Michael A. Littman
Attorney at Law
7609 Ralston Road
Arvada, CO 80002
(303) 422-8127
Fax (303) 431-1567
September 28, 2006
Securities and Exchange Commission
Attn: Mark Webb
100 F Street, NE
Washington, DC 20549
Re: Navidec Financial Services, Inc. (NFS)
File Number 000-51139
Dear Mark Webb,
In response to your comment letter dated September 11, 2006, Navidec
Financial Services, Inc. ("NFS") submits as follows:
From inception, the stated business objective of NFS (as substantiated
by our historical activities and as stated in our filings) "has been to identify
and acquire "controlling" interests in development stage companies [for the
purpose of furthering] their growth". By definition, acquiring a controlling
interest and operating is not passive and is not "engaged primarily, or
[proposing] to engage primarily in the business of investing, reinvesting, or
trading in securities". From its inception NFS has purposed to buy, control,
operate, hold, improve, and grow emerging businesses then realize value; not
passively invest and solely look for capital appreciation. Such entities would
be operated as subsidiaries within NFS.
The stated intent of the merger transaction and resultant spin-off of
NFS from Navidec, Inc. ("old Navidec") was never to acquire the securities of
BPZ Energy, Inc. ("BPZ") for the purposes of holding them as investment
securities, but rather as an ancillary to a Reorganization Plan that sought to
use them as a mechanism for providing the capitalization necessary for NFS to
execute its new business plan. As a result of BPZ's inability to register these
shares, thereby making them illiquid for the most part, and certain litigation
undertaken by BPZ, the shares were restricted and unable to be saleable.
Securities and Exchange Commission
Attn: Mark Webb
September 28, 2006
Page 2 of 5
In the period since the merger/spin-off, NFS has actively reviewed and
analyzedat least ten different opportunities to acquire controlling/operating
interests in a variety of private companies. For example, in early 2005, NFS
began to execute on two such opportunities by acquiring control of Aegis and
Northsight Mortgage; AegisUSA and the significant expansion of its current
Northsight residential mortgage origination business into commercial mortgage
lending based on the assumption that it would be able to liquidate its BPZ
holdings for capital for the businesses. In the latter half of 2005, due largely
to NFS's inability to provide continued funding to Aegis and Northsight, which
came as a direct result of NFS not being able to timely realize any monetary
value from its holdings of BPZ securities, NFS was forced to sell Aegis and
withdraw from and stop pursuing these and other such opportunities The
illiquidity of our BPZ securities has continued as a significant constraint on
NFS and its business plan to date in 2006 and prevented our expansion
capitalization of Northsight.
The illiquidity of our BPZ holdings came primarily as a result of
several difficulties that were encountered by BPZ in their registration process.
Resolution of these difficulties was out of the influence and control of NFS.
This was further exaggerated by BPZ's unilateral decision initially to pursue
court action against NFS as its preferred strategy for resolution. These issues
have only recently been resolved (in the last 90 days or so) with NFS prevailing
on all counts, and only as of September 26, 2006 has BPZ filed amended financial
statements that bring BPZ current in its reporting, enabling it to pursue
completion of theRegistration of BPZ shares.
Given these recent developments, NFS is now in a position to begin full
execution of its original business plan and it has begun to do so. This can be
accomplished well within the 12 month time frame allowed under the 1940 Act, for
exemptions under Rule 3a2.
In your comment letter you state: "Based on NFS's holdings of BPZ
securities we believe that NFS is an investment company within the meaning
Section 3(a)(1)(c) of the 1940 Act" (page 3, paragraph 1 of the letter). In
support of this statement, SEC points to the fact that our ownership in BPZ
represented 80% of total asset value at the end of 2005 and 70% at March 31,
2006. This ignores the fact discussed above that such BPZ securities were
unmarketable.
For the period of time from the merger transaction to now, Northsight
has provided well more than 25% of NFS's gross income. In calendar year 2005,
Northsight originated a total of 541 loans representing at total loan volume of
approximately $113MM with a median loan size of $208,000. From January 1, 2006
to June 30, 2006, Northsight originated 236 loans representing a total loan
volume of approximately $57MM. with a median loan size of $238,000. If SEC staff
looks at the size of loans in the 1971 and 1977 no-actions cited, these loans,
in real estate "inflation adjusted" numbers are comparable to the Northsight
operations which would allow the exemption under 3c)(4). As a factual
background, NFS intended, using the anticipated proceeds from sale of
Securities and Exchange Commission
Attn: Mark Webb
September 28, 2006
Page 3 of 5
BPZ stock in 2005, to provide Northsight with the capital necessary to establish
its own warehouse line of credit going so far as to establish a subsidiary,
Navidec Capital of Arizona, Inc., and to begin the application process with the
State of Arizona for a mortgage banking license in order to to facilitate the
warehousing of mortgage loans.
In essence, the BPZ stock would have been converted to cash to use to
buy real estate loans under the warehouse facility for Northsight. Due to the
illiquidity of the stock of BPZ (it was neither registered nor saleable under
Rule 144), the capital from sale of BPZ stock was never available for NFS to
fund the warehouse line for mortgages. This would have made it exempt from
Registration under Sec. 3a(5).
Further 3 cases involve similar situations under the '40 Act:
Restaurant business. - Even if over 40% of a company's total assets
were in investment securities, it would still be excepted from the definition of
an "investment company" since it had historically been engaged in the restaurant
business and the time devoted to its investment activities was minimal. - Moses
v. Black (SD NY 1981), 1981.
Manufacturing activities. - A company having 46% of the total value of its
assets, exclusive of government securities and cash items, invested in
securities, but which has never held itself out as an investment company and has
engaged in the business of manufacturing for thirty years, deriving 80% of its
net earnings from such manufacturing activities, is not primarily engaged in the
business of investing, reinvesting, owning, holding or trading in securities. -
In the Matter of George W. Helme Co. (1941) 9 S. E. C. 16, '41-'44.
Operation of retail chain stores. - An application for exemption from the
definition of an "investment company" was granted to a company because the
Commission found the applicant was engaged primarily in operating retail chain
stores through controlled companies, the applicant having been found to own 51%
of the stock of one retail chain store company and to control another similar
chain store company through ownership of more than 40% of its stock. - In the
Matter of United Stores Corp. (1942) 10 S. E. C. 1145, '41-'44.
While these cases involve "applied for and granted" exemptions from the
'40 Act, they are analogous to the instant situation, where there is no need to
require registration.
Further, NFS believes that it qualifies as a "Transient Company" under
Rule 3a-2 in that it had illiquid restricted "investment securities" until after
June 30, 2006. NFS points to the following cases where the Commission agreed as
to application of Rule 3a-2.
Securities and Exchange Commission
Attn: Mark Webb
September 28, 2006
Page 4 of 5
Mallory Randall Corp. (SEC 1981), pending its entry into a new
business, a company could inest the proceeds received from its sale of assets in
government securities and certificates of deposit without being considered an
"investment company".
Encore Industries, Inc. (SEC 1980), pending entry into new business,
company could invest proceeds received from securities offering in short term
investments without having to register as "investment company.
Genetech, Inc. (SEC 1980), pending their commitment to capital
expenditures and product development, proceeds from a securities offering could
be temporarily invested in short term money market funds without making the
company an "investment company".
Rural Venture, Inc. (SEC 1980), (assets could be temporarily invested
with eye towards later placement in business operations without triggering
registration).
In conclusion, in support of its position that it is not an investment
company required to Register under the 40 Act, NFS submits: First, NFS arguably
qualifies under 3a(4) of the '40 Acts as a small lender. Second, due to
circumstances beyond the control of NFS, it has been unable to have saleable,
registered shares from which it could achieve liquidity to capitalize its other
business plans. NFS believes it fits within the classic Rule 3a-2 exemption for
a Transitional Company and also would otherwise qualify for an exemption from
Registration as a '40 Act Company. Third, NFS never intended to hold the BPZ
stock indefinitely "as an investment nor as a trader". It was a victim of
circumstance. BPZ stock could not be sold even after the one year holding period
under Rule 144 because BPZ was not current in its filings with SEC due to
numerous comments by SEC accounting staff relating to BPZ accounting, of which
NFS was very aware. It was only upon resolution of the litigation in late June
2006, and subsequent filing by BPZ of amended financial statements in the last
30 days has has the BPZ stock become liquid.
We believe these explanations sufficient to persuade SEC staff to allow
NFS to, at least, be treated as a Transitional Investment Company under Rule
3a-2, but of course preserving its other arguments as to the exemption under
Section 3a4.
If you have further comments or questions, please let me know.
Sincerely,
/s/ Michael A. Littman
Michael A. Littman