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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, 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 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 August 31,
2003 was 4,229,488 shares.
Transitional Small Business Disclosure Format. Yes [ ] No [ ]
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NAVTECH, INC.
FORM 10-QSB
For the Quarter Ended July 31, 2003
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, 2003 and 2002........................ 1
b) Consolidated Balance Sheets as of July 31, 2003 and October 31, 2002. 2
c) Consolidated Statement of Stockholders' Equity for the Nine Months
ended July 31, 2003.................................................. 3
d) Consolidated Statements of Cash Flow for the Nine Months Ended
July 31, 2003 and 2002............................................... 4
e) Notes to Consolidated Financial Statements........................... 5
Item 2. Management's Discussion and Analysis or Plan of Operation.......... 9
Item 3. Controls and Procedures............................................ 13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.................................. 14
Signatures.................................................................. 15
Part I. Financial Information
Item 1. Financial Statements
NAVTECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In US Dollars)
(Unaudited)
------------------------------------------------------------
Nine Months Ended Three Months Ended
July 31 July 31
2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
REVENUE
Service fees $5,036,677 $4,338,216 $1,842,358 $1,465,167
Software license fees 63,000 226,311 - -
- -------------------------------------------------------------------------------------------------------------------------
Total revenue 5,099,677 4,564,527 1,842,358 1,465,167
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COSTS AND EXPENSES
Cost of service fees 2,876,584 2,529,209 1,046,224 911,406
Cost of software license fees 1,500 49,243 - -
Research and development 377,811 167,715 118,221 82,287
Sales and marketing 773,091 519,251 280,729 139,948
General and administrative 890,783 956,252 356,946 243,574
Recovery of bad debt - related party (159,351) - - -
Amortization of goodwill - 8,397 - 2,799
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Total costs and expenses 4,760,418 4,230,067 1,802,120 1,380,014
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- -------------------------------------------------------------------------------------------------------------------------
Income from operations 339,258 334,460 40,237 85,153
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Other income (expense)
Interest revenue 10,267 3,858 10,207 1,673
Interest expense (47,944) (95,146) (16,193) (15,374)
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(37,677) (91,288) (5,986) (13,701)
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Income before income taxes 301,581 243,172 34,251 71,452
Income taxes recovery (42,110) (13,098) (18,795) (13,098)
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Net earnings $ 343,691 $ 256,270 $ 53,046 $ 84,550
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Net earnings per share
Basic $ 0.08 $ 0.06 $ 0.01 $ 0.02
Diluted $ 0.06 $ 0.06 $ 0.01 $ 0.02
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See accompanying notes.
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NAVTECH, INC. 1
NAVTECH, INC.
CONSOLIDATED BALANCE SHEETS
(In US Dollars)
----------------------------------
July 31, October 31,
2003(1) 2002
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 116,746 $ 207,610
Accounts receivable (net of allowance for bad debts of $149,458; 914,011 824,561
2002 - $95,372)
Investment tax credits receivable 66,402 10,308
Prepaid expenses and other 161,007 84,819
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1,258,166 1,127,298
Capital assets 514,313 466,148
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$ 1,772,479 $ 1,593,446
====================================================================================================================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 920,100 $ 1,025,236
Deferred revenue 378,491 361,796
Long-term debt - current portion 60,036 182,788
Obligations under capital lease - current portion 31,036 7,678
Deferred lease inducements - current portion 15,477 13,883
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1,405,140 1,591,381
Long-term debt 11,679 27,991
Obligations under capital lease 46,488 10,060
Deferred lease inducements 34,822 41,647
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1,498,129 1,671,079
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Commitments and contingencies
STOCKHOLDERS' EQUITY (DEFICIENCY)
Share capital 4,837 4,835
Authorized - 20,000,000, Par Value $0.001,
Issued - 4,837,406 (2002 - 4,834,906)
Treasury stock (608) (608)
Additional paid-in capital 3,078,789 3,078,088
Accumulated other comprehensive income 64,713 57,124
Accumulated deficit (2,873,381) (3,217,072)
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274,350 (77,633)
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$ 1,772,479 $ 1,593,446
===================================================================================================================
(1) Unaudited
See accompanying notes.
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NAVTECH, INC. 2
NAVTECH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In US Dollars)
Accumulated Total
Additional Other Stockholders' Total
Issued Share Paid-In Comprehensive Treasury Accumulated Equity/ Comprehensive
Shares Capital 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
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Balances, October 31, 2002 4,834,906 4,835 3,078,088 57,124 (608) (3,217,072) (77,633) 417,982
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Stock options exercised 2,500 2 701 703
Translation adjustments 7,589 7,589 7,589
Net earnings 343,691 343,691 343,691
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Balances, July 31, 2003(1) 4,837,406 $ 4,837 $3,078,789 $ 64,713 $ (608) $(2,873,381) $ 274,350 $ 351,280
- ------------------------------------------------------------------------------------------------------------------------------------
(1) (unaudited)
See accompanying notes.
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NACTECH, INC. 3
NAVTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In US Dollars)
(Unaudited)
--------------------------------
Nine Months Ended July 31, 2003 2002
- --------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 343,691 $ 256,270
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 124,785 120,441
Amortization of goodwill - 8,397
Loss on sale of capital assets - 19,456
Provision for uncollectable accounts 52,491 19,150
Recovery of bad debt - related party (159,351) -
Deferred lease inducements (11,087) (10,362)
Changes in operating assets and liabilities
Accounts receivable 68,705 144,198
Investment tax credits receivable (53,489) 6,521
Prepaid expenses and other (72,194) (95,349)
Accounts payable and accrued liabilities (168,061) 24,723
Deferred revenue (10,960) 15,314
Income taxes payable - (2,323)
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114,530 506,436
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INVESTING ACTIVITIES
Purchase of capital assets (68,081) (33,247)
Proceeds from sale of capital assets - 3,175
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(68,081) (30,072)
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FINANCING ACTIVITIES
Exercise of stock options 703 -
Redemption of shares - (373)
Repayment of factored receivables - (165,994)
Repayment of capital leases (17,039) (3,103)
Repayment of bank loans (26,007) (28,754)
Repayment of loans (118,255) (184,713)
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(160,598) (382,937)
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Effect of foreign exchange rates on cash 23,285 12,796
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Net cash flow (90,864) 106,223
Cash, beginning of period 207,610 22,011
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Cash, end of period $ 116,746 $ 128,234
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Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ (42,137) $ (69,327)
Cash received (paid) during the period for income taxes $ (745) $ 20,524
Assets acquired through capital leases $ 72,198 $ 16,980
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See accompanying notes.
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NAVTECH, INC. 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. 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 July 31, 2003, the consolidated statements
of operations for the nine and three months ended July 31, 2003, the
consolidated statements of cash flows for the nine months ended July 31, 2003
and 2002 and the consolidated statement of stockholders' equity for the nine
months ended July 31, 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 July 31, 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
accumulated in comprehensive income, which is a separate component of equity.
Our deferred revenue includes the value of services invoiced in advance. These
services will be provided in the following quarterly period. At July 31, 2003, a
portion of these invoices remains outstanding.
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 nine months ended July 31, 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. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets".
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NAVTECH, INC. 5
NAVTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
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 had no material impact
on the financial statements for the nine months ended July 31, 2003.
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 July 31, 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 July 31, 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, as permitted under SFAS No. 123 "Accounting for
Stock-based Compensation" (SFAS 123), we applied APB No. 25 "Accounting for
Stock Issued to Employees" (APB 25), and related interpretations in accounting
for our 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 our 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 nine months ended:
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July 31, 2003 July 31, 2002
- --------------------------------------------------------------------------------
Net earnings - reported $ 343,691 $ 256,270
Pro forma stock-based compensation 73,114 72,558
- --------------------------------------------------------------------------------
Net earnings - pro forma $ 270,577 $ 183,712
================================================================================
Basic earnings per share - reported 0.08 0.06
Diluted earnings per share - reported 0.07 0.06
Pro forma stock-based compensation (0.02) (0.02)
- --------------------------------------------------------------------------------
Basic earnings per share - pro forma $ 0.06 $ 0.04
Diluted earnings per share - pro forma $ 0.05 $ 0.04
================================================================================
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NAVTECH, INC. 6
NAVTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
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 nine months ended:
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July 31, 2003 July 31, 2002
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Black-Scholes weighted-average assumptions
Expected dividend 0.00% 0.00%
Expected volatility 206.33% 209.66%
Risk-free interest rate 4% 4%
Expected option life in years 4 4
Weighted average stock option fair value
option granted $ N/A $ 0.29
================================================================================
EARNINGS PER SHARE
Basic and diluted earnings per share are calculated as follows:
Nine Months ended July 31, Three Months ended July 31,
------------------------- ---------------------------
2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
Numerator:
Net earnings (A) $ 343,691 $ 256,270 $ 53,046 $ 84,550
- ---------------------------------------------------------------------------------------------------------------------
Adjustments:
Amortization of goodwill from continuing operations - 8,397 - 2,799
Net earnings - adjusted (B) $ 343,691 $ 264,667 $ 53,046 $ 87,349
- ---------------------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic earnings per share -
weighted average
number of common shares outstanding (C) 4,227,266 4,326,988 4,227,821 4,326,988
Effect of dilutive securities:
Employee stock options and warrants 363,250 37,500 363,250 37,500
- ---------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share -
adjusted weighted
average number of common shares outstanding (D) 4,590,516 4,364,488 4,591,071 4,364,488
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Earnings per share - basic (A)/(C) 0.08 0.06 0.01 0.02
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Earnings per share - diluted (A)/(D) 0.07 0.06 0.01 0.02
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Adjusted earnings per share - basic (B)/(C) $ 0.08 $ 0.06 $ 0.01 $ 0.02
- ----------------------------------------------------------------------------------------------------------------------
Adjusted earning per share - diluted (B)/(D) $ 0.07 $ 0.06 $ 0.01 $ 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 for the comparative period had we not amortized the goodwill from
continuing operations in the three and nine month prior periods.
COMMITMENTS AND CONTINGENCIES
There were no significant commitments or contingent liabilities as at July 31,
2003.
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NAVTECH, INC. 7
NAVTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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COMPARATIVE FIGURES
Certain accounts for the comparative period have been reclassified to conform
with the presentation adopted in the current year.
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NAVTECH, INC. 8
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 $5.0 million for the nine months
ended July 31, 2003, compared with approximately $4.3 million for the nine
months ended July 31, 2002, an increase of approximately 16%. The increase in
service fees in 2003 was primarily due to an increase in fees from new customers
of approximately $585,000 and an increase in fees from existing customers of
approximately $234,000. These increases were offset by the loss in fees of
approximately $141,000 from customers who ceased operations in prior quarters
and the loss of revenue totaling approximately $142,000 from customers who
ceased using our services in prior quarters. These customers include customers
whose contracts had expired and one-time customers in 2002.
Revenue from software license fees was $63,000 for the nine months ended July
31, 2003 as compared to approximately $226,000 during the nine months ended July
31, 2002. In the nine months ended July 31, 2003, we completed a license sale of
our FINS Weather and NOTAM's system, while in the nine months ended July 31,
2002, we completed a license sale of our CLASS preferential bidding system.
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NAVTECH, INC. 9
NAVTECH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
Costs and expenses
- ------------------
Cost of service fees
- --------------------------------------------------------------------------------
Percentage
2003 2002 Change
- --------------------------------------------------------------------------------
Salaries and benefits $ 1,802 $ 1,498 20%
Communication costs 531 530 -
Agent costs 8 49 (84)
Rent 161 181 (11)
Royalties 107 73 47
Depreciation 93 84 11
Other 175 114 54
- --------------------------------------------------------------------------------
$ 2,877 $ 2,529 14%
- --------------------------------------------------------------------------------
Overall, the prolonged decline of the US Dollar during this fiscal year has had
a negative impact on the cost of our services. With the majority of our support
personnel located in Canada and the United Kingdom, the stronger currencies in
those countries have effectively increased the cost of those services stated in
US Dollars by approximately $158,000 for the nine months ended July 31, 2003.
The remaining increases are explained below.
The increase in salaries and benefits is due to an increase in headcount
completed in the fourth quarter of 2002. Specifically, we improved upon our
quality assurance processes by adding a dedicated department comprised of four
full-time equivalents and we hired a new Vice President of Operations in May
2002.
The fees charged by our agents decreased due to the variable nature of these
charges. However, the decrease is also due to the growth of revenues from hosted
solutions in comparison to outsourced dispatch services. Fees are incurred based
on the flight requests of some of our European and African customers utilizing
our outsourced dispatch services and the cost of these services depend on the
requests received and the services provided during the period.
The cost of facilities was lower in the nine months ended July 31, 2003
following the closures of our facilities in Ottawa, Canada and Montreal, Canada
in the third quarter of fiscal 2002.
Royalties increased due to the increase in Aircraft Performance service fees in
the nine months ended July 31, 2003 as compared the nine months ended July 31,
2002. We currently pay a royalty for the use of some of the products used to
generate these revenues.
Other costs include the cost of hardware that is resold to customers as part of
implementation of new services. Normally a small component of our overall costs,
we secured several new installations during the nine months ended July 31, 2003
that accounted for an increase of approximately $40,000. This is also consistent
with the increase in Revenue from service fees experienced in the nine months
ended July 31, 2003 (see "Revenues" above).
No further significant increases in the cost of our services are expected in
future quarters without changing the current structure of our operations.
However, with respect to the volume of opportunities currently being pursued,
successful completion of these opportunities may result in additional support
staff and infrastructure required. 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 nine months ended
July 31, 2003 as compared to approximately $49,000 during the nine months ended
July 31, 2002. In the nine months ended July 31, 2003, we completed a license
sale of our FINS Weather and NOTAM's system, while in the nine months ended July
31, 2002, we completed a license sale of our CLASS preferential bidding system.
The cost of the CLASS installation was
- --------------------------------------------------------------------------------
NAVTECH, INC. 10
NAVTECH, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
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 $210,000, or
approximately 125%, from approximately $168,000 for the nine months ended July
31, 2002 to approximately $378,000 for the nine months ended July 31, 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 nine months ended July 31, 2003. Our investment in
strategic research and development in future quarters is expected to be similar
to the levels invested during the current fiscal year.
Sales and marketing expenses
- --------------------------------------------------------------------------------
Percentage
2003 2002 Change
- --------------------------------------------------------------------------------
Salaries and benefits $ 582 $ 392 48%
Marketing expenses 76 63 20
Travel 99 64 54
Other 16 -
- --------------------------------------------------------------------------------
$ 773 $ 519 49%
- --------------------------------------------------------------------------------
As stated previously, the weakened US Dollar has had a negative impact on our
costs. The resulting currency fluctuations during the nine months ended July 31,
2003 have increased the cost of our sales and marketing efforts by approximately
$47,000 for the period. The remaining increases are discussed below.
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 nine months
ended July 31, 2003 (based on revenue from new customers added in recent
months). In addition, the expenses for salaries and benefits also include the
cost of severances associated with the termination of individuals on the sales
team. 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 and the addition of new products and
features developed during the current year. However, these increases are
dependent on our ability to maintain, develop, and turnover our current sales
funnel.
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NAVTECH, INC. 11
NAVTECH, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
General and administrative expenses
- --------------------------------------------------------------------------------
Percentage
2003 2002 Change
- --------------------------------------------------------------------------------
Salaries and benefits $ 302 $ 452 (33)%
Insurance 148 107 29
Professional fees 130 112 16
Provision for bad debts 80 83 (4)
Losses on foreign exchange 62 20 210
Other 169 182 (7)
- --------------------------------------------------------------------------------
$ 891 $ 956 (7)%
- --------------------------------------------------------------------------------
As stated previously, the weakened US Dollar has had a negative impact on our
costs. The resulting currency fluctuations during the nine months ended July 31,
2003 have increased the cost of our administrative expenses by approximately
$42,000 for the period. The remaining decreases are discussed below.
The decrease in salaries and benefits is due to the departure of our former CEO
during the nine months ended July 31, 2002. The increase in insurance expenses
in the nine months ended July 31, 2003 is due to increases in business insurance
experienced in all sectors during the past year. 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 the
translation of foreign currency in the nine months ended July 31, 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 $52,000. We fully intend to pursue the collection of this
amount; however, all amounts owed are fully provided for in our financial
statements at July 31, 2003.
Other income (expense)
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Net other expenses decreased approximately $53,000 or 58% from approximately
$91,000 during the nine months ended July 31, 2003 to approximately $38,000
during the nine months ended July 31, 2003. Interest expenses decreased by
approximately $47,000 due primarily to maturing long-term debt and the decreased
usage of short-term financing during the period. Interest income increased by
approximately $6,000 due to accrued interest from the settlement of a tax appeal
from a prior period.
Recovery of income taxes
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The estimated recovery of approximately $42,000 during the nine months ending
July 31, 2003 is due to tax credits filed for research and development
activities performed in Canada during fiscal 2001 as well as a favorable
settlement in a tax dispute with the Government of Canada. The refundable tax
credits were earned in two jurisdictions and the amount accrued was 75% of the
amount filed 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
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The unaudited consolidated financial statements reflect net earnings of
approximately $344,000 for the nine months ended July 31, 2003 as compared to
net earnings of approximately $256,000 for the nine months ended July 31, 2002,
an increase of approximately $88,000 or 34%.
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NAVTECH, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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Liquidity and Capital Resources
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As of July 31, 2003, our available funds consisted of $116,746 in cash and an
unutilized operating line of credit as noted in the last paragraph below. At
July 31, 2003, we had a working capital deficiency of $146,976 as compared to a
working capital deficiency of $464,083 as at October 31, 2002. Eliminating this
deficiency remains as one of our top priorities in future quarters.
Cash flows from operations for the nine months ended July 31, 2003 accounted for
a net inflow of $114,530, primarily based on the net earnings for the period,
and offset by a net increase in operating assets of approximately $57,000 and a
decrease of approximately $179,000 in operating liabilities.
Cash flows from investing activities for the nine months ended July 31, 2003
represent a net outflow of $68,081 due to the purchase of capital assets.
Cash flows from financing activities for the nine months ended July 31, 2003
represent a net outflow of $160,598, due to repayments of existing loans and
capital leases.
At July 31, 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 $214,000 with the improvement of certain financial statement
ratios. This facility has replaced the previous accounts receivable factoring
facility. At July 31, 2003, we were in compliance with all covenants.
Item 3. Controls and Procedures
Our Chief Executive Officer, who is also our Chief Financial Officer, conducted
an evaluation of the effectiveness of our disclosure controls and procedures.
Based on this evaluation, our Chief Executive Officer concluded that our
disclosure controls and procedures were effective as of July 31, 2003 in
alerting him in a timely manner to material information required to be included
in our SEC reports. In addition, no change in our internal control over
financial reporting occurred during the fiscal quarter ended July 31, 2003 that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
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NAVTECH, INC. 13
NAVTECH, INC.
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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)
31 Rule 13a - 14(a) / 15d - 14(a) Certification, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification 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
July 31, 2003.
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.
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NAVTECH, INC. 14
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: September 15, 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. 15