UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q10-Q/A
Amendment No.2
(Mark One)
/XX/[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JuneDecember 24, 20012000
OR
/__/[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ______________ to ______________
Commission file number: 0-19717
NEXIQ TECHNOLOGIES, INC.
(formerly WPI GROUP, INC.)
(Exact name of Registrant as specifiedSpecified in its charter)Charter)
|
|
| 02-0218767 | 1155 Elm Street, Manchester, New Hampshire (Address of principal executive offices) | 03101 (Zip Code) |
1155 Elm Street, Manchester, New Hampshire03101(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(603)627-3500
(603) 627-3500
_________________________________________________________________________________
(Former name, former address, and former fiscal year, if changed since last reportreport)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YesXNo ___ No___
Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ___Yes___ No___
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Class | Outstanding as of |
Common Stock, par value $.01 | 7,893,958 shares
|
NEXIQ TECHNOLOGIES, INC.
INDEX
Page No. | |||||||||
PART I | |||||||||
Consolidated Balance Sheets | 3 | ||||||||
- December 24, 2000 and September 24, 2000 | |||||||||
Consolidated Statements of Operations | 4 | ||||||||
- Three months ended December 24, 2000 and December 26, 1999 | |||||||||
Consolidated Statements of Cash Flows | 5 | ||||||||
- Three months ended December 24, 2000 and December 26, 1999 | |||||||||
Notes to Consolidated Financial Statements | 6 | ||||||||
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | |||||||||
PART II - OTHER INFORMATION | |||||||||
Item 6. Exhibits and Reports on Form 8-K | |||||||||
SIGNATURES |
-2-
NEXIQ TECHNOLOGIES, INC.CONDENSED CONSOLIDATED BALANCE SHEETS
| September 24, 2000 | June 24, 2001 (unaudited) | |||||||
---|---|---|---|---|---|---|---|---|---|
ASSETS | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | 102,156 | $ | 2,173,470 | |||||
Accounts receivable - net of allowance for doubtful accounts of $300,000 and $67,675, respectively | 1,206,472 | 1,833,702 | |||||||
Inventories | 441,151 | 944,900 | |||||||
Prepaid expenses and other current assets | 258,780 | 605,489 | |||||||
Refundable income taxes | 105,551 | 102,735 | |||||||
Deferred income taxes | 97,425 | 97,425 | |||||||
Net assets of discontinued operations | 6,391,000 | — | |||||||
Total current assets | 8,602,535 | 5,757,811 | |||||||
Property, Plant and Equipment at cost, less accumulated deprecation | 889,991 | 1,358,948 | |||||||
Other assets | 3,565,037 | 7,968,329 | |||||||
$ | 13,057,363 | $ | 15,085,088 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
Current Liabilities | |||||||||
Notes payable | $ | 18,276,246 | $ | 13,544,894 | |||||
Accounts payable | 1,391,700 | 1,585,942 | |||||||
Accrued expenses | 2,788,878 | 3,609,886 | |||||||
Total current liabilities | 22,456,824 | 18,740,722 | |||||||
Convertible Notes Payable | 10,978,369 | 17,940,691 | |||||||
Other Long-Term Liability | 944,238 | 909,094 | |||||||
Deferred Income Taxes | 144,537 | 144,537 | |||||||
Stockholders' Deficit: | |||||||||
Common stock, $0.01 par value; authorized 75,000,000 Shares; issued and outstanding 7,891,963 and 9,611,443, respectively | 78,920 | 96,114 | |||||||
Additional paid-in capital | 18,191,200 | 29,140,644 | |||||||
Accumulated deficit | (39,736,525 | ) | (51,886,714 | ) | |||||
Total stockholders' deficit | (21,466,405 | ) | (22,649,956 | ) | |||||
$ | 13,057,563 | $ | 15,085,088 | ||||||
See notes to condensed consolidated financial statements
-3-
NEXIQ TECHNOLOGIES, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited)BALANCE SHEETS
Three Months Ended | Nine Months Ended | ||||||||||||
June 25, 2000 | June 24, 2001 | June 25, 2000 | June 24, 2001 | ||||||||||
Continuing Operations: | |||||||||||||
Net Sales | $ | 3,573,724 | $ | 3,379,359 | $ | 10,734,845 | $ | 9,848,837 | |||||
Cost of Goods Sold | 1,409,141 | 1,367,668 | 4,265,729 | 4,006,764 | |||||||||
Gross Profit | 2,164,583 | 2,011,691 | 6,469,116 | 5,842,073 | |||||||||
Operating Expenses: | |||||||||||||
Research and development | 818,748 | 2,250,859 | 2,323,483 | 5,816,137 | |||||||||
Selling, general and administration | 1,670,593 | 2,194,216 | 5,923,983 | 6,029,883 | |||||||||
Restructuring costs | — | — | 1,770,000 | — | |||||||||
Total Operating Expenses | 2,489,341 | 4,445,075 | 10,017,466 | 11,846,020 | |||||||||
Operating Loss | (324,758 | ) | (2,433,384 | ) | (3,548,350 | ) | (6,003,947 | ) | |||||
Other Income (Expense): | |||||||||||||
Interest expense | (1,030,919 | ) | (1,839,354 | ) | (2,022,424 | ) | (4,637,800 | ) | |||||
Forbearance expense | (253,500 | ) | — | (538,500 | ) | — | |||||||
Other, net | 1,479 | 40,699 | (3,955 | ) | 96,558 | ||||||||
Loss Before Income Taxes | (1,607,698 | ) | (4,232,039 | ) | (6,113,229 | ) | (10,545,189 | ) | |||||
Income Tax Expense (Benefit) | — | — | — | — | |||||||||
Loss from Continuing Operations | $ | (1,607,698 | ) | $ | (4,232,039 | ) | $ | (6,113,229 | ) | $ | (10,545,189 | ) | |
Discontinued Operations: | |||||||||||||
Estimated loss from disposal of discontinued operations | (615,000 | ) | — | (2,175,000 | ) | — | |||||||
Loss before cumulative effect of change in accounting principle | (2,222,698 | ) | (4,232,039 | ) | (8,288,229 | ) | (10,545,189 | ) | |||||
Cumulative Effect of Change in Accounting Principle | — | — | — | (1,605,000 | ) | ||||||||
Net Loss | $ | (2,222,698 | ) | $ | (4,232,039 | ) | $ | (8,288,229 | ) | $ | (12,150,189 | ) | |
Earnings (Loss) Per Share: | |||||||||||||
Continuing operations | $ | (0.27 | ) | $ | (0.49 | ) | $ | (1.01 | ) | $ | (1.29 | ) | |
Discontinued Operations | (0.10 | ) | — | (0.36 | ) | — | |||||||
Effect of Accounting Change | — | — | — | (0.20 | ) | ||||||||
Net Loss | $ | (0.37 | ) | $ | (0.49 | ) | $ | (1.37 | ) | $ | (1.49 | ) | |
Weighted Average Common Shares | 6,053,259 | 8,723,412 | 6,053,243 | 8,169,862 | |||||||||
Effect of Dilutive Options | — | — | — | — | |||||||||
Basic and Dilutive Weighted Average Shares Outstanding | 6,053,259 | 8,723,412 | 6,053,243 | 8,169,862 | |||||||||
| September 24, 2000 | December 24, 2000 (unaudited) | |||||||
---|---|---|---|---|---|---|---|---|---|
ASSETS | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | 102,156 | $ | 624,112 | |||||
Accounts receivable - net of allowance for doubtful accounts of $300,000 at September 24, 2000 and December 24, 2000 | 1,206,472 | 1,492,547 | |||||||
Inventories | 441,151 | 507,595 | |||||||
Prepaid expenses and other current assets | 258,780 | 441,037 | |||||||
Refundable income taxes | 105,551 | 105,551 | |||||||
Prepaid income taxes | 97,425 | 97,425 | |||||||
Net assets of discontinued operations | 6,391,000 | — | |||||||
Total current assets | 8,602,535 | 3,268,267 | |||||||
Property, Plant and Equipment at cost, less accumulated deprecation | 889,991 | 852,812 | |||||||
Other assets | 3,565,037 | 3,510,741 | |||||||
$ | 13,057,363 | $ | 7,631,820 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
Current Liabilities | |||||||||
Notes payable | $ | 18,276,246 | $ | 10,758,626 | |||||
Accounts payable | 1,391,700 | 1,694,368 | |||||||
Accrued expenses | 2,788,878 | 2,759,152 | |||||||
Total current liabilities | 22,456,824 | 15,212,146 | |||||||
Convertible Notes Payable | 10,978,369 | 16,310,645 | |||||||
Other Long-Term Liability | 944,238 | 879,734 | |||||||
Deferred Income Taxes | 144,537 | 144,537 | |||||||
Stockholders' Deficit: | |||||||||
Common stock, $0.01 par value; authorized 75,000,000 Shares; issued and outstanding 7,891,963 and 7,893,538, respectively | 78,920 | 78,936 | |||||||
Additional paid-in capital | 18,191,200 | 20,108,089 | |||||||
Accumulated deficit | (39,736,525 | ) | (45,102,267 | ) | |||||
Total stockholders' deficit | (21,466,405 | ) | (24,915,242 | ) | |||||
$ | 13,057,563 | $ | 7,631,820 | ||||||
See notes to condensed consolidated financial statements
-4--3-
NEXIQ TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| December 26, 1999 | December 24, 2000 | ||||||||
Continuing Operations: | ||||||||||
Net Sales | $ | 3,573,068 | $ | 3,166,695 | ||||||
Cost Of Goods Sold | 1,434,461 | 1,396,327 | ||||||||
Gross Profit | 2,138,607 | 1,770,368 | ||||||||
Operating Expenses: | < | |||||||||
Research and development | 682,569 | 1,671,784 | ||||||||
Selling, general and administration | 2,225,190 | 1,731,671 | ||||||||
Restructuring costs | 1,640,000 | — | ||||||||
Total Operating Expenses | 4,547,759 | 3,403,455 | ||||||||
Operating Loss | (2,409,152 | ) | (1,633,087 | ) | ||||||
Other Income (Expense): | ||||||||||
Interest expense | (252,334 | ) | (1,247,180 | ) | ||||||
Forbearance expense | (285,000 | ) | — | |||||||
Other, net | (5,275 | ) | — | |||||||
Loss Before Income Taxes | (2,951,761 | ) | (2,880,267 | ) | ||||||
Income Tax Expense (Benefit) | — | — | ||||||||
Loss from Continuing Operations | (2,951,761 | ) | (2,880,267 | ) | ||||||
Discontinued Operations: | ||||||||||
Loss from disposal of discontinued operations | — | — | ||||||||
Loss Before Cumulative Effect of Change in Accounting Principle | (2,951,761 | ) | (2,880,267 | ) | ||||||
Cumulative Effect of Change in Accounting Principle | — | (2,485,475 | ) | |||||||
Net Loss | $ | (2,951,761 | ) | $ | (5,365,742 | ) | ||||
Earnings (Loss) Per Share: | ||||||||||
Continuing operations | $ | (0.49 | ) | $ | (0.37 | ) | ||||
Discontinued operations | — | — | ||||||||
Effect of accounting change | — | (0.31 | ) | |||||||
Net loss | $ | (0.49 | ) | $ | (0.68 | ) | ||||
Weighted Average Common Shares | 6,050,608 | 7,892,182 | ||||||||
Effect of Dilutive Options | — | — | ||||||||
Adjusted Weighted Average Common Shares | 6,050,608 | 7,892,182 | ||||||||
See notes to consolidated financial statements
-4-
NEXIQ TECHNOLOGIES, INC.,CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | Nine Months Ended | | Three Months Ended | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | June 25, 2000 | June 24, 2001 | | December 26, 1999 | December 24, 2000 | ||||||||||||||
Cash Flows From Operating Activities: | Cash Flows From Operating Activities: | Cash Flows From Operating Activities: | ||||||||||||||||||
Net loss | $ | (8,288,229 | ) | $ | (12,150,189 | ) | Net loss | $ | (2,951,761 | ) | $ | (4,584,267 | ) | |||||||
Adjustments to reconcile net loss to net cash used in operating activities: | Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||||||||||
Depreciation and amortization | 1,555,722 | 2,677,209 | Depreciation and amortization | 795,465 | ||||||||||||||||
Loss from disposal of discontinued operations | 2,175,000 | — | Cumulative effect of change in accounting principle | — | 1,605,000 | |||||||||||||||
Cumulative effect of change in accounting principle | — | 1,605,000 | Other | 1,589 | 5,919 | |||||||||||||||
Other | — | 110,919 | Changes in current assets and liabilities net of effects of businesses divested: | |||||||||||||||||
Changes in current assets and liabilities net of effects of businesses divested: | Accounts receivable | 3,074,810 | (22,957 | ) | ||||||||||||||||
Accounts receivable | 4,327,085 | 166,669 | Accounts receivable - other | 321,054 | — | |||||||||||||||
Accounts receivable - other | 476,833 | — | Inventories | (1,346,374 | ) | (66,444 | ) | |||||||||||||
Inventories | (664,932 | ) | (503,839 | ) | Prepaid expenses and other current assets | (286,520 | ) | (209,531 | ) | |||||||||||
Prepaid expenses and other current assets | (21,276 | ) | (353,716 | ) | Accounts payable | 18,002 | (174,539 | ) | ||||||||||||
Accounts payable | (1,853,532 | ) | (417,565 | ) | Accrued expenses | 2,520,658 | 426,192 | |||||||||||||
Accrued expenses | 794,209 | 1,146,861 | Accrued income taxes | 447,280 | — | |||||||||||||||
Accrued income taxes | 405,439 | — | ||||||||||||||||||
Total adjustments | 5,545,964 | 2,209,190 | ||||||||||||||||||
Total adjustments | 7,194,548 | 4,431,538 | ||||||||||||||||||
Net cash used in operating activities | (1,093,681 | ) | (7,718,651 | ) | ||||||||||||||||
Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | 2,594,203 | (2,276,077 | ) | ||||||||||||||||
Cash Flows From Investing Activities: | Cash Flows From Investing Activities: | Cash Flows From Investing Activities: | ||||||||||||||||||
Proceeds from sale of businesses, net of expenses | 41,203,602 | 5,550,572 | ||||||||||||||||||
Acquisitions of business, net of acquisition costs | — | 150,167 | Proceeds from sale of businesses | 7,083,254 | 5,550,572 | |||||||||||||||
Additions to property, plant and equipment | (518,051 | ) | (368,143 | ) | Additions to property, plant and equipment | (188,525 | ) | (145,916 | ) | |||||||||||
Payment of accrued acquisition costs | (149,040 | ) | — | Payments of accrued acquisition costs | (89,032 | ) | — | |||||||||||||
Net cash provided by investing activities | 40,536,511 | 5,332,596 | Net cash provided by investing activities | 6,805,697 | 5,404,656 | |||||||||||||||
Cash Flows From Financing Activities: | Cash Flows From Financing Activities: | Cash Flows From Financing Activities: | ||||||||||||||||||
Payments of notes payable | (40,530,647 | ) | (5,111,352 | ) | Payments of notes payable | (9,842,677 | ) | (7,517,620 | ) | |||||||||||
Proceeds from debt, net of debt issuance costs | — | 4,789,460 | Proceeds from debt, net of debt issuance costs | — | 4,599,092 | |||||||||||||||
Payments of other long-term liabilities | — | (226,294 | ) | |||||||||||||||||
Proceeds from sale of warrants to purchase common stock and beneficial conversion feature | — | 4,995,571 | ||||||||||||||||||
Proceeds from sale of warrants to purchase common stock | Proceeds from sale of warrants to purchase common stock | — | 308,571 | |||||||||||||||||
Proceeds from issuance of common stock | Proceeds from issuance of common stock | 11,463 | 9,984 | Proceeds from issuance of common stock | 3,3044 | 3,334 | ||||||||||||||
Net cash provided by (used in) investing activities | (40,519,184 | ) | 4,457,369 | |||||||||||||||||
Net cash used in financing activities | Net cash used in financing activities | (9,839,633 | ) | (2,606,623 | ) | |||||||||||||||
Effect of Foreign Currency Translation on Cash | Effect of Foreign Currency Translation on Cash | 31,102 | — | |||||||||||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | Net Increase (Decrease) in Cash and Cash Equivalents | (1,076,345 | ) | 2,071,314 | Net Increase (Decrease) in Cash and Cash Equivalents | (408,631 | ) | 521,956 | ||||||||||||
Cash and Cash Equivalents, Beginning of Period | Cash and Cash Equivalents, Beginning of Period | 1,086,708 | 102,156 | Cash and Cash Equivalents, Beginning of Period | 550,320 | 102,156 | ||||||||||||||
Cash and Cash Equivalents, End of Period | Cash and Cash Equivalents, End of Period | $ | 10,354 | $ | 2,173,470 | Cash and Cash Equivalents, End of Period | $ | 141,689 | $ | 624,112 | ||||||||||
Supplemental Disclosure of Cash Information: | Supplemental Disclosure of Cash Information: | Supplemental Disclosure of Cash Information: | ||||||||||||||||||
Income taxes paid (refunded) | Income taxes paid (refunded) | $ | (117,054 | ) | $ | — | Income taxes paid (refunded) | $ | — | ) | $ | — | ||||||||
Interest paid | Interest paid | 6,309,867 | 977,643 | Interest paid | 2,910,879 | 433,569 | ||||||||||||||
Non-cash Investing Activities: | ||||||||||||||||||||
Promissory note received in sale of business | $ | — | $ | 1,000,000 | ||||||||||||||||
1,714,285 shares of common stock issued to acquire business |
See notes to condensed consolidated financial statements
-5-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
1. BASIS OF PRESENTATIONBasis of Presentation
The financial statements for the three months ended December 24, 2000 and nine months ended June 24, 2001 and June 25, 2000December 26, 1999 are unaudited and include all adjustments which, in the opinion of management, are necessary to present fairly the results of operations for the periods then ended. All such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K filed with the Securities and Exchange Commission (File No. 0-19717), which included financial statements for the years ended September 24, 2000.2000 and September 26, 1999.
Certain prior year amounts have been reclassified to conform towith current year presentation.
The results of the Company's operations for any interim period are not necessarily indicative of the results of the Company's operations for any other interim period or for a full fiscal year.
2. INVENTORIESInventories
Inventory consists of: | ||||||||||
September 24, | June 24, | |||||||||
2000 | 2001 | |||||||||
Raw Materials | $ | 281,199 | $ | 763,443 | ||||||
Work in Process | 40,422 | 27,761 | ||||||||
Finished Goods | 119,530 | 153,786 | ||||||||
Total | $ | 441,151 | $ | 944,990 | ||||||
| September 24, 2000 | December 24, 2000 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Inventories consist of: | ||||||||||
Raw Materials | $ | 281,199 | $ | 377,894 | ||||||
Work in Process | 40,422 | 37,061 | ||||||||
Finished Goods | 119,530 | 92,640 | ||||||||
Total | $ | 441,151 | $ | 507,595 | ||||||
3. DISCONTINUED OPERATIONSDiscontinued Operations
In November 2000, the Company completed the sale of WPI Instruments, Inc. and WPI Magnetec, Inc. to an investor group led by WPI Instruments management for approximately $6.1 million in cash and a $1.0 million promissory note, subject to final purchase price adjustments. The proceeds from the sale were applied to the outstanding bank debt and permanently reducedreduce the outstanding bank loans by $5.0 million.
4. ACQUISTION
In May 2001, the Company completed the acquistion of Diversified Software Industries, Inc. an independent software developer. In connection with the acquisition, NEXIQ Technologies issued 1,714,285 shares of common stock in exchange for all the outstanding shares of Diversified Software. In addition, NEXIQ Technologies granted nonstatutory stock options to acquire 1.0 million shares of NEXIQ common stock to certain employees of Diversified Software. The acquisition was accounted for as a purchase with excess purchase price over the estimated fair value of net assets acquired of approximately $3.9 million. The Company has not completed the final allocation of the components of intangible assets, and has assigned the excess principally to goodwill. Accordingly, the purchase price allocations are estimates and could change upon the completion of asset valuations, which are on-going as of the date of this filing.
The following pro forma results of operations reflect this transaction as if it had occurred on September 27, 1999. The pro forma data does not purport to be indicative of the results that would actually have been reported if the transaction had occurred on such date (unaudited):
-6-
Three Months Ended | Nine Months Ended | ||||||||||||
June 25, 2000 | June 24, 2001 | June 25, 2000 | June 24, 2001 | ||||||||||
Net Sales | $ | 3,986,727 | $ | 3,464,838 | $ | 12,706,103 | $ | 10,807,540 | |||||
Loss before cumulative effect of change in accounting principle | (2,868,633 | ) | (4,654,823 | ) | (9,412,478 | ) | (12,299,621 | ) | |||||
Net loss | (2,868,633 | ) | (4,654,823 | ) | (9,412,478 | ) | (13,904,621 | ) | |||||
Earnings (Loss) Per Share: | |||||||||||||
Loss before cumulative effect of change in accounting principle | $ | (0.37 | ) | $ | (0.48 | ) | $ | (1.21 | ) | $ | (1.28 | ) | |
Net loss | (0.37 | ) | (0.48 | ) | (1.21 | ) | (1.45 | ) |
5. LONG-TERM DEBTLong-Term Debt
In November 2000, the Company completed the Term B Financing under the Convertible Note Agreement. Under the terms of the Term B Financing, the Company received $5.0 million in cash in exchange for the following securities: warrants to purchase 571,000 shares of common stock at $1.75 per share and Term B Convertible NoteNotes with a principal value of $5.0 million. The Term B Convertible Note maturesNotes mature on July 31, 2003, bearsbear interest at an annual rate of 10.75% payable in cash or in additional notes at the option of the Company. The Term B Convertible Note isNotes are convertible into common stock at the option of the holder or the Company, under certain conditions at $1.75 per share.
In January 2001,2000, the Company received $5.0 million in cash upon completing the Term C Financing under the Convertible Note Agreement in exchange for issuingAgreement. The securities issued and the following securities: warrants to purchase 571,000 shares of common stock at $1.75 per share (initially valued at $0.9 million) and a $5.0 million Term C Convertible Note with terms thereof are identical to the Term B Convertible Notes (initially valued at $0.3 million).discussed above.
-6-
5. Restatement
In accordance withSubsequent to the Company's filing on Form 10-Q for the first quarter ended December 24, 2000, the Company concluded it was necessary to reflect the impact of Emerging Issues Task Force (EITF) 00-27 "Application of Issue 98-5 to Certain Convertible Instruments,"Instruments" as a cumulative change in accounting principle as of the beginning of the quarter ended December 24, 2000. As a result, the Company has recorded aconcluded that it was necessary to revise its previously disclosed unaudited results of operations for the three months ended December 24, 2000.
In accordance with EITF 00-27, the Company has allocated $2.5 million of the proceeds from the Term A Financing to the beneficial conversion feature resulting in a discount on the Term A Convertible Note. The beneficial conversion feature has been recorded in additional paid in capital related tocapital. The resulting discount on the Term A FinancingConvertible Note has been fully amortized, since the debt is immediately convertible at the option of approximately $1.6 million as athe holder. Consequently, the cumulative effect of a change in accounting principle. The resulting discountprinciple has been reflected in the statement of operations as of the beginning of the quarter ended December 24, 2000.
A summary of the impact of the restatement on the debt has been fully amortized immediately, since the debt is convertible at any time at the option of the holder.
In addition, the Company has allocated a portion of the proceeds from the Term C Financing to the beneficial conversion feature of the Term C Convertible Note. The Company has recorded a beneficial conversion feature of $3.8 million in additional paid in capital in connection with the Term C Financing resulting in a discount on the Term C Convertible Note. The discount is being amortized over the period ending July 2003.
-7-
6. NET LOSS PER COMMON SHARE
Basic earnings per share ("EPS") is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Other obligations, such as stock options and warrants, are considered to be potentially dilutive common shares. Diluted EPS assumes the issuance of potential dilutive common shares outstanding during the period and adjusts for any changes in income and the repurchase of common shares that would have occurred from the assumed issuance.
During the three and nine month periods ended June 24, 2001, options and warrants to purchase 5,217,000 and 4,224,000 shares of common stock, respectively, were outstanding and were not included in the computation of diluted EPS because the effect would have been anti-dilutive. For the comparable three and nine month periods ended June 25, 2000, options and warrants to purchase 1,157,000 and 1,025,000 shares of common stock, respectively, were outstanding and were not included in the computation of diluted EPS because the effect would have been anti-dilutive.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS 141 replaces Accounting Principles Board Opinion 16, "Business Combinations," and requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 142 replaces APB 17, "Intangible Assets." In accordance with SFAS No. 141 and 142, effectiveconsolidated financial statements for the Company's fiscal year 2003,unaudited three month period ended December 24, 2000, is as a replacement to amortization of goodwill and intangible assets with indefinite lives, the Company will evaluate goodwill and intangible assets for impairment annually. The Company is currently reviewing these statements to determine their impact.follows:
| As previously reported | As restated | |||||||
---|---|---|---|---|---|---|---|---|---|
Cumulative effect of a change in accounting principle | $ | (1,605,000 | ) | $ | (2,485,475 | ) | |||
Net Loss | (4,485,267 | ) | (5,365,742 | ) | |||||
Net loss per share | (0.57 | ) | (0.68 | ) | |||||
Additional Paid in Capital | 20,108,089 | 20,108,089 | |||||||
Accumulated deficit | (44,221,792 | ) | (45,102,267 | ) | |||||
Ttoal Equity operations | (24,034,767 | ) | (24,915,242 | ) | |||||
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ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and footnotes contained in the Company's Form 10-Q for the period ended Juneending December 24, 20012000 and the Form 10-K for the year ended September 24, 2000, filed with the Securities and Exchange Commission. In addition to historical information, this report contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this section. Readers should carefully review the risks described in other documents the Company files from time to time with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K forwhere the fiscal year ended September 24, 2000. Readers are cautioned not to place undue reliance on the forward-looking statements whichthat speak as of the date of this report only. The Company undertakes no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.
RESULTS OF OPERATIONS
Net sales of $3.4$3.2 million for the thirdfirst quarter of fiscal 2001 decreased 5.4%11.4% from sales of $3.6 million for the thirdfirst quarter of fiscal 2000. For the first nine months of fiscal 2001 the Company reported sales of $9.8 million, 8.3% lower than sales of $10.7 million for the first nine months of fiscal 2000. The decrease was primarily due to agrowth in shipments to the decline in product sales to its former principal distributor.
Cost of sales of $1.4 million for the thirdfirst quarter of fiscal 2001 resulted in a gross profit of 59.5%55.9%, compared to a gross profit of 60.6% for the same period of fiscal 2000. Cost of sales of $4.0 million for the first nine months of fiscal 2001 resulted in a gross profit of 59.3%, compared to a gross profit of 60.3%59.9% for the same period of fiscal 2000. The decrease in the Company's gross profit percentage in the first nine months of fiscal 2001 was primarily attributable to a change in the mix of products sold.
Research and new product development expenses were $2.3increased to $1.7 million, 66.6% of sales, and $5.8 million, 59.1% of net sales,compared to $683,000 for the fiscal quarter and the nine months ended June 24, 2001, respectively. For the same fiscal quarter and ninethree month period ofin fiscal 2000, research and new product development expenses were $0.8 million, 22.9% of sales, and $2.3 million, 21.6% of sales, respectively.2000. The increase was attributed to the development of e-Technician, a web-based, remote diagnostic platform and "telematics" platform for commercial vehiclesvehicles. Research and new product development expenses were 52.8% and 19.1% of net sales for the acquisition of Diversified Software Industries, Inc.quarters ended December 24, 2000 and December 26, 1999, respectively.
Selling, general and administration expenses were $2.2 million and $1.7 million for the third quarter of fiscal 2001 and 2000, respectively, and $6.0 million and $5.9 million, for the nine months of fiscal 2001 and 2000, respectively. As a percentage of net sales, selling, general and administrative expenditures were 64.9%54.7% and 46.7%62.3% for the fiscal 2001quarters ended December 24, 2000 and 2000 third quarters, respectively, and 61.2% and 55.2%December 26, 1999, respectively. Actual expenditures decreased to $1.7 million from $2.2 million for the nine monthsfirst quarter of fiscal 2001 and 2000, respectively.2000. The changes in selling, general and administrative expenses of sales in fiscal 2001 arewere primarily attributable to an increase as a result of the acquisition of Diversified Software offset in part by a reduction in executive and administrative personnel and costs related to consultants and advisors incurred in connection with the debt negotiations with the bank syndicate.administration personnel.
The Company's operatingOperating loss for the thirdfirst quarter of fiscal 2001 and 2000 wasdecreased to $1.6 million from $2.4 million and $0.3 million, respectively. Forfor the nine months ended June 24, 2001 and June 25, 2000 the Company's operating loss was $6.0 million and $3.5 million, respectively.first quarter of fiscal 2000. The increasedecrease in the operating loss in fiscal 2001 compared to fiscal 2000 was primarily due to the decrease in selling, general and administration expenses and the restructuring and non-recurring costs in excess of the Company's decreased gross profit and increase in research and new product development costs.development.
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The Company recognized an estimated loss on disposal of discontinued operations of $0.6 million in the third quarter of fiscal 2000. The loss was primarily attributable to a higher than anticipated loss on the sales of its rugged handheld computer and terminal businesses and the operating results of the discontinued operations and higher than anticipated interest expense.-8-
As of JuneDecember 24, 20012000, the Company had a working capital deficit of $13.0$11.9 million compared to $13.9$13.8 million deficit at September 24, 2000. Net cash used inprovided by (used in) operating activities totaled $7.7$(2.3) million in 2000 and $1.1$2.6 million for the nine months ended June 24, 2001 and June 25, 2000, respectively.in 1999.
As of JuneDecember 24, 2001,2000, the Company had no material commitments for capital expenditures.
On July 31, 2000, the Company entered into a Convertible Note Agreement with Sunrise Capital Partners, L.P., a private investment fund ("Sunrise") and certain other participants, which include certain members of the Company's management and certain members of the Allard-Nazarian Group. The Convertible Note Agreement provides for a series of investmentinvestments transactions: the Term A Financing, Term B Financing and the Term C financing, as follows:
Term A Financing - On July 31, 2000, the Company completed the Term A Financing. Under the Term A Financing, the Company issued the following securities in exchange for $12.6 million in cash and notes with outstanding principal of $1.5 million: 1.8 million shares of common stock; warrants to purchase 1.6 million shares of common stock at $1.75 per share; and $14.1 million principal value of Term A Convertible Notes. The Term A Convertible Notes, which mature in three years, bear interest at an annual rate of 10.75%, payable in cash or in additional notes at the option of the Company. The Term A Convertible Notes are convertible into common stockat any time at the option of the holder or the Company, under certain conditions, at $1.75 per share.
Term B Financing - In November 2000, the Company completed the Term B Financing under the Convertible Note Agreement. Under the terms of the Term B Financing, the Company received $5.0 million in cash in exchange for the following securities: warrants to purchase 571,000 shares of common stock at $1.75 per share and Term B Convertible Notes with a principal value of $5.0 million. The Term B Convertible Notes mature on July 31, 2003, bear interest at an annual rate of 10.75% payable in cash or in additional notes at the option of the Company. The Term B Convertible Notes are convertible into common stockat any time at the option of the holder or the Company, under certain conditions at $1.75 per share.
Term C Financing - In January 2001,2000, the Company received $5.0 million in cash upon completing the Term C Financing. The securities issued and the terms thereof are identical to the Term B Convertible Notes discussed above.
On August 9, 2000, the Company amended its credit facility agreement with a syndication of banks. The terms of the modified agreement provide a $6.5 million revolving line of credit and term notes that expire on July 31, 2001. As of JuneDecember 24, 2001,2000, there was $10.8 of borrowings outstanding under the agreement, totaled $13.2 million, consisting of $3.1 million$626,000 under the revolving line of credit and $10.1 million of term notes. Interest on all borrowings is payable monthly at prime (6.75%(9.5% at JuneSeptember 24, 2001)2000) plus 1.25% through December 31, 2000 and prime plus 1.75%. thereafter.
The Company has requestedintends to utilize the proceeds from the financing transactions under the Convertible Note Agreement to fund operations and is presently inrepay a portion of the process of negotiating the terms of further extension of its credit facility with the banks. In addition, managment is pursuing an increase in its borrowing capacityamounts outstanding under the credit facility. IfThe Company anticipates the Company is not successful in extending itsneed to either amend the existing credit facility andor obtain additional financing to repay the remaining amounts outstanding under the credit facility when it expires in increasing its borrowing capacity, management plans to pursue other sources of debt and equity financing. July 2001.
There can be no assurance that the Company will be successful in obtaining additional financing or amending and extending the credit facility. If the Company is not successful in extendingunsuccessful, the credit facility or obtaining alternativecash from operations and the financing to repay borrowingstransactions under the facility, management would consider all of the options then available, including a bankruptcy filing.
As of June 24, 2001, the Company has a $0.4 million note payable to a bank assumed in connection with the acquisition of Diversified Software. The note bears interest at 9%, is secured by a $0.3 million certificate of deposit and is due August 6, 2001. The Company has requested and is presently in the process of negotiating the terms for the extension of the note. There can be no assurance that the Company will be successful in negotiating the terms for the extension of the note.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS 141 replaces Accounting Principles Board Opinion 16, "Business Combinations," and requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 142 replaces APB 17, "Intangible Assets." In accordance with SFAS No. 141 and 142, effective for the Company's fiscal year 2003, as a replacement to amortization of goodwill and intangible assets with indefinite lives, the Company will evaluate goodwill and intangible assets for impairment annually. The Company is currently reviewing these statements to determine their impact.
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ITEM 3.
Quantitative and Qualitative Disclosure About Market Risk
The Company has considered the provisions of Financial Reporting Release No. 48, "Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative Information about Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments." The Company had no holdings of derivative financial or commodity-based instruments at June 24, 2001. A review of the Company's other financial instruments and risk exposures at that date revealed that the Company had exposure to interest risk. At June 24, 2001, the Company performed sensitivity analysis to assess these risks and concluded that the effects of hypothetical changes of 100 basis points in average interest rates wouldConvertible Note Agreement may not be expectedsufficient to materially affectcover the Company's financial position, results of operationsshort-term or cash flows.long-term liquidity requirements.
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NEXIQ TECHNOLOGIES, INC.
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None.
B. Reports on Form 8-K
On May 18, 2001November 28, 2000, the Registrant filed a report under Item 2 of Form 8-K
reporting the sale of WPI Instruments, Inc., WPI Magnetec, Inc. and Crompton Modutec (Barbados) Limited to report the acquisition of Diversified Software Industries, Inc.Jewell Instruments, LLC.
On May 31, 2001 the Registrant filed a report under Item 4 of Form 8-K to report a change in independent accountants.-10-
On July 25, 2001 the Registrant filed a report under Item 7 of Form 8-K in connection with the acquisition of Diversified Software Industries, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned thereunto duly authorized.
NEXIQ TECHNOLOGIES, INC.
(Registrant)
Date: | ||||||
By: | /s/ John R. Allard John R. Allard Chief Executive Officer | |||||
Date: | By: | /s/ Vice President and Chief Financial Officer |
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