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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 July 31, 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 August 31, 2002 was 4,326,988 shares.
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NAVTECH, INC.
FORM 10-QSB
For the Quarter Ended July 31, 2002
INDEX
Part I. Financial Information
Item 1. Financial Statements Page
----
a) Consolidated Statements of Operations
for the Nine Months and Three Months Ended
July 31, 2002 and 2001......................................... 1
b) Consolidated Balance Sheets
as of July 31, 2002 and October 31, 2001....................... 2
c) Consolidated Statements of Stockholders' Equity (Deficiency)... 3
c) Consolidated Statements of Cash Flow
for the Nine Months Ended July 31, 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 6. Exhibits and Reports on Form 8-K............................. 12
Signatures............................................................... 13
NAVTECH, INC.
Part I. Financial Information
Item 1. Financial Statements
(In US Dollars)
NAVTECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Nine Months Ended Three Months Ended
July 31 July 31
2001 2002 2001 2002
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REVENUE
Service fees $ 4,748,680 $ 4,338,216 $ 1,670,194 $ 1,465,167
Software license fees - 226,311 - -
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Total revenue $ 4,748,680 $ 4,564,527 $ 1,670,194 $ 1,465,167
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COSTS AND EXPENSES
Cost of service fees 3,038,977 2,529,209 1,133,349 911,407
Cost of software license fees - 49,243 - -
Research and development 238,470 167,715 70,055 82,287
Sales and marketing 1,011,660 519,251 317,518 139,948
General and administrative 1,356,701 956,252 375,425 243,574
Provision for bad debts - related parties 299,617 - 299,617 -
Amortization of goodwill 31,324 8,397 14,991 2,799
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Total costs and expenses 5,976,749 4,230,067 2,209,497 1,380,014
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Income (loss) from operations (1,228,069) 334,460 (539,303) 85,153
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Other income (expense)
Interest revenue 692 3,858 384 1,673
Interest expense (122,024) (95,146) (46,170) (15,374)
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(121,332) (91,288) (45,786) (13,701)
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Income (loss) before income taxes (1,349,401) 243,172 (585,089) 71,452
Income taxes (recovery) (162,011) (13,098) - (13,098)
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Net earnings (loss) $(1,187,390) $ 256,270 $ (585,089) $ 84,550
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Net earnings (loss) per share
Basic and diluted $ (0.31) $ 0.06 $ (0.14) $ 0.02
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See accompanying notes.
NAVTECH, INC. 1
NAVTECH, INC.
CONSOLIDATED BALANCE SHEETS
---------------- -----------------
October 31, July 31,
2001 2002(1)
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ASSETS
Current assets
Cash $ 22,011 $ 128,234
Accounts receivable (net of allowance for bad debts of $172,310; 687,952 546,933
2001 - $144,025)
Accounts receivable - related parties (net of allowance for bad debts
of $231,778; 2001 - $231,778) 111,111 99,341
Investment tax credits receivable 22,186 15,711
Prepaid expenses and other 63,972 161,828
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907,232 952,047
Capital assets 574,384 483,396
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 $75,346;
2001 - $66,949) 98,439 90,042
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$ 1,610,055 $ 1,555,485
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LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 1,227,926 $ 1,265,803
Note payable - factoring 165,519 -
Income taxes payable 34,886 32,626
Long-term debt - current portion 278,863 205,906
Obligations under capital leases - current portion 2,865 7,925
Deferred lease inducements - current portion 13,776 13,800
Deferred revenue 83,774 99,193
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1,807,609 1,625,253
Long-term debt 209,829 69,549
Obligations under capital leases 2,755 11,575
Deferred lease inducements 55,104 44,849
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2,075,297 1,751,226
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Commitments and contingencies
STOCKHOLDERS' DEFICIENCY
Share capital 4,835 4,835
Authorized - 20,000,000, Par Value $0.001,
Issued - 4,834,906 (2001 - 4,834,906)
Treasury stock (950,131) (950,504)
Additional paid-in capital 4,057,984 4,057,984
Accumulated other comprehensive income 48,466 62,070
Accumulated deficit (3,626,396) (3,370,126)
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(465,242) (195,741)
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$ 1,610,055 $ 1,555,485
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(1) Unaudited
See accompanying notes.
NAVTECH, INC. 2
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)
- --------------------------- ---------- --------- ----------- -------------- ---------- ------------ -------------- ---------------
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 13,604 13,604 $ 13,604
Net earnings 256,270 256,270 256,270
- --------------------------- ---------- --------- ----------- -------------- ---------- ------------ -------------- ---------------
Balances, July 31, 2002 4,834,906 $ 4,835 $4,057,984 $ 62,070 $(950,504) $(3,370,126) $ (195,741) $ 269,874
- --------------------------- ---------- --------- ----------- -------------- ---------- ------------ -------------- ---------------
See accompanying notes.
NAVTECH, INC. 3
NAVTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
---------------- -----------------
Nine Months Ended July 31, 2001 2002
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OPERATING ACTIVITIES
Net earnings (loss) $ (1,187,390) $ 256,270
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation 132,179 120,441
Amortization of goodwill 31,324 8,397
Loss on sale of capital assets 818 19,456
Provision for uncollectable accounts 37,579 19,150
Provision for uncollectable accounts - related parties 299,617 -
Deferred lease inducements (10,630) (10,362)
Changes in operating assets and liabilities
Accounts receivable (116,314) 144,198
Investment tax credits receivable 140,495 6,521
Prepaid expenses and other 7,278 (95,349)
Accounts payable, accrued liabilities and other liabilities 448,735 38,600
Deferred revenue - 15,314
Income taxes payable (173,485) (2,323)
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(389,794) 520,313
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INVESTING ACTIVITIES
Repayment from related party 37,164 -
Purchase of capital assets (72,585) (50,227)
Proceeds from sale of capital assets 819 3,175
Note receivable advanced to related party (200,000) -
Acquisition of Airware Solutions Inc. (49,864) -
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(284,466) (47,052)
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FINANCING ACTIVITIES
Redemption of shares (7,445) (373)
Repayment of factored receivables - (165,994)
Advances from bank line of credit 64,553 -
Issuance of common shares 611,171 -
Repayment of bank loans (74,128) (28,754)
Repayment of loans (284,249) (184,713)
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309,902 (379,834)
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Effect of foreign exchange rates on cash (7,281) 12,796
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Net cash flow (371,639) 106,223
Cash, beginning of period 371,639 22,011
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Cash, end of period $ - $ 128,234
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Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ (82,174) $ (69,327)
Cash paid during the period for income taxes $ - $ -
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See accompanying notes.
NAVTECH, INC. 4
NAVTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NAVTECH, INC.
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". We can be reached at (519) 747-1170 for
investor information.
We develop, market and support flight operations management systems for the
aviation industry. Our solutions are designed to reduce costs, improve safety
and maximize operations effectiveness in the critical areas of flight planning
and control, runway analysis, weather, aeronautical bulletins, weight and
balance, and crew management. Together with our strategic partners, we offer a
complete airline operations solution including flight dispatch, commercial
planning, operations control, crew management, and ground operations. Our focus
is the mid-size commercial passenger and cargo air carriers. However, through
selective agreements to serve non-core markets, our solutions are now used by
major airlines, corporate and general aviation and government agencies.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated balance sheet as of July 31, 2002, the consolidated statement
of stockholders' equity (deficiency) for the period ended July 31, 2002, the
consolidated statements of operations for the nine and three months ended July
31, 2002 and 2001, and the consolidated statements of cash flows for the nine
months ended July 31, 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 July 31, 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 nine months ended July 31, 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".
NAVTECH, INC. 5
NAVTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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We have adopted the provisions of FAS 141 effective July 1, 2001. We are
required to adopt FAS 142 effective November 1, 2002. Furthermore, any goodwill
and any intangible asset determined to have an indefinite useful life that are
acquired in 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 FAS 142 will have on our financial statements. During the nine months
ended July 31, 2002, the amortization expense associated with goodwill was
$8,397. The balance of goodwill at July 31, 2002 was $90,042.
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:
Nine Months ended July 31, Three Months ended July 31,
---------------------------------------------------------
2001 2002 2001 2002
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Numerator:
Net earnings (loss) (A) $ (1,187,390) $ 256,270 $(585,089) $ 84,550
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Denominator:
Denominator for basic earnings (loss) per share -
weighted average
number of common shares outstanding (B) 3,791,304 4,326,988 4,164,707 4,326,988
Effect of dilutive securities:
Employee stock options and warrants - 37,500 - 37,500
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Denominator for diluted earnings (loss) per share -
adjusted weighted
average number of common shares outstanding (C) 3,791,304 4,364,488 4,164,707 4,364,488
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Earnings (loss) per share - basic (A)/(B) $ (0.31) $ 0.06 $ (0.14) $ 0.02
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Earnings (loss) per share - diluted (A)/(C) $ (0.31) $ 0.06 $ (0.14) $ 0.02
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Dilutive securities consist of employee stock options and warrants. Specific
employee stock options and warrants are excluded if their effect is
antidilutive.
NAVTECH, INC. 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 July 31, 2002.
COMPARATIVE FIGURES
Certain accounts for the comparative period have been reclassified to conform to
the presentation adopted in the current year.
NAVTECH, INC. 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
publicly 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 $4.3 million for the nine months
ended July 31, 2002, as compared to approximately $4.7 million for the nine
months ended July 31, 2001, a decrease of approximately 9%, or $410,000. This
decrease is primarily due to the loss of revenues of approximately $477,000 from
one-time customers or customers who terminated our services during prior
quarters. Also, we lost revenues of approximately $366,000 from customers who
ceased operations in the past year. These decreases were offset by an increase
in revenues from existing customers of approximately $111,000 and the addition
of new customers that contributed approximately $322,000 of additional revenue.
Included in the decrease from one-time customers was approximately $222,000
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 nine
months ended July 31, 2002 as compared to nil during the nine months ended July
31, 2001. We completed a sale of Airware's CLASS preferential bidding system in
the nine months ended July 31, 2002 compared with no license sales in the nine
months ended July 31, 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.
Costs and expenses
Cost of service fees decreased approximately 17%, or $510,000, from
approximately $3.0 million for the nine months ended July 31, 2001 to
approximately $2.6 million for the nine months ended July 31, 2002. This change
is primarily attributable to a decrease in salaries and benefits of
approximately $367,000, a decrease in communications costs of approximately
$180,000, and a decrease in facilities costs of approximately $46,000.
Offsetting these decreases was an increase in royalties of approximately $57,000
and an increase in expenses for agents used in operations of approximately
$25,000.
NAVTECH, INC. 8
NAVTECH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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The decrease in salaries and benefits is due both to the staff reductions made
in the fourth quarter of 2001, and staff time devoted to the implementation of
the CLASS system sold in the nine months ended July 31, 2002. The decrease in
communication costs was achieved through the renegotiation of contracts with our
largest supplier and the elimination of duplication in certain network services.
We decreased the number of our facilities during 2002, from six at July 31, 2001
to three at July 31, 2002. We also decreased the space rented in current
facilities. Royalties are due on revenues generated by an operating partner. The
increase in royalties in the nine months ended July 31, 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 nine months
ended July 31, 2002 as compared to nil during the nine months ended July 31,
2001. We completed the sale of Airware's CLASS bidding system in the nine months
ended July 31, 2002 compared with no license sales in the nine months ended July
31, 2001. Cost of software license fees consist primarily of installation time
and related travel expenses.
Research and development expenses decreased approximately 29%, or approximately
$70,000, from approximately $238,000 for the nine months ended July 31, 2001 to
approximately $168,000 for the nine months ended July 31, 2002. This decrease is
due primarily to the suspension of one major development project that employed
five people in 2001. However, we are committed to increase research and
development spending in future quarters to improve the functionality of our
products and address our customers' needs (see "Plan of Operation - Research and
Development" below).
Sales and marketing expenses decreased approximately 49%, or approximately
$493,000, from approximately $1,012,000 for the nine months ended July 31, 2001
to approximately $519,000 for the nine months ended July 31, 2002. This decrease
is attributable to a decrease in salaries and benefits of approximately
$257,000, a decrease in marketing expenses of approximately $131,000 and a
decrease in travel costs of approximately $105,000.
The decrease in salaries and benefits and travel expenses is due to the staff
reductions made in the fourth quarter of 2001. As planned, marketing expenses
decreased in the nine months ended July 31, 2002 as we discontinued certain
marketing initiatives that were active in the nine months ended July 31, 2001.
However, these initiatives are expected to increase in future quarters in order
to market the functionality improvements currently being developed and as the
capital spending in the market continues to increase (see "Plan of Operations -
Marking Initiatives" below).
General and administrative expenses decreased approximately 30%, or
approximately $401,000, from approximately $1,357,000 for the nine months ended
July 31, 2001 to approximately $956,000 for the nine months ended July 31, 2002.
This decrease is due primarily to a decrease in corporate travel costs of
approximately $317,000, a decrease in professional fees of approximately
$115,000, a decrease in salaries and wages of approximately $15,000 and a net
decrease in other general and administrative expenses of approximately $10,000.
Offsetting these decreases was an increase in bad debts of approximately $19,000
and an increase in insurance costs of approximately $38,000.
Our travel expenses have decreased significantly as we reduced the number of
corporate trips required for our operations. Professional fees have decreased in
the nine months ended July 31, 2002 due to the volume of work required in the
acquisition of Airware last year. Bad debts increased in the nine months ended
July 31, 2002 due to the bankruptcy of three customers. However, a recovery of
these bad debts was experienced in the third quarter when the expected loss on
one account was reduced by approximately $24,000. Insurance expenses increased
as anticipated due to higher premiums charged in our industry after September
11, 2001.
NAVTECH, INC. 9
NAVTECH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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Provision for bad debts - related parties
During the nine months ended July 31, 2001, we recorded a provision of $270,000
on monies owed to us from Easy Flying, S.A., a related party. $170,000 of the
provision pertained to a $200,000 note receivable advanced to Easy Flying, S.A.
and the remaining $100,000 pertained to services rendered. Also during the nine
months ended July 31, 2001, a provision of $30,000 was made on monies owed from
Global Weather Dynamics, Inc., a related party, pertaining to services rendered.
Provision for income taxes
During the third quarter of this year, we received a refund of taxes pertaining
to the additional application of losses incurred in 2001 to taxable income
earned in Ontario, Canada in 1999. This created a recovery of taxes in 2002
since this recovery was not recorded in prior years.
We have not recorded a provision for income taxes on net earnings of
approximately $256,000 for the nine months ended July 31, 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 $256,000 for the nine months ended July 31, 2002 as compared to a
net loss of approximately $1,187,000 for the nine months ended July 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 2002, our available funds consisted of $128,234 in cash. At July
31, 2002, we had a working capital deficiency of $673,206 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 $520,313, primarily
based on the net earnings for the quarter, the adjustment for non-cash items of
approximately $157,000, a net decrease in operating assets of approximately
$55,000 and an increase in operating liabilities of approximately $52,000.
Cash flows from investing activities for the nine months ended July 31, 2002
represent a net outflow of $47,052, primarily due to the purchase of capital
assets.
Cash flows from financing activities for the nine months ended July 31, 2002
represent a net outflow of $379,834, primarily due to repayments of existing
bank loans of approximately $29,000, repayments of other loans of approximately
$185,000 and repayments of outstanding factored accounts receivable of
approximately $166,000.
As of July 31, 2002, we had no significant capital commitments.
PLAN OF OPERATION
Beginning in the fourth quarter of 2001, we implemented a plan to reduce our
working capital deficiency. Our operating results for the nine months ended July
31, 2002 show that we have achieved the desired reduction in operating costs
through the implementation of this plan, as total operating costs decreased by
approximately $1.7 million for the nine months ended July 31, 2002 compared to
the nine months ended July 31, 2001. In addition, we improved the cash provided
by our operations by approximately $910,000 in the nine months ended July 31,
2002 compared to the nine months ended July 31, 2001.
The success of the above mentioned plan also allowed us to reduce our working
capital deficiency by approximately $227,000 by July 31, 2002 to a deficiency of
$673,206. While the continued success of our operations will aid in reducing the
NAVTECH, INC. 10
NAVTECH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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deficiency further, we intend to execute on the following initiatives in future
quarters with the goal of eliminating the deficiency.
Financing Initiatives
Equity
We anticipate that we will need to raise additional equity 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.
Bank Financing
On the strength of three straight quarters of profitability, we will attempt to
secure an operating line of credit. This will enable us to have access to
working capital if required and will provide less expensive financing than our
current accounts receivable factoring facility. In the interim, we still have an
authorized facility for accounts receivable factoring up to approximately
$220,000 that was not drawn upon at July 31, 2002.
Operating Initiatives
Research and Development
In order to maintain the competitiveness of our products and to address other
markets, we intend to allocate additional capital as well as employ a greater
proportion of existing capital in research and development. This will allow us
to maintain our current customer base and attract new customers. It is
anticipated that we can finance these initiatives with the cash provided by our
operations and through government research and development funding initiatives.
Marketing Initiatives
We need to increase our marketing initiatives in future quarters to improve our
exposure. While we have been successful in generating revenues from new
customers in 2002, we need to increase our efforts to provide exposure in new
geographic regions and for new functionality developed in our products. It is
anticipated that we can finance these initiatives with the cash provided by our
operations.
Other
We also intend to seek to expand our operations, both geographically and in
functionality through acquisitions. Any acquisition opportunities would be
considered only in conjunction with equity or debt financing raised specifically
for the purposes of acquisition.
While we have reduced or eliminated many operating expenses in the nine months
ended July 31, 2002, we will continue to identify additional areas for cost
reductions without sacrificing the services we provide to our customers.
NAVTECH, INC. 11
Part II. Other Information
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 July
31, 2002.
Items 1 through 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.
NAVTECH, INC. 12
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: September 12, 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)
NAVTECH, INC. 13
CERTIFICATIONS
I, David Strucke, President, Chief Executive Officer and Chief Financial Officer
of Navtech, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Navtech, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 12, 2002 /s/ David Strucke
-----------------------
David Strucke
President, Chief Executive Officer
and Chief Financial Officer