SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 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 0-10558
NQL Inc.
(Exact name of registrant as specified in its charter)
(Formerly incorporated as Alpha Microsystems)
DELAWARE 33-0887356
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
19000 MACARTHUR BOULEVARD, SUITE 500, IRVINE, CA 92612
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (949) 440-7902
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 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.
Yes __X__ No _____
As of November 7, 2001, there were 14,389,711 shares of the registrant's Common
Stock outstanding.
NQL Inc. and Subsidiaries
(Formerly ALPHA MICROSYSTEMS)
Table of Contents
Page Number
-----------
PART I-- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at September 30,
2001 (Unaudited) and December 31, 2000 3
Condensed Consolidated Statements of Operations
(Unaudited) for the Three and Nine Months Ended
September 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Nine Months Ended September 30, 2001
and 2000 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NQL Inc. and Subsidiaries
(Formerly ALPHA MICROSYSTEMS)
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share data)
September 30, 2001 December 31,
(Unaudited) 2000
-------- --------
Assets (Note 1)
Current assets:
Cash and cash equivalents $ 24 $ 4,097
Accounts receivable, net 2,460 3,021
Prepaid expenses and other current assets 617 769
Accounts receivable from Alpha Microsystems, LLC -- 230
-------- --------
Total current assets 3,101 8,117
Property and equipment, net 2,151 2,760
Intangibles, net 7,435 8,506
Other assets 152 261
-------- --------
Total assets $ 12,839 $ 19,644
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Line of credit $ 775 $ --
Accounts payable 1,982 2,035
Accrued compensation 1,024 578
Other accrued liabilities 536 1,121
Deferred revenue 878 1,328
-------- --------
Total current liabilities 5,195 5,062
Deferred gain on sale of Businesses to Alpha Microsystems, LLC 284 601
-------- --------
Total Liabilities 5,479 5,663
-------- --------
Commitments and contingencies
Redeemable preferred stock, no par value; 2,501 shares issued and
outstanding; liquidation value $2,500 at September 30, 2001 2,391 2,322
-------- --------
Stockholders' Equity:
Exchangeable redeemable preferred stock, no par value; 5,000,000 shares
authorized; 20,907 and 19,027 shares issued and outstanding at September
30, 2001 and December 31, 2000, respectively;
liquidation value $20,907 at September 30, 2001 19,942 17,526
Common stock, par value $0.001 per share; 40,000,000 shares authorized;
14,547,407 and 14,233,407 shares issued at
September 30, 2001 and December 31, 2000, respectively 14 14
Additional Paid in Capital 47,317 46,846
Warrants 2,715 2,655
Accumulated deficit (65,038) (55,416)
Treasury Stock at cost, 157,696 common shares (15) --
Accumulated other comprehensive income 34 34
-------- --------
Total Stockholders' Equity 4,969 11,659
-------- --------
Total Liabilities and Stockholders' Equity $ 12,839 $ 19,644
======== ========
See accompanying notes.
3
NQL Inc. and Subsidiaries
(Formerly ALPHA MICROSYSTEMS)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
-------- -------- -------- --------
Net sales:
IT Services $ 2,866 $ 2,877 $ 8,824 $ 8,221
IT Products 330 229 1,262 708
Software licenses 33 219 163 392
Software services 31 8 116 25
Managed services -- 0 -- 1,563
-------- -------- -------- --------
Total net sales 3,260 3,333 10,365 10,909
-------- -------- -------- --------
Cost of sales:
IT Services 2,266 2,302 7,033 6,764
IT Products 234 148 947 382
Software licenses 506 82 925 99
Software services 13 5 63 5
Managed services -- -- -- 1,318
-------- -------- -------- --------
Total cost of sales 3,019 2,537 8,968 8,568
-------- -------- -------- --------
Gross margin 241 796 1,397 2,341
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative 2,295 3,282 8,262 7,332
Engineering, research and development 142 199 500 573
-------- -------- -------- --------
Total operating expenses 2,437 3,481 8,762 7,905
-------- -------- -------- --------
Loss from operations (2,196) (2,685) (7,365) (5,564)
-------- -------- -------- --------
Other (income) expense:
Interest income -- (141) (48) (310)
Interest expense 37 3 49 24
Gain on dispositions of businesses (98) (343) (262) (1,670)
Other (income) expense, net -- (8) -- (26)
-------- -------- -------- --------
Total other (income) expense (61) (489) (261) (1,982)
-------- -------- -------- --------
Loss before taxes (2,135) (2,196) (7,104) (3,582)
Income tax expense -- 7 32 22
-------- -------- -------- --------
Net loss (2,135) (2,203) (7,136) (3,604)
Accretion on redeemable preferred stock (119) (114) (355) (346)
Dividends on redeemable preferred stock (767) (637) (2,131) (1,912)
-------- -------- -------- --------
Net loss attributable to common shares $ (3,021) $ (2,954) $ (9,622) $ (5,862)
======== ======== ======== ========
Basic and diluted net loss per common share $ (0.21) $ (0.21) $ (0.67) $ (0.44)
======== ======== ======== ========
Weighted average number of shares used in
computing basic and diluted per share amounts 14,542 14,163 14,430 13,366
======== ======== ======== ========
See accompanying notes.
4
NQL Inc. and Subsidiaries
(Formerly ALPHA MICROSYSTEMS)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
----------------------------
September 30, September 30,
2001 2000
----------------------------
Cash flows from operating activities:
Net loss $(7,136) $ (3,604)
Adjustments to reconcile net loss to net cash
used in operating activities:
Impairment of long lived assets 1,305 0
Gain on sale of businesses, net (207) (1,670)
Depreciation and amortization 1,296 1,045
Loss on sale of fixed assets 6 --
Issuance of common stock for services 12 --
Provision for losses on accounts receivable -- 25
Provision for losses on note receivable 310 --
Otherchanges in operating assets and liabilities,
net of effects of disposals:
Accounts receivable 561 636
Prepaid expenses and other current assets (4) (1,368)
Accounts payable and accrued liabilities (591) 1,226
Accrued compensation 446 97
Deferred revenue (450) (186)
Other, net 50 (94)
----------------------------
Net cash used in operating activities (4,402) (3,893)
----------------------------
Cash flows from investing activities:
Purchases of equipment (564) (1,443)
Sale of Businesses 175 270
Capitalization of software development costs (221) (307)
Other, net 18 (23)
----------------------------
Net cash used in investing activities (592) (1,503)
----------------------------
Cash flows from financing activities:
Issuance of common stock, net 31 13,882
Principal repayments on debt -- (740)
Net proceeds from line of credit 815 --
Payment on preferred stock dividends -- (919)
Other, net 75 (18)
----------------------------
Net cash provided by financing activities 921 12,205
----------------------------
Increase (decrease) in cash and cash equivalents (4,073) 6,809
Cash and cash equivalents at beginning of period 4,097 1,160
----------------------------
Cash and cash equivalents at end of period $ 24 $ 7,969
============================
Supplemental disclosures of non-cash investing and financing activities:
Repurchase of common stock through treasury $ 15 $ --
============================
Warrants issued with debt $ 60 $ --
============================
Declaration and accretion of preferred stock $ 2,486 $ 2,258
============================
See accompanying notes.
5
NQL Inc. and Subsidiaries
(Formerly ALPHA MICROSYSTEMS)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND INTERIM ACCOUNTING POLICY
In the opinion of management of NQL Inc. (the "Company"), the accompanying
unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America and contain all adjustments necessary to fairly present the consolidated
financial position of the Company at September 30, 2001, and the consolidated
results of its operations and its cash flows for the three and nine months ended
September 30, 2001 and 2000. These condensed consolidated financial statements
do not include all disclosures required by accounting principles generally
accepted in the United States of America for complete financial statements.
These financial statements should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 2000. Certain prior
period amounts have been reclassified to conform to the current period
presentation. The results of operations for the period ended September 30, 2001
are not necessarily indicative of the results which may be expected for a full
year.
The Company has incurred substantial operating losses from operations and
operating cash flow deficiencies. The Company was active in discussions to raise
additional financing to fund operations but was unable to do so. The Company has
reduced the workforce of its software division and is exploring the sale of
portions of this division. These matters raise doubt about the Company's
software division and its ability to continue as a going concern.
Advertising Costs
The Company expenses the production costs of advertising the first time the
advertising takes place in accordance with Statement of Position 93-7,
"Reporting on Advertising Costs". The Company recognizes expenses related to
advertising costs in the period in which these costs are incurred. Advertising
expense was $3,000, $752,000, $448,000 and $458,000 for the three and nine
months ended September 30, 2001 and 2000, respectively.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", requires foreign currency translation adjustments to be included in
other comprehensive income. For the three and nine months ended September 30,
2001 and 2000, total comprehensive loss amounted to $2,135,000, $7,136,000,
$2,193,000 and $3,589,000 respectively.
Revenue Recognition
The Company recognizes revenue on its information technology service sales and
post contract customer support on a straight-line basis over the contract
period, recognizes software license and service revenue in accordance with
Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), as
amended by SOP 98-4 and 98-9. Under the terms of SOP 97-2, as amended, where an
arrangement to deliver software does not require significant production,
modification or customization, the Company recognizes license revenue when all
of the following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred; the fee is fixed or determinable; and collection is
probable.
The service portion of managed service revenues were recognized on a
straight-line basis over the contract period while product sales were recognized
on shipment. The operations of the managed service business, which included the
computer hardware manufacturing division, were sold on January 31, 2000. Prior
periods have been reclassified to reflect this realignment.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"), which provides guidance on the recognition, presentation and disclosure
of revenue in financial statements. The application of SAB 101, as
6
amended, was implemented in the fourth quarter of 2000 and did not have a
material impact on the Company's financial position, results of operations or
cash flows.
Adoption of Statement of Financial Accounting Standards No. 133
Effective January 1, 2001 the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 establishes new standards for
recording derivatives in interim and annual financial reports requiring that all
derivative instruments be recorded as assets or liabilities, measured at fair
value. The Company does not have any derivative instruments nor does the Company
engage in hedging activities. Therefore, the adoption of SFAS No. 133 did not
have an impact on the Company's financial position, results of operations or
cash flows.
Adoption of Statement of Financial Accounting Standards No. 141 and 142
In June 2001 the FASB issued Statement No. 141, "Business Combinations"
("Statement 141") effective July 1, 2001, and No. 142, "Goodwill and Other
Intangible Assets" ("Statement 142") effective January 1, 2002. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but, instead, will be subject to annual impairment tests in
accordance with Statements 141 and 142. Other intangible assets will continue to
be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of Statement 142 is expected to result in a decrease
in net loss of approximately $426,000 per year (or $.03 per share based on the
weighted average share outstanding at September 30, 2001). During 2002, the
Company will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what effect, if any, applying those tests will have on the Company's
financial position and results of operations.
2. LINE OF CREDIT
As of December 31, 1999, the Company had a loan facility with a bank under which
a $4 million accounts receivable revolving line of credit was designated for
working capital and $1 million was designated to finance acquisitions. The loan
facility was secured by substantially all of the Company's assets. On March 28,
2000, the Company terminated the revolving line of credit and on March 31, 2000,
the Company repaid in full the loan designated for acquisitions.
On May 31, 2001, the Company's wholly owned subsidiary, Delta Computec Inc.
finalized an agreement for a $1.5 million senior secured credit facility (line
of credit) with a lending institution. The agreement includes certain covenants
pertaining to the amount of cash available to fund NQL software division's
operations. The term of the line of credit is one year and is a floating rate
loan, based on 2 1/2 points above the prime rate. In consideration for this
agreement, the financial institution was issued 50,000 warrants at a price of
$1.50 each. The Company had valued these warrants at $60,000 based upon the
Black Scholes model and is amortizing the value of these warrants over the term
of the line of credit as additional interest expense.
3. STOCKHOLDER NOTE RECEIVABLE
On January 18, 2001 the Company issued 157,696 shares of common stock to a
former director in exchange for a nonrecourse note receivable of $310,464, which
was collateralized by the shares of the Company's common stock, in connection
with the exercise of outstanding options under the Company's 1998 Stock Option
and Award Plan. The note bore interest at 6 percent and was due on September 30,
2001. The note was not repaid by September 30, 2001, and accordingly the note
receivable was written off and charged to operations. The Company then
repurchased the 157,696 shares of common stock at ten cents per share.
7
4. DIVESTITURES
On January 31, 2000, the Company completed the sale of substantially all of its
assets associated with its Alpha Micro Services Division ("AMSO") and its Alpha
Micro Operating System ("AMOS") computer hardware manufacturing division to
Alpha Microsystems, LLC for consideration of approximately $3.2 million,
consisting primarily of liabilities of the Businesses that were assumed by Alpha
Microsystems, LLC. Pursuant to Section 1.03c of the asset purchase agreement,
the Company also received a ten percent contingent interest in gross cash and
non-cash proceeds that may be received by Alpha Microsystems, LLC upon the
occurrence of certain liquidity events, as defined in the asset purchase
agreement, following Alpha Microsystems, LLC's acquisition of the Businesses.
Alpha Microsystems, LLC is owned by Richard E. Mahmarian, who was a member of
the Company's Board of Directors until October 2000. On April 18, 2001 NQL
agreed to terminate any obligations under Subsection c of Section 1.03 of the
asset purchase agreement.
Assets of the Businesses initially sold to Alpha Microsystems, LLC include
certain accounts receivable, prepaid expenses, other current and non-current
assets, inventories, fixed assets, information technology service contracts and
capitalized software development costs. The Company has (i) granted Alpha
Microsystems, LLC the right to use the name "Alpha Microsystems" and associated
logos, marks and trade dress, (ii) transferred the rights to the trade names,
logos and trademarks associated with the Businesses that were sold, and (iii)
entered into a five year license agreement providing Alpha Microsystems, LLC the
right to use the Company's software technology for Alpha Microsystems, LLC's
internal use in continuing operations of the Businesses. Additionally, the
Company has agreed to sublease to Alpha Microsystems, LLC the portion of the
Santa Ana, California facility occupied by the Businesses at amounts equal to
cost. This sublease agreement ended on January 31, 2001 with Alpha Microsystems,
LLC assuming the facility lease effective February 1, 2001.
This sale indicates the assets sold to Alpha Microsystems, LLC were impaired
and, accordingly, as of December 31, 1999, the Company recognized a loss on the
sale of $6,728,000 and reclassified $2,726,000, representing deferred revenue at
December 31, 1999 related to contractual service obligations assumed by Alpha
Microsystems, LLC for which performance continues to be guaranteed by the
Company, to deferred gain on sale of Businesses to Alpha Microsystems, LLC. As
of September 30, 2001, the deferred gain had been reduced to $284,000 due to the
operations of Alpha Microsystems, LLC and a corresponding reduction in the
Company's contingent guarantee.
On March 15, 2000, the Company entered into another agreement whereby Alpha
Microsystems, LLC, in exchange for $500,000 cash and the assumption of the
remaining outstanding accounts payable of the Businesses, purchased the
remaining net accounts receivable of the Businesses it acquired in the sale
completed on January 31, 2000. During the year ended December 31, 2000 the
Company received payments of $270,000. On August 1, 2000, the terms of the
agreement were amended such that payment of the remaining balance of $230,000
was extended to be due in full by June 30, 2001, and that interest on the
outstanding balance will be paid monthly at an annualized rate of 10 percent.
The Company received $175,000 in May of 2001 and wrote off the remaining $55,000
balance during the quarter ending June 30, 2001.
The results from operations during the nine months September 30, 2000 include a
net loss of $290,000 or $0.02 per share on $1,563,000 of revenue related to the
Businesses.
5. PRIVATE PLACEMENT OF COMMON STOCK
On March 30, 2000, the Company completed a private placement of 2,342,000 shares
of common stock which were sold at $6.25 per share, generating gross proceeds to
the Company of $14,637,500 with net proceeds of approximately $13,500,000.
Hampshire Equity Partners II, L.P., the Company's preferred stockholder,
purchased 995,400 shares of the Company's common stock issued in the private
placement.
8
6. CONTINGENCIES
On October 30, 2001, the Company was served with a Summons and Complaint by its
former President, Chief Executive Officer and a director of the Company, in a
litigation commenced in Superior Court of the State of California, Orange
County. Also named in the Complaint as defendants are Alpha Microsystems and
certain unnamed persons who are alleged to be responsible in some manner for the
damages which its former President asserts. The litigation seeks damages for
breach of an employment agreement between its former President and Alpha
Microsystems and alleges that Alpha Microsystems was merged into and/or changed
its name to, NQL Inc., as a result of which the Company is liable for all claims
asserted in the Complaint. The Complaint also seeks at least $630,000 for breach
of the employment agreement, as well as damages and penalties in an unstated
amount under the California Labor Code. The Complaint also seeks declaratory
relief to the effect that a covenant not to compete as set forth in the
employment agreement is void and unenforceable under the California Business &
Professions Code.
In addition, the Company is also currently involved in certain other claims and
litigation. The Company does not consider any of these claims or litigation to
be material. Management has made provisions in the Company's financial
statements for the settlement of lawsuits for which unfavorable outcomes are
both probable and estimable. In the opinion of management, results of known
existing claims and litigation will not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
7. WRITE-DOWN OF IMPAIRED ASSETS
During the quarter ended September 30, 2001, the Company determined that the
carrying value of certain capitalized software development costs, property and
equipment, and other assets exceeded their net realizable value as a result of
lower than expected software sales and a decision to relocate the Company's
headquarters from California to New Jersey. In accordance with Statement of
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," the Company recorded a
charge of $612,000 for the quarter ended September 30, 2001. Of this amount,
$475,000 relates to capitalized software development costs and is included in
cost of sales. The remaining $137,000 primarily relates to the write-down of
property and equipment, prepaid assets, and other assets. For the nine months
September 30, 2001 the Company has recorded a total charge of $1,305,000 for the
impairment of long-lived assets. Of this total amount, $824,000 relates to
capitalized software development costs included in cost of sales and $481,000
relates to the write-down of property and equipment, prepaid assets and other
assets.
8. INDUSTRY SEGMENT INFORMATION
The Company currently operates in two business segments: (i) IT professional
services consisting of management and consulting services, as well as network
design, installation and maintenance and (ii) software licensing and services
based on the Company's Network Query Language. A third segment reflects the
results of operations of businesses which have been sold (managed service
business). The accounting policies of the reportable segments are the same as
those described in the summary of significant accounting policies in the annual
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, except that certain expenses,
such as interest, amortization of certain intangibles, special charges and
general corporate expenses are not allocated to the segments. In addition,
certain assets including cash and cash equivalents, deferred taxes and certain
intangible assets are held at corporate. The effect of capitalizing software
costs is included in the software segment.
Prior to January 31, 2000, the Company evaluated its business according to the
following two segments: (i) the servicing of computer systems, networks and
related products; and (ii) the manufacture and sale of computer systems,
software and related products. The operations of the managed service business,
including the computer hardware manufacturing division, which were sold January
31, 2000, have been reclassified as the "businesses sold" segment. Prior periods
have been reclassified to reflect this realignment.
9
Selected financial information for the Company's reportable segments for the
three and nine months ended September 30, 2001 and 2000 follows:
IT
(In thousands) Professional Corporate Businesses
Services Software Expenses Sold Consolidated
--------- ------- -------- -------- ---------
Three Months Ended
September 30, 2001
Revenues from external
customers $ 3,196 $ 64 $ -- $ -- $ 3,260
Segment loss (326) (677) (1,132)(2) -- (2,135)
Nine Months Ended
September 30, 2001
Revenues from external
customers $ 10,086 $ 279 $ -- $ -- $ 10,365
Segment loss (827) (3,449) (2,860)(3) (7,136)
Three Months Ended
September 30, 2000
Revenues from external
customers $ 3,106 $ 227 $ -- $ -- $ 3,333
Segment loss (291) (1,301) (611)(4) -- (2,203)
Nine Months Ended
September 30, 2000
Revenues from external
customers $ 8,929 $ 417 $ -- $ 1,563(1) $ 10,909
Segment loss (818) (2,003) (476)(5) (307)(1) (3,604)
(1) In January 2000, the Company closed the sale of a significant portion of
the Company's operations to Alpha Microsystems LLC.
(2) Includes a gain of $98,000 for the three-month period ended September 30,
2001 from the sale of Businesses to Alpha Microsystems LLC and a loss from
impairment of long-lived assets of $612,000. Also includes a provision for
executive severance of $630,000.
(3) Includes a gain of $262,000 for the nine-month period ended September 30,
2001 from the sale of Businesses to Alpha Microsystems LLC and a loss from
impairment of long-lived assets of $1,305,000. Also includes a provision
for executive severance of $630,000.
(4) Includes a gain of $343,000 for the three-month period ended September 30,
2000 from the sale of Businesses to Alpha Microsystems LLC.
(5) Includes a gain of $1,670,000 for the nine-month period ended September 30,
2000 from the sale of Businesses to Alpha Microsystems LLC.
9. SUBSEQUENT EVENTS
The Company had been notified by NASDAQ that it has failed to maintain the
minimum listing requirements as set forth in Market Place Rule 4450(a)(5), and
was delisted. The Company had appealed this determination and had intended to
present a plan, involving a reverse stock split, to allow the Company's exchange
listing to be transferred from the NASDAQ National Market to the NASDAQ SmallCap
Market. Based on several factors, the Board of Directors had decided that a
reverse stock split was not the most appropriate solution at the time for both
the Company and its shareholders.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report on Form 10-Q contains certain forward-looking statements
which involve risks and uncertainties, and our actual results may differ from
our expectations. These forward-looking statements include, but are not limited
to, statements relating to: (i) the market acceptance of our products,
including, but not limited to, our Network Query Language-based infrastructure
software products and, and our information technology (IT) services, (ii) the
ability of the Company to raise funds through additional issuances of debt or
equity, (iii) the continued development of our technical, manufacturing, sales,
marketing and management capabilities, (iv) anticipated competition, and (v) any
future performance, achievements, or industry results expressed or implied by
such forward-looking statements.
The forward-looking statements included in this report are based on current
expectations that involve a number of risks and uncertainties. Forward-looking
statements included in this report regarding our results, performance and
achievements are dependent on a number of factors. Our ability to expand our
information technology professional services division through new service
contracts, expansion of time and materials servicing, and alliances with
third-party information technology service providers, to realize revenues from
existing service contract alliances and to develop opportunities to service
products manufactured by third parties depends on: (i) our ability to develop,
produce and market services that are priced competitively, (ii) whether our
information technology services will be commercially successful or sufficiently
technically advanced to keep pace with rapid improvements in computer technology
and resulting product obsolescence, (iii) changes in the cost of information
technology services, (iv) our ability to manage risks associated with our
information technology services operating strategies, (v) changes in our
operating and capital expenditure plans, and (vi) our ability to manage our
expenses in relation to our revenues. Our ability to execute Internet/intranet
technology and marketing agreements with key companies and our ability to derive
revenues from the sale of product, licensing of technology, or revenue sharing
relationships depends on: (i) our ability to develop, produce and market
products and services that incorporate new technology, are priced competitively
and achieve significant market acceptance, (ii) whether our products and
information technology services will be commercially successful or sufficiently
technically advanced to keep pace with rapid improvements in computer technology
and resulting product obsolescence, (iii) our ability to deliver commercial
quantities of new products in a timely manner, (iv) our ability to manage risks
associated with our Internet operating strategies, (v) changes in our operating
strategy and capital expenditure plans, and (vi) the economic and competitive
environment of the Internet/intranet industry in general.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions, all of which
are difficult or impossible to predict accurately and many of which are beyond
our control. In addition, our business and operations are subject to substantial
risks, which increase the uncertainty inherent in forward-looking statements. In
light of the significant uncertainties inherent in the forward-looking
information included in this report, the inclusion of such information should
not be regarded as a representation by us or any other person that our
objectives or plans will be achieved. We disclaim any obligations to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained in this report to reflect future events or
developments.
General
We are a provider of professional services including internet and intranet
consulting, network designs, installation and maintenance, onsite support as
well as providing software solutions that aggregate, transform and deliver
content from many digital sources to virtually and digitally enabled
destinations. Our two operating divisions are (1) our DCi information technology
(IT) professional services division provides network installation, support and
consulting services, and (2) our NQL software division that develops and markets
Network Query Language-based software products and services which are designed
to access, excavate, gather, organize and convert into desired formats the
massive amounts of data that are located on the web and legacy-based systems.
11
Information Technology Professional Services Division
Our information technology professional services division provides Internet and
intranet consulting, design implementation, circuit procurement, installation,
maintenance, help desk services, premise wiring services, network installation
and administration and on-site technical management and consulting services. DCi
also cross-markets Network Query Language-based products and services.
Additionally, this division provides a wide array of computer systems, data
communications and LAN/WAN information technology services and products to a
customer base encompassing many industries. Specifically, this division serves
large financial institutions, major accounting firms, pharmaceutical companies,
hospitals and universities. Most customers are located in the Northeast, but our
customer base also reaches as far as Florida and the West Coast.
Software Division
The software division provides bot and intelligent agent technologies to the
global Internet/Intranet business-to-business market. Bots are software robots
designed to excavate, gather and organize the data proliferating on the web, and
automate many of these computing processes. Intelligent agents are personalized
bots that can make their own decisions and thus use their own "artificial
intelligence" to improve their abilities to search, retrieve and organize data.
Intelligent agents access and search multiple types of information systems in
various locations, including the Internet, and perform computing tasks that are
difficult, inefficient or impossible to conduct manually. Bots and intelligent
agents can also be used to monitor and report on the status of data and systems.
The software division is intended to serve the growing needs of a broad range of
businesses for improved bot and intelligent agent technologies. This division
created and developed Network Query Language technology, a proprietary scripting
programming language that streamlines the development of intelligent agents,
bots and web applications. Network Query Language technology can also be used to
convert data on the web into desired formats for other databases and documents.
Currently, we believe Network Query Language technology is one of the only
programming languages designed exclusively for the development of bots and
intelligent agents. Network Query Language technology attempts to provide an
efficient development environment for bots, intelligent agents and web
applications in much the same way as Structured Query Language (SQL) provided a
common development environment for database applications. As a result, the
Network Query Language technology delivers added value to information
management.
We license the Network Query Language technology to businesses so they can
create and use their own bots and intelligent agents in real time. The current
target market for Network Query Language technology based bot and intelligent
agent technology includes Internet integrators, information technology
departments of Fortune 1000 and other large companies, Internet communities and
marketplaces (portals and vortals) and independent software vendors. These
businesses use Network Query Language based-products and services to create
their own intelligent agents to search a variety of resources for specific
information and then gather and organize that information for internal or
external use. Using Network Query Language based-products and services,
companies and individuals can create and deploy customized bot and intelligent
agent applications in a matter of hours or days rather than the weeks or months
common with other development environments. Network Query Language technology
contains more than 500 common English language verbs and is designed to be
non-cryptic. We also develop and market custom software applications for
gathering and organizing information from a variety of resources.
We have substantially downsized our software division and are exploring the sale
of portions of this division. We are also currently in the process of moving our
corporate headquarters in California to our main center for information
technology professional services, which is located in Teterboro, New Jersey. The
downsizing of our software division has substantially affected that division's
business. The Northeast and Mid-Atlantic regions are also serviced from a
satellite office in Delaware, while other areas of the country are supported
through the corporate home office and carefully selected, monitored and managed
sub-contractors.
12
EBITDA
We had negative earnings before interest, taxes, depreciation and amortization
("EBITDA") of $5,807,000 and $1,651,000 for the nine and three month periods
ended September 30, 2001(including a gain on sale of Businesses of $262,000 and
$98,000, respectively and a loss of $1,305,000 and $612,000 from impairment of
long-lived assets respectively). We had a negative EBITDA of $2,849,000 and
$1,973,000 for the nine and three month periods ended September 30, 2000
(including negative EBITDA of $267,000 from the managed services division and a
gain on sale of Businesses of $1,327,000 and $443,000, respectively).
Results of Operations
Net Revenues
Our total net revenue decreased $544,000, or 5 percent, to $10,365,000 for the
nine-month period ended September 30, 2001 from $10,909,000 for the respective
prior year period. Total net revenue decreased $73,000, or 2.2 percent, to
$3,260,000 for the three-month period September 30, 2001 from $3,333,000 for the
respective prior year period. The decrease in total net revenue for the nine
month period results from a $1,563,000 decrease due to the January 31, 2000 sale
of our managed services and computer hardware manufacturing divisions offset by
an increase of $1,157,000 or 13 percent in our information technology service
division.
Information Technology Professional Services Revenue
Our information technology professional service revenue increased $603,000, or
7.3 percent, to $8,824,000 for the nine-month period ended September 30, 2001
from $8,221,000 for the respective prior year period. For the three-month period
ended September 30, 2001 our information technology professional service revenue
decreased $11,000, or .4 percent, to $2,866,000 from $2,877,000 for the
respective prior year period. The increase in information technology
professional services revenue is primarily due to entering into additional
maintenance contracts prior to and during the nine-month period ended September
30, 2001.
Information Technology Product Revenue
Our information technology product revenue increased $554,000, or 78.2 percent,
to $1,262,000 for the nine-month period ended September 30, 2001 from $708,000
for the respective prior year period. For the three-month period ended September
30, 2001 our information technology product revenue increased $101,000, or 44.1
percent, to $330,000 from $229,000 for the respective prior year period. The
increase in information technology product revenue is primarily due to increased
product sales to new and existing service customers.
Software Licenses Revenue
Our total software license revenue decreased $229,000, or 58.4 percent, to
$163,000 for the nine-month period ended September 30, 2001 from $392,000 for
the respective prior year period. For the three-month period ended September 30,
2001 our total software license revenue decreased $186,000, or 84.9 percent, to
$33,000 from $219,000 for the respective prior year period. The decrease is
primarily due to lower royalty revenue from our Stockvue licensing agreements.
Software Services Revenue
Our total software service revenues increased $91,000 or 364 percent to $116,000
for the nine-month period ended September 30, 2001 from $25,000 for the
respective prior year period. For the three-month period ended September 30,
2001 our total software service revenue increased $23,000, or 287.5 percent, to
$31,000 from $8,000 for the respective prior year period. The increase is
principally due to revenue derived from a few customer specific projects for
developing applications using our core Network Query Language.
13
Gross Margin
Our total gross margin for the nine months of 2001 decreased to 13.5 percent
compared to 21.5 percent as compared to the same period of the prior year. For
the three-month period ended September 30, 2001 our total gross margin decreased
to 7.4 percent compared to 23.9 percent as compared to the same period last
year. Included in the three and nine month periods of 2001 are impairment
charges of $824,000 and $475,000 for capitalized software development costs
respectively. After adjusting for the sale of our managed services and computer
hardware manufacturing divisions and the write-off of capitalized software
development costs, total gross margin decreased to 21.4 percent for the
nine-month period ended September 30, 2001 as compared to 22.4 percent for the
same period last year.
Information Technology Professional Services Gross Margin
Our information technology professional services gross margin increased to 20.3
percent for the nine-month period ended September 30, 2001 from 17.7 percent as
compared to same period of the prior year. For the three-month period ended
September 30, 2001 our information technology professional services gross margin
increased to 20.9 percent compared from 20 percent for the same period last
year. The increase is due to increased revenue from additional maintenance
contracts without a corresponding increase in expenses prior to and during the
three and nine-month periods ended September 30, 2001.
Information Technology Products Gross Margin
Our information technology products gross margin decreased to 25 percent for the
nine-month period ended September 30, 2001 from 46 percent as compared to the
same period of the prior year. For the three-month period ended September 30,
2001 our information technology products gross margin decreased to 29.1 percent
compared to 35.4 percent as compared to the same period last year. The decrease
is due to changes in the mix of products sold. We believe that the current
period gross margin percentage is more indicative of information technology
products gross margin percentages expected in future periods as compared to the
gross margin percentage attained in the nine and three-month period ended
September 30, 2000.
Software License Gross Margin
Our software license gross margin decreased (467.5) percent for the nine-month
period ended September 30, 2001 compared to 74.7 percent for the comparable
nine-month period of the prior year. For the three-month period ended September
30, 2001 our software license gross margin decreased (1,433.3) percent compared
to 62.6 percent as compared to the same period last year. This decrease is
attributable to the write-off of capitalized software development costs recorded
during the nine and three-month period ended September 30, 2001.
Software Services Gross Margin
Our software service gross margin decreased to 45.7 percent for the nine-month
period ended September 30, 2001 compared to 80 percent for the comparable prior
year period. For the three-month period ended September 30, 2001 our software
services gross margin increased to 58.1 percent from 37.5 percent as compared to
the same period last year. The nine-month margin decrease is primarily the
result of the establishment of a technical support department after March 31,
2000 and costs associated with the sale of a customized application in the
quarter ended March 31, 2001.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses increased $930,000 to
$8,262,000 for the nine-month period ended September 30, 2001 compared to
$7,332,000 for the nine-month period ended September 30, 2000. For the
three-month period ended September 30, 2001 our selling, general and
administrative expenses decreased $987,000 to $2,295,000 compared to $3,282,000
for the three-month period ended September 30, 2000. The increase in selling,
general and administrative expenses for the nine-month period ending September
30, 2001 is due to increased expenses in connection with the infrastructure
established to promote our software products and services as well as increased
advertising costs, the impairment of long-
14
lived assets of $481,000, and accrued executive severance of $630,000. The
decrease in selling, general and administrative expenses for the three-month
period ending September 30, 2001 is due to the downsizing activities in our NQL
software division.
Engineering, Research and Development Expenses
Our engineering, research and development expenses decreased slightly to
$500,000 for the nine-month period ended September 30, 2001 compared to $573,000
for the nine-month period ended September 30, 2000. For the three-month period
ended September 30, 2001 our engineering, research and development expenses
decreased to $142,000 compared to $199,000 for the three-month period ended
September 30, 2000. The decrease in engineering, research and development for
the nine and three-month period ending September 30, 2001 is due to the
utilization of development personnel for revenue-producing activities.
Liquidity and Capital Resources
We have incurred significant recurring operating losses and operating cash flow
deficiencies. We were in active discussions to raise additional financing to
fund operations, however, we were unable to do so. Therefore, the Company has
taken additional steps to raise cash needed to fund ongoing operations that
include reducing its workforce and exploration of sale of portions of the
Company's Network Query Language technology. Because we had not raised the
additional financing, and there is no assurance that the cash raised, if any,
from the sale of the Network Query Language technology will be sufficient to
fund the ongoing operations of the Company, there is substantial doubt about our
ability to continue as a going concern.
On May 31, 2001, we completed and implemented a $1.5 million senior secured
credit facility from a lender. Due to the increasingly problematic cash position
of the software division, our senior secured lender had informed us that they
were willing to assert a default unless we agreed to amend the senior facility
to restrict the ability of the DCi subsidiary to upstream funds to the Company.
As a result of this agreement, we believe that there is a significant likelihood
that our current cash and cash equivalents balance combined with the cash
expected to be generated by our information technology professional services
division will not provide sufficient resources to allow the Company to operate
through December 31, 2001. If we are unable to generate additional funds or
raise capital on acceptable terms, we may be forced to seek protection in United
States Bankruptcy Court.
During the nine months ended September 30, 2001, our working capital decreased
$5,149,000 from $3,055,000 at December 31, 2000 to $(2,094,000) at September 30,
2001. This decrease was primarily due to $4,402,000 net cash used in operating
activities and purchases of equipment of $564,000.
We had no material commitments for capital expenditures as of September 30,
2001, however we incur expenditures for information technology service parts on
a routine ongoing basis in order to perform services associated with maintaining
customers' computer networks.
An investment in our Common Stock involves a high degree of risk. Before making
an investment decision, you should carefully consider all the risks described in
this report in addition to the other information contained in this report
(including the Exhibits referenced in this report). Our business, operating
results and financial condition all could be materially and adversely affected
by any of the following risks. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business,
operating results and financial condition. The market price of our Common Stock
could decline due to the occurrence of any of such risks and you could lose all
or part of your investment. This report also contains certain forward-looking
statements that involve risks and uncertainties. Certain factors, including the
risks described below and elsewhere in this report, could cause our actual
results to differ materially from anticipated results reflected in the
forward-looking statements.
Due to the Company's inability to raise the capital necessary to continue its
software division, the Company has changed its business focus to its information
technology professional services division. The Company is actively seeking a
purchaser for its software division. There can be no guaranty that the Company
will be able to sell its software division on terms favorable to the Company or
its stockholders.
15
We recently changed the focus of our business to concentrate on our information
technology professional services; therefore, our past business and financial
results may not provide a reliable basis for assessing the prospects for the new
focus of our business, which largely depends on new technologies and emerging
markets. Our historic principal business lines were (1) the sale of computer and
networking hardware and software products, and (2) the service of our products,
the service of third-party hardware and software products, and installation,
training and consulting services with respect to these products. On January 31,
2000, we completed a sale of these business lines to R.E. Mahmarian Enterprises,
LLC, which changed its name to Alpha Microsystems, LLC in November 2000 and
which is owned by Richard E. Mahmarian, a former member of our Board of
Directors. We now focus on our information technology (IT) professional services
subsidiary, Delta CompuTec, Inc. ("DCi"). Accordingly, our business and
financial results prior to February 1, 2000 do not reflect the new focus of our
business. Analyzing those past results will not provide an accurate picture of
our current risks or anticipated returns. The future for our business will
depend almost exclusively on elements that made up a relatively smaller portion
of our prior business and financial activities.
Our revenue primarily depends on our information technology professional
services subsidiary. The majority of our revenue currently comes from providing
information technology services. Our IT services division generated over 97% of
our consolidated revenue excluding revenues generated by businesses sold. We
anticipate that our IT professional services division will generate the majority
of our revenue in the foreseeable future. If our IT professional services
subsidiary fails to grow its profits as expected, that could significantly
adversely affect our business, financial results and the market price of our
Common Stock.
We do not have a long history of operating our IT professional services
subsidiary. We acquired our IT professional services subsidiary in September of
1998. Although the key management personnel of this subsidiary continued with us
after our acquisition, we have owned and operated this subsidiary for only ten
quarters. Therefore, we may not yet be fully aware of the risks and prospects
for this division or our industry in general. The short length of our experience
with our IT professional services subsidiary could negatively impact our ability
to evaluate and effectively oversee our operation, and this could significantly
adversely affect our business, financial results and the market price of our
Common Stock.
We face increasing competition in the market for our IT services. The markets
for IT services are intensely competitive and the competition is increasing.
There are no substantial barriers to entry for IT services, so we expect
competition in these markets to increase and remain both strong and persistent.
Competitors include numerous information technology service providers. Unknown
to us, another company could now be developing one or more services superior to
our services. Such a company could, to our detriment, rapidly acquire market
share for information technology services. In short, competitive forces could
rapidly, severely and adversely affect our business, financial results and the
market price of our Common Stock. Many of our competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base of
customers than we have. Many of our competitors have well-established
relationships with our current and potential customers, have extensive knowledge
of our industries and may be capable of offering alternative solutions. As a
result, our competitors may be able to respond more quickly to changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of their services than we can. In addition, many of our
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties that may improve their
ability to address the needs of customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
negatively impact our ability to sell our services at the price levels required
to support our continuing operations.
We may be unable to devote enough funds and resources to sufficiently develop
our services in order to sustain and grow our business. Developing and improving
our services requires large amounts of funds and resources. There are no
assurances that we will be able to provide enough funds and resources to
sufficiently develop our products and services in order to sustain and grow our
business. If we lack funds and resources for service development, our business,
financial results and the market price of our Common Stock could be
significantly adversely affected.
16
The Company had been notified by NASDAQ that it failed to meet minimum listing
requirements set forth in Market Place Rule 4450(a)(5). The Company had appealed
this NASDAQ Staff Determination, and intended to present a plan, involving a
reverse stock split, to permit its Common Stock to continue to be listed on the
NASDAQ Market and had proposed transferring from the NASDAQ National Market to
the NASDAQ SmallCap Market. There was no guaranty that the NASDAQ staff would
have approved such a plan. The Company had intended on placing a reverse stock
split to a vote by its stockholders but later decided that it was not in the
best interest of both the Company and its shareholders to pursue. There was no
guaranty that the stockholders of the Company would have approved a reverse
stock split. Therefore, the company received notice that its securities were
delisted from the NASDAQ Market.
Since NASDAQ delisted our securities and does not allow our securities to be
listed on the NASDAQ SmallCap Market, trading, if any, in the securities since
and thereafter is conducted in the over-the-counter market in the "pink sheets"
or the National Association of Securities Dealers' "Electronic Bulletin Board".
The liquidity of our securities has been materially impaired, not only in the
number of securities that could be bought and sold at a given price, but also
through delays in the timing of transactions and reduction in security analysts'
and the media's coverage of us, has resulted in lower prices for our securities
that might otherwise be attained and could also result in a larger spread
between the bid and asked prices for our securities. In addition, since our
securities have been delisted it could materially and adversely affect our
ability to raise funding in the future.
In addition, since our securities are delisted from trading on NASDAQ, our
Common Stock may become a "penny stock." Broker-dealers who sell penny stocks
must provide purchasers of these stocks with a standardized risk-disclosure
document prepared by the SEC. A broker must also give a purchaser, orally or in
writing, bid and offer quotations and information regarding broker and
salesperson compensation, make a written determination that the penny stock is a
suitable investment for the purchaser, and obtain the purchaser's written
agreement to the purchase. Penny stock rules may make it difficult for you to
sell your shares of our stock. Because of these rules, there is less trading in
penny stocks. Also, many brokers choose not to participate in penny stock
transactions.
Furthermore, we have recently accepted the resignation of Robert O. Riiska, our
Chief Financial Officer, and terminated our employment relationship with Douglas
J. Tullio, our Chief Executive Officer (see PART II, Item I, Legal Proceedings).
David Pallmann and Todd Miller have been appointed by the Board of Directors to
replace John Devito and Alex Roque who had temporarily assumed the
responsibilities of acting President and Chief Financial Officer, respectively.
The loss of senior managers who have experience running our Company and the
transition of those responsibilities to new management could adversely affect
our Company's business. Furthermore, the Company may face difficulty attracting
and retaining senior managers.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our exposure to market rate risk for changes in interest rates relates primarily
to the interest income generated by excess cash invested in short term money
market accounts and certificates of deposit and interest expense related to our
line of credit. We have not used derivative financial instruments in our
investment portfolio. Our interest earning instruments and line of credit carry
a degree of interest rate risk. We have not been exposed nor do we anticipate
being exposed to material risks due to changes in interest rates. Our future
interest income may fall short of expectations or interest expense may increase
due to changes in interest rates. However, we believe that such increase or
decrease will be insignificant.
PART II. OTHER INFORMATION
Item 1. Legal proceedings.
On October 30, 2001, the Company was served with a Summons and Complaint by
Douglas J. Tullio, the former President, Chief Executive Officer and a director
of the Company, in a litigation commenced in Superior Court of the State of
California, Orange County. Also named in the Complaint as defendants are Alpha
Microsystems and certain unnamed persons who are alleged to be responsible in
some
17
manner for the damages which Mr. Tullio asserts. The litigation seeks damages
for breach of an employment agreement between Mr. Tullio and Alpha Microsystems
and alleges that Alpha Microsystems was merged into and/or changed its name to,
NQL Inc., as a result of which the Company is liable for all claims asserted in
the Complaint. The Complaint also seeks at least $630,000 for breach of the
employment agreement, as well as damages and penalties in an unstated amount
under the California Labor Code. The Complaint also seeks declaratory relief to
the effect that a covenant not to compete as set forth in the employment
agreement is void and unenforceable under the California Business & Professions
Code.
Item 5. Other Information.
In the last three months, the Company has undergone significant changes. It has
closed its West Coast operations and is in the transition of moving the
Company's headquarters to its New Jersey subsidiary, and has significantly
reduced workforce within its software licensing and services division. On July
25, 2001, the Company accepted the resignation of Robert O. Riiska, its Chief
Financial Officer, and effective July 30, 2001, terminated its employment
relationship with Douglas Tullio, its Chief Executive Officer. Additionally, Mr.
Tullio has resigned his board membership and as Chairman of the Board (see PART
II, Item I, Legal Proceedings).
The Company had been notified by NASDAQ that it has failed to maintain the
minimum listing requirements as set forth in Market Place Rule 4450(a)(5), and
was delisted. The Company had appealed this determination and had intended to
present a plan, involving a reverse stock split, to allow the Company's exchange
listing to be transferred from the NASDAQ National Market to the NASDAQ SmallCap
Market. The Company then decided not to pursue the plan for its lack of benefit
to its stockholders.
The Company had been informed that its Senior Secured Lender would disallow any
further upstreams of funds from the DCi subsidiary to the software division past
November 15, 2001. Unless the Company is able to generate additional funds or
raise capital on acceptable terms there is significant doubt as to whether it
will continue as a growing concern.
Item 6. Exhibits and Reports on Form 8-K.
(a) See Exhibit Index.
(b) Current Reports on Form 8-K were filed by the Company as follows:
1. Report on Form 8-K filed by the Company on July 11, 2001 regarding the
Company Seeking a Purchaser for its Software Division;
2. Report on Form 8-K filed by the Company on August 2, 2001 regarding
the Departure of Senior Officers; the Company's Intent to Appeal Staff
Determination; the Company's Request for Listing on the NASDAQ
SmallCap Market;
3. Report on Form 8-K filed by the Company on September 25, 2001
regarding the Delisting of the Company's Common Stock from NASDAQ; and
4. Report on Form 8-K filed by the Company on October 10, 2001 regarding
the Change of Accountants from Ernst & Young LLP to J.H. Cohn LLP.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NQL INC.
(Registrant)
Date: November 14, 2001 By: /s/
---------------------
David Pallmann
President
Date: November 14, 2001 By: /s/
---------------------
Todd Miller
Chief Financial Officer
19
EXHIBIT INDEX
10.53 Indemnification Agreement entered into by and between Registrant and
Matthew C. Harrison, Jr., dated July 26, 2001. The following Schedule
identifies other Indemnification Agreements omitted from this Exhibit
Index, which Indemnification Agreements are substantially identical in
all material respects to the Indemnification Agreement between the
Registrant and Matthew C. Harrison, Jr., except for the names of the
indemnified parties and the dates of the Indemnification Agreements.
Schedule to Exhibit 10.53
Heather Vuncanon August 1, 2001
Jason Meyer August 17, 2001
Todd Miller September 5, 2001
10.54 Amendment to Loan and Security Agreement by and between Keltic
Financial Partners, LP and Delta Computec Inc. dated August 15, 2001
20