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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 2003
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to ____
------------
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, Suite 207, Monterey, California 93940
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (519) 747-1170
N/A
(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court.
Yes |_| No |_|
The number of shares outstanding of the issuer's common stock as of
May 31, 2003 was 4,226,988 shares.
Transitional Small Business Disclosure Format. Yes |_| No |X|
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NAVTECH, INC.
FORM 10-QSB
For the Quarter Ended April 30, 2003
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, 2003 and 2002............................... 1
b) Consolidated Balance Sheets as of April 30, 2003 and October 31, 2002....... 2
c) Consolidated Statements of Stockholders' Equity for the Six Months
ended April 30, 2003......................................................... 3
d) Consolidated Statements of Cash Flow for the Six Months Ended
April 30, 2003 and 2002...................................................... 4
e) Notes to Consolidated Financial Statements................................... 5
Item 2. Management's Discussion and Analysis or Plan of Operation...................... 8
Item 3. Controls and Procedures........................................................ 11
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders............................ 12
Item 6. Exhibits and Reports on Form 8-K............................................... 12
Signatures....................................................................................... 13
Part I. Financial Information
Item 1. Financial Statements
NAVTECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In US Dollars)
(Unaudited)
------------------------------------------------------------
Six Months Ended Three Months Ended
April 30 April 30
2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
REVENUE
Service fees $ 3,194,319 $ 2,873,049 $ 1,653,991 $ 1,460,938
Software license fees 63,000 226,311 - -
- -------------------------------------------------------------------------------------------------------------------------
Total revenue $ 3,257,319 $ 3,099,360 $ 1,653,991 $ 1,460,938
- -------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of service fees 1,830,360 1,605,302 1,011,221 829,932
Cost of software license fees 1,500 49,243 - -
Research and development 259,590 85,428 101,192 27,024
Sales and marketing 492,362 379,303 253,331 198,886
General and administrative 533,837 725,179 254,887 269,987
Recovery of bad debt - related party (159,361) - (159,361) -
Amortization of goodwill - 5,598 - 2,799
- -------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 2,958,298 2,850,053 1,461,280 1,328,628
- -------------------------------------------------------------------------------------------------------------------------
Income from operations 299,021 249,307 192,711 132,310
- -------------------------------------------------------------------------------------------------------------------------
Other income (expense)
Interest revenue 340 2,185 340 1,358
Interest expense (32,031) (79,772) (14,131) (33,785)
- -------------------------------------------------------------------------------------------------------------------------
(31,691) (77,587) (13,791) (32,427)
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 267,330 171,720 178,920 99,983
Income taxes recovery (23,315) - (24,115) -
- -------------------------------------------------------------------------------------------------------------------------
Net earnings $ 290,645 $ 171,720 $ 203,035 $ 99,983
- -------------------------------------------------------------------------------------------------------------------------
Net earnings per share
Basic $ 0.07 $ 0.04 $ 0.05 $ 0.02
Diluted $ 0.06 $ 0.04 $ 0.04 $ 0.02
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
- --------------------------------------------------------------------------------
NAVTECH, INC. 1
NAVTECH, INC.
CONSOLIDATED BALANCE SHEETS
(In US Dollars)
----------------- ----------------
April 30, October 31,
2003(1) 2002
- -------------------------------------------------------------------------------- ----------------- ----------------
ASSETS
Current assets
Cash $ 142,424 $ 207,610
Accounts receivable (net of allowance for bad debts of $94,919;
2002 - $95,372) 614,217 527,667
Investment tax credits receivable 46,286 10,308
Prepaid expenses and other 215,551 84,819
- -------------------------------------------------------------------------------- ----------------- ----------------
1,018,478 829,404
Capital assets 540,530 466,148
- -------------------------------------------------------------------------------- ----------------- ----------------
$ 1,559,008 $ 1,295,552
================================================================================ ================= ================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 1,062,401 $ 1,025,236
Long-term debt - current portion 103,226 182,788
Obligations under capital lease - current portion 30,746 7,678
Deferred lease inducements - current portion 15,168 13,883
Deferred revenue 24,500 63,902
- -------------------------------------------------------------------------------- ----------------- ----------------
1,236,041 1,293,487
Long-term debt 15,588 27,991
Obligations under capital lease 53,315 10,060
Deferred lease inducements 37,919 41,647
- -------------------------------------------------------------------------------- ----------------- ----------------
1,342,863 1,373,185
- -------------------------------------------------------------------------------- ----------------- ----------------
Commitments and contingencies
STOCKHOLDERS' EQUITY (DEFICIENCY)
Share capital 4,835 4,835
Authorized - 20,000,000, Par Value $0.001,
Issued - 4,834,906 (2002 - 4,834,906)
Treasury stock (608) (608)
Additional paid-in capital 3,078,088 3,078,088
Accumulated other comprehensive income 60,257 57,124
Accumulated deficit (2,926,427) (3,217,072)
- -------------------------------------------------------------------------------- ----------------- ----------------
216,145 (77,633)
- -------------------------------------------------------------------------------- ----------------- ----------------
$ 1,559,008 $ 1,295,552
================================================================================ ================= ================
(1) Unaudited
See accompanying notes.
- --------------------------------------------------------------------------------
NAVTECH, INC. 2
NAVTECH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In US Dollars)
Accumulated Total
Share Capital Additional Other Stockholders' Total
---------- --------- Paid-In Comprehensive Treasury Accumulated Equity/ Comprehensive
Shares Amount Capital Income Stock Deficit (Deficiency) Income
- ---------------------------- ---------- --------- ------------- ------------- -------- ------------ -------------- -------------
Balances, October 31, 2001 4,834,906 $ 4,835 $ 3,108,361 $ 48,466 $ (508) $(3,626,396) $ (465,242)
Treasury shares (30,273) (100) (30,373)
Translation adjustments 8,658 8,658 $ 8,658
Net earnings 409,324 409,324 409,324
- ---------------------------- ---------- --------- ------------- ------------- --------- ------------ ------------- -------------
Balances, October 31, 2002 4,834,906 $ 4,835 $ 3,078,088 $ 57,124 $ (608) $(3,217,072) $ (77,633) $ 417,982
- ---------------------------- ---------- --------- ------------- ------------- --------- ------------ ------------- -------------
Translation adjustments 3,133 3,133 $ 3,133
Net earnings 290,645 290,645 290,645
- ---------------------------- ---------- --------- ------------- ------------- --------- ------------ ------------- -------------
Balances, April 30, 2003 (1) 4,834,906 $ 4,835 $ 3,078,088 $ 60,257 $ (608) $(2,926,427) $ 216,145 $ 293,778
- ---------------------------- ---------- --------- ------------- ------------- --------- ------------ ------------- -------------
(1) (unaudited)
See accompanying notes.
- --------------------------------------------------------------------------------
NAVTECH, INC. 3
NAVTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In US Dollars)
(Unaudited)
---------------- -----------------
Six Months Ended April 30, 2003 2002
- ----------------------------------------------------------------------- ---------------- -----------------
OPERATING ACTIVITIES
Net earnings $ 290,645 $ 171,720
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 79,644 79,802
Amortization of goodwill - 5,598
Loss on sale of capital assets - 26,381
Provision for uncollectable accounts (2,168) 37,800
Provision for bad debt - related party (159,351) -
Deferred lease inducements (7,158) (6,839)
Changes in operating assets and liabilities
Accounts receivable 98,268 97,164
Investment tax credits receivable (33,869) -
Prepaid expenses and other (128,494) (129,852)
Accounts payable, accrued liabilities and other liabilities (14,236) 89,223
Deferred revenue (42,771) (34,999)
Income taxes payable - 15,727
- ----------------------------------------------------------------------- ---------------- -----------------
80,510 351,725
- ----------------------------------------------------------------------- ---------------- -----------------
INVESTING ACTIVITIES
Purchase of capital assets (53,421) (8,519)
Proceeds from sale of capital assets - 2,408
- ----------------------------------------------------------------------- ---------------- -----------------
(53,421) (6,111)
- ----------------------------------------------------------------------- ---------------- -----------------
FINANCING ACTIVITIES
Redemption of shares - (373)
Repayment of factored receivables - (164,328)
Repayment of capital leases (11,154) (1,721)
Repayment of bank loans (16,789) (19,815)
Repayment of loans (79,353) (121,670)
- ----------------------------------------------------------------------- ---------------- -----------------
(107,296) (307,907)
- ----------------------------------------------------------------------- ---------------- -----------------
Effect of foreign exchange rates on cash 15,021 11,745
- ----------------------------------------------------------------------- ---------------- -----------------
Net cash flow (65,186) 49,452
Cash, beginning of period 207,610 22,011
- ----------------------------------------------------------------------- ---------------- -----------------
Cash, end of period $ 142,424 $ 71,463
- ----------------------------------------------------------------------- ---------------- -----------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ (32,635) $ (52,892)
Cash paid during the period for income taxes $ (10,305) $ -
Assets acquired through capital leases $ 72,198 $ 10,244
- ----------------------------------------------------------------------- ---------------- -----------------
See accompanying notes.
- --------------------------------------------------------------------------------
NAVTECH, INC. 4
NAVTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
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. When we refer to Navtech, we are speaking of
Navtech-US and its subsidiaries.
The address of our principal executive office is 2340 Garden Road, Suite 207,
Monterey, CA 93940. Our principal operations are based at 175 Columbia Street
West, Suite 102, Waterloo, Ontario, Canada, N2L 5Z5. We maintain a website at
www.navtechinc.com. Our common stock is publicly traded on the NASD OTC
Electronic Bulletin Board under the symbol "NAVH". For investor information, we
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, 2003, the consolidated statements
of operations for the six and three month ended April 30, 2003, the consolidated
statements of cash flows for the six months ended April 30, 2003 and 2002 and
the consolidated statement of stockholders' equity for the six months ended
April 30, 2003, 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, 2003, 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 and Navtech-UK. All material
inter-company 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 shareholders' 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, 2002.
Results of operations for the six months ended April 30, 2003 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 that 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 adopted the provisions of FAS 141 effective July 1, 2001 and FAS 142
effective November 1, 2002. There were no intangible assets recorded as of
November 1, 2002. Consequently, the adoption of FAS 142 has had no material
impact on the financial statements for the six months ended April 30, 2003.
- --------------------------------------------------------------------------------
NAVTECH, INC. 5
NAVTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
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. We adopted the provisions
of FAS 144 effective November 1, 2002. FAS 144 had no material impact on the
financial statements for the period ended April 30, 2003.
In December 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 requires that upon issuance of a
guarantee, the guarantor must disclose and recognize a liability for the fair
value of the obligation it assumes under that guarantee. The initial recognition
and measurement requirement of FIN 45 is effective for guarantees issued or
modified after December 31, 2002. As of April 30, 2003, we had not issued or
modified any guarantees after December 31, 2002. The disclosure requirements of
FIN 45 are effective for interim and annual periods ending after December 15,
2002. Our guarantees issued before December 31, 2002, which would have been
disclosed in accordance with the disclosure requirements of FIN 45, were not
material.
Prior to fiscal 2003, Navtech, as permitted under SFAS No. 123 "Accounting for
Stock-based Compensation" (SFAS 123), applied APB No. 25 "Accounting for Stock
Issued to Employees" (APB 25), and related interpretations in accounting for its
stock-based compensation plans. SFAS 123 required disclosure of pro forma
amounts to reflect the impact if we had elected to adopt the optional
recognition provisions of SFAS 123 for its stock option plans.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment to FASB Statement No.
123" (SFAS 148). SFAS 148 requires expanded and more prominent presentation of
the pro forma disclosures previously required by SFAS 123. The new presentation
is required for financial statements for fiscal years ending after December 15,
2002. We have adopted the provisions of SFAS 148 effective November 1, 2002. We
have determined that SFAS 148 will have no material impact on our future
financial statements. We have elected to continue to follow the intrinsic value
method of APB 25 in accounting for stock-based compensation.
SFAS 148 also required quarterly disclosure of the impact of stock-based awards
as if the awards had been accounted for using fair-value methods. Had we applied
the fair value based method to all stock-based awards, reported net earnings and
earnings per share would have decreased to the pro forma amounts indicated below
for each of the six months ended:
- ----------------------------------------- ------------------ ----------------
April 30, 2003 April 30, 2002
- ----------------------------------------- ------------------ ----------------
Net earnings - reported $ 290,645 $ 171,720
Pro forma stock-based compensation 48,865 49,929
- ----------------------------------------- ------------------ ----------------
Net earnings - pro forma $ 241,780 $ 121,791
- ----------------------------------------- ------------------ ----------------
Basic earnings per share - reported $ 0.07 $ 0.04
Diluted earnings per share - reported $ 0.06 $ 0.04
Pro forma stock-based compensation (0.01) (0.01)
- ----------------------------------------- ------------------ ----------------
Basic earnings per share - pro forma $ 0.06 $ 0.03
Diluted earnings per share - pro forma $ 0.05 $ 0.03
- ----------------------------------------- ------------------ ----------------
The fair value of stock options used to compute the pro forma net earnings and
earnings per share was the estimated fair value at grant date using the
Black-Scholes option-pricing model with the following weighted average
assumptions for each of the six months ended:
- --------------------------------------------------------------------------------
NAVTECH, INC. 6
NAVTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------- ------------------ -----------------
April 30, 2003 April 30, 2002
- ------------------------------------------------------------- ------------------ -----------------
Black-Scholes weighted-average assumptions
Expected dividend 0.00% 0.00%
Expected volatility 206.33% 210.64%
Risk-free interest rate 4% 4%
Expected option life in years 4 4
Weighted average stock option fair value option granted $ N/A $ 0.27
- ------------------------------------------------------------- ------------------ -----------------
EARNINGS PER SHARE
Basic and diluted earnings per share are calculated as follows:
Six Months ended April 30, Three Months ended April 30,
---------------------------------------------------------
2003 2002 2003 2002
- --------------------------------------------------------------------------------------------------------------------
Numerator:
Net earnings (A) $ 290,645 $ 171,720 $ 203,035 $ 99,883
- --------------------------------------------------------------------------------------------------------------------
Adjustments:
Amortization of goodwill from continuing operations $ - 5,598 $ - 2,799
Net earnings - adjusted (B) $ 290,645 $ 177,318 $ 203,035 $ 102,682
- --------------------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic earnings per share -
weighted average
number of common shares outstanding (C) 4,226,988 4,326,988 4,226,988 4,326,988
Effect of dilutive securities:
Employee stock options and warrants 372,500 441,515 372,500 441,515
- --------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share -
adjusted weighted
average number of common shares outstanding (D) 4,599,488 4,768,503 4,599,488 4,768,503
- --------------------------------------------------------------------------------------------------------------------
Earnings per share - basic (A)/(C) $ 0.07 $ 0.04 $ 0.05 $ 0.02
- --------------------------------------------------------------------------------------------------------------------
Earnings per share - diluted (A)/(D) $ 0.06 $ 0.04 $ 0.04 $ 0.02
- --------------------------------------------------------------------------------------------------------------------
Adjusted earnings per share - basic (B)/(C) $ 0.07 $ 0.04 $ 0.05 $ 0.02
- --------------------------------------------------------------------------------------------------------------------
Adjusted earning per share - diluted (B)/(D) $ 0.06 $ 0.04 $ 0.04 $ 0.02
- --------------------------------------------------------------------------------------------------------------------
Dilutive securities consist of employee stock options and warrants. Specific
employee stock options and warrants are excluded if their effect is
antidilutive.
Adjusted earnings per share reflects the earnings per share that would have been
realized had we not amortized the goodwill from continuing operations in the
three and six month prior periods.
COMMITMENTS AND CONTINGENCIES
There were no significant commitments or contingent liabilities as at April 30,
2003.
COMPARATIVE FIGURES
Certain accounts for the comparative period have been reclassified to conform
with the presentation adopted in the current year.
- --------------------------------------------------------------------------------
NAVTECH, INC. 7
NAVTECH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
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 $3.2 million for the six months
ended April 30, 2003, compared with approximately $2.9 million for the six
months ended April 30, 2002, an increase of approximately 10%. The increase in
service fees in 2003 was primarily due to an increase in fees from existing
customers of approximately $153,000 and an increase in fees from new customers
of approximately $446,000. These increases were offset by the loss in fees of
approximately $128,000 from customers who ceased operations in prior quarters
and the loss of revenue totaling approximately $150,000 from one-time customers
in 2002 and customers who ceased using our services in prior quarters.
Revenue from software license fees was approximately $63,000 for the six months
ended April 30, 2003 as compared to $226,000 during the six months ended April
30, 2002. In the six months ended April 30, 2003, we completed a license sale of
our FINS Weather and NOTAM's system, while in the six months ended April 30,
2002, we completed a license sale of our CLASS preferential bidding system.
Costs and expenses
Cost of services
- ----------------------------- ---------------- -------------- ----------------
2003 2002 Percentage
Change
- ----------------------------- ---------------- -------------- ----------------
Salaries and benefits $ 1,136 $ 901 26
Communication costs 363 347 5
Agent costs 2 36 (93)
Rent 102 134 (23)
Royalties 73 61 21
Depreciation 58 56 4
Other 95 71 35
- ----------------------------- ---------------- -------------- ----------------
$ 1,830 1,605 14
- ----------------------------- ---------------- -------------- ----------------
- --------------------------------------------------------------------------------
NAVTECH, INC. 8
NAVTECH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
The increase in salaries and benefits is due to an increase in headcount
completed in the fourth quarter of 2002. Specifically, we created a new quality
assurance department comprised of four full-time equivalents and we hired a new
Vice President of Operations in fiscal 2002. Communications costs increased due
to the addition of new customers during fiscal 2003 (see "Revenues") and
increases in our Port and PVC charges on frame relay circuits in the past year.
Specifically, new customers in Europe have contributed to higher communications
costs per customer due to generally higher communications costs in Europe.
Royalties increased due to the increase in Aircraft Performance service fees in
the six months ended April 30, 2003. We currently pay a royalty for the use of
some of the products used to generate these revenues. The cost of facilities was
lower in the six months ended April 30, 2003 following the closures of our
facilities in Ottawa, Canada and Montreal, Canada in the third quarter of fiscal
2002. The fees charged by our agents decreased due to the variable nature of
these charges. Fees are incurred based on the flight requests of some of our
European and African customers and the cost of these services depend on the
requests received and the services provided during the period. No further
significant increases in the cost of our services are expected in future
quarters without changing the current structure of our operations. With respect
to the royalties incurred, these costs are expected to increase in conjunction
with increases in revenues from specific services and products, namely V1PlusTM
and CGProTM.
Cost of software license fees was approximately $1,500 for the six months ended
April 30, 2003 as compared to approximately $49,000 during the six months ended
April 30, 2002. In the six months ended April 30, 2003, we completed a license
sale of our FINS Weather and NOTAM's system, while in the six months ended April
30, 2002, we completed a license sale of our CLASS preferential bidding system.
The cost of the CLASS installation was much higher than the FINS Weather and
NOTAM's system given the greater complexity and customization of the system.
Cost of software license fees consist primarily of installation time and related
travel expenses.
Research and development expenditures increased approximately $175,000, or
approximately 204%, from approximately $85,000 for the six months ended April
30, 2002 to approximately $260,000 for the six months ended April 30, 2003. This
increase is due to our commitment to invest more in strategic research and
development activities in fiscal 2003 in order to enhance the functionality of
our current suite of products. In addition to an increase in headcount during
fiscal 2002, including the addition of a new Vice President of Software
Development, we also allocated more existing development staff to strategic
activities during the six months ended April 30, 2003. Our investment in
strategic research and development is expected to increase in future quarters as
we continue to add to our development team. However, these increases are
dependent on our ability to maintain future profitability.
Sales and marketing expenses
- ----------------------------- ---------------- -------------- ----------------
2003 2002 Percentage
Change
- ----------------------------- ---------------- -------------- ----------------
Salaries and benefits $ 350 $ 297 29
Marketing expenses 62 44 49
Travel 66 38 73
Other 14 -
- ----------------------------- ---------------- -------------- ----------------
$ 524 379 38
- ----------------------------- ---------------- -------------- ----------------
The increase in salaries and benefits is due to the addition of one sales person
in the fourth quarter of 2002 and higher commissions earned in the six months
ended April 30, 2003 (based on revenue from new customers added in recent
months). The increase in sales travel is consistent with the increase in sales
force as well as an increase in the number of opportunities currently being
pursued. Other expenses consist of training for our sales force and account
managers. Our investment in our sales force and account management team is
expected to increase in future quarters as a result of the number of
opportunities currently being pursued. However, these increases are dependent on
our ability to maintain, develop, and turnover our current sales funnel.
- --------------------------------------------------------------------------------
NAVTECH, INC. 9
NAVTECH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
General and administrative expenses
- ----------------------------- ---------------- -------------- ----------------
2003 2002 Percentage
Change
- ----------------------------- ---------------- -------------- ----------------
Salaries and benefits $ 162 $ 333 (52)
Insurance 95 60 60
Professional fees 86 73 18
Provision for bad debts 44 100 (56)
Losses on foreign exchange 46 13 254
Other 101 146 (31)
- ----------------------------- ---------------- -------------- ----------------
$ 534 726 (26)
- ----------------------------- ---------------- -------------- ----------------
The decrease in salaries and benefits as well as the related corporate travel
costs is due to the departure of our former CEO in the six months ended April
30, 2002. Bad debts expense during the six months ended April 30, 2002 reflected
the loss of customers following the events of September 11, 2001. In contrast,
our current portfolio of customers remained strong in the six months ended April
30, 2003. The increase in insurance expenses in the six months ended April 30,
2003 is due to increases in business insurance following September 11, 2001. The
current year's policies commenced in the second quarter of fiscal 2003. Based on
our premiums for the current policy year, it is estimated that this expense will
increase as much as 20% for the remainder of the fiscal year. We incurred
greater losses on translation of foreign currency in the six months ended April
30, 2003 due to the weakened U.S. Dollar in recent months. This trend is
expected to continue into the next quarter.
Recovery of bad debt - related party
In March 2003, we received $160,000 from Global Weather Dynamics, Inc., a
related party. A 100% provision was made on this receivable during fiscal 2002.
Therefore, the provision on this receivable was reversed for the full amount
received. Global Weather Dynamics, Inc. still owes us approximately $50,000. We
fully intend to pursue the collection of this amount; however, all amounts owed
are fully provided for in our financial statements at April 30, 2003.
Recovery of Income Taxes
The estimated recovery of approximately $23,000 during the six months ending
April 30, 2003 is due primarily to tax credits filed for research and
development activities performed in Canada during fiscal 2001. While the
majority of these credits are non-refundable, the value of the refundable tax
credits were accrued during the six months ended April 30, 2003. The refundable
tax credits were earned in two jurisdictions and the amount accrued was 75% of
the amount applied for in one jurisdiction and 90% in the other in the event
that some of the credits are disallowed prior to the completion of the
assessment.
Net earnings
The unaudited consolidated financial statements reflect net earnings of
approximately $291,000 for the six months ended April 30, 2003 as compared to
net earnings of approximately $172,000 for the six months ended April 30, 2002.
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NAVTECH, INC. 10
NAVTECH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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Liquidity and Capital Resources
As of April 30, 2003, our available funds consisted of $142,424 in cash. At
April 30, 2003, we had a working capital deficiency of $217,563 as compared to a
working capital deficiency of $464,083 as at October 31, 2002. It is anticipated
that, based on our current cost structure, we will be able to eliminate our
working capital deficiency from operating cash flow during fiscal year 2003.
Cash flows from operations for the six months ended April 30, 2003 accounted for
a net inflow of $80,510, primarily based on the net earnings for the period,
offset by the adjustment for non-cash items of approximately $90,000, a net
increase in operating assets of approximately $64,000 and a decrease of
approximately $57,000 in operating liabilities.
Cash flows from investing activities for the six months ended April 30, 2003
represent a net outflow of $53,421, due to the purchase of capital assets.
Cash flows from financing activities for the six months ended April 30, 2003
represent a net outflow of $107,296, due to repayments of existing loans and
capital leases.
At April 30, 2003, we had no significant capital commitments. However, we may,
from time to time, consider acquisitions of complementary businesses, products
or technologies.
On May 12, 2003, we signed a new banking facility with the Royal Bank of Canada,
for an operating line of credit. This facility is secured by an assignment of
Navtech-Canada's trade accounts receivable. Initially, the maximum credit
extended will be approximately $91,000, but may increase to a maximum of
approximately $209,000 with the improvement of certain financial statement
ratios. This facility will replace the current accounts receivable factoring
facility. At April 30, 2003, we were in compliance with all covenants.
Item 3. Controls and Procedures
Within 90 days prior to the filing date of this report, our Chief Executive
Officer and Chief Financial Officer conducted an evaluation of the effectiveness
of our disclosure controls and procedures. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in alerting him in a timely manner to
material information required to be included in our SEC reports. In addition,
our Chief Executive Officer and Chief Financial Officer reviewed our internal
controls, and there have been no significant changes in our internal controls or
in other factors that could significantly affect those controls subsequent to
the date of our last evaluation.
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NAVTECH, INC. 11
NAVTECH, INC.
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Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Our Annual Meeting of Shareholders was held on April 29, 2003. 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 2,238,047 1,340
Thomas D. Beynon 2,220,183 19,204
Michael Jakobowski 2,239,047 340
Michael Ueltzen 2,220,501 18,886
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)
99 Certificate of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
We did not file any Current Reports on Form 8-K during the quarter ended
April 30, 2003.
Items 1 through 3, and Item 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.
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NAVTECH, INC. 12
NAVTECH, INC.
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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: June 9, 2003 By: /s/ David Strucke
---------------------------------------
David Strucke
Chief Executive Officer
(Principal Executive Officer, Principal
Financial Officer, Principal
Accounting Officer, and Duly
Authorized Officer)
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NAVTECH, INC. 13
NAVTECH, INC.
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Certification
I, David Strucke, 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;
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;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 9, 2003
/s/ David Strucke
-------------------
David Strucke
Chief Executive Officer and
Chief Financial Officer
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NAVTECH, INC. 14