** **

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, DC 20549**

 

**FORM10-QSB/A**

 

**ý****QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]**

 

**For the quarterly period ended:**

 

**September 30, 2004**

 

**o****TRANSITION REPORT PURSUANTTO SECTION 13 or 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]**

 

**CommissionFile Number: 000-29098**

 

**Navidec,Inc.**

(Exact name of registrant as specified in its charter) 

 
| **Colorado**                                   |       | **33-0502730**                          |
|------------------------------------------------|------------|-----------------------------------------|
| (State or other jurisdiction of incorporation) | ** ** | (I.R.S. Employer Identification Number) |

 

**11999 Katy Freeway, Suite 560****Houston, Texas 77079**(Address of principal executive office)

 

**Registrant’s telephone number, including area code: (281) 556-6200**

 

Indicate by check markwhether the Registrant (i) has filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the past 12 months (or for such shorterperiod that the Registrant was required to file such reports), and (ii) hasbeen subject to such filing requirements for the past 90 days.  Yes ý No o

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).  o  Yes   ý No

 

As of November 15, 2004, there were 16,429,204 shares of common stock outstanding.

 

Transitional Small BusinessDisclosure Format:  Yes o No ý

 

 

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The sole purpose of thisAmendment to the Form 10QSB for Navidec, Inc. is to include in Part I, Item 2commencing on page 18 a new subsection entitled Twelve Month Plan ofOperation.  All other informationcontained in the original filing for the period ended September 30, 2004 isunchanged including all of the financial statements and the financial statementfootnotes.

 

**NAVIDEC, INC.**

 

**TABLE OF CONTENTS**

 
| **PART I.   FINANCIAL INFORMATION** |                                                                                                                               |
|------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------|
|                                     |                                                                                                                               |   |
| Item 1.                                  | Financial Statements (unaudited, except for December 31, 2003)                                                                     |   |
|                                     |                                                                                                                               |   |
|                                     | Consolidated Balance Sheets  as of September 30, 2004 and December 31, 2003                                              |   |
|                                     |                                                                                                                               |   |   |
|                                     | Consolidated  Statements of Operations for the Three Month Periods and Nine Month Periods  Ended September 30, 2004 and 2003  |   |
|                                     |                                                                                                                               |   |   |
|                                     | Consolidated  Statements of Stockholders Equity Deficit for the Nine Month Period Ended  September 30, 2004                   |   |
|                                     |                                                                                                                               |   |   |
|                                     | Consolidated Statements of Cash Flows for  the Three Month Periods and Nine Months Periods Ended September 30, 2004  and 2003 |   |
|                                     |                                                                                                                               |   |   |
|                                     | Notes to  Consolidated Financial Statements                                                                                        |   |
|                                     |                                                                                                                               |   |
| Item 2.                                  | Management’s Discussion  and Analysis or Plan of Operation                                                                    |   |
|                                     |                                                                                                                               |   |
| Item 3.                                  | Controls  and Procedures                                                                                                           |   |
|                                     |                                                                                                                               |   |
| **PART  II. OTHER INFORMATION**          |                                                                                                                               |
|                                     |                                                                                                                               |   |
| Item 1.                                  | Legal Proceedings                                                                                                                  |   |
|                                     |                                                                                                                               |   |
| Item 2.                                  | Changes  in Securities and Small Business Issues Pursuant of Capacity Securities                                                   |   |
|                                     |                                                                                                                               |   |
| Item 3.                                  | Defaults upon Senior  Securities                                                                                                   |   |
|                                     |                                                                                                                               |   |
| Item 4.                                  | Submission of Matters  to a Vote of Security Holders                                                                               |   |
|                                     |                                                                                                                               |   |
| Item 5.                                  | Other Information                                                                                                                  |   |
|                                     |                                                                                                                               |   |
| Item 6.                                  | Exhibits and Reports on  Form 8-K                                                                                                  |   |
|                                     |                                                                                                                               |   |
| **SIGNATURES**                           |                                                                                                                               |

 

2

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**Navidec, Inc. and Subsidiaries**

 

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                                   | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                   | ** ** | **(Unaudited)**              | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                                   |       |                         |       |                        |       |
| ** **                                                                                                                                                                   |       |                         |       |                        |       |
| Current assets:                                                                                                                                                              |       |                         |       |                        |       |
| Cash and  cash equivalents                                                                                                                                                   |       | $                            | 3,015,542  |                        | $          | 8,156 |   |
| Receivable  due from escrow agent                                                                                                                                            |       | 1,765,464                    |       | —                      |       |
| Deferred  financing cost                                                                                                                                                     |       | 96,516                       |       | —                      |       |
| Other  current assets                                                                                                                                                        |       | 5,482                        |       | —                      |       |
| Total  current assets                                                                                                                                                        |       | 4,883,004                    |       | 8,156                       |       |
|                                                                                                                                                                         |       |                         |       |                        |       |
| Due from  shareholder                                                                                                                                                        |       | 30,825                       |       | —                      |       |
| Due from  affiliate                                                                                                                                                          |       | —                       |       | 162,890                     |       |
|                                                                                                                                                                         |       |                         |       |                        |       |
| Other assets:                                                                                                                                                                |       |                         |       |                        |       |
| Investment  in SMC Ecuador                                                                                                                                                   |       | 673,848                      |       | —                      |       |
| Performance  bond                                                                                                                                                            |       | 200,000                      |       | 240,000                     |       |
| Other                                                                                                                                                                        |       | —                       |       | 4,180                       |       |
| Total other  assets                                                                                                                                                          |       | 873,848                      |       | 244,180                     |       |
|                                                                                                                                                                         |       |                         |       |                        |       |
| Total assets                                                                                                                                                                 |       | $                            | 5,787,677  |                        | $          | 415,226 |   |
|                                                                                                                                                                         |       |                         |       |                        |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)**                                                                                                                     |       |                         |       |                        |       |
| ** **                                                                                                                                                                   |       |                         |       |                        |       |
| Current  liabilities:                                                                                                                                                        |       |                         |       |                        |       |
| Accounts  payable                                                                                                                                                            |       | $                            | 195,109    |                        | $          | 10,475 |   |
| Notes  payable                                                                                                                                                               |       | 306,916                      |       | —                      |       |
| Accrued  liabilities                                                                                                                                                         |       | 9,817                        |       | 14,650                      |       |
| Total  current liabilities                                                                                                                                                   |       | 511,842                      |       | 25,125                      |       |
|                                                                                                                                                                         |       |                         |       |                        |       |
| Long-term  debt                                                                                                                                                              |       | —                       |       | 755,000                     |       |
| Commitments  and Contingencies                                                                                                                                               |       |                         |       |                        |       |
| Stockholders’  equity (deficit):                                                                                                                                        |       |                         |       |                        |       |
| Common  stock, no par value, 20,000,000 authorized; 16,409,192 and 5,000 shares  issued and outstanding at September 30, 2004 and December 31, 2003,  respectively |       | 12,683,573                   |       | 1,000                       |       |
| Additional  paid in capital – warrants and stock options                                                                                                                |       | 10,022,401                   |       | —                      |       |
| Accumulated  deficit                                                                                                                                                         |       | (17,430,139                  | )          | (365,899                    | )          |
|                                                                                                                                                                         |       |                         |       |                        |       |
| Total  stockholders’ equity (deficit)                                                                                                                                   |       | 5,275,835                    |       | (364,899                    | )          |
|                                                                                                                                                                         |       |                         |       |                        |       |
| Total  liabilities and stockholders’ equity (deficit)                                                                                                                   |       | $                            | 5,787,677  |                        | $          | 415,226 |   |

 

Theaccompanying summary of accounting policies and footnotes are an integral partof these consolidated financial statements.

 

3

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**Navidec, Inc. and Subsidiaries**

 

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**(Unaudited)**

 
| ** **                               | ** ** | **Three months ended  September 30,** | ** **  | **Nine months ended  September 30,** | ** ** |
|------------------------------------------|------------|--------------------------------------------|-------------|-------------------------------------------|------------|
| ** **                               | ** ** | **2004**                                   | ** **  | **2003**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                               | ** ** | ** **                                 | ** **  | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                  |       | $                                          | —      |                                      | $          | — |   | $ | — |   | $ | — |   |
|                                     |       |                                       |        |                                      |       |   |   |   |   |
| Operating  expenses:                     |       |                                       |        |                                      |       |   |   |   |   |
| Payroll                                  |       | 55,959                                     |        | 17,185                                    |       | 85,280 |   | 45,878 |   |
| General and  administrative              |       | 150,096                                    |        | 4,548                                     |       | 261,475 |   | 16,506 |   |
| Geological,  geophysical and engineering |       | 122,653                                    |        | —                                    |       | 204,126 |   | — |   |
| Other  operating expense                 |       | —                                     |        | 200                                       |       | — |   | 542 |   |
| Taxes,  except income                    |       | 1,342                                      |        | —                                    |       | 2,230 |   | 128 |   |
|                                     |       |                                       |        |                                      |       |   |   |   |   |
| Total  operating expenses                |       | 330,049                                    |        | 21,934                                    |       | 553,110 |   | 63,053 |   |
|                                     |       |                                       |        |                                      |       |   |   |   |   |
| Net loss  from operation                 |       | (330,049                                   | )           | (21,934                                   | )          | (553,110 | ) | (63,053 | ) |
|                                     |       |                                       |        |                                      |       |   |   |   |   |
| Other income  (expense):                 |       |                                       |        |                                      |       |   |   |   |   |
| Investment  income in SMC Ecuador        |       | 162,753                                    |        | —                                    |       | 162,753 |   | — |   |
| Interest  expense                        |       | (357,945                                   | )           | —                                    |       | (389,545 | ) | — |   |
| Merger costs                             |       | (16,284,966                                | )           | —                                    |       | (16,284,966 | ) | — |   |
| Miscellaneous  income                    |       | 270                                        |        | —                                    |       | 629 |   | 1,445 |   |
|                                     |       |                                       |        |                                      |       |   |   |   |   |
| Total other  income                      |       | (16,479,889                                | )           | —                                    |       | (16,511,130 | ) | 1,445 |   |
|                                     |       |                                       |        |                                      |       |   |   |   |   |
| Net loss  before income taxes            |       | (16,809,938                                | )           | (21,934                                   | )          | (17,064,240 | ) | (61,608 | ) |
|                                     |       |                                       |        |                                      |       |   |   |   |   |
| Income taxes                             |       | —                                     |        | —                                    |       | — |   | — |   |
|                                     |       |                                       |        |                                      |       |   |   |   |   |
| NET LOSS                                 |       | $                                          | (16,809,938 | )                                         | $          | (21,934 | ) | $ | (17,064,240 | ) | $ | (61,608 | ) |
|                                     |       |                                       |        |                                      |       |   |   |   |   |
| NET LOSS PER  SHARE                      |       |                                       |        |                                      |       |   |   |   |   |
| Primary                                  |       | (1.09                                      | )           | (4.39                                     | )          | (2.81 | ) | (12.32 | ) |
| Fully  Diluted                           |       | (1.09                                      | )           | (4.39                                     | )          | (2.81 | ) | (12.32 | ) |
|                                     |       |                                       |        |                                      |       |   |   |   |   |   |
| WEIGHTED  AVERAGE SHARES OUTSTANDING     |       |                                       |        |                                      |       |   |   |   |   |   |
| Primary                                  |       |                                       | 9,033,963   |                                      | 5,000      |   | 6,055,314 |   | 5,000 |   |
| Fully  Diluted                           |       |                                       | 9,033,963   |                                      | 5,000      |   | 6,055,314 |   | 5,000 |   |

 

Theaccompanying summary of accounting policies and footnotes are an integral partof these consolidated financial statements.

 

4

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**Navidec, Inc. and Subsidiaries**

 

# **CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)**

#  

### **NineMonths Ended September 30, 2004**

**(Unaudited)**

 
| ** **                                                       | ** ** | **Common  Stock** | ** ** | **Additional  Paid** | ** ** | **Accumulated** | ** ** | ** **  | ** ** |
|------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|-----------------|------------|-------------|------------|
| ** **                                                       | ** ** | **Shares**        | ** ** | **Amount**           | ** ** | **in Capital**  | ** ** | **Deficit** | ** ** | **Total** | ** ** |
| Balance, December 31, 2003                                       |       | 5,000             |       | $                    | 1,000      |            | $          | —      |       | $ | (365,899 | ) | $ | (364,899 | )  |
| Reorganization of  BPZ & Associates                          |       | 4,098,454         |       | (1,052,328           | )          | —          |       | —      |       | (1,052,328 | ) |
| Common stock  issued for services                                |       | 3,057,642         |       | 4,322,935            |       | —          |       | —      |       | 4,322,935 |   |
| Conversion of  long term debt to common stock                    |       | 2,038,904         |       | 1,035,000            |       | —          |       | —      |       | 1,035,000 |   |
| Common stock  deemed issued for the acquisition of Navidec, Inc. |       | 4,742,178         |       | 2,882,689            |       | —          |       | —      |       | 2,882,689 |   |
| Assumption of  stock options outstanding                         |       | —            |       | —               |       | 4,275,964       |       | —      |       | 4,275,964 |   |
| Assumption of  warrants outstanding                              |       | —            |       | —               |       | 1,405,605       |       | —      |       | 1,405,605 |   |
| Shares issued to  related party in the merger                    |       | 604,246           |       | 1,939,630            |       | —          |       | —      |       | 1,939,630 |   |
| Warrants issued  in connection with services                     |       | —            |       | —               |       | 2,820,000       |       | —      |       | 2,820,000 |   |
| Stock options  granted for services                              |       | —            |       | —               |       | 1,520,832       |       | —      |       | 1,520,832 |   |
| Common stock sold  for cash, net of offering costs               |       | 1,321,500         |       | 2,534,118            |       | —          |       | —      |       | 2,534,118 |   |
| Exercise of stock  options                                       |       | 41,268            |       | —               |       | —          |       | —      |       |   |   |
| Conversion of  notes payable to common stock                     |       | 500,000           |       | 1,020,529            |       | —          |       | —      |       | 1,020,529 |   |
| Net loss                                                         |       | —            |       | —               |       | —          |       | (17,064,240 | )          | (17,064,240 | ) |
| Balance, September 30, 2004                                      |       | 16,409,192        |       | $                    | 12,683,573 |            | $          | 10,022,401  |       | $ | (17,430,139 | ) | $ | 5,275,835 |   |

 

 

The accompanying summary of accountingpolicies and footnotes are an integral part of these consolidated financialstatements.

 

5

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**Navidec, Inc. and Subsidiaries**

 

**CONSOLIDATED STATEMENTS OFCASH FLOWS**

 

**Nine Months Ended September 30,2004 and 2003**

**(Unaudited)**

 
| ** **                                                                   | ** ** | **2004**   | ** **  | **2003** | ** ** |
|------------------------------------------------------------------------------|------------|------------|-------------|----------|------------|
| Cash flows  from operating activities:                                       |       |       |        |     |       |
| Net loss                                                                     |       | $          | (17,064,240 | )        | $          | (61,608 | ) |
| Adjustments  to reconcile net loss to net cash used by operating activities: |       |       |        |     |       |
| Merger  equity transaction costs                                             |       | 16,284,966 |        | —   |       |
| Changes in  operating assets and liabilities:                                |       |       |        |     |       |
| Other  current assets                                                        |       | (197,592   | )           | —   |       |
| Other assets                                                                 |       | 4,180      |        | —   |       |
| Accounts  payable                                                            |       | 184,634    |        | (5,859   | )          |
| Accrued liabilities                                                          |       | 8,947      |        | 10,470   |       |
|                                                                         |       |       |        |     |       |
| Net cash used  by operating activities                                       |       | (779,105   | )           | (56,997  | )          |
|                                                                         |       |       |        |     |       |
| Cash flows  from investing activities:                                       |       |       |        |     |       |
| Investment  in SMC Ecuador                                                   |       | (673,848   | )           | —   |       |
|                                                                         |       |       |        |     |       |
| Net cash  provided by investing activities                                   |       | (673,848   | )           | —   |       |
|                                                                         |       |       |        |     |       |
| Cash flows  from financing activities:                                       |       |       |        |     |       |
| Borrowings                                                                   |       | 1,864,175  |        | 415,000  |       |
| Payments on  borrowings                                                      |       | (261,336   | )           |     |       |
| Private  placement proceeds                                                  |       | 3,746,937  |        | —   |       |
| Due from  affiliate                                                          |       | —     |        | (286,380 | )          |
| Due to  affiliate                                                            |       | (889,438   | )           | (91,290  | )          |
|                                                                         |       |       |        |     |       |
| Net cash used  by financing activities                                       |       | 4,460,338  |        | 37,330   |       |
|                                                                         |       |       |        |     |       |
| Net increase  (decrease) in cash and cash equivalents                        |       | 3,007,386  |        | (19,667  | )          |
|                                                                         |       |       |        |     |       |
| Cash and  cash equivalents at beginning of period                            |       | 8,156      |        | 21,962   |       |
|                                                                         |       |       |        |     |       |
| Cash and  cash equivalents at end of period                                  |       | $          | 3,015,542   |     | $          | 2,295 |   |

 

Non-cash investing and financing activities:

 

During the third quarter of 2004, the Companyhad the following non-cash activities:

 

- Conversion of notespayable and long-term debt totalling $2,035,000 and impuled interest of $20,529into 2,538,904 shares of common stock.

- Forgiveness ofadvances to an affiliate, BPZ Associates, Inc. of $1,052,328 in connection witha corporate reorganization, as discussed in Note 3 of the Notes to ConsolidatedFinancial Statements.

 

The accompanying summary of accountingpolicies and footnotes are an integral part of these consolidated financialstatements.

 

6

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**Navidec, Inc and Subsidiaries**

 

**NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS**

 

**September 30, 2004**

**(Unaudited)**

 

**Note1 – Basis of Presentation and Significant Accounting Policies**

** **

**Organization and Basis of Presentation**

 

Navidec, Inc., a Colorado corporation (“Navidec” or the “Company”), was incorporated in 1993.  On September 10, 2004, the Company consummated a merger (the “Merger”) with BPZ Energy, Inc., a Texas corporation (“BPZ”) through the issuance of 9,000,000 shares of its common stock and certain other terms and consideration as more fully described in Note 2 of the Notes to Consolidated Financial Statements.  As a result of the Merger, the shareholders of the acquired company, BPZ, received the majority of the voting interests and control of the Board of Directors of the combined entity.  Accordingly, BPZ was deemed to be the acquiring company for financial reporting purposes and the transaction has been accounted for as a reverse merger.  The historical financial statements of the Company are the historical financial statements of BPZ.

 

In connection with the Merger, the Company committed to spin off all pre-Merger operations, assets and liabilities of Navidec, Inc. (with the exception of the net proceeds of a private placement of common stock as more fully described in Note 6 of the Notes to Consolidated Financial Statements) into a separate corporation, Navidec Financial Services, Inc. (“NFS”), to be distributed to the shareholders of record on September 9, 2004, which record date is prior to consummation of the Merger.  Accordingly, the former shareholders of BPZ will not be entitled to receive shares of NFS.  As of September 30, 2004, NFS was still a wholly-owned subsidiary of the Company.  However, all legal requirements for the spin-off of NFS have been completed except for certain filings with the Securities and Exchange Commission and the final distribution of common shares of NFS to the pre-Merger shareholders.  Accordingly, the Board of Directors of Navidec elected to treat the spin-off for accounting purposes as if it had been consummated prior to September 30, 2004 and the consolidated financial statements of the Company exclude all of the assets, liabilities and results of operations of NFS.  The Company is continuing to take steps necessary to consummate the spin-off of NFS, but cannot predict when this process will be completed.

 

Withthe exception of NFS, the consolidated financial statements include theaccounts of the Company and its wholly owned subsidiaries, BPZ and SMC Ecuador,Inc.  BPZ also has a registered Peruvianbranch office which operates under the name, “BPZ Energy, Inc. Sucursal Peru”.  All intercompany balances and transactionshave been eliminated.

 

Managementuses estimates and assumptions in preparing the consolidated financialstatements in accordance with accounting principles generally accepted in theUnited States of America.  Thoseestimates and assumptions affect the reported amounts of assets, liabilities,revenues and expenses in the consolidated financial statements, and thedisclosure of contingent assets and liabilities.  Actual results could differ from theseestimates.  The consolidated financialstatements included herein have been prepared by the Company without audit,pursuant to the rules and regulations of the Securities and ExchangeCommission.  They reflect all adjustmentswhich are, in the opinion of management, necessary for a fair presentation ofthe financial position and results of operations for the interim periods, on abasis consistent with the annual audited financial statements.  All such adjustments are of a normal recurringnature.  Certain information and footnotedisclosures normally included in financial statements prepared in accordancewith accounting principles generally accepted in the United States have beencondensed or omitted pursuant to such rules and regulations.  The consolidated balance sheet at December 31,2003 is derived from the December 31, 2003 audited consolidated financialstatements.  These interim financialstatements should be read in conjunction with the consolidated financialstatements and notes

 

7

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theretoincluded in previous filings.  Theresults of operations for interim periods are not necessarily indicative of theresults to be expected for the full year.

 

**Cash and Cash Equivalents**

 

The Company considers cash on hand, cash ondeposit in banks, money market mutual funds and highly liquid debt instrumentspurchased with a maturity of three months or less to be a cash equivalent.

 

**Concentrations ofCredit Risk**

** **

The Company maintains cash balances at twofinancial institutions, which at times may exceed federally insuredlimits.  The Company has not experiencedany losses in such accounts and believes that it is not exposed to anysignificant credit risks on such accounts.

 

**Impairment ofLong-Lived Assets**

 

TheCompany periodically evaluates the recoverability of the carrying value of itslong-lived assets and identifiable intangibles by monitoring and evaluatingchanges in circumstances that may indicate that the carrying amount of theasset may not be recoverable.  Examplesof events or changes in circumstances that indicate that the recoverability ofthe carrying amount of an asset should be assessed include but are not limitedto the following:  a significant decreasein the market value of an asset, a significant change in the extent or matterin which an asset is used or a significant physical change in an asset, asignificant adverse change in legal factors or in the business climate thatcould affect the value of an asset or an adverse action or assessment by aregulator, an accumulation of costs significantly in excess of the amountoriginally expected to acquire or construct an asset, and/or a current periodoperating or cash flow loss combined with a history of operating or cash flowlosses or a projection or forecast that demonstrates continuing lossesassociated with an asset used for the purpose of producing revenue.

 

TheCompany considers historical performance and anticipated future results in itsevaluation of potential impairment.  Accordingly,when indicators or impairment are present, the Company evaluates the carryingvalue of these assets in reaction to the operating performance of the businessand future discounted and non-discounted cash flows expected to result from theuse of these assets.  Impairment lossesare recognized when the expected future cash flows from an asset are less its carryingvalue.

 

**Stock Based Compensation**

 

Aspermitted under the Statements of Financial Accounting Standards No. 123 (“SFAS123”), “Accounting for Stock-Based Compensation,” the Company accounts for itsstock-based compensation for options issued to employees in accordance with theprovisions of Accounting Principles Board Opinion No. 25, “Accounting for StockIssued to Employees” (“APB 25”).  As such,for options granted to employees and directors, compensation expense isrecorded on a straight-line basis over the shorter of the period that theservices are provided or the vesting period, only if the current market priceof the underlying stock exceeds the exercise price.  Certain pro forma net income and earnings pershare disclosures for employee stock option grants are also included in thenotes to the financial statements as if the fair value method as defined inSFAS 123 had been applied.  Transactionsin equity instruments with non-employees for goods or services are accountedfor by the fair value method.

 

**Income Taxes**

 

TheCompany accounts for income taxes using the liability method.  Under this method, deferred tax assets andliabilities are determined based on differences between the financial reportingand tax basis of assets and liabilities, and are measured using the enacted taxrates and laws that will be in effect when the differences are expected toreverse.  Valuation allowances are establishedwhen necessary to reduce deferred tax assets to the amount expected to berealized.

 

8

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**Environmental**

 

TheCompany is subject to environmental laws and regulations of variousinternational, U.S. and local jurisdictions. These laws, which are constantly changing, regulate the discharge ofmaterials into the environment and may require the Company to remove ormitigate the environmental effects of the disposal or release of petroleum orchemical substances at various sites.

 

Environmentalcosts that relate to current operations are expensed or capitalized asappropriate.  Costs are expensed whenthey relate to an existing condition caused by past operations and will notcontribute to current or future revenue generation.  Liabilities related to environmentalassessments and/or remedial efforts are accrued when property or services areprovided or can be reasonably estimated.

 

**New Accounting Pronouncements**

 

InJanuary 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities.  The objective of this interpretation is toprovide guidance on how to identify a variable interest entity (VIE) anddetermine when the assets, liabilities, noncontrolling interests, and resultsof operations of a VIE need to be included in a company’s consolidatedfinancial statements.  A company thatholds variable interests in an entity will need to consolidate the entity ifthe company’s interest in the VIE is such that the company will absorb amajority of the VIE’s expected losses and/or receive a majority of the entity’sexpected residual returns, if they occur. FIN 46 also requires additional disclosures by primary beneficiaries andother significant variable interest holders. The provisions of this interpretation became effective upon issuance.

 

InDecember 2003, the FASB issued a revised Interpretation No. 46, Consolidation of Variable Interest Entities,replacing the original Interpretation issued in January 2003.  The revised Interpretation provides guidanceon when certain entities should be consolidated or the interests in thoseentities should be disclosed by enterprises that do not control them throughmajority voting interest.  Under therevised Interpretation, entities are required to be consolidated by enterprisesthat lack majority voting interest when equity investors of those entities haveinsignificant capital at risk or they lack voting rights, the obligation toabsorb expected losses, or the right to receive expected returns.  Entities identified with these characteristicsare called variable interest entities and the interests that enterprises havein these entities are called variable interests.  These interests can derive from certainguarantees, leases, loans or other arrangements that result in risks andrewards that are disproportionate to the voting interests in the entities.  The provisions of the revised Interpretationmust be immediately applied for variable interest

 

9

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entitiescreated after January 31, 2003 and for variable interests in entitiescommonly referred to as “special purpose entities.”  For all other variable interest entities,implementation is required by March 31, 2004.  The Company has no VIE’s thus the implementationof this Statement has no current effect.

 

InMay 2003, the FASB issued SFAS No. 150, Accountingfor Certain Financial Instruments with Characteristics of Both Liabilities andEquity.  SFAS No. 150 requiresthat an issuer classify a financial instrument that is within its scope as aliability.  Many   of  those instruments were previously classified as equity, such as commonor preferred shares that embody an unconditional obligation requiring theissuer to redeem the shares by transferring its assets at a specified date orupon an event that is certain to occur. The provisions of this Statement shall be effective for the first fiscalperiod beginning after December 15, 2004.

 

InJuly 2003, the FASB issued SFAS No. 149, Accounting for Derivative Instruments and Hedging Activities.  SFAS No. 149 amends and clarifies SFASNo. 133, Accounting for DerivativeInstruments and Hedging Activities. SFAS No. 149 improves financial reporting of derivatives by requiringcontracts with comparable characteristics be accounted for similarly.  This Statement also incorporatesclarifications of the definition of a derivative.  SFAS No. 149 is effective for contractsentered into or modified after June 30, 2003.

 

Managementdoes not believe that the implementation of any of these new pronouncementswill have a material impact on its financial statements.

 

**Note 2 – Merger and Merger Costs**

 

As discussed in Note 1 of the Notes to Consolidated Financial Statements, pursuant to a merger agreement dated as of July 8, 2004 (the “Merger Agreement”), BPZ became a wholly-owned subsidiary of the Company effective September 10, 2004.  Under the terms of the Merger Agreement, Navidec, Inc. issued 9,000,000 shares of the Company’s common stock to the shareholders of BPZ and committed to issue an additional 18,000,000 shares to the shareholders of BPZ on a contingent earn-out basis if BPZ is able to achieve certain proven reserve and production goals.  Such contingent earn-out shares can only be issued after the shareholders have approved an increase in the number of authorized shares of the Company.  As a result of the issuance of the 9,000,000 shares of the Company’s common stock to the shareholders of BPZ, the former shareholders of BPZ acquired a controlling interest in the Company.

 

The Merger Agreement also provided that all of the pre-Merger business operations, assets and liabilities of the Company be transferred to a wholly-owned subsidiary, Navidec Financial Services, Inc. (“NFS”), to be followed by the spin-off of NFS to the shareholders of record as of September 9, 2004.

 

With the exclusion of NFS, the only asset of Navidec, Inc. at the date of the reverse merger was cash in the amount of $2,882,689.  This cash represented the net proceeds received prior to the closing of the Merger from the Private Placement discussed in Note 6 of the Notes to Consolidated Financial Statements.  Accordingly, the issuance of 4,742,178 common shares which were deemed for accounting purposes to have been issued by BPZ to the pre-Merger shareholders of Navidec, Inc. was treated as a capital transaction in exchange for the net cash received in the Merger.

 

The Merger Agreement also contained certain other key terms, which are summarized below:

 

1)              BPZ, as the accounting acquirer, assumed options to purchase 1,332,076 shares of Navidec, Inc. common stock, which had previously been issued to employees, directors and consultants of Navidec, Inc. and were outstanding on the date of the Merger.  These options have exercise prices ranging from $1.30 to $2.00 per share.  Such options were fully vested upon consummation of the Merger and may be exercised by the optionees at any time prior to September 10, 2007.  Under the terms of the Merger Agreement, all proceeds received from the

 

10

 

exercise of these stock options will be payable to NFS.  As such, BPZ will be obligated to issue up to 1,332,076 additional shares but will not receive any cash proceeds from such issuances.

 

2)              BPZ, as the accounting acquirer, assumed outstanding warrants to purchase 1,129,000 shares of Navidec, Inc. common stock.  Of such warrants, 564,500 shares have an exercise price of $2.00 per share and 564,500 shares have an exercise price of $4.00 per share.  All of such warrants expire on August 31, 2005.  The proceeds of such warrants, if and when exercised, will be received by BPZ.

 

3)              BPZ, as the accounting acquirer, issued 604,246 shares of common stock in the Merger to NFS.

 

4)              In connection with the Merger, BPZ entered into a Business Consulting Agreement with NFS under which NFS will provide investor relations, public relations and other financial advisory services to BPZ.  Under this agreement, BPZ is obligated to pay NFS fees of $30,000 per month for period of twelve months ending on July 31, 2005.  Such agreement is cancelable upon thirty days notice at any time after October 31, 2004.  Additionally, BPZ agreed to grant to NFS fully vested warrants to purchase 1,500,000 shares of Navidec, Inc. common stock at an exercise price of $2.00 per share at any time prior to July 31, 2006.

 

5)              In connection with the Merger and the Private Placement (as discussed in Note 6 of the Notes to Consolidated Financial Statements), BPZ granted options to purchase 1,000,000 shares of Navidec, Inc. common stock to John R. McKowen, who was the Chief Executive Officer of Navidec, Inc. prior to the Merger, at an exercise price of $1.30 per share.  Of such option shares, 500,000 became vested upon the closing of the Private Placement with gross proceeds of at least $6,000,000.  The remaining 500,000 option shares will vest upon the receipt of additional investment proceeds totaling $6,000,000, including proceeds from the exercise of outstanding warrants, provided such funding is received no later than September 10, 2006.  Such options, when vested, expire 10 years from the date of grant.

 

6)              In connection with the Merger and/or financial advisory services prior to the Merger, BPZ and Navidec, Inc. issued 700,000 shares of common stock as compensation for services.

 

7)              Prior to the Merger, BPZ issued 2,357,642 shares of common stock to directors, officers, employees and consultants of BPZ Energy, Inc. as compensation for past services to BPZ Energy, Inc. and BPZ & Associates, Inc.

 

The above transactions were deemed to be costs of the Merger, and resulted in a charge to the income statement which is summarized below.  For valuation purposes, all stock options and warrants were measured by the Black Scholes method utilizing market prices on the date of grant or assumption and historical volatilities of Navidec, Inc. common stock.  All of such options and warrants were required to be accounted for under SFAS 123 as they did not qualify for treatment under APB 25.  All common shares issued prior to the Merger were valued at the closing price of Navidec, Inc. common stock on the date of the Merger Agreement and all common shares which were issued on the effective date of the Merger were valued at the closing price of Navidec, Inc. common stock on such date.

 
| 1)                  |   | Assumption of Navidec, Inc. outstanding  stock options      |       | $         | 4,275,964 |   |
|---------------------|--------|-------------------------------------------------------------|------------|-----------|-----------|--------|
| 2)                  |   | Assumption of Navidec, Inc. outstanding  warrants           |       | 1,405,605 |      |
| 3)                  |   | Issuance of common stock to NFS                             |       | 1,939,630 |      |
| 4)                  |   | Issuance of warrants to NFS                                 |       | 2,820,000 |      |
| 5)                  |   | Grant of stock options to John R. McKowen  (a)              |       | 1,520,832 |      |
| 6)                  |   | Issuance of common stock for financial  advisory services   |       | 1,258,000 |      |
| 7)                  |   | Issuance of common stock as compensation  for past services |       | 3,064,935 |      |
| Total merger  costs |   | $                                                           | 16,284,966 |      |

 

11

 

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(a)               Such options to Mr. McKowen also have futurecompensation expense of $1,399,168, which will be recognized over the remaining23 month vesting period unless the Company concludes that such options are nolonger probable of vesting.

 

**Note 3 – Reorganization of BPZ Energy, Inc. and BPZ& Associates, Inc.**

 

Prior to the execution of the Merger Agreement on July 8,2004, BPZ Energy, Inc. was a wholly-owned subsidiary of BPZ & Associates,Inc.  Immediately prior to the date ofthe Merger Agreement, BPZ & Associates, Inc. reorganized its capitalstructure to distribute shares of BPZ Energy, Inc. to certain shareholders ofBPZ & Associates, Inc. and to provide that BPZ Energy, Inc. would forgivethe obligation for intercompany advances, which totaled $1,052,328 prior to theMerger.  This reorganization is reflectedas a capital transaction in the accompanying financial statements.

 

**Note 4 – Investment in SMC Ecuador and Notes Payable**

 

During June 2004,the Company entered into an agreement to purchase 100% of the common stock ofSMC Ecuador.  The sole asset of SMCEcuador is a 10% non-operated interest in a producing oil and gas field inEcuador.  In order to finance theacquisition of this investment, the Company entered into a debt arrangementwith an individual who provided $1,375,000 of debt financing at an interestrate of 15%.  The proceeds of the debtfinancing were used to pay for the cost of the acquisition of $1,070,000 plus$69,670 of transaction costs.  Theremainder of the borrowings, or $235,330, was used for general corporatepurposes.  In addition to the interestrate, the lender has the right to receive a 40% net profits interest in the oiland gas properties owned by SMC Ecuador. Accordingly, 40% of the acquisition cost, or $428,000 is considered asadditional financing costs.

 

Effective September 29,2004, the Company entered into an agreement to convert $1,000,000 of theprincipal balance of this note payable, plus $20,529 of accrued interest, into500,000 shares of common stock.  Theremaining balance of the note payable, or $293,136 as of September 30,2004 will be payable in 10 equal monthly installments with interest imputed at15%.

 

The Company’saccounting policy regarding partnership or joint venture interests in oil andgas properties is to consolidate such interests on a pro-rata basis inaccordance with accepted practice in the oil and gas industry.  However, the Company has not been able toreceive timely information to allow it to fully consolidate the smallnon-operated working interest owned by SMC Ecuador, which is effectively a 6%net working interest.  Accordingly, theCompany has made an election to account for this investment under the costmethod.  As such, the Company will recordits share of cash received or paid attributable to this investment as otherincome or expense.

 

###### **Note5 – Long-Term Debt**

###### ** **

At December 31, 2003, the Company hadlong-term debt of $755,000, consisting of two unsecured notes payable toindividuals.  Both notes had similar terms,bearing interest at 7%, with payments of interest due on a monthly basis andthe principal balance due at maturity in February 2006.  During 2004, the Company made additional borrowings of $520,000 underterms similar to the previous borrowings. Of such amount, $240,000 was used to replace previous borrowings.  Prior to the Merger, all of the outstanding long-termdebt obligations of the Company, totaling $1,035,000, were converted to commonstock under negotiated agreements.  There was no long-term debt outstandingat September 30, 2004.

 

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**Note 6 – Stockholders’ Equity**

 

**Private Placement of Common Stock**

 

In connection with the Merger, Navidec, Inc. began marketing a private placement of common stock on July 24, 2004.  The private placement proceeds are intended to be used to develop the oil and gas properties of BPZ Energy, Inc., to acquire new properties and for general corporate purposes.  The offering covered a minimum of 1,500,000 shares and a maximum of 3,000,000 shares at an offering price of $2.00 per share before placement agent fees and other offering costs.  It was a requirement that the offering achieve at least the minimum number of shares prior to consummation of the Merger.

 

As of September 10, 2004, Navidec, Inc. had received gross cash proceeds of $3,357,000 ($2,882,689 net of offering costs) from the sale of 1,678,500 shares of common stock in the private placement and the Merger was consummated.  Subsequent to the consummation of the Merger, the Company placed the remaining 1,321,500 shares for gross cash proceeds of $2,643,000 ($2,534,118 net of offering costs).

 

As of September 30, 2004, the private placement had been closed at $6,000,000 of total gross proceeds.  However, certain of the final cash proceeds were in transit with the escrow agent pending disbursement to the Company.  Accordingly, the final net cash proceeds of $1,669,870 from the private placement are included on the accompanying balance sheet as a current receivable due from the escrow agent and was collected in cash on October 6, 2004.

 

**Exercise of Stock Options**

 

During the quarter ended September 30, 2004, stockoptions representing 41,268 shares of Navidec, Inc. common stock wereexercised.  As discussed in Note 2 of theNotes to Consolidated Financial Statements, these stock options wereoutstanding at the date of the Merger and were assumed by the combined Companyin connection with the Merger.  However,the Company does not receive any of the proceeds from the exercise of thesestock options, but is obligated to issue the shares.  Under the terms of the Merger Agreement, NFSis entitled to receive all proceeds from the exercise of these options.

 

**Note 7 – Affiliate and Related Party Transactions**

 

AtDecember 31, 2003, the Company had a receivable of approximately $162,800due from BPZ & Associates, Inc., which was the parent of the Company priorto the Merger.  Additionally, BPZ Energy,Inc. made additional cash advances to BPZ & Associates, Inc. totaling$889,528 prior to the Merger.  Asdiscussed in Note 3 of the Notes to Consolidated Financial Statements, these advances,totaling $1,052,328, were forgiven in connection with the reorganization of BPZEnergy, Inc. and BPZ Associations, Inc. prior to the Merger

 

BPZ& Associates, Inc., an entity controlled by certain officers and directorsof the Company, is entitled to a 10% overriding royalty interest in all grossrevenues produced from the Peruvian properties conveyed in the MergerAgreement, consisting of Block Z-1, Block XIX, Area VI and Area XVI.

 

Ashareholder of the Company has assumed the obligation for certain bondingrequirements totaling $40,000, but has a remaining obligation to fund $30,825of cash collateral relating to these bonds. This amount is reflected as a non-current receivable on the accompanyingbalance sheet.  This shareholder hasalready provided cash funding totaling $319,175 in connection with its variouscommitments.

 

**Note 8 – Commitments And Contingencies**

 

The Company has variousobligations and commitments in connection with its exploratory properties inPeru.  The majority of these obligationsrelate to technical services and evaluations and are largely discretionary asto timing and amount.  The Companyperforms a significant amount of these technical services using its internalstaff and systems.

 

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In connection with Block Z-1, the Company isobligated to post a $1,300,000 performance bond in January 2005 and must drillat least one well before July 2006.  Thiswell is currently budgeted to cost approximately $2,500,000.  The Company will continue to make commitmentsin the ordinary course of business as it pursues its development plans for theproperties.

 

 

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**Item 2****.  Management’s Discussion and Analysis Or Plan of Operation**

 

Cautionary Information AboutForward-Looking Statements

 

This document containsforward-looking statements within the meaning of Section 27A of the SecuritiesAct and Section 21E of the Exchange Act. All statements, other than statementsof historical facts, included in or incorporated by reference into this Form10-Q which address activities, events or developments which the Companyexpects, believes or anticipates will or may occur in the future areforward-looking statements. The words “believes,” “intends,” “expects,”“anticipates,” “projects,” “estimates,” “predicts” and similar expressions arealso intended to identify forward-looking statements. These forward-lookingstatements include, among others, statements concerning:

 

*                                         reserveestimates,

*                                         futureproduction of oil and gas,

*                                         businessstrategies,

*                                         oiland gas prices and demand,

*                                         exploitationand exploration prospects,

*                                         expectations,

*                                         beliefs,

*                                         estimations,

*                                         projections,and other similar matters that are not historical facts, including such mattersas:

*                                         futurecapital,

*                                         developmentand exploration expenditures (including the timing, amount and nature thereof),

*                                         drillingand reworking of wells, reserve estimates (including estimates of future netrevenues associated with such reserves and the present value of such future netrevenues),

*                                         repaymentof debt,

*                                         expansionand other development trends of the oil and gas industry, and

*                                         expansionand growth of business operations.

 

These statements are based oncertain assumptions and analyses made by the management of BPZ in light of itsexperience and its perception of historical trends, current conditions andexpected future developments as well as other factors it believes areappropriate in the circumstances. BPZ cautions the reader that theseforward-looking statements are subject to risks and uncertainties includingthose associated with:

 

*                                         ourability to finance our operations and acquisition strategy on favorable terms,

*                                         ourability to successfully restructure our operations,

*                                         thefinancial environment,

*                                         generaleconomic, market and business conditions,

*                                         theregulatory environment,

*                                         businessopportunities that may be presented to and pursued by BPZ,

*                                         changesin laws or regulations

*                                         exploitationand exploration successes,

*                                         trendprojections, and

*                                         otherfactors, many of which are beyond BPZ’s control that could cause actual eventsor results to differ materially from those expressed or implied by thestatements.

 

Such risks and uncertaintiesinclude those risks and uncertainties identified in the Description of theBusiness and Management’s Discussion and Analysis sections of this document andrisk factors discussed from time to time in the Company’s filings with theSecurities and Exchange Commission.

 

**Organization and Basis of Presentation**

 

Navidec, Inc., a Colorado corporation (“Navidec” or the “Company”), was incorporated in 1993.  On September 10, 2004, the Company consummated a merger (the “Merger”) with BPZ Energy, Inc., a Texas corporation (“BPZ”) through the issuance of 9,000,000 shares of its common stock and certain other terms and consideration as more fully described in Note 2 of the Notes to Consolidated Financial Statements.  The Company is also committed to issue a maximum of 18,000,000 additional shares to the previous shareholders of BPZ on a contingent earn-out basis if BPZ is able to achieve certain proven reserve and production goals.  Such contingent earn-out shares, if earned, cannot be issued until the shareholders have approved an increase in the number of authorized shares of the Company.

 

As a result of the Merger, the shareholders of the acquired company, BPZ, received the majority of the voting interests and control of the Board of Directors of the combined entity.  Accordingly, BPZ was deemed to be the acquiring company for financial reporting purposes and the transaction has been accounted for as a reverse merger.  The historical financial statements of the Company are the historical financial statements of BPZ.

 

In connection with the Merger, the Company committed to spin off all pre-Merger operations, assets and liabilities of Navidec, Inc. (with the exception of the net proceeds of a private placement of common stock as more fully described in Note 6 of the Notes to Consolidated Financial Statements) into a separate corporation, Navidec Financial Services, Inc. (“NFS”), to be distributed to the shareholders of record on September 9, 2004, which record date is prior to consummation of the Merger.  Accordingly, the former shareholders of BPZ will not be entitled to receive shares of NFS.  As of September 30, 2004, NFS was still a wholly-owned subsidiary of the Company.  However, all legal requirements for the spin-off of NFS have been completed except for certain filings with the Securities and Exchange Commission and the final distribution of common shares of NFS to the pre-Merger shareholders.  Accordingly, the Board of Directors of Navidec elected to treat the spin-off for accounting purposes as if it had been consummated prior to September 30, 2004 and the consolidated financial statements of the Company exclude all of the assets, liabilities and results of operations of NFS.  The Company is continuing to take steps necessary to consummate the spin-off of NFS, but cannot predict when this process will be completed.

 

**Business of the Company**

 

BPZ was established in 2001 as an oil and gas exploration and production (E&P) company.  BPZ is headquartered in Houston, Texas and has a fully staffed office in Lima, Peru.  BPZ’s business is to develop, own and operate prospects and energy projects in South America.  Currently, BPZ has exclusive rights and licensing agreements for oil and gas exploration and production covering a total approximately

 

15

 

2.76 million acres in four basins of NW Peru, owns a non-operating interest in production in SW Ecuador, is in the process of negotiating marketing agreements for gas sales with several power companies in the region, and is seeking to acquire additional oil producing properties with upside potential in these two countries, as well as in other areas of Venezuela.

 

**BPZ’s Current Property Interests in Peru**

 

BPZ has expanded its exploration base in NW Peru by acquiring a 100% interest in Block XIX, Block Z1, and Areas XVI and VI, located in the adjacent basins of Tumbes, Talara, and Lancones.  These four blocks occupy a combined area of approximately 1.1 million hectares approximately 2.76 million acres).  BPZ has exercised its preferential right to increase its original minority participation under the License Contract for the Z-1 Block to 100%, subject to final Peruvian agency approval.

 

BPZ’S EXPLORATION PROJECTS IN NW PERU

 
| ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **        | ** ** | **BPZ’s** | ** ** |
|------------|------------|----------------|------------|----------------|------------|-------------------|------------|----------------|------------|
| ** ** | ** ** | ** **     | ** ** | **AREA**       | ** ** | **Participation** | ** ** |
| **BLOCK**  | ** ** | **BASIN**      | ** ** | **(hectares)** | ** ** | **(acres)(1)**    | ** ** | **(%)(2)**     | ** ** |
| Z-1        |       | Tumbes         |       | 299,273        |       | 739,205           |       | 100            | %          |
| XIX        |       | Tumbes/Talara  |       | 191,441        |       | 472,860           |       | 100            | %          |
| XVI(3)     |       | Talara         |       | 43,358         |       | 107,095           |       | 100            | %          |
| VI(3)      |       | Lancones       |       | 584,305        |       | 1,443,232         |       | 100            | %          |
|       |       | TOTAL  ===> |       | 1,118,377      |       | 2,762,391         |       |           |       |

 

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| Note:  | (1) | Conversion ratio of 2.47 acres per 1 hectare                                                                                                                                   |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (2) | All blocks are subject to a 10% overriding royalty interest in favor of BPZ & Associates, Inc., an entity controlled by certain officers and directors of BPZ Energy, Inc. |
|   | (3) | These blocks are covered by Technical Evaluation Agreements which have a 24 month initial term.                                                                                |

 

**Description of Block Z-1**

 

Block Z-1, a coastal offshore area encompassing 299,273 hectares (740,000 acres) is uniquely situated at the southern end of the Gulf of Guayaquil.

 

**Description of Block XIX**

 

Block XIX covers about 200,000 hectares lying entirely onshore and adjacent to Block Z-1 within the Tumbes basin of Oligocene-Neogene age.

 

**Description of Area XVI**

 

Block XVI is located onshore in NW Peru, within the Department of Piura, Province of Talara, and has an extension of 44,358.2 hectares (equivalent to 109,609.1 acres). Area XVI lies about 85 kilometers to the N.E. of the city of Talara, within the District of El Alto, and immediately to the east of Block X, currently operated by Petrobras Energia S.A., the largest producing block in the Talara Basin.

 

**Description of Area VI**

 

Area VI is located onshore in Northwest Peru, within the region known as Department of Piura, and covering parts of the Provinces of Talara, Sullana, Piura and Paita. Area VI has an areal extension of 584,437.7 hectares, equivalent to 1,443,561.2 acres, covering nearly the entire Lancones Basin.

 

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**Employees**

 

As of September 30, 2004 BPZ employed 10 full-time employees (of which 3 are executive officers) and 4 part-time employees.  BPZ believes that its relationship with its employees is satisfactory. None of the employees are represented by a union.

 

**Facilities**

 

BPZ leases offices at 11999 Katy Freeway, Suite 560, Houston, Texas consisting of approximately 4,000 square feet.  The Company also maintains a small office at Av. Canaval y Moreyra 425, Office #81, San Isidro, Lima 27, Peru.

 

**Results ofOperations**

 

The Company is in the earlystage of developing its properties in Peru and does not currently have anyproduction or revenues from these properties. Its operations to date have been limited to technical evaluation of the propertiesand the design of development plans to exploit the oil and gas resources onthose properties.

 

Our expenses to date haveconsisted principally of geological, geophysical and engineering costs as wellas general and administrative costs. These costs have increased significantly in 2004 from the levels during2003 as the activity levels of the Company have increased.  We expect them to continue to increase as weproceed with our development plans.

 

In connection with the Merger,we recorded a charge in the amount of $16.3 million.  This charge is discussed in detail in Note 2of the Notes to Consolidated Financial Statements.

 

**Liquidityand Capital Resources**

 

Prior to the Merger, theCompany primarily used debt financing to fund its operations.  In connection with the Merger, the Companyreceived total net proceeds of approximately $5.4 million from a privateplacement of its common stock.  TheCompany believes that these funds will be adequate to allow it to meet itscommitments and assure its continued operations for at least the next twelvemonths.  However, the Company willrequire additional financing in order to develop its properties and beginproducing commercially significant revenues. The Company may seek to fund these activities with either debt or equityfinancing, or some combination thereof. The Company will be dependent on the capital markets for these funds andthere can be no assurance that the Company will be successful in its efforts tosecure such additional capital.

 

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**TWELVEMONTH PLAN OF OPERATION**

 

Our twelve month plan ofoperation as of September 30, 2004 is to accomplish important milestones forthe Company, as discussed below. The achievement of our objectives is subjectto our ability to obtain significant financing from external sources.  We are exploring and attempting to developexternal financing options, but we do not currently have sufficient capitalresources, nor do we have firm commitments from external sources to allow us toundertake all of the operations envisioned in this plan.

 

We intend to start producinggas by the third quarter of 2005 to feed the first 150 MW of a potential 600 MWgas-power electric generation complex to be built near the town of Caleta Cruz,in the Department of Tumbes, Peru.  Thisfirst phase will initially use gas from the Corvina and Piedra Redonda offshorenatural gas fields, which are located just 10 and 25 miles away, respectively,from the power plant site.  The chosenpower plant site has an existing substation and power transmission linescapable of handling the first 300 MW of power that will be delivered from thissite.  Our immediate plan is to sell thegas from the existing shut-in well at Corvina to the future gas fired electricgeneration facility and also to participate in the revenue generated from thesale of the electricity.  Additionalwells will be drilled from time to time as needed to meet the expectedincreasing demand and generation capacity, but such future development willmost likely take place beyond the current twelve month plan.

 

To accomplish this, BPZ has,subject to official publication of final government approval, secured 100%working ownership of the License Contract for Block Z-1, where the nearbyCorvina and Piedra Redonda gas fields are situated.  Official ratification and issuance of aSupreme Decree by the government of Peru is expected by January 2005.  BPZ has retained Gaffney Cline &Associates for an independent certification of the gas reserves found in theCorvina and Piedra Redonda gas fields. The proposed gas power electric generation project is further supportedby an independent power market analysis for the region.  We believe there is an opportunity to generateand profitably sell up to 600 MW of power into the Peruvian power market.

 

With 100% ownership of the Z-1Block (subject to government royalty interests of 5% to 20% based on productionand overriding royalties of 10%) and the gas reserves properly certified, BPZplans to submit to Perupetro a declaration of commerciality and request itsapproval to implement a development plan for the Corvina and Piedra Redonda gasfields.  With the declaration ofcommerciality, including the respective authorization to have full access tothe existing Corvina gas field platform, we expect to refurbish and commissionthe Corvina platform as well as the existing shut in gas well.

 

We plan to have this platformand the existing well ready for production, and the permit to build a gas lineto the shore in time to deliver this gas to the proposed power plant at Caletala Cruz by the third quarter of 2005. Preliminary agreements have already been reached with vendors to supplyat least one of the two gas fired electric generation turbines under a leasepurchase arrangement.  Financing for theentire gas production and power development project is being sought through acombination of leasing, debt and equity resources.

 

Notwithstanding the large localpower market targeted by our project in Peru, BPZ intends to simultaneouslydevelop a previously announced gas-power strategy in nearby Ecuador over the

 

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next three years to fullymonetize the large upside gas potential estimated for the Corvina and PiedraRedonda fields, as well as for the potentially significant and previouslydiscovered natural gas reserves in the adjacent onshore Block XIX.  All of these areas are near the Ecuadorianborder and can easily be developed for export sales of either raw gas or powergeneration via the interconnected transmission system to that country.

 

We expect to have ourenvironmental permits to shoot seismic in Block XIX, an onshore area adjacentto the offshore Block Z-1, before the end of the first quarter 2005.  However, now that BPZ controls 100% of BlockZ-1, our primary goal will be development of the gas production we need tocommence power generation at the proposed electric plant.  As such, the seismic shoot in Block XIX maybe scheduled later in the year when we have sufficient financial and technicalresources available for that project.

 

An environmental study for theconstruction of the gas lines needed to transport the gas from the Corvina andPiedra Redonda gas fields to the power plant site, as well as an environmentalstudy to build the power plant will be carried out during the first quarter of2005.  These studies must be completedand approved before the gas lines and power plants may be built.

 

Our other two areas in Peru,which are held by BPZ under exclusive Technical Evaluation Agreements, will undergogeochemical studies throughout calendar year 2005. While relativelyinexpensive, these geochemical studies should give us a good indication of theexploration and development potential of these areas, once the information isfully integrated with previously acquired geophysical and geological data byour technical staff. 

 

We also hope to acquireadditional producing properties in our core area of operations in NorthwestPeru and Southwest Ecuador.  We arecurrently in advanced negotiations for the purchase of two properties whichproduce approximately 2,000 barrels of crude oil per day in NorthwestPeru.  This acquisition is contingentupon external financing and completing due diligence on the producing properties.  This transaction, if consummated, shouldclose during the first quarter of 2005. There can be no guarantee that we will be able to obtain financing onterms acceptable to us for the purpose of such an acquisition.  However, based upon our preliminary economicand technical models, the acquisition appears to be commercially attractive andif consummated, would yield substantial benefits to the company.  Our twelve month plan also contemplates theaddition of adequate technical and administrative staff, both locally in Peruand in our Houston headquarters to accomplish these objectives.  Local and field staffing are expected to besignificantly augmented by the acquisition of these producing properties, whichare already staffed with capable and experienced personnel.

 

While we believe we haveadequate capital on hand to start implementing the ongoing gas-power strategy,our plan of operations will require substantial financing for the gas line andpower plant installation, for which no firm commitments have been received andtherefore no guarantees can be made as to their availability.  However, given the fact that substantialreserves are in place to fuel a power project, and that demand for power inboth Peru and Ecuador exceeds the supply available at reasonable prices, BPZEnergy, Inc. believes it will obtain the needed financial resources toimplement the proposed 12-month plan.  Wehave undertakings in place with highly respected investment banking advisors tosecure the necessary capital resources for accomplishing our near term and longerterm acquisition and development efforts.

 

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**Item 3.  Cont****rols and Procedures**

 

Prior to the completion of the reverse merger, BPZ Energy, Inc. was a private company and lacked many of the accounting procedures and disclosure controls necessary to operate effectively as a public company in the current regulatory environment.  The Chief Executive Officer of the Company, Thomas E. Kelly, is currently serving as the Chief Financial Officer of the Company.  Mr. Kelly is not a certified public accountant, nor does the Company currently have any full-time employees or officers who possess the training and experience typically expected of the Chief Accounting Officer or Chief Financial Officer of a public company.  Mr. Kelly, in conjunction with the Company’s accounting and legal advisors, has reviewed the Company’s disclosure controls and procedures and concluded that the Company’s current disclosure controls and procedures are not adequate to ensure that (i) all material information relating to the Company and its consolidated subsidiaries would be made known to him by individuals within those entities, including during the period in which this report was being prepared, and (ii) that all material information required to be disclosed in its SEC reports is consistently recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

In light of the deficiencies and weaknesses identified in the Company’s disclosure controls and procedures as discussed above, the Company engaged various consultants to assist it in preparing the financial statements for the periods contained in this report and Mr. Kelly and the Board of Directors have concluded, to the best of their knowledge and belief, that the financial information and disclosures contained in this report are complete and accurate.

 

Further, the Company is in the process of hiring additional personnel and engaging additional consultants to assist it in taking the necessary corrective actions to establish and/or improve the Company’s disclosure controls and procedures to ensure that material information relating to the Company and its consolidated subsidiaries will be made known to it by individuals within those entities, and that information required to be disclosed in the Company’s SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

**Limitations on the Effectiveness of Controls**

 

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resources constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

 

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can only be reasonable assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

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**PART II****- OTHER INFORMATION**

 

**Item 1****.  Legal Proceedings**

 

The Company is subject to, and may become a party to, disputes or litigation in connection with the conduct of its business.  Management is not aware of any pending or threatened litigation which would have a material impact on the Company’s financial position or results of operations.

 

**Item 2.  Chang****es in Securities and Small Business Issuer Purchases of Equity Securities**

 

Inconnection with the Merger of the Company and BPZ Energy, Inc. (the “Merger”), theCompany issued 9,000,000 shares of common stock in a stock for stock exchangeto the shareholders of BPZ Energy, Inc.  Thistransaction is more fully discussed in Note 2 of the Notes to ConsolidatedFinancial Statements.

 

Inconnection with the Merger, the Company issued 604,246 shares of common stockto Navidec Financial Services (“NFS”), a wholly-owned subsidiary of theCompany.  Pursuant to the terms of theMerger agreement, NFS will be spun off to the shareholders of record ofNavidec, Inc. immediately prior to the consummation of the Merger.

 

OnSeptember 29, 2004, the Company issued 500,000 shares of common stock toan individual in exchange for the retirement of $1,020,529 of debt.

 

As of September 30, 2004, the Company closed a private placement of common stock for cash that began on July 27, 2004.  The offering raised a total of $6,000,000 in gross proceeds through the sale of 3,000,000 common shares at a price of $2.00 per share to a total of 5% accredited investors.  The Company intends to use the net proceeds of this offering to develop its existing oil and gas properties, to acquire new properties, and for general working capital purposes, as management deems appropriate.  The net proceeds of the offering were approximately $5,640,000 after deducting placement agent fees of $360,000.

 

The shares of common stock issued during the period were exempted from registration in reliance upon Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Regulation D promulgated thereunder.  Shares in the private placement were only offered to select accredited investors (as such term is defined in Rule 501(a) of Regulation D under the Securities Act).

 

**Item 3****.  Defaults Upon Senior Securities**

 

None.

 

**Item 4****.  Submission of Matters to a Vote of Securities Holders**

 

None.

 

**Item 5****.  Other Information**

 

None.

 

**Item 6****.  Exhibits**

 

(a) Exhibits.

 

31.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.  (Filed herewith).

 

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32.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.  (Filed herewith).

 

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**SIGNATURES**

 

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 
|   | NAVIDEC, INC.                                      |
|--------|----------------------------------------------------|
|   |                                               |
|   | */s/ Thomas E. Kelly*                              |   |
|   | Thomas E. Kelly                                    |
|   | Chief Executive Officer andChief Financial Officer |
|   |                                               |
|   | Date: DECEMBER 17, 2004                       |

 

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