SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)


/XX/QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

For the quarterly period ended June 24,December 30, 2001


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 specified in its charter)


New Hampshire

02-0218767

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)


1155 Elm Street, Manchester, New Hampshire    03101
(Address of principal executive offices)                 (Zip Code)


Registrant's telephone number, including area code:    (603) 627-3500


_________________________________________________________________________________
Former name, former address, and former fiscal year, if changed since last report

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 ___

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 ___ 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 July 26,December 30, 2001

Common Stock, par value $.01

9,611,44312,839,510 shares

NEXIQ TECHNOLOGIES, INC.

INDEX





 
PART I -FINANCIAL INFORMATION
   Page No. 
  
    Item 1. Condensed Consolidated Financial Statements       
        
                 Condensed Consolidated Balance Sheets
                  -June 24,- December 30, 2001 and September 24, 200030, 2001		     3 
         
                  Condensed Consolidated Statements of Operations
                  - Thee Months Ended June 24,December 30, 2001 and June 25, 2000
                  - Nine months Ended JuneDecember 24, 2001 and June 25, 2000		     4 
         
                  Condensed Consolidated Statements of Cash FlowsStockholders' Deficit
                  - Nine monthsThee Months Ended June 24,December 30, 2001 and June 25,December 24, 2000		     5
                Condensed Consolidated Statements of Cash Flows
                  - Three months Ended December 30, 2001 and December 24, 2000		6 
         
                  Notes to Condensed Consolidated Financial Statements     67 
         
    Item 2.  Management's Discussion and Analysis of Financial Condition and
                Results of Operations		     910 
        
    Item 3  Quantitative and Qualitative Disclosure About Market Risk     1112 
        
PART II - OTHER INFORMATION    
         
    Item 6.  Exhibits and Reports on Form 8-K     1213 
         
SIGNATURES     1314 

-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 
  
 
 
  September 30,
2001
 December 30,
2001
 
  
ASSETS       
  
Current assets       
    Cash and cash equivalents $1,030,601 $823,399 
    Accounts receivable - net of allowance for doubtful accounts of $57,675 and
      $62,675, respectively		  1,657,738  2,212,206 
    Inventories  844,768  1,074,055 
    Costs in excess of billings  113,564  199,873 
    Prepaid expenses and other current assets  469,975  497,183 
    Refundable income taxes  102,735  102,735 
  
 
 
         Total current assets  4,219,381  4,909,451 
      
Property,Plant and Equipment,at cost, less accumulated depreciation  1,626,038  1,647,760 
Other Assets  8,519,306  7,909,364 
  
 
 
        Total assets $14,364,725 $14,466,575 
  
 
 
      
 
LIABILITIES AND STOCKHOLDERS' EQUITY		 
 
  
Current liabilities       
    Notes payable $10,872,335 $11,056,580 
    Accounts payable  1,503,225  1,486,636 
    Accrued expenses  5,010,436  6,362,601 
  
 
 
        Total current liabilities  17,385,996  18,905,817 
  
 
 
Convertible Notes Payable  17,931,649  20,362,359 
  
 
 
Other Long-Term Liabilities  848,457  775,984 
  
 
 
        
Stockholders' Deficit       
Common stock, $0.01 par value; authorized 75,000,000 shares;       
   issued and outstanding 11,629,819 and 12,839,510, respectively  116,298  128,395 
   Additional paid-in capital  36,283,795  38,243,647 
   Accumulated deficit  (58,201,470) (63,949,627)
  
 
 
        Total stockholders' deficit  (21,801,377) (25,577,585)
  
 
 
        Total liabilities and stockholders' deficit $14,364,725 $14,466,575 
  
 
 

See notes to condensed consolidated financial statements

-3-

NEXIQ TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)



 Three Months EndedNine 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 
  
 
 
 
 



 
 Three Months Ended
 
 
 December 24,
2000
 December 30,
2001
 
         
    Net Sales $3,166,695 $2,931,016 
    Cost of Goods Sold  1,396,327  1,155,668 
  
 
 
    Gross Profit  1,770,368  1,775,347 
  
 
 
      
    Operating expenses:       
       Research and new product development  1,671,784  1,765,885 
       Selling, general and administration  1,731,671  2,859,088 
  
 
 
           Total operating expenses  3,403,455  4,624,973 
  
 
 
    Operating Loss  (1,633,087) (2,849,625)
          
    Other Income (Expense):       
       Interest expense  (1,247,180) (2,928,476)
       Other, net  —  29,944 
  
 
 
    Loss Before Income Taxes  (2,880,267) (5,748,157)
      
    Income Tax Expense (Benefit)  —  — 
  
 
 
 Loss Before Cumulative Effect of Change in Accounting Principle  (2,880,267) (5,748,157)
      
 Cumulative Effect of Change in Accounting Principle  (2,485,475) — 
  
 
 
 Net Loss $(5,365,742)$(5,748,157)
  
 
 
          
 Earnings (Loss) Per Share:       
    Loss Before Cumulative Effect of Change in Accounting Principle $(0.37)$(0.48)
    Cumulative Effect of Change in Accounting Principle  (0.31) — 
  
 
 
    Net loss $(0.68)$(0.48)
  
 
 
 Weighted Average Common Shares  7,892,182  11,988,738 

See notes to condensed consolidated financial statements

-4-

NEXIQ TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
DEFICIT



For the Three Months Ended December 30, 2001

 
 Common Stock
$.01 Par Value
 Additional
Paid-in
 Retained
Earnings
(Accumulated
 
 Shares
 Amount
 Capital
 Deficit)
 Total
 
                 
Balance
   Septembere 30,2001		 11,629,819 $116,298$36,283,795 $(58,201,470)$(21,801,377)   
                 
Sale of common stock 1,209,691  12,097 926,935  — 939,032 
Sale of warrants to purchase common stock —  — 186,997  — 186,997 
Non-cash compensation expense related to stock options —  — 192,747  — 186,997 
Effect of beneficial conversion —  — 653,173  — 653,173 
Net loss —  — —  (5,748,157) (5,748,157)
  
  
 
  
 
 
Balance
   December 30,2001		 12,839,510 $128,395$38,243,647 $(63,949,627)$(25,577,585)   
  
  
 
  
 
 

-5-

NEXIQ TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Nine Months Ended
 
 Three Months Ended
 
 June 25,
2000
 June 24,
2001
 
 December 24,
2000
 December 30,
2001
 
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 $(5,365,742)$(5,748,157)
 
 
   
 
 
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  645,550 2,112,957 
      Loss from disposal of discontinued operations  2,175,000 —       Cumulative effect of change in accounting principle  2,485,475 — 
      Cumulative effect of change in accounting principle  — 1,605,000       Other  5,919 192,747 
      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  (22,957) (554,468)
 Accounts receivable  4,327,085 166,669  Inventories  (69,805) (229,287)
 Accounts receivable - other  476,833 —  Cost in Excess of Billings  3,361 (86,309)
 Inventories  (664,932) (503,839) Prepaid expenses and other current assets  (209,531) (31,095)
 Prepaid expenses and other current assets  (21,276) (353,716) Accounts payable  (174,539) (16,589)
 Accounts payable  (1,853,532) (417,565) Accrued expenses  426,192 1,169,694 
 Accrued expenses  794,209 1,146,861   
 
 
 Accrued income taxes  405,439 —      Total adjustments  3,089,665 2,577,560 
 
 
   
 
 
Net cash used in operating activitiesNet cash used in operating activities  (2,276,077) (3,190,507)
     Total adjustments  7,194,548 4,431,538   
 
 
 
 
       
Net cash used in operating activities  (1,093,681) (7,718,651)
 
 
 
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, net of expenses  5,550,572 — 
Additions to property, plant and equipment  (518,051) (368,143)Additions to property, plant and equipment  (145,916) (209,940)
Payment of accrued acquisition costs  (149,040) —   
 
 
 
 
 Net cash provided by (used in) investing activities  5,404,656 (200,940)
Net cash provided by investing activities  40,536,511 5,332,596   
 
 
 
 
       
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)Borrowings (payments) of notes payable  (7,517,620) 184,245 
Proceeds from debt, net of debt issuance costs  — 4,789,460 Proceeds from debt, net of debt issuance costs  4,599,092 1,806,330 
Payments of other long-term liabilities  — (226,294)
Proceeds from sale of warrants to purchase common stock
and beneficial conversion feature		 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
and beneficial conversion feature		  308,571 198,230 
Proceeds from issuance of common stock Proceeds from issuance of common stock  11,463 9,984  Proceeds from issuance of common stock  3,344 995,440 
 
 
   
 
 
Net cash provided by (used in) investing activities Net cash provided by (used in) investing activities  (40,519,184) 4,457,369  Net cash provided by (used in) investing activities  (2,606,623) 3,184,245 
 
 
   
 
 
Net Increase (Decrease) in Cash and Cash EquivalentsNet Increase (Decrease) in Cash and Cash Equivalents  (1,076,345) 2,071,314 Net Increase (Decrease) in Cash and Cash Equivalents  521,956 (207,202)
             
Cash and Cash Equivalents, Beginning of PeriodCash and Cash Equivalents, Beginning of Period  1,086,708 102,156 Cash and Cash Equivalents, Beginning of Period  102,156 1,030,601 
 
 
   
 
 
Cash and Cash Equivalents, End of PeriodCash and Cash Equivalents, End of Period $10,354 $2,173,470 Cash and Cash Equivalents, End of Period $624,112 $823,999 
 
 
   
 
 
     
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  433,569 211,077 
         
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     
Supplemental Disclosure of Non-cash Transactions:Supplemental Disclosure of Non-cash Transactions:      
Insuance of Transaction Fee PIK Conversion Shares Insuance of Transaction Fee PIK Conversion Shares $— $60,000 

See notes to condensed consolidated financial statements

-5--6-

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1. BASIS OF PRESENTATION

The financial statements for the three months and nine months ended June 24,December 30, 2001 and June 25, 2000 are unauditedprepared in accordance with Rule 10-01 of Regulation S-X 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)333-72391), which included financial statements for the years ended September 24, 2000.30, 2001.

Certain prior year amounts have been reclassified to conform to 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. INVENTORIES

Inventory consists of:    
September 24,June 24,September 30,December 30,
2000200120012001
                
Raw Materials $281,199 $763,443  $618,538 $184,857 
Work in Process 40,422  27,761 
Finished Goods  119,530  153,786   226,230  889,198 
Total $441,151 $944,990  $844,768 $1,074,055 

3.DISCONTINUED 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 reduced 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 EndedNine 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 DEBT

In November 2000,December 2001, the Company completed the Term BE Financing under the Convertible Note Agreement. Under the terms of the Term BE Financing, the Company received $5.0$3.0 million in cash in exchange for the following securities: 1,209,691 shares of common stock, warrants to purchase 571,000342,857 shares of common stock at $1.75 per share and Term BE Convertible Note with a principal value of $5.0$3.0 million. The Term BE Convertible Note matures on July 31, 2003, bears interest at an annual rate of 10.75% payable in cash or in additional notes at the option of the Company. The Term BE Convertible Note is convertible into common stock at the option of the holder or the Company, under certain conditions, at $1.75 per share.

In January 2001,Subsequent to December 30,2001, the Company received $5.0$1.0 million in cash upon completingin connection with partial funding of the Term CF Financing under the Convertible Note Agreement in exchange for issuing the following securities: 200,679 shares of common stock, warrants to purchase 571,000114,286 shares of common stock at $1.75 per share (initially valued at $0.9 million) and a $5.0 million Term CF Convertible Note with terms identical to thea principal value of $1.0 million. The Term B Convertible Notes (initially valuedF Note matures on July 31, 2003, bears interest at $0.3 million).

In accordance with the Emerging Issues Task Force (EITF) 00-27, "Applicationan annual rate of Issue 98-5 to Certain Convertible Instruments," the Company has recorded a beneficial conversion feature10.75% payable in cash or in additional paid in capital related to the Term A Financing of approximately $1.6 million as a cumulative effect of a change in accounting principle. The resulting discount on the debt has been fully amortized immediately, since the debt is convertible at any timenotes at the option of the holder.

In addition,Company. The Term F Convertible Note is convertible into common stock at the option of the holder or 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.under certain conditions, at $1.75 per share.

-7-

6.4. NET LOSS PER COMMON SHARE

Basic earnings per share ("EPS") is calculated by dividing income or loss 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 periodsthree-month period ended June 24,December 30, 2001, options and warrants to purchase 5,217,000 and 4,224,0008,052,673 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 periodsthree-month period ended June 25,December 24, 2000, options and warrants to purchase 1,157,000 and 1,025,0004,108,749 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.

7.5. RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board ("FASB") 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.

In 2001, the FASB issued SFAS No. 143, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets." SFAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. SFAS 143 also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective for the Company's fiscal year 2003. The Company is currently reviewing the statement to determine its impact.

In 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 address significant issues related to implementation of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 144 is effective for the Company's fiscal year 2003. The Company is currently reviewing the statement to determine its impact.

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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 JuneDecember 24, 20012000 and the Form 10-K for the year ended September 24, 2000,30, 2001, 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 for the fiscal year ended September 24, 2000.30, 2001. Readers are cautioned not to place undue reliance on the forward-looking statements which 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 million for the third quarter of fiscal 2001 decreased 5.4% from sales of $3.6 million for the third 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$2.9 million for the first nine monthsquarter of fiscal 2000.2002 decreased 7.4% from sales of $3.2 million for the first quarter of fiscal 2001. The decrease was primarily due to a declinethe effects of weaker economic conditions on sales of the Company's diagnostic tools in product sales to its former principal distributor.the first quarter of 2002.

Cost of sales of $1.4$1.2 million for the thirdfirst quarter of fiscal 20012002 resulted in a gross profit of 59.5%60.6%, compared to a gross profit of 60.6%55.9% 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% for the same period of fiscal 2000.2001. The decreaseincrease in the Company's gross profit percentage in the first nine monthsquarter of fiscal 20012002 was primarily attributable to a change in mix of products sold.

Research and new product development expenses were $2.3$1.8 million 66.6%and 60.2% of sales, and $5.8 million, 59.1% of net sales for the first quarter of fiscal quarter and the nine months ended June 24, 2001, respectively.2002. For the same fiscal quarter and nine month period of fiscal 2000,2001, research and new product development expenses were $0.8$1.7 million 22.9%and 52.8% of sales, and $2.3 million, 21.6% of sales, respectively.sales. The increase was attributed to the development e-Technician, a web-based remote diagnostic and "telematics" platform for commercial vehicles and the acquisition of Diversified Software Industries, Inc.vehicles.

Selling, general and administration expenses were $2.2$2.9 million and $1.7 million for the thirdfirst quarter of fiscal 20012002 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 sales, selling, general and administrative expenditures were 64.9%97.5% and 46.7%54.7% for the fiscal 2002 and 2001 and 2000 thirdfirst quarters, respectively, and 61.2% and 55.2% for the nine months of fiscal 2001 and 2000, respectively. The changes in selling, general and administrative expenses in fiscal 20012002 are primarily attributable to an increase as a result of the acquisitionacquistion of Diversified Software offset in part by a reduction in executive and administrative personnel and costs relatedstaffing to consultants and advisors incurred in connection withsupport the debt negotiations with the bank syndicate.launch of e-Technician.

The Company's operating loss for the thirdfirst quarter of fiscal 2002 and 2001 and 2000 was $2.4$2.8 million and $0.3 million, respectively. For the nine months ended June 24, 2001 and June 25, 2000 the Company's operating loss was $6.0 million and $3.5$1.6 million, respectively. The increase in the operating loss was primarily due to reduced sales and the increase in researchselling, general and new product development costs.administrative expenses.

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The Company's other income (expense) was ($1.8)2.9) million for the thirdfirst quarter of fiscal 20012002 compared to ($1.3)1.2) million in the thirdfirst quarter of fiscal 2000. For the nine months ended June 24, 2001 and June 25, 2000 other income (expense) was ($4.5) million and ($2.6), respectively.2001. The increase in the Company's interest expense in 20012002 compared to 20002001 is primarily the result of increased debt related to continued operations as well as an increase inand the overall effective interest rate from 2000development and sales efforts to 2001.support the launch of e-Technician.

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.-9-

LIQUIDITY AND CAPITAL RESOURCES

As of June 24,December 30, 2001 the Company had a working capital deficit of $13.0$14.0 million compared to $13.9$13.2 million deficit at September 24, 2000.30, 2001. Net cash used in operating activities totaled $7.7$3.2 million and $1.1$2.3 million for the ninethree months ended June 24,December 30, 2001 and June 25,December 24, 2000, respectively.

As of June 24,December 30, 2001, 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 investment 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 stock 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 stock at the option of the holder or the Company, under certain conditions at $1.75 per share.

Term C Financing - In JanuarySeptember 21, 2001, the Company received $5.0 million in cash upon completingentered into and Amended Convertible Note Agreement with Sunrise and certain other participants, which included a member of the Company's management and certain members of the Allard-Nazarian Group, Inc. The Amended Convertible Note Agreement provides for a series of investment transactions: the Term C Financing. The securities issuedD Financing ($5.0 million) and the terms thereof are identical to the Term B Convertible Notes discussed above.E Financing ($3.0 million).

On August 9, 2000,September 21, 2001, the Company amended its credit facility agreement with a syndicationsyndicate of banks. The terms of the modified agreement provide a $6.5 million$2,500,000 revolving line of credit and term notes, thatwhich expire on July 31, 2001.30, 2002. As of June 24,December 30, 2001, there were $11,056,580 borrowings outstanding under the agreement, totaled $13.2 million, consisting of $3.1$2,500,000 million under the revolving line of credit and $10.1 million$8,556,580 of term notes. Interest on all borrowings is payable monthly at prime (6.75%(4.75% at June 24,December 30 , 2001) plus 1.75%.3.0% through December 31, 2001, prime plus 3.5% from January 1, 2002 through March 31, 2002 and prime plus 4.0% thereafter.

On January 23, 2002, the Company entered into a second Amended Convertible Note Agreement with Sunrise and certain other participants, which included a member of the Company's management and certain members of the Allard-Nazarian Group, Inc. The Second Amendment to the Convertible Note Agreement provides for the issuance of additional convertible notes up to $6 million - the Term F Financing.

The Company intends to utilize the proceeds from the financing transactions under the Convertible Note Agreement to fund operations. The Company anticipates the need to either amend the existing credit facility or obtain additional financing to repay the remaining amounts outstanding under the credit facility when it expires in June 2002.

The Company has requestedbegun efforts to obtain funding to replace the existing bank facility and provide sufficient cash to support the Company until positive cash flow is achieved, which management believes will occur in 2003. Management is working with investment banks, venture capital firms, and other advisors to investigate altervative funding sources and financing structures and is presently inconfident that these efforts will prove successful. Implementation is targeted for the processthird quarter of negotiating2002, however, the termsamount, structure, and timing of further extensionthis financing is subject to external factors including market conditions, economic factors, and investor preferences that are beyond the control of its credit facility with the banks. In addition, managment is pursuing an increase in its borrowing capacity under the credit facility. If the Company is not successful in extending its credit facility and in increasing its borrowing capacity, management plans to pursue other sources of debt and equity financing. NEXIQ.

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 extending the credit facility or obtaining alternativeadditional financing to repay borrowings 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.financing.

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RECENT ACCOUNTING PRONOUNCEMENTSPROUNCEMENTS

In July 2001, the Financial Accounting Standards Board ("FASB") 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.

-10-In 2001, the FASB issued SFAS No. 143, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets." SFAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. SFAS 143 also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective for the Company's fiscal year 2003. The Company is currently reviewing the statement to determine its impact.

In 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 address significant issues related to implementation of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 144 is effective for the Company's fiscal year 2003. The Company is currently reviewing the statement to determine its 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,as if December 30, 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,December 30, 2001, the Company had $11,056,580 of borrowings outstanding under its credit facility with a syndicate of banks. The Company performed sensitivity analysis to assess these risks and concluded that the effects ofexposure to interest rate movements relative to this debt. A hypothetical changeschange of 100 basis points in average interest rates would have an annual impact on the interest cost of $110,568. The Company concluded that a change of this magnitude would not be expected to materially affect the Company's financial position, results of operations or cash flows.

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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, 2001 the Registrant filed a report under Item 2 of Form 8-K
              to report the acquisition of Diversified Software Industries, Inc.

              On May 31, 2001 the Registrant filed a report under Item 4 of Form 8-K
              to report a change in independent accountants.

              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.None.

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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: August 8, 2001
 
 		By:/s/Jack E. Schang
      Jack E. Schang
          President and
 Chief Operating Officer

 
 
By
 
/s/ John R. Allard   
John R. Allard
Chief Executive Officer
Date: August 8, 2001
 
 
 
 



By
By:
/s/John W. PowersKevin F. Kelly   
          John W. PowersKevin F. Kelly
Vice President
and
Chief Financial Officer

Date: February 12, 2002



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