six months ended April 30, 2002 to close two
of the facilities mentioned above. Royalties are due on revenues generated by an
operating partner. The increase in royalties in the six months ended April 30,
2002 is proportional to the increase in revenues secured by products offered by
our operating partner. The cost of agents used will vary in each period
depending on the mix of work required, location of flights and other factors.
Cost of software license fees was approximately $49,000 for the six months ended
April 30, 2002 as compared to nil during the six months ended April 30, 2001. We
completed the sale of Airware's CLASS bidding system in the six months ended
April 30, 2002 compared with no license sales in the six months ended April 30,
2001. Cost of software license fees consist primarily of installation time and
related travel expenses.
Research and development expenditures decreased approximately 49%, or
approximately $83,000, from approximately $168,000 for the six months ended
April 30, 2001 to approximately $85,000 for the six months ended April 30, 2002.
This decrease is due primarily to the suspension of one major development
project that employed five people in 2001.
Selling and marketing expenses decreased approximately 45%, or approximately
$315,000, from approximately $694,000 for the six months ended April 30, 2001 to
approximately $379,000 for the six months ended April 30, 2002. This decrease is
attributable to a decrease in salaries and benefits of approximately $107,000, a
decrease in marketing expenses of approximately $127,000 and a decrease in
travel costs of approximately $81,000.
The decrease in salaries and benefits and travel expenses is due to the staff
reductions made in the fourth quarter of 2001 (see "Plan of Operation - Salaries
and Benefits; and Travel" below). As planned, marketing expenses decreased in
the six months ended April 30, 2002 as we discontinued certain marketing
initiatives that were active in the six months ended April 30, 2001 (see "Plan
of Operation - Marketing" below).
General and administrative expenses decreased approximately 26%, or
approximately $256,000, from approximately $981,000 for the six months ended
April 30, 2001 to approximately $725,000 for the six months ended April 30,
2002. This decrease is due primarily to a decrease in corporate travel costs of
approximately $213,000, a decrease in professional fees of approximately
$71,000, a decrease in salaries and wages of approximately $11,000 and a net
decrease in other general and administrative expenses of approximately $3,000.
Offsetting these decreases was an increase in bad debts of approximately $29,000
and an increase in insurance costs of approximately $13,000.
9
NAVTECH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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Our travel expenses have decreased as we significantly reduced the number of
corporate trips required for our operations (see "Plan of Operation - Travel"
below). Salaries and benefits only decreased marginally in the six months ended
April 30, 2002 despite corporate staff reductions (see "Plan of Operation -
Salaries and Benefits" below). This is due to an accrual of approximately
$71,000 representing all amounts owing to Mr. Macdonald under his settlement and
release agreement. Bad debts increased in the six months ended April 30, 2002
due to the bankruptcy of three customers. However, a recovery of these bad debts
was experienced in the second quarter when the expected loss on one account was
reduced by approximately $32,000. Insurance expenses increased as anticipated
due to higher premiums charged in our industry after September 11, 2001.
Provision for Income Taxes
We have not recorded a provision for income taxes on net earnings of
approximately $172,000 for the six months ended April 30, 2002. This is due to
income earned in the United States and Quebec, Canada where we have sufficient
losses in prior years to offset our taxable income.
Net earnings (loss)
The unaudited consolidated financial statements reflect net earnings of
approximately $172,000 for the six months ended April 30, 2002 as compared to a
net loss of approximately $602,000 for the six months ended April 30, 2001.
Liquidity and Capital Resources
As of April 30, 2002, our available funds consisted of $71,463 in cash. At April
30, 2002, we had a working capital deficiency of $718,387 as compared to a
working capital deficiency of $900,377 as at October 31, 2001.
Cash flows from operations accounted for a net inflow of $360,248, primarily
based on the net earnings for the quarter, the adjustment for non-cash items of
approximately $143,000, a net increase in operating liabilities of approximately
$78,000 and offset by an increase of approximately $33,000 in operating assets.
Cash flows from investing activities for the six months ended April 30, 2002
represent a net outflow of $16,355, primarily due to the purchase of capital
assets.
Cash flows from financing activities for the six months ended April 30, 2002
represent a net outflow of $306,186, primarily due to repayments of existing
loans of approximately $79,000, repayments of related party notes of
approximately $62,000 and repayments of outstanding factored accounts receivable
of approximately $165,000.
As of April 30, 2002, we had no significant capital commitments.
PLAN OF OPERATION
Beginning in the fourth quarter of 2001, we implemented the following plan to
reduce our working capital deficiency. We believe that the operating results for
the six months ended April 30, 2002 prove that we achieved the desired reduction
in operating costs through the implementation of this plan. The following
comments represent updates to the original plan from 2001:
Salaries and Benefits
We have reduced our global workforce by over 30% from a peak of 106 employees in
June 2001 to 72 employees at April 30, 2002 through a combination of
terminations and resignations. Although reductions occurred at all locations and
across all functional areas, we focused our reductions in our sales and
marketing and development staff. In addition to the staff reductions, we
implemented a temporary reduction in salary for remaining employees of between 3
- - 5%. Salaries were increased to pre-reduction levels on March 11, 2002.
10
NAVTECH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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On November 29, 2001, we accepted the resignation of our Chief Executive
Officer, Duncan Macdonald. We named Chief Financial Officer, David Strucke, as
our President and Chief Executive Officer.
At the end of the second quarter, we began to add to our infrastructure to allow
us to achieve our operational goals and strategic plan initiatives. This will
reduce the cost savings of the above plan for the remainder of the fiscal year.
We have hired two senior level employees, a Vice-President of Software
Development and a Vice-President of Operations, who will add technical expertise
to our operations. In addition, we have hired software developers to replace
employees lost through the closure of facilities or attrition.
Travel
Travel expenses will continue to be rationalized, especially in corporate and
sales related travel.
Communications
In fiscal 2001 we incurred communications costs of approximately $936,000. We
have renegotiated contracts with our largest communications supplier and have
reduced communications costs by approximately$126,000 during the six months
ended April 30, 2002 as compared to 2001. We plan to negotiate similar contracts
with our remaining suppliers. We are currently analyzing alternatives or
advanced communications solutions in order to further rationalize our
communications costs.
Marketing
We are currently reviewing the trade shows that we plan to attend in the current
year. Some of these shows will be eliminated from our budget as we focus our
marketing efforts on shows that will provide us the maximum exposure to our
potential customers. We are currently planning a user-conference in Toronto,
Canada in June 2002. It is anticipated that the cost to host this conference
will be approximately 80% lower than the cost of the 2001 user-conference.
Facilities
We have closed our sales office in Denver, Colorado, our development facility in
Ottawa, Ontario and our operations facility in Montreal, Quebec. In addition, we
have reduced the rentable space in our Monterey, California office by
approximately 80%, resulting in annual rent savings of approximately $40,000,
and in our Waterloo facility by approximately 10%, resulting in annual rent
savings of approximately $9,500.
Equity
We anticipate that we will need to raise additional equity over the next three
months to fund our working capital needs. If we are unsuccessful in raising the
equity required, it will take us longer to eliminate our working capital
deficiency.
Accounts Receivable Factoring
Navtech-Canada currently has a facility to factor accounts receivable to a limit
of $350,000 Canadian at a rate of 0.1% per day. Each account that is factored is
subject to a minimum charge of 1.6%. At April 30, 2002, we were not using this
facility. This is a temporary financing facility aimed at giving us more
flexibility in meeting our accounts payable and short term financing demands. It
is anticipated that the cost savings from the above mentioned plans will give us
the ability to permanently terminate this facility and consider more attractive
financing facilities once our financial position improves. We anticipate that
financing requirements specific to acquisitions of complementary businesses,
products or technologies would be dealt with using debt specific to those
transactions.
11
NAVTECH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
Sales Initiatives
We are focusing our efforts on a new marketing program designed to reintroduce
our full product offering to the North American, South American and European
marketplaces.
We have historically marketed our products in two ways: (1) the licensing of our
software, or (2) acting as an application service provider (ASP). Under the
license pricing model, we received one-time revenues for the license sale; under
the ASP model we receive monthly recurring revenue. Our sales efforts for our
rebranded products are now focused on the ASP pricing model only. The ASP model
is expected to yield long-term benefits since monthly revenue will be higher
than under the license sale model. As an ASP, we manage and distribute our
software-based services and solutions to our customers across a network from a
central data center. We have successfully used the ASP model for over six years
and have extensive experience in deploying and supporting software under this
approach.
Other
We completed a shareholder oddlot repurchase program and an escheatment program
for unexchanged shares. These programs were designed to reduce costs in
connection with shareholder communications.
New Initiatives
Research and development
We plan to increase our research and development efforts in the third and fourth
quarters of this year in order to make our products more competitive and to
address other markets.
12
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Our Annual Meeting of Shareholders was held on April 2, 2002. The following
persons were elected as directors of the Company, such persons to hold office
until their successors are elected or qualified:
Number of Shares
For Withheld
-------------------------
David Strucke 2,409,206 1,831
Thomas D. Beynon 2,409,202 1,835
Michael Jakobowski 2,408,202 2,835
Michael Ueltzen 2,409,220 1,817
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
3(A) Certificate of Incorporation, as amended (1)
3(B) By-Laws, as amended (2)
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended April
30, 2002.
Items 1, 2, 3 and 5 are not applicable and have been omitted.
(1) We hereby incorporate the footnoted exhibit by reference in accordance with
Rule 12b-32, as such exhibit was originally filed as an exhibit in our
Quarterly Report on Form 10-QSB for the fiscal period ended April 30, 2001.
(2) We hereby incorporate the footnoted exhibit by reference in accordance with
Rule 12b-32, as such exhibit was originally filed as an exhibit in our
Annual Report on Form 10-KSB for the fiscal year ended October 31, 1999.
13
Signatures
Pursuant to the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
Navtech, Inc.
Date: May 30, 2002 By: /s/ David Strucke
-------------------------------------------
David Strucke
President, Chief Executive Officer,
Chief Financial Officer, Secretary, and
Director
(Principal Executive Officer, Principal
Financial Officer, Principal
Accounting Officer, and Duly
Authorized Officer)