UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 24, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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 (I.R.S. Employer
incorporation or organization) Identification Number)
1155 Elm Street, Manchester, New Hampshire 03101
------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (603) 627-3500
--------------
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, par value $.01 per share
---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of
1934 during the past 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
-----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K [ X ]
As of December 8, 2000, the aggregate market value of the 6,289,178
outstanding shares of voting stock held by non-affiliates of the
registrant was $14,150,651.
As of December 8, 2000, 7,891,963 shares of the Registrant's Common Stock,
par value $.01 per share, were issued and outstanding.
Documents Incorporated by Reference
-----------------------------------
None.
<PAGE>
PART I
Item 1. Business
-----------------
This report contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934
that reflect the Company's current view with respect to future
events and financial performance. When used in this report, the
words "anticipates," "believes," "expects," "intends," "plans,"
"future," and similar expressions identify forward-looking
statements. The future events described in these statements
involve risks and uncertainties, among them risks and
uncertainties related to the market acceptance of the Company's
products and continuing development of its products, general
market conditions and competition. Actual results could differ
materially from those projected in the forward-looking statements
as a result of factors set forth throughout this document. In
particular, there can be no assurance that the strategic
initiatives detailed below will be achieved within the times
currently contemplated by management, if at all. In addition,
there can be no assurance that the net values shown on the
Company's financial statements for the discontinued operations
will be realized. Further, much of the Company's future growth is
dependant on the successful launch of NEXIQ Technologies'
e-Technician product. There is no assurance that the product
will succeed even after introduction to the market. The Company
undertakes no obligation to revise or publicly release the
results of any revision to these forward-looking statements,
whether as a result of new information, future events or otherwise.
Readers should be advised to read this Form 10-K in its entirety
and other reports or documents the Company files from time to time
with the Securities and Exchange Commission, particularly the
quarterly reports on Form 10-Q and any current reports on Form 8-K,
copies of which may be obtained from the Company or from the Securities
and Exchange Commission at its website at www.sec.gov.
General
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In April 1999, the Board of Directors (the "Board") instructed management
to begin exploring various strategic alternatives for maximizing
stockholder value. As a result, management reviewed
the strategic alternatives to strengthen the Company's financial
position and to position the Company for future growth. These
alternatives included the sale and/or retention of the Company's
operating businesses in various combinations. Management reported on
the various alternatives to the Board at numerous board meetings and
ultimately, the Board approved certain strategic initiatives to
enhance stockholder value. The Board authorized a
series of initiatives designed to reposition the Company as a
provider of vehicle diagnostic equipment and software solutions.
Accordingly, the Company divested and exited its handheld computer
and terminals business, its power conversion business and its
instrument and solenoid businesses. The Company's strategic goal
is to continue and expand its leadership position in the
development, manufacture and marketing of remote diagnostic services
("telematics"), as well as diagnostic and repair hardware and
software for the automotive, heavy-duty vehicle, construction and
agricultural equipment market, through its wholly owned
subsidiary, WPI Micro Processor Systems, Inc. (d/b/a NEXIQ
Technologies). Accordingly, the Company's non core businesses are
reflected as "discontinued operations" throughout this annual report.
As of November 2000, the Company completed its divestiture and exit of
its non core business strategy.
At the Company's annual shareholder meeting on November 2, 2000,
the Company's shareholders approved a number of proposals
including changing the Company's name from WPI Group, Inc. to
NEXIQ Technologies, Inc. ("NEXIQ" or the "Company"). References
to "NEXIQ Technologies" in this report shall include only the Company's
Vehicle Diagnostic Equipment and Software business and are identified as
"continuing operations." References to "the Company" or "NEXIQ" shall
include both continuing operations and discontinued operations.
Historically, NEXIQ designed, manufactured and marketed high
value-added products for a wide range of applications through two
operating groups: Information Solutions and Industrial
Technology. The Information Solutions Group produced three
distinct product lines: vehicle diagnostic equipment and
software, rugged handheld computers and rugged handheld
terminals. During fiscal 2000, the Company exited and divested
the handheld computer and terminal businesses. The businesses that
formerly comprised the Information Solutions Group and the
handheld computer and terminals businesses are reflected as
discontinued operations.
2
<PAGE>
The Industrial Technology Group produced four distinct
product lines: industrial power conversion systems, electronic
ballasts, precision solenoids and precision instruments. In
December 1999, the Company sold the industrial power conversion systems
and the electronic ballasts businesses. In November 2000, the Company
completed the sale of its precision solenoid and precision
instruments businesses. Accordingly, each are reflected as discontinued
operations in the financial statements.
The Company was incorporated in New Hampshire in 1948 and its
corporate headquarters are located at 1155 Elm Street,
Manchester, New Hampshire 03101. The telephone number is (603)
627-3500.
Products
NEXIQ - Continuing Operations
NEXIQ Technologies provides its transportation customers a line of
diagnostic hardware and software solutions for monitoring the functions
of critical vehicle components and for making parameter changes as
required. The products range from devices or system-specific application
cartridges to complete personal computers (PC) and Internet-based solutions
for in-field diagnosis of vehicle failures.
In 1988, NEXIQ introduced the Pro-Link 9000 scan tool for the automotive
and heavy-duty vehicle diagnostic and repair markets. This product has
been extremely successful and has been, over its 12-year history, the
tool of choice, with more original equipment manufacturers ("OEM")
endorsements than any other tool of its type in the industry. NEXIQ has
continuously updated the Pro-Link 9000 using the latest developments in
hardware and software technology. This effort continues to further enhance
the tool and keep the design current.
Today, over 120,000 Pro-Link 9000 applications have been sold, mainly for
use in the heavy-duty vehicle market, with a significant number also
employed in the automotive sector. From this base business, NEXIQ has
continued to expand its product offerings and today provides a broad
range of test and development solutions for heavy-duty vehicle
applications, and diagnostic application development. Application
coverage includes both the hardware and software to test many types of
electronic control modules ("ECMs") for engines, transmissions, braking
systems, instrument clusters, passenger safety systems and others.
NEXIQ's other product offerings include exhaust emission analyzers,
smoke meters and various handheld electronic system testers.
In 1998, NEXIQ introduced two new products of significant strategic
importance for the Company and the heavy-duty vehicle industry. These
products are known as the MagicKey "PDM" (parallel data module) and the
"SDM" (serial data module). These devices act as a bridge between the
vehicle datastream and a standard PC or laptop. In use, they are connected
to either the PC's parallel or serial data port and the vehicle's
diagnostic connector. Using either NEXIQ's unique software, which combines
proprietary OEM data with NEXIQ's own in-house software, or OEM developed
software, the vehicle's on-board systems can be thoroughly analyzed. Data
captured and interpreted by these devices is presented to the service
technician to facilitate the repair or adjustment of the vehicle.
NEXIQ's newest product, e-Technician, is an Internet-based, wireless
telematics application that allows component manufacturers, OEM's and
fleet managers to access and control their mobile assets from any location.
e-Technician is capable of monitoring hundreds of data points on a
vehicle's electronic data bus via the Internet. It provides remote
monitoring of a vehicle's sensors and provides real-time analysis for
compontent manufacturers, OEM's, fleet managers and leasing companies.
The Company believes that e-Technician will play an essential role in
future vehicle service, maintenance and telematics services, bringing
advanced business value to transport logistic operations across many
industries. With e-Technician, companies will perform diagnostic
services remotely, including the reprogramming of on-board computers
to enter new configurations and calibration data. e-Technician will
also link to other business applications, such as trip and maintenance
scheduling applications, and to still other applications measuring
vehicle and fleet profitability. e-Technician is scheduled for launch
in May/June 2001. The Company has numerous demonstration units currently
in field trials.
3
<PAGE>
Customers
NEXIQ - Continuing Operations
For fiscal 2000, 1999 and 1998, a distributor of certain NEXIQ Technologies'
products represented approximately 36%, 51% and 60%, respectively,
of NEXIQ Technologies' net sales. Another customer represented approximately
16% of NEXIQ Technologies' net sales in fiscal 1999.
Company - Including Continuing and Discontinued Operations
For fiscal 2000 and 1999, one customer represented 10% or more of
NEXIQ's net sales. for Fiscal 1998, no customer represented 10%
or more of NEXIQ's net sales.
Sales and Marketing
NEXIQ - Continuing Operations
The sale of vehicle diagnostic equipment and software is carried out
by a group of 24 sales and marketing employees. NEXIQ Technologies'
products are distributed through a number of traditional channels as
well as through NEXIQ Technologies' own direct telemarketing operation.
NEXIQ Technologies also sells its products through a number of
independent distributors located in North America. NEXIQ Technologies'
automotive products are sold through several independent warehouse
distributors and through NEXIQ Technologies' direct sales catalog.
NEXIQ Technologies offers a full range of pre- and post-sales support.
Pre-sales support is provided primarily by NEXIQ Technologies sales
engineers. Post-sales support is primarily provided through the
1-800 hot line. Together, these organizations ensure the successful
application of NEXIQ Technologies' technology and the satisfaction of
its clients.
Company - Including Continuing and Discontinued Operations
NEXIQ's marketing efforts are directed at identifying emerging
markets for its products. NEXIQ's cooperative marketing efforts
and design capabilities often result in long-term customer
relationships and have contributed to a stable customer base.
Further, such cooperative efforts enable NEXIQ to identify new
product opportunities and participate in new product
specifications as they are determined. Other marketing efforts
include market research, lead generation, production and
distribution of NEXIQ's product literature, trade shows and
advertising.
Manufacturing and Raw Materials
Each of NEXIQ's businesses (both continuing and discontinued
operations) manufactures nearly 100% of their products. NEXIQ
businesses generally operate their manufacturing facilities one
shift per day, five days per week. NEXIQ's businesses use many
different raw materials in their manufacturing processes.
However, none of NEXIQ's businesses are dependent on any one or
several raw materials used in their manufacturing. NEXIQ's
businesses have multiple sources for each raw material used in
the manufacture of their products and are not dependent on any
one or group of its vendors for their raw material purchases.
Backlog
NEXIQ manufactures its products against orders from customers.
Backlog is comprised of orders for products that generally have
scheduled shipment dates within 12 months. Some orders in
NEXIQ's backlog may be canceled under certain conditions,
although cancellation rarely occurs.
NEXIQ - Continuing Operations
As of September 24, 2000, NEXIQ Technologies had a backlog of
approximately $800,000, compared with a total backlog of approximately
$500,000 at September 26, 1999. Management believes that most of
NEXIQ Technologies' backlog at September 24, 2000 will be shipped in
the 12 months following that date. Because many of its contracts are
performed within short time periods after receipt of an order, NEXIQ
Technologies does not believe that the level of its backlog is a
meaningful predictor of its future results.
4
<PAGE>
Company - Including Continuing and Discontinued Operations
As of September 24, 2000, NEXIQ had a backlog of approximately
$8.2 million, compared with a total backlog of approximately
$20.3 million at September 26, 1999. Management believes that
most of NEXIQ's backlog at September 24, 2000 will be shipped in
the 12 months following that date. Because many of its contracts
are performed within short time periods after receipt of an
order, NEXIQ does not believe that the level of its backlog is a
meaningful predictor of its future results.
Product Development
NEXIQ - Continuing Operations
In its 20-year history NEXIQ Technologies has established widespread
recognition for new product innovation and has introduced a
number of " first-to-market" products that have not only
contributed significantly to sales but have also helped shape the
vehicle diagnostic and repair industry in North America. In
addition, NEXIQ Technologies develops both hardware and software products
based on existing products and technologies for specific
customer needs. NEXIQ Technologies' new product development is
focused on the development of its e-Technician vehicle diagnostic
platform and Internet-based diagnostic service as well as its facility
based tools. NEXIQ Technologies charged to operations approximately
$3.4 million, $2.1 million and $1.5 million for new product
development in fiscal 2000, 1999 and 1998, respectively.
Expenditures on new product development represented approximately
25.6%, 16.9% and 10.4% of net revenues in fiscal 2000, 1999 and 1998,
respectively.
Company - Including Continuing and Discontinued Operations
NEXIQ believes that its commitment to product development is a
critical element of its strategy aimed at exploiting niche
markets for each group's products. NEXIQ's product development
activities are focused on the design of products identified by
both its customers and its sales and marketing groups. A key
element of NEXIQ's product development activities is the
expansion of product offerings based on its existing
technologies. NEXIQ charged to operations approximately $5.3
million, $7.7 million and $5.1 million for product development in
fiscal 2000, 1999 and 1998, respectively. Expenditures on new
product development represented approximately 11.3%, 8.4% and
5.4% of net revenues in fiscal 2000, 1999 and 1998, respectively.
Patents and Proprietary Information
NEXIQ (including continuing and discontinued operations) have a
number of United States and foreign patents on certain products.
NEXIQ's businesses also rely on trade secrets, in-house expertise
and technological advancement to maintain their competitive
positions.
NEXIQ does not believe patent protection to be significant to any
of its current businesses. However, NEXIQ considers its patents
to be a strong deterrent against unauthorized copying of its
products and key product attributes. NEXIQ believes in
vigorously protecting its rights under its patents.
Similarly, each of NEXIQ's businesses has certain registered
trademarks, none of which is considered significant to current
operations.
Competition
Although NEXIQ believes it is one of the leading manufacturers
and distributors of certain of its products, the industries in
which NEXIQ competes are highly competitive. NEXIQ competes with
a relatively small number of full-line national manufacturers and
a much larger number of regional manufacturers and manufacturers
with limited product lines. NEXIQ believes that competition is
largely based on, among other things, price, quality, breadth of
product lines, distribution capabilities (including quick
delivery times) and customer service. Certain of NEXIQ's
competitors are larger and have greater financial, technical and
marketing resources than the Company. In certain circumstances,
due primarily to factors such as freight rates, quick delivery
times and customer preference for local suppliers, certain
manufacturers and suppliers may have a competitive advantage over
NEXIQ in a given geographic region.
5
<PAGE>
NEXIQ - Continuing Operations
Currently, NEXIQ Technologies' diagnostic systems and related
software are sold primarily to the transportation industry.
The major competitive factors in this market include product
features, portability, product knowledge and customer service.
NEXIQ Technologies has a number of competitors in certain segments
of the transportation market. Management believes that NEXIQ Technologies
competes effectively in these markets by offering innovative, rugged
and portable products and by providing excellent customer service.
At the present time, management does not believe that there are
any products which are competitive with e-Technician telematics services
(command and control applications). There can be no assurance, however,
that products competitive with e- Technician are not in the process of
development or will not be introduced in the future. However, management
believes that NEXIQ Technologies has a number of key strengths that give
it an advantage over companies wishing to introduce a product competitive
with e-Technician. These strengths include access to and understanding
of non-proprietary and proprietary original equipment
manufacturer data streams, an in-depth knowledge and expertise in
on-board/off-board communication protocols, an in-depth knowledge
and expertise in the diagnosis and reprogramming of electronic
control units, and well-established links with other key players
in the heavy-duty diagnostic industry which management believes
will assist in the deployment and market penetration of
e-Technician.
Competition - Discontinued Operations
Precision Solenoids
NEXIQ has several established competitors in the market for
solenoids, some of which are larger and some of which are
smaller than the discontinued Precision Solenoid operation.
NEXIQ believes that, in these markets, it competes favorably
against its competitors by offering high-quality, dependable
products, superior engineering expertise and innovative, custom-tailored
solutions.
Precision Instruments
NEXIQ has several established competitors in the market for
avionics, inertial sensors and digital and analog meters. Some
of these competitors are larger and some are smaller than
the discontinued Precision Instruments operation. NEXIQ believes that
it competes favorably against its competitors in these markets by
offering vertical integration, high-quality dependable products,
superior engineering expertise and a high level of customer support.
Employees
NEXIQ - Continuing Operations
As of December 8, 2000 NEXIQ employed approximately 77 people, 15
of whom work in manufacturing, 23 of whom work in sales and
marketing, 29 of whom work in engineering and product
development and 10 of whom work in administration. None of the
NEXIQ's employees are represented by a union, and management
believes that NEXIQ's employee relations are good.
Company - Including Continuing and Discontinued Operations
As of December 8, 2000, NEXIQ employed approximately 84 people,
15 of whom work in manufacturing, 16 of whom work in
administration, 29 of whom work in product development and 24 of
whom work in sales and marketing. None of the Company's employees
are represented by a union, and management believes that the
Company's employee relations are good.
Item 2. Property
----------------
Properties
The Company leases approximately 22,000 square feet
of modern manufacturing and engineering facilities in Sterling
Heights, Michigan, to produce diagnostic tools. The Company leases
approximately 4,600 square feet of office space in Manchester,
New Hampshire, which houses its corporate offices. NEXIQ believes
that its existing space is adequate for its current needs.
6
<PAGE>
Regulatory Matters
The Company is subject to regulation under various and changing
federal, state, local and foreign laws and regulations relating
to the environment and to employee safety and health. These
environmental laws and regulations govern the generation,
storage, transportation, disposal and emission of various
substances. Permits are required for operation of the Company's
business and these permits are subject to renewal, modification
and, in certain circumstances, revocation. The Company believes
that it is in substantial compliance with such laws and
permitting requirements. The Company is also subject to
regulation under various and changing federal, state, local and
foreign laws and regulations that allow regulatory authorities
to compel (or seek reimbursement for) cleanup of environmental
contamination at its own sites and at facilities where its waste
is or has been disposed.
The Company expects to incur on going capital and operating costs
to maintain compliance with currently applicable environmental
laws and regulations. The Company does not expect such costs, in
the aggregate, to be material to its financial condition, results
of operations or liquidity.
Item 3. Legal Proceedings
-------------------------
The Company is not a party to any litigation that in management's
opinion would have a material adverse effect upon the Company's
financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
Not applicable.
Part II
Item 5. Market for Registrant's Common Stock and Related
--------------------------------------------------------
Stockholder Matters
-------------------
The NEXIQ Technology, Inc.'s common stock is traded on the OTC
Bulletin Board under the symbol NEXQ (formerly WPI Group, Inc.
OTCBB: WPIC.) Set forth below for each quarter of its last two
fiscal years indicated is the high and low sale prices for the
Company's common stock.
2000 1999
Fiscal Quarter High Low High Low
----------------------------------------------------------------
First $3 1/2 $1 5/16 $7 7/8 $4
Second 2 11/16 1 1/8 4 5/8 3 7/16
Third 2 1/16 1 4 1/8 3
Fourth 2 1/8 1 3/8 4 1/8 2 13/16
The number of shareholders of record on December 8, 2000 was
approximately 2,400. No dividends have been paid on the common
stock to date, and the Company does not expect to pay cash
dividends in the foreseeable future. In addition, the Company is
prohibited from paying cash dividends pursuant to the terms of
its credit facility with its lenders.
7
<PAGE>
<TABLE>
Item 6. Selected Financial Data
-------------------------------
<CAPTION>
Financial Highlights
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended September 24, September 26, September 27, September 28, September 29,
(in thousands, 2000 1999 1998 1997 1996
except per share ------------- ------------- ------------- ------------- ------------
data)
Statement of
Income Data:
Net Sales $ 13,352 $ 12,289 $ 14,514 $ 11,364 $ 8,661
Gross Profit 7,920 7,427 8,075 6,136 4,147
Operating income
(loss) from
continuing
operations (4,528) (3,367) (12) 4 (1,521)
Loss from
continuing
operations (8,978) (3,975) (165) (48) (908)
Income (loss) from
discontinued
operations, net of
income taxes (5,150) (29,230) 2,651 1,164 3,429
Cumulative effect
of change in
accounting principle - (2,822) - - -
Net income (loss) (14,128) (36,027) 2,486 1,116 2,521
============= ============= ============= ============ ===========
Diluted income
(loss) per share:
Continuing
operations $ (1.43) $ (0.66) $ (0.03) $ (0.01) $ (0.15)
Discontinued
operations (0.82) (4.83) 0.43 0.19 0.57
Accounting change - (0.47) - - -
Net income (loss) $ (2.25) $ (5.96) 0.40 0.18 0.42
============= ============= ============ ============ ===========
Adjusted Weighted
Average Shares 6,290 6,044 6,195 6,163 6,001
Balance Sheet
Data:
Working Capital
(deficit) $ (13,854) $ (11,837) $ 21,327 $ 16,967 $ 12,156
Total Assets 13,058 64,557 110,123 78,501 50,675
Long-Term Debt - - 62,639 42,000 18,650
Stockholders'
Equity (deficit) (21,466) (10,974) 25,243 21,813 20,549
============= ============= ============ ============= ===========
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
---------------------------------------------------------
Condition and Results of Operations
-----------------------------------
RESULTS OF OPERATIONS
FISCAL 2000 COMPARED TO FISCAL 1999
Net sales increased 9.2% to $13.4 million in 2000 from $12.3
million in 1999. The increase was primarily due to increase in
sales by NEXIQ to its primary target markets.
Gross profit in 2000 increased 6.6% to $7.9 million from $7.4
million in 1999. As a percentage of sales, gross profit
decreased to 59.3% from 60.7% in 1999. The increase in gross
profit was the result of the increase in sales during 2000. The
decrease in gross profit as a percentage of sales was due
primarily to change in product mix.
Research and new product development expenses increased 65.3% to
$3.4 million in 2000 from $2.1 million in 1999. As a percentage
of sales, research and new product development expenses increased
to 25.6% in 2000 from 16.9% in 1999. The increase was attributed
to the continued development of E-Technician, a web-based remote
diagnostic platform.
8
<PAGE>
Selling, general and administration expenses decreased 12.5% to
$7.2 million in 2000 compared to $8.2 million in 1999. As a
percentage of sales, selling, general and administration expenses
decreased to 53.9% from 67.2% in 1999. The changes in selling,
general and administration expenses in 2000 are primarily
attributed to a reduction in executive and administrative
personnel.
During fiscal 2000 and 1999, the Company entered into various
severance agreements with certain former executives. In
connection with the agreements, the Company recorded a
restructuring charge of $1.8 million and $510,000 in 2000
and 1999, respectfully, consisting primarily of the continuation
of payroll and benefits payments subsequent to termination.
The Company's operating loss in 2000 of $4.5 million compared to
$3.4 million in 1999. The increase in the Company's operating
loss was due to the increase in research and new product
development costs, and the restructuring and non-recurring costs
discussed above.
Other income (expense) was ($4.4) million compared to ($608,000)
in 1999. The increase was due primarily to higher interest
expense and $1.1 million of fees incurred in connection with the
execution of a forbearance agreement related to the Company's
bank debt.
The Company recognized a loss on disposal of discontinued
operations of ($5.2) million in 2000. The loss was primarily
attributable to a higher than anticipated loss on the sales of
its rugged handheld computer and terminal businesses and
subsequent sale of its instruments and solenoid businesses.
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales decreased 15.7% to $12.3 million in 1999 from $14.5
million in 1998. The decrease was primarily due to decrease in
sales by NEXIQ Technologies to its principal distributor. During 1999,
sales to the primary distributor decreased from $8.8 million in 1998 to
$6.3 million in 1999.
Gross profit in 1999 decreased 8.0% to $7.4 million from $8.1
million in 1998. As a percentage of sales, gross profit
increased to 60.7% from 55.6% in 1998. The decline in gross
profit was the result of the decrease in sales during 1999. The
increase in gross profit as a percentage of sales was due
primarily to change in product mix.
Research and new product development expenses increased 37.3% to
$2.1 million in 1999 from $1.5 million in 1998. As a percentage
of sales, research and new product development expenses increased
to 16.9% in 1999 from 10.4% in 1998. The increase was due in
part to the change in the Company's accounting method for
deferred product enhancement costs.
Selling, general and administration expenses increased 24.9% to
$8.2 million in 1999 compared to $6.6 million in 1998. As a
percentage of sales, selling, general and administration expenses
increased to 67.2% from 45.3% in 1998. The increase in selling,
general and administration expenses was due primarily to increases
in corporate expenses.
The Company's operating loss in 1999 of $3.4 million compared to
$12,000 in 1998. The increase in the Company's operating
loss was due primarily to lower sales and high operating expenses
as discussed above.
Other income (expense) increased to ($0.6 million) in 1999 from
($0.2 million) in 1998. The increase was due primarily to an
increase in interest expense on debt.
The Company's loss from discontinued operations in 1999 was $8.8
million compared to income from discontinued operations of $2.7
million in 1998. The loss was the result of the increased costs
and operating expenses as a result of the acquisition of
Instruments in August 1998, lower sales in the Company's rugged
handheld computer and terminal, power conversions and electronic
ballasts businesses and higher interest expense from additional
borrowings and higher interest rates.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of September 24, 2000, the Company had a working capital deficit
of $13.9 million compared to $11.8 million as of September 26, 1999.
Net cash provided by (used in) operations was ($1.3 million) in 2000
compared to $1.8 million in 1999.
As of September 24, 2000, the Company had no material commitments for
capital expenditures.
On July 31, 2000, the Company entered into a Convertible Note Agreement
with Sunrise Capital Partners, L.P., a private investment fund ("Sunrise")
and certain other participants, which include certain members of the
Company's management and certain members of the Allard-Nazarian Group. The
Convertible Note Agreement provides for a series of 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 $12,570,000 and notes with outstanding
principal of $1,546,000 ($1,500,000 of carrying value) in cash
received from Sunrise and certain members of management:
- 1,834,000 shares of common stock. The fair value of the
common stock issued was approximately $2,751,000.
- Warrants to purchase 1,613,000 shares of common stock at
$1.75, exercisable at any time at the option of the holder.
The warrants expire five years from the date of issuance. The
fair value of the warrants was approximately $871,000.
- $14,117,000 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 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 discussed in Note 4. Under the terms
of the Term B Financing, the Company received $5,000,000 in cash in
exchange for the following securities:
- Warrants to purchase 571,000 shaers of common stock at $1.75,
exercisable at any time at the option of the holder. The
warrants expire in five years. The fair value of the warrants
was approximately $309,000.
- $5,000,000 principal value of Term B Convertible Notes. The
Term B Convertible Notes, which 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 at the option of the holder
or the Company, under certain conditions at $1.75 per share.
Term C Financing
Through January 31, 2001, Sunrise has the option to participate in
up to $5,000,000 in additional financing which would include Term C
Convertible Notes (with terms identical to the Term B Convertible
Notes) and additional warrants to purchase shares of common stock
totaling 20% of the number of shares of common stock issuable upon
conversion of the Term C Convertible Notes.
On August 9, 2000, the Company amended its credit facility agreement with a
syndication of banks. The terms of the modified agreement provide a
$6,500,000 revolving line of credit and term notes which expire on July 31,
2001. As of September 24, 2000, there were $18,276,000 of borrowings
outstanding under the agreement, consisting of $1,143,000 under the line of
credit and $17,133,000 of term notes. Interest on all borrowings is payable
monthly at prime (9.5% at September 24, 2000) plus 1.25% through December 31,
2000 and prime plus 1.75% thereafter.
The Company intends to utilize the proceeds from the financing transactions
under the Convertible Note Agreement to fund operations and repay a portion of
the amounts outstanding under the credit facility. 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 July 2001.
10
<PAGE>
There can be no assurance that the Company will be successful in obtaining
additional financing or amending the credit facility. If the Company is
unsuccessful, the cash from operations and the financing transactions under
the Convertible Note Agreement may not be sufficient to cover the short-term
or long-term liquidity requirements.
INFLATION
The Company does not believe that inflation has had a significant
impact on its results of operations in the last three years.
11
<PAGE>
Item 8. Financial Statements and Supplementary Data
---------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO NEXIQ Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of
NEXIQ Technologies, Inc. (formerly WPI Group, Inc.) (a New
Hampshire corporation) and subsidiaries as of September 24, 2000
and September 26, 1999 and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for
each of the three years in the period ended September 24, 2000.
These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of NEXIQ Technologies, Inc. and subsidiaries
as of September 24, 2000 and September 26, 1999 and the results
of their operations and their cash flows for each of the three
years in the period ended September 24, 2000 in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 1 to the financial statements, the Company has a significant
working capital deficit and the current bank debt agreement expires
July 31, 2001, which unless extended or otherwise modified, raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Arthur Andersen LLP
Boston, Massachusetts
December 18, 2000
12
<PAGE>
<TABLE>
NEXIQ TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 24, 2000 and September 26, 1999 2000 1999
-----------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 102,156 $ 1,086,708
Accounts receivable - net of allowance
for doubtful accounts
of $300,000 and $171,000 in 2000
and 1999, respectively 1,206,472 2,027,808
Inventories 441,151 461,893
Prepaid expenses and other current
assets 258,780 339,685
Refundable income taxes 105,551 220,205
Prepaid income taxes 97,425 2,655,419
Net assets of discontinued operations 6,391,000 54,200,000
-------------------------------------------------------------------------------
Total current assets 8,602,535 60,991,718
===============================================================================
Property, Plant and Equipment, at cost,
less accumulated depreciation 889,991 1,668,473
Other Assets 3,565,037 1,896,868
-------------------------------------------------------------------------------
$ 13,057,563 $ 64,557,059
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Notes payable $ 18,276,246 $ 69,155,487
Accounts payable 1,391,700 1,499,103
Accrued expenses 2,788,878 2,173,763
-------------------------------------------------------------------------------
Total current liabilities 22,456,824 72,828,353
-------------------------------------------------------------------------------
Convertible Notes Payable 10,978,369 -
-------------------------------------------------------------------------------
Other Long-Term Liability 944,238 -
-------------------------------------------------------------------------------
Deferred Income Taxes 144,537 2,702,987
-------------------------------------------------------------------------------
Commitments
Stockholders' Equity (Deficit)
Common stock, $.01 par value;
authorized 20,000,000 shares;
Issued and outstanding 7,891,963
and 6,050,398 shares in 2000 and
1999, respectively 78,920 60,504
Additional paid-in capital 18,191,200 14,574,134
Accumulated deficit (39,736,525) (25,608,919)
-------------------------------------------------------------------------------
Total stockholders' equity
(deficit) (21,466,405) (10,974,281)
-----------------------------------------------------------------------------
$ 13,057,563 $ 64,557,059
===============================================================================
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
<TABLE>
NEXIQ TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the Years Ended September 24, 2000, September 26, 1999
----------------------------------------------------------
and September 27, 1998
----------------------
2000 1999 1998
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Continuing operations:
Net Sales $ 13,351,876 $ 12,228,976 $ 14,513,904
Cost of Sales 5,431,631 4,801,990 6,438,888
-------------------------------------------------------------------------------
Gross Profit 7,920,245 7,426,986 8,075,016
-------------------------------------------------------------------------------
Operating Expenses:
Research and development 3,416,930 2,067,352 1,506,001
Selling, general and
administration 7,191,489 8,216,789 6,581,082
Restructuring costs 1,840,000 510,000 -
-------------------------------------------------------------------------------
Total operating expenses 12,448,419 10,794,141 8,087,083
-------------------------------------------------------------------------------
Operating Loss (4,528,174) (3,367,155) (12,067)
Other Income (Expense):
Interest expense (3,351,370) (620,213) (234,896)
Bank forbearance fees and
expense (1,099,500) - -
Other income 1,438 12,373 595
-------------------------------------------------------------------------------
Loss before provision (benefit)
for income taxes (8,977,606) $ (3,974,995) (246,368)
Benefit for
income taxes - - (81,090)
Loss from continuing
operations $ (8,977,606) $ (3,974,995) $ (165,278)
Discontinued Operations:
Income (loss) from
discontinued operations
(net of applicable income
taxes of $1,306,000 in 1998) - (8,849,821) 2,651,760
Estimated loss from
disposal of discontinued
operations (including applicable
income taxes of $180,000 in
2000) (5,150,000) (20,380,000) -
--------------------------------------------------------------------------------
Income (loss) from
discontinued operations (5,150,000) (29,229,821) 2,651,760
--------------------------------------------------------------------------------
Income (loss) before
cumulative effect of
change in accounting
principle (14,127,606) (33,204,816) 2,486,482
Cumulative effect of change
in accounting
principle, net of applicable
income tax benefit of $1,000,000 - (2,822,147) -
--------------------------------------------------------------------------------
Net
Income (Loss) $ (14,127,606) $ (36,026,293) $ 2,486,482
================================================================================
Earnings (Loss) Per Share -
Continuing Operations (see
Note 2) $ (1.43) $ (0.66) $ (0.03)
================================================================================
Net income (loss) per
share (See Note 2) $ (2.25) $ (5.96) $ 0.40
================================================================================
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
<TABLE>
NEXIQ TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
For the years ended September 24, 2000, September 26, 1999 and September 27,
----------------------------------------------------------------------------
1998
----
Retained Foreign
Common Stock Additional Earnings Currency
$.01 Par Value Paid-in (Accumulated Translation Comprehensive
--------------------------------------------------------------------------------------------------------------------
Shares Amount Capital Deficit) Adjustment Total Income
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
September 28, 1997 5,996,737 $59,967 $13,992,540 $ 7,931,562 $ (171,214) $ 21,812,855 $ -
Employee stock 7,582 76 50,226 - - 50,302 -
purchase plan
Stock bonus plan 3,135 31 25,744 - - 25,775 -
Exercise of stock 20,750 208 79,261 - - 79,469 -
options
Income tax benefit
from stock options
exercised - - 22,000 - - 22,000 -
Foreign currency
translation - - - - 765,627 765,627 765,627
Net income - - - 2,486,482 - 2,486,482 2,486,482
-----------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 3,252,109
-------------
Balance
September 27, 1998 6,028,204 $60,282 $14,169,771 $ 10,418,044 $ 594,413 $ 25,242,510 $ -
Employee stock 6,803 68 27,317 - - 27,385 -
purchase plan
Stock bonus plan 2,225 22 9,990 - - 10,012 -
Exercise of stock 13,166 132 28,388 - - 28,520 -
options
Non-employee
compensation stock
options and warrants - - 337,768 - - 337,768 -
Income tax benefit
from stock options
exercised - - 900 - - 900 -
Foreign currency
translation - - - - (594,413) (594,413) (594,413)
Net (loss) - - - (36,026,963) - (36,026,963) (36,026,963)
-----------------------------------------------------------------------------------------------------------------------
Comprehensive income $ (36,621,376)
-------------
Balance
September 26, 1999 6,050,398 $60,504 $14,574,134 $(25,608,919) $ - $(10,974,281) $ -
Sale of
Common stock 1,833,905 18,339 2,732,518 - - 2,750,857 -
Sale of warrants
to purchase common
stock - - 871,212 - - 871,212 -
Employee stock 7,485 75 12,911 - - 12,986 -
purchase plan
Stock bonus plan 175 2 425 - - 427 -
Net (loss) - - - (14,127,606) - (14,127,606) (14,127,606)
------------------------------------------------------------------------------------------------------------------------
Comprehensive loss $(14,127,606)
-------------
Balance
September 24, 2000 7,891,963 $78,920 $18,191,200 $(39,736,525) $ - $(21,466,405)
=========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
<TABLE>
NEXIQ TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended September 24, 2000, September 26, 1999 and
--------------------------------------------------------------
September 27, 1998
-------------------
2000 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net Income (loss) $(14,127,606) $(36,026,963) $ 2,486,482
-----------------------------------------------------------------------------------------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,142,058 5,352,969 5,424,802
Loss from disposal of discontinued
operations 5,150,000 20,380,000 -
Cumulative effect of change in
accounting principle - 2,822,147 -
Write-off of software development costs - - 1,312,283
Write-off of property and equipment - 523,531 -
Non-cash interest expense - 1,221,371 -
Deferred income taxes - 236,052 (1,173,110)
Non-cash compensation and expenses - 46,000 25,775
Changes in current assets and
liabilities, net of effects of
acquisitions:
Accounts receivable 6,114,729 3,525,293 (5,982,700)
Inventories (81,436) (3,149,380) 825,685
Other current assets 104,530 577,773 940,689
Accounts payable (2,131,219) 6,054,951 66,926
Accrued expenses 1,289,144 824,623 632,823
Accrued income taxes 210,596 (616,223) 1,016,789
-----------------------------------------------------------------------------------------------
Total adjustments 12,798,402 37,799,107 3,089,962
-----------------------------------------------------------------------------------------------
Net cash provided by (used in) (1,329,204) 1,772,144 5,576,444
operating activities
-----------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Proceeds from sale of discontinued
businesses 39,198,151 - -
Additions to property, plant and (587,928) (2,934,982) (1,934,052)
equipment
Proceeds from sales of property, - - 1,462,894
plant and equipment
Additions to other assets - (67,000) (2,611,857)
Acquisitions, net of cash acquired - - (23,495,000)
Payments of accrued acquisition (151,945) (720,140) (362,152)
costs
-----------------------------------------------------------------------------------------------
Net cash provided by (used in) 38,458,278 (3,722,122) (26,940,167)
investing activities
-----------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from debt, net of
debt issuance costs 7,536,663 3,266,523 62,893,343
Payments of debt (49,285,771) (465,748) (42,270,664)
Issuance of common stock 2,764,270 37,397 50,302
Sale of warrants to purchase
common stock 871,212 - -
Proceeds from exercise of stock - 28,520 79,469
options
Tax benefit on exercise of non- - 900 22,000
statutory options
----------------------------------------------------------------------------------------------
Net cash provided by (used in) (38,113,626) 2,867,592 20,774,450
financing activities
----------------------------------------------------------------------------------------------
Effect of Foreign Currency
Translation on Cash - 9,576 69,992
----------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and (984,552) 927,190 (519,281)
Cash Equivalents
Cash and Cash Equivalents, Beginning 1,086,708 159,518 678,799
of Year
----------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of $ 102,156 $ 1,086,708 $ 159,518
Year
==============================================================================================
Supplemental Disclosure of Cash Flow
Information
Income taxes paid (refunded) $ (114,198) $ 340,558 $ 68,839
Interest paid 7,338,975 5,831,090 3,599,679
----------------------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash
Investing Activities
Summary of entities acquired:
Fair value of assets acquired $ - $ - $ 28,478,663
Cash paid - - (23,495,000)
----------------------------------------------------------------------------------------------
Liabilities assumed $ - $ - $ 4,983,663
==============================================================================================
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
1. Business and Discontinued Operations
----------------------------------------
Business - Presently, NEXIQ Technologies, Inc. (formerly WPI
Group, Inc.) (the "Company") through its subsidiary WPI Micro
Processor Systems, Inc. (d/b/a "NEXIQ Technologies") designs,
manufactures and markets diagnostic hardware and software for
heavy-duty vehiclesand is developing new capabilities for
wireless telematics services for the transportation and logistics market.
Prior to 2000, the Company operated through two segments, the
Industrial Technology Group (consisting of WPI Electronics, WPI
Power Systems, WPI Instruments and WPI Magnetec) and the
Information Solutions Group (consisting of WPI Oyster
Termiflex/MicroPalm, WPI DecisionKey, WPI Husky Technology and
NEXIQ Technologies (formerly WPI Micro Processor Systems, Inc.)
The Industrial Technology Group segment provides highly
engineered electrical and electronic equipment, electromechanical
devices and precision electromechanical instruments. The
Information Solutions Group segment is a provider of rugged
handheld computers and terminals, as well as vehicle diagnostic
systems.
Discontinued Operations - During its fiscal 1999, the
Company adopted and implemented a restructuring plan intended to
focus on its NEXIQ Techologies business unit. In connection therewith
the Company decided to divest itself of its Industrial Technology Group
segment and a substantial portion of its Information Solutions Group.
As a result of this decision, the following transactions were completed:
1. In December 1999,the Company sold its industrial
power conversion systems and electronic ballast
businesses (WPI Power Systems and WPI Electronics) to
a private group of investors for approximately $9.3
million in cash. In November 2000, the Company
completed the sale of its instruments and solenoid
businesses (WPI Instruments and WPI Magnetec) to private
group of investors for approximately $6.1 million in cash
and a $1 million promissory note. See Note 12.
2. During fiscal 2000, the Company completed the sale of its
rugged handheld computer and terminal business units (WPI
Husky Technology and WPI Oyster Termiflex/MicroPalm) in
various transactions for approximately $35.1 million plus
the assumption of certain liabilities. Also during its
fiscal 1999, the Company decided to terminate the software
development operations of its expert systems business (WPI
DecisionKey).
As a result of these actions, the Company's remaining and
continuing operations consist solely of NEXIQ Technologies.
All other businesses are presented as discontinued operations
in the statements of operations in accordance with Accounting Principles
Board ("APB") Opinion No. 30. Accordingly, the sales, costs and expenses
of these discontinued operations have been excluded from the
respective captions in the consolidated statements of operations
in all years presented and have been reported as income (loss)
from discontinued operations, net of applicable income taxes.
The net assets of the discontinued operations have been
classified as such on the accompanying balance sheet as of
September 24, 2000 and September 26, 1999 as discontinued
operations.
In fiscal 1999, the Company recorded an estimated loss on
disposal of discontinued operations of approximately $20.4
million which includes an estimated loss on the sale of its
Industrial Technology Group and its rugged handheld computer and
terminal business operations and estimated loss on future results
of operations through the estimated date of disposal, including
allocated interest expense. In fiscal 2000, the Company recorded
an additional loss of $5.2 million as result of higher than
anticipated losses on the sale of its business units, higher than
anticipated operating losses from discontinued operations prior to
their sale and allocated interest expense. The Company allocated
approximately $3.0 million of interest expense to discontinued operations
in 2000.
17
<PAGE>
<TABLE>
A summary of the operating results of the discontinued business is as
follows:
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Sales $79,779,825 $80,382,052
Costs and 80,846,942 72,945,412
operating expenses ------------ -----------
Operating income
(loss) from
discontinued
operations (1,067,117) 7,436,640
Interest expense
allocation
(based on relative
net assets) and
other income
expense (7,782,704) (3,478,790)
----------- -----------
Income (loss) from
discontinued
operations
before income
taxes (8,849,821) 3,957,850
Provision for - 1,306,090
income taxes ----------- -----------
Income (loss) from
discontinued
operations $ (8,849,821) $ 2,651,760
============ ===========
</TABLE>
Going Concern - As described in Note 4, the Company's current bank
credit facility expires July 31, 2001. The Company's continuation as
a going concern is dependent upon its ability to comply with terms of
its debt agreements and to obtain additional financing or refinancing
as may be required. The Company can make no assurances that it will be
successful in these efforts.
If the Company is unsuccessful it would be unable to meet its
remaining short-term liquidity requirements, including debt
service, normal working capital and other cash requirements,
which would have a material adverse effect on the Company's on-
going operations and would adversely affect the solvency of the
Company.
These factors among others may raise substantial doubt about the
Company's ability to continue as a going concern. The financial
statements do not include any adjustment that might result from
the outcome of this uncertainty.
2. Summary of Significant Accounting Policies
---------------------------------------------
Basis of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Fiscal Year-end - The Company operates on a 52- to 53- week
fiscal year ending on the last Sunday in September.
Revenue Recognition - Sales are recorded when products are
shipped or when services are performed. The Company provides for
estimated warranty costs at the time of shipment. Arrangements to
deliver software or software systems that require significant
production, modification or customization are accounted for on a
percentage- of- completion basis. Revenue is recognized in the
proportion that the cost of milestones achieved bear to the total
estimated costs of the project at completion. Losses, if any,
are provided for in the period in which the loss is determined.
Management Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Cash and Cash Equivalents - For the purposes of the consolidated
statements of cash flows, the Company considers all highly liquid
investments purchased with a maturity of three months or less to
be cash equivalents.
Fair Value of Financial Instruments - The carrying amounts
reported on the consolidated balance sheet for cash, receivables,
payables, accrued expenses and debt approximate fair value.
Concentration of Credit Risk - The Company's exposure to
concentrations of credit risk relates primarily to trade accounts
receivable. The Company controls credit risk by performing
ongoing credit evaluations of its customers' financial condition.
Management is not aware of any specific concentrations that
could cause a severe impact to its operations.
Inventories - Inventories are stated at the lower of cost
(principally first-in, first-out method) or market and include
materials, labor and manufacturing overhead.
18
<PAGE>
Inventories consist of:
2000 1999
---------- ----------
Raw materials $ 281,199 $ 315,071
Work-in-process 40,422 27,340
Finished goods 119,530 119,482
========== ==========
$ 441,151 $ 461,893
Property, Plant and Equipment - Property, plant and equipment are
recorded at cost. Expenditures for maintenance, repairs and
renewals are charged to expense as incurred whereas major
betterments are capitalized as additions to property, plant and
equipment. The provision for depreciation and amortization has
been calculated using the straight-line method over the assets'
estimated useful lives.
The components of property, plant and equipment and their
estimated useful lives are as follows:
Useful Life 2000 1999
------------ --------- ----------
Leasehold 3 - 7 $ 128,994 $ 308,700
improvements
Machinery and
equipment 7 106,847 106,847
Tooling and dies 5 173,356 173,356
Office equipment 5 - 7 1,354,438 2,144,605
---------- ----------
1,763,635 2,733,508
Less: accumulated (873,644) (1,065,035)
depreciation ----------- ----------
$ 889,991 $1,668,473
========== ==========
Goodwill and Other Intangibles - The excess of the purchase price
over the fair value of net assets acquired in an acquisition is
included in other assets in the accompanying consolidated balance
sheets and is being amortized over 15 years on a straight-line
basis. The Company periodically evaluates the existence of
goodwill impairment on the basis of whether the goodwill is fully
recoverable from projected undiscounted net cash flows of the
related business unit. Goodwill and other intangibles (net of
accumulated amortization) was approximately $1,700,972 and
$1,871,372 at the end of 2000 and 1999, respectively.
Amortization included in continuing operations amounted to
approximately $170,000 in 2000, 1999 and 1998.
Change in Accounting Principle - Deferred Product Enhancement
Costs - Deferred product enhancement costs represent incremental
direct costs specifically identified with the adaptation and
enhancement of existing commercial products to meet the needs of
specifically identified customers or markets. Such costs were
amortized on a straight-line basis over the estimated economic
useful lives of the related products which did not exceed five
years. As of September 28, 1998, in accordance with Statement
of Position 98-5, "Reporting on the Cost of Start-up Activities,"
the Company changed its method of accounting for deferred product
enhancement costs to expense these costs as incurred. As a
result, the Company recognized a cumulative affect of a change in
accounting principle of $2,822,000, net of income tax benefit of
$1,000,000.
Long-Lived Assets - In accordance with Statement of Financial
Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed Of," the
Company evaluates the recoverability of its carrying value of the
Company's long-lived assets and certain intangible assets based on
estimated undiscounted cash flows to be generated from each of
such assets compared to the original estimates used in measuring the
assets. To the extent impairment is identified, the Company reduces
the carrying value of such impaired assets.
19
<PAGE>
Income Taxes - In accordance with SFAS No. 109, "Accounting for
Income Taxes," the Company recognizes deferred income taxes based
on the expected future tax consequences of differences between
the financial statement basis and tax basis of assets and
liabilities calculated using enacted tax rates in effect for the
year in which the differences are expected to reverse.
Earnings Per Share - The Company calculates basic earnings per
share and, if applicable, fully diluted earnings per share in
accordance with SFAS No. 128, "Earnings Per Share." Options to
purchase approximately 891,000 shares, 837,000 shares and 144,000
shares of common stock were outstanding during 2000, 1999 and
1998, respectively, but were not included in the computation of
diluted earnings per share because the exercise price was greater
than the average market price of the common shares and,
therefore, the effect would be anti-dilutive.
The computations of basic and diluted earnings (loss) per common
share for 2000, 1999 and 1998 is as follows:
2000 1999 1998
------------ ---------- ------------
Earnings (loss) per
share - basic
Continuing operations $ (1.43) $ (0.66) $ (0.03)
Discontinued operations (0.82) (4.83) 0.44
Effect of
accounting change - (0.47) -
------------ ---------- ------------
Net income (loss) $ (2.25) $ (5.96) $ 0.41
------------ ---------- ------------
Earnings (loss) per
share - diluted
Continuing operations $ (1.43) $ (0.66) $ (0.03)
Discontinued operations (0.82) (4.83) 0.43
Effect of
accounting change - (0.47) -
------------ ---------- ------------
Net income (loss) $ (2.25) $ (5.96) $ 0.40
------------ ---------- ------------
Weighted average
common shares 6,290,290 6,043,634 6,015,192
Effective of dilutive - - 179,574
options ------------ --------- ------------
Adjusted weighted
average common shares 6,290,290 6,043,634 6,194,766
============= ========= ============
Foreign Currency Translation - Prior to September 24, 2000,
assets and liabilities of the Company's foreign operations were
translated at year-end exchange rates. Net sales and expenses
were translated at the average rates prevailing during the year.
Balance sheet translation gains and losses are reflected as a
separate component of stockholders' equity. The foreign currency
translation as of September 26, 1999 has been included in the net
assets of discontinued operations. Foreign currency gains and
losses arising from transactions are reflected in net income
(loss).
During 1999 and 1998, the Company recognized net foreign
exchange gains (losses) of approximately $33,000 and
($247,000), primarily resulting from intercompany transactions
with foreign subsidiaries. The foreign exchange gains (losses)
have been recorded in the consolidated statements of operations in
discontinued operations.
Recent Accounting Pronouncements - In 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The statement
establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS No. 133 requires the
Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair
value through income. If a derivative is a hedge, the accounting
treatment of changes in fair value is based on the nature of the
hedge. SFAS No. 133 is effective for the Company's fiscal year
ending September 2001. The Company is currently evaluating the
impact of SFAS No. 133 on its consolidated financial statements
and related disclosures.
Reclassifications - Certain prior-year amounts have been
reclassified to conform with current-year presentation.
20
<PAGE>
3. Other Assets
----------------
Other assets consist of:
2000 1999
---------------- --------------
Goodwill and other
intangibles $ 2,552,215 $ 2,552,215
Debt issuance costs 1,973,605 -
Security deposits 31,217 25,496
---------------- --------------
4,557,037 2,577,711
Less: accumulated (992,000) (680,843)
amortization ---------------- --------------
$ 3,565,037 $ 1,896,868
---------------- --------------
4. Notes Payable and Long-Term Debt
-------------------------------------
Notes payable and long-term debt consist of the following as of September
24, 2000 and September 26, 1999:
2000 1999
-------------- --------------
Notes Payable - current:
Notes Payable to bank $ 18,276,246 $ 67,356,366
ANG Note agreements - 1,599,121
Other notes payable - 200,000
-------------- --------------
Total Notes Payable current $ 18,276,246 $ 69,155,487
============== ==============
Long-term debt:
Convertible Notes Payable 10,978,369 -
-------------- -------------
Total Notes Payable and $ 29,254,615 $ 69,155,487
long-term debt ============== =============
Notes Payable to Bank
On August 9, 2000, the Company amended its credit facility agreement with
a syndication of banks. The terms of the modified agreement provide a
$6,500,000 revolving line of credit and term notes which expire on July 31,
2001. As of September 24, 2000, borrowings under the agreement totaled
$18,276,000, consisting of $1,143,000 under the revolving line of credit and
$17,133,000 of term notes. Interest on all borrowings is payable monthly at
prime (9.5% at September 24,2000) plus 1.25% through December 31, 2000 and
prime plus 1.75% thereafter.
In connection with the amendment, the Company paid an amendment fee totaling
$280,000 payable as follows: $50,000 on September 30, 2000; $60,000 on
December 24, 2000; $70,000 on April 30, 2001, and $100,000 on July 31, 2001.
A portion of the amendment fee is subject to waiver if the outstanding balance
of the term notes is less than $16,000,000 at September 30, 2000 and
$7,000,000 thereafter, or if all borrowings under the credit facility have
been paid in full prior to July 31, 2001.
In addition, the amendment provides for the potential waiver of accrued
default interest as of September 24, 2000 (approximately $253,000) as follows:
- 50% upon receipt of proceeds from the issuance of Term B
Convertible Notes, which was completed in November 2000
(See Note 12)
- 50% if all borrowings under the credit facility have been
paid in full prior to July 31, 2001
Convertible Note Agreement
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 included certain members of the
Company's management and certain members of the Allard-Nazarian Group, Inc.
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 $12,570,000 and notes outstanding principal of $1,546,000
($1,500,000 of carrying value) in cash received from Sunrise and the other
participants:
21
<PAGE>
- 1,833,905 shares of common stock. The fair value of
the common stock issued was approximately $2,751,000.
- Warrants to purchase 1,613,355 shares of common stock
at $1.75, exercisable at any time at the option of the
holder. The warrants expire five years from the date of
issuance. The fair value of the warrants was approximately
$871,000.
- $14,116,875 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 at the option of
the holder or the Company, under certain conditions, at
$1.75 per share. The value assigned to the notes at the
date of issuance was $10,448,000, net of a discount of
$3,669,000.
In connection with the Term A Financing, the Company paid approximately
$1,693,000 consisting of closing costs of $282,000 (paid in additional
Term A Notes) and other professional fees.
The discounted carrying amount of the Term A Convertible Notes
as of September 24, 2000 was $10,978,000.
Term B Financing
Under the terms of the Convertible Note Agreement, Sunrise is
committed to participate in the Term B Financing, subject to
the Company satisfying certain conditions detailed in
the Convertible Note Agreement, within 120 days of the Term A
Financing. The Company completed the Term B Financing in
November 2000. See Note 12 for discussion of the Term B
Financing.
Term C Financing
Through January 31, 2001, Sunrise has the option to participate
in up to $5,000,000 of additional financing, which would include
Term C Convertible Notes (with identical terms as the Term B
Convertible Notes) and additional warrants to purchase shares of
common stock totaling 20% of the number of shares of common stock
issuable upon conversion of the Term C Convertible Notes.
ANG Note Agreements
On August 3, 1998, the Company issued $2,750,000 in promissory notes
(the "ANG Notes") to certian members of the Allard-Nazarian Group (the
"ANG Noteholders") in connection with the acquisition of certain assets
and technology of ANG Instruments. The notes were recorded at an 8.25%
discount rate that represented a net present value of $2,353,533.
In connection with the Convertible Note Agreement discussed above, the
ANG Noteholders exchanged all of the outstanding ANG Notes ($1,546,000
of principal with a carrying value of approximately $1,500,000).
5. Accrued Expenses
Accrued expenses consist of:
2000 1999
-------------- ---------------
Interest $ 587,403 $ 1,446,893
Payroll and related
amounts 469,599 258,374
Bank Fees and debt issue
costs 620,000 -
Deferred gain from swap
termination 437,367 -
Severance costs 305,200 148,269
Other taxes 159,000 -
Warranty 120,000 120,000
Acquisition related - 151,945
Other 249,309 48,282
-------------- ---------------
$ 2,788,878 $ 2,173,763
============== ===============
22
<PAGE>
<TABLE>
6. Income Taxes
----------------
<CAPTION>
The components of federal and state income taxes provisions are
as follows:
2000 1999 1998
------------ ------------ --------------
<S> <C> <S> <C> <S> <C> <C>
Current
Federal $ - $ - $ (78,000)
State - - (3,000)
------------ ------------ ---------------
- - (81,000)
------------ ------------ ---------------
Deferred
Federal - - -
State - - -
------------ ------------ ---------------
$ - $ - $ (81,000)
============ ============ ===============
</TABLE>
<TABLE>
A reconciliation for continuing operations of income taxes at the
federal statutory rate of 34% to income taxes at the Company's
effective tax rate is as follows:
<CAPTION>
2000 1999 1998
-------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Income tax at 34% of
income before provision
for income taxes $ (3,052,000) $ (1,351,000) $ (84,000)
State income tax
benefit
(net of effect of
federal tax) - (184,000) (4,000)
Change in valuation
allowance 3,052,000 1,535,000 -
Other - - 7,000
-------------- ------------ -----------
$ - $ - $ (81,000)
============== ============ ===========
</TABLE>
The approximate income tax effect of temporary differences
comprising the deferred tax assets and liabilities are as
follows:
2000 1999
---------------- -----------------
Deferred tax assets and
valuation allowance:
Goodwill $ 6,460,000 $ 7,440,000
Deferred enhancement and
software costs 944,000 1,095,000
Severance liability 478,000 -
Inventory related 76,000 344,000
Bad debt reserve 120,000 365,000
Warranty reserve 49,000 178,000
Payroll related 98,000 106,000
Stock warrants 113,000 -
Other 106,000 252,000
Tax loss carryforward 1,870,000 2,786,000
Valuation allowance (9,101,000) (10,226,000)
---------------- ----------------
1,213,000 2,340,000
---------------- ----------------
Deferred tax liabilities:
Fixed asset differences 362,000 654,000
DISC deferral 885,000 996,000
Goodwill - 791,000
Other 14,000 (53,000)
---------------- ---------------
1,261,000 2,388,000
---------------- ---------------
Net deferred liabilities $ 48,000 $ 48,000
================ ===============
23
<PAGE>
For income tax purposes, the Company had available, at September
24, 2000, net operating loss ("NOL") carryforwards for regular
income tax purposes of approximately $5.5 million.
7. Common Stock
---------------
A) Stock Option Plans
The Company has stock option plans for selected officers, key
employees and directors. Under these plans, options may be
granted at a price equal to at least the fair market value at the
date of the grant. Options granted under the plans are
22
<PAGE>
exercisable at various dates as specified in the underlying
option agreement. The options automatically expire upon
termination of employment with the Company.
A summary of stock option activity for each of the three years in
the period ended September 24, 2000, is as follows:
Shares Under Weighted-Average
Option Exercise Price
---------------- -----------------
Outstanding, September 28, 1997 529,696 $ 5.38
Exercised (20,750) 3.83
Terminated (38,000) 7.36
Granted 296,000 9.60
----------------- ------------------
Outstanding, September 27, 1998 766,946 6.95
Exercised (2,500) 2.88
Terminated (133,666) 7.96
Granted 266,700 5.18
----------------- -------------------
Outstanding, September 26, 1999 897,480 6.31
Exercised - -
Terminated (431,000) 6.01
Granted 425,000 1.54
----------------- -------------------
Outstanding, September 26, 2000 891,480 $ 4.18
================= ===================
<TABLE>
The following is a summary of options outstanding and exercisable
at September 24, 2000:
<CAPTION>
<C> <S> <C> <C> <S> <C> <C> <C>
Options Outstanding Options Exercisable
-----------------------------------------------------------------------------------------------------
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at 9/24/00 Contractual Life Exercise Price at 9/24/00 Exercise Price
-----------------------------------------------------------------------------------------------------
$1.44 to $2.99 425,000 9.4 years $ 1.54 210,419 $ 1.49
$3.00 to $5.99 146,200 8.2 5.10 115,403 5.33
$6.00 to $8.99 297,280 6.6 6.97 287,281 6.98
$9.00 to $11.13 23,000 6.7 11.13 15,336 11.13
----------- -------------
891,480 8.2 4.18 628,439 4.94
=========== =============
</TABLE>
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company has elected to continue to apply APB Opinion No. 25
"Accounting for Stock Issued" to account for its stock- based compensation
plans. Had compensation for the stock option plans been
determined using the fair value at the grant dates for awards
under those plans, consistent with the guidelines of SFAS No.
123, the Company's net income (loss) and net income (loss) per
share would have been increased (decreased) to the pro forma
amounts listed below:
2000 1999 1998
------------- ------------- --------------
Pro forma net loss from
continuing operations $ (8,691,282) $ (4,456,989) $ (689,675)
Pro forma diluted net
(loss) per share $ (1.38) $ (0.74) $ (0.11)
24
<PAGE>
Consistent with SFAS No. 123, pro forma net income and earnings
per share have not been calculated for options granted prior to
September 24, 1995. Pro forma compensation cost may not be
representative of that to be expected in future years.
The weighted average fair value of options granted was $.77,
$2.35 and $4.68 for options granted during 2000, 1999 and 1998,
respectively. The values were estimated on the date of grant
using the Black-Sholes option pricing model with the following
weighted average assumptions used for grants in 2000, 1999 and
1998, respectively: risk-free interest rates ranging from 4.0% to
6.6%, expected dividend yield of 0% for the periods, expected
options lives of five years and expected volatilities ranging from
46.7% to 49.2%.
B) NEXIQ Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan (the "Purchase Plan")
was adopted by the Board of Directors on June 1, 1997. The
Purchase Plan is a qualified stock purchase plan under the
Internal Revenue Code covering all employees of the Company,
except employees who are owners of 5% of the Company's stock.
Eligible employees can purchase shares on a quarterly basis on
December 15, March 15, June 15 and September 15. The minimum
purchase amount is 10 shares per quarter to a maximum of 400
shares per year. The purchase price of the shares is 93% of the
average of the closing prices of the common stock during the
period of five trading days ending on the purchase date. An
aggregate of 30,000 shares was reserved for issuance under the
Purchase Plan. Shares purchased under the Company's Purchase Plan
were 7,485 shares, 6,803 shares and 7,582 shares in 2000, 1999 and
1998, respectively.
C) NEXIQ Stock Bonus Award Plan
The Company's Stock Bonus Award Plan (the "Bonus Plan") was
adopted by the Board of Directors on June 1, 1997. All employees
of the Company, except employees who are owners of 5% or more of
the Company's stock, are eligible to participate in the Bonus
Plan. The Bonus Plan allows for the award of shares of the
Company's common stock. Awards under the Bonus Plan are made at
the discretion of the Chief Executive Officer to employees who
have demonstrated outstanding performance and commitment in their
employment with the Company. An aggregate of 20,000 shares was
reserved for issuance under the Bonus Plan. Shares awarded under
the Company's Bonus Plan were 175 shares, 2,225 shares and 3,135
shares in 2000, 1999 and 1998, respectively. The compensation expense
related to these awards is not significant.
8. Employee Benefits
A) NEXIQ 401k Plan
The Company has a Profit Sharing 401(k) Plan for the benefit of
eligible United States employees, whereby the Company matches a
portion of the employees' contributions to the plan. During 2000,
the Company matched 50% of the first 5% of employees'
contributions. The Company's expense included in continuing
operations relating to this plan amounted to approximately
$82,000, $70,000 and $51,000 in 2000, 1999 and 1998,
respectively.
9. Significant Customers
For Fiscal 2000, 1999 and 1998, a distributor with rights to sell
certain NEXIQ product represented approximately 36%, 51% and 60%,
respectively, of NEXIQ's net sales. Another customer represented
approximately 16% of NEXIQ's net sales for fiscal 1999.
10. Commitments
The Company leases certain buildings, office space and equipment
under various lease agreements that expire at various dates over
the next four years.
As of September 24, 2000, the aggregate future minimum lease
commitments under operating and capital leases obligations are as
follows:
25
<PAGE>
Operating
Fiscal Year Leases
----------- ------------
2001 $ 332,000
2002 332,000
2003 199,000
2004 103,000
2005 -
------------
Total minimum lease
payments $ 996,000
============
Total rental expense included in continuing operations charged to
operations for 2000, 1999 and 1998 totaled approximately
$287,000, $332,000 and $317,000, respectively.
During fiscal 2000, the Company entered into a severance agreement
with a former executive officer, which provides for payments and
benefits totaling approximately $294,000 per year for a five-year
period commencing January 1, 2000 which, was charged to operations
during fiscal 2000.
The Company has a Change in Control Plan, which entitles two current
officers and one key employee upon a change of control event as defined
in the plan to a lump-sum severance benefit equal to nine to eighteen
months of base salary, plus bonus, if the two current officers or the
key employee is terminated without cause within one year of the change
in control.
11. Restructuring Costs
------------------------
During 2000, the Company entered into a severance agreement with
certain former executives and officers. In connection with the
agreements, the Company recorded a restructuring charge of
$1,840,000, consisting primarily of the continuation of payroll
and benefits subsequent to termination. Of the total
restructuring charge, $602,000 was paid during fiscal 2000. The
remaining $1,238,000 will be paid over a five-year period ending
December 2004 in connection with the terms of a former
executive's severance agreement.
During 1999, the Company entered into a severance agreement with
a former executive. In connection with the agreement, the
Company recorded a restructuring charge of $510,000, consisting
primarily of the continuation of payroll and benefits subsequent
to termination. During 2000 and 1999, the Company paid
approximately $148,000 and $362,000, respectively, of the
charges.
12. Subsequent Events
---------------------
At the Company's annual shareholder meeting on November 2, 2000,
the Company's shareholders approved a number of proposals. The
shareholders approved the following amendments to the Company's
Article of Incorporation:
- Change the Company's name from WPI
Group, Inc. to NEXIQ Technologies, Inc.
- Increase the number of shares of common stock
that Company is authorized to issue from
20 million to 75 million.
- Authorize the issuance of 20 million
shares of preferred stock.
- Increase the number of shares available for
issuance under the Company's 1997 Equity Incentive Plan
from 750,000 to 3,500,000 and to increase the limit
on the number of stock-based awards that can be
granted to any one person during any year from
200,000 to 500,000.
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 promissory note, subject to final purchase price
adjustments. The proceeds from the sale were applied to the
outstanding bank debt and reduce outstanding bank term loans by
$5.0 million.
26
<PAGE>
In November 2000, the Company completed the Term B Financing under the
Convertible Note Agreement discussed in Note 4. Under the terms of
the Term B Financing, the Company received $5,000,000 in cash in exchange
for the following securities:
- Warrants to purchase approximately 571,000 shares of
common stock at $1.75, exercisable at any time at the
option of the holder. The warrants expire in five years.
The fair value of the warrants was approximately $309,000.
- $5,000,000 principal value of Term B Convertible Notes. The
Term B Convertible Notes, which mature 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 at the option of the holder
or the Company, under certain conditions, at $1.75 per share.
13. Business Segment and Geographical Information
--------------------------------------------------
The Company operates in one industry: vehicle diagnostic
equipment and software.
14. Selected Quarterly Financial Information (Unaudited)
-----------------------------------------------------------
Selected quarterly financial information for the years ended
September 24, 2000 and September 26, 1999 is as follows:
(in thousands, except earnings per share)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- ------- ------- -------
2000
-----
Net sales $ 3,573 $ 3,588 $ 3,574 $ 2,617
Gross profit 2,139 2,166 2,165 1,450
Loss from
continuing
operations (2,952) (1,554) (1,608) (2,864)
Loss from
discontinued
operations - (1,560) (615) (2,975)
Net loss (2,952) (3,114) (2,223) (5,839)
Earnings (loss) per
share
Continuing
operations (0.49) (0.26) (0.27) (0.41)
Discontinued
operations - (0.26) (0.10) (0.42)
Net loss (0.49) (0.52) (0.37) (0.83)
1999
-----
Net sales $ 3,110 $ 3,278 $ 2,169 $ 3,222
Gross profit 1,993 2,055 1,516 1,863
Loss from
continuing
operations (283) (612) (1,553) (1,527)
Loss from
discontinued
operations (275) (905) (1,695) (26,354)
Change in
accounting
principle (2,822) - - -
Net loss (3,380) (1,517) (3,248) (27,881)
Earnings (loss) per
share
Continuing
operations (0.05) (0.10) (0.26) (0.25)
Discontinued
operations (0.04) (0.15) (0.28) (4.36)
Change in
accounting
principle (0.47) - - -
Net loss (0.56) (0.25) (0.54) (4.61)
Item 9. Changes in and Disagreements with Accountants on
--------------------------------------------------------
Accounting and Financial Disclosure
-----------------------------------
None
27
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant
-----------------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Officer or
Name Age Director Since Position with the Company
----- --- -------------- -------------------------
John R. Allard 35 1998 Chairman of the Board and
Chief Executive Officer
Paul G. Giovacchini 43 1990 Director
Irwin A. Gold 43 2000 Director
Joseph A. Julian Jr. 33 2000 Director
David A. Preiser 43 2000 Director
John W. Powers 43 1997 Vice President,
Chief Financial Officer
Michael D. Stewart 32 2000 Director
Bernard H. Tenenbaum 45 1994 Director
John R. Allard has been Chairman of the Company since July 2000,
a director of the Company since August 1998 and President and
Chief Executive Officer of the Company since December 1999. From
February 1999 to December 1999, Mr. Allard served as President
and Chief Operating Officer of the Company. Mr. Allard was
Senior Vice President, Business Development from August 1998 to
February 1999. Mr. Allard is also a Director and Senior Partner
of Allard Nazarian Group, Inc., where he served as Chief
Executive Officer from December 1992 to August 1998.
Paul G. Giovacchini has been a director of the Company since
September 1990. Mr. Giovacchini has been a Senior Investment
Manager for Signal Capital Corporation, a Massachusetts-based
investment firm, since August 1990. Since 1995, Mr. Giovacchini
has also been a partner of Seacoast Capital Partners, L.P., a
private equity investment partnership which focuses on investing
in small, growing companies.
Irwin A. Gold has been a director of the Company since July 2000.
Mr. Gold is a Senior Managing Director and member of the Board of
Directors of Houlihan Lokey Howard & Zukin, ("Houlihan Lokey"),
an affiliate of Sunrise Capital Partners, L.P. ("Sunrise"). Mr.
Gold is a principal of Sunrise and has been national co-director
of Houlihan Lokey's Financial Restructuring Group since 1988.
Mr. Gold is also a director of Cole National Corporation.
Joseph A. Julian, Jr. has been a director of the Company since
July 2000. Mr. Julian is currently a principal of Sunrise. Mr.
Julian has worked for the Financial Restructuring Group of
Houlihan Lokey since 1989.
David A. Preiser has been a director of the Company since July
2000. Mr. Preiser is currently the Managing Partner of Sunrise.
Mr. Preiser has worked for the Financial Restructuring Group of
Houlihan Lokey since 1991. Mr. Preiser is also a director of Jos
A. Bank Clothiers and NVR Inc.
John W. Powers has been Vice President, Chief Financial Officer
of the Company since February 1997. From August 1993 to February
1997, Mr. Powers was the Chief Financial Officer of Janco
Companies, a manufacturer of medical and electronic products.
Prior to August 1993, Mr. Powers was a certified public
accountant with a national and regional public accounting firm.
28
<PAGE>
Michael D. Stewart has been a director of the Company since July
2000. Mr. Stewart is currently a principal of Sunrise.
Mr. Stewart has worked for the Financial Restructuring Group of
Houlihan Lokey since 1990.
Bernard H. Tenenbaum has been a director of the Company since
1989. Since April 1997, Mr. Tenenbaum has been President of the
Children's Leisure Products Group of The Jordan Company, a
leveraged buyout firm based in New York. From 1993 to 1997,
Mr. Tenenbaum was Vice President, Corporate Development, of Russ
Berrie & Company, a global impulse-gift company. Mr. Tenenbaum
was also the founding Director of the George Rothman Institute
for Entrepreneurial Studies at Fairleigh Dickinson University in
New Jersey. He also served as the Associate Director of the Sol
C. Snider Entrepreneurial Center of the Wharton School at the
University of Pennsylvania. In addition to his career in
business development and advanced business studies, Mr. Tenenbaum
has served as a business consultant for AT&T, IBM CIGNA
Corporation and the Philadelphia Phillies.
Pursuant to the Convertible Note Agreement with Sunrise (see Note 4
to the consolidated financial statements), for so long as any of the
promissory notes purchased by Sunrise remain outstanding, the Company
has agreed to nominate for election to the Company's Board of Directors
a majority of nominees designated by Sunrise. Accordingly, in connection
with the Convertible Note transaction, four Board members resigned and
were replaced by four nominees designated by Sunrise who were elected
by the remaining Board members: David A. Presier, Joseph A. Julian Jr.,
Michael D. Stewart and Irwin N. Gold.
Item 11. Executive Compensation
-------------------------------
EXECUTIVE COMPENSATION
The following table sets forth information concerning the
compensation for services in all capacities to the Company for
the fiscal years ended September 24, 2000, September 26, 1999 and
September 27, 1998 of those persons who were at September 24,
2000 (i) the Chief Executive Officer and (ii) each of the four
most highly compensated executive officers of the Company other
than the Chief Executive Officer, (with the Chief Executive
Officer, collectively, the "Named Officers").
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term
Compensation
Annual Compensation (1) Securities Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Options Compensation
--------------------------- ------ ---------- -------- --------------------- ------------
<S> <C> <C> <S> <C> <C>
John Allard 2000 300,040 - 200,000 15,091
Chairman and CEO
1999 272,921 - 25,000 9,234
1998 - - 20,000 -
Michael Foster (2) 2000 138,133 - - 5,321
Former Chairman
and CEO 1999 509,648 - 186,000 73,651
1998 400,036 - - 23,855
John Powers 2000 178,263 50,000 50,000 9,783
Vice President,
CFO 1999 168,222 - 7,200 10,803
1998 135,522 - 5,000 10,848
</TABLE>
(1) Excludes perquisites and other personal benefits, the
aggregate annual amount of which was less than the
lesser of $50,000 or 10% of the total of annual salary
and bonus reported.
(2) Mr. Foster retired as Chairman and Chief Executive
Officer as of December 21, 1999.
29
<PAGE>
Option Grants in Last Fiscal Year (Individual Grants)
<TABLE>
The following table contains information concerning the grant of
stock options under the Company's 1995 Stock Option Plan and the
1997 Equity Incentive Plan to the Named Officers during the
Company's last fiscal year.
<CAPTION>
Number of % of Total
Securities Options Granted
Underlying to Employees Exercise Expiration Grant Date
Name Options Granted In Fiscal 2000 Price($) Date Present Value(3)
----- ---------------- --------------- -------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John Allard 200,000 (1) 47% $1.437 01/26/00 $ 144,580
Chairman and
CEO
Michael Foster (2) - - - - -
Former Chairman,
CEO
John Powers 50,000 (3) 12% $1.437 01/26/00 $ 36,145
Vice President,
CFO
</TABLE>
(1) Options granted under the NEXIQ Technologies, Inc. 1997
Equity Incentive Plan at an exercise price equal to the fair
market value of the Company's Common Stock on the date of
grant. The options granted to Mr. Allard are fully vested.
(2) Options granted under the NEXIQ Technologies, Inc. 1997
Equity Incentive Plan at an exercise price equal to the fair
market value of the Company's common stock on the date of
grant. The options granted to Mr. Powers are fully vested.
(3) Mr. Foster retired as Chairman and CEO as of December 21,
1999.
(4) The weighted average fair value of options granted to the
named officers was $.72. The values were estimated on the
date of grant using the Black-Sholes option pricing model
with the following weighted average assumptions used: Risk
free interest rate of 6.6%, expected dividend yield of 0%,
expected option lives of 5 years and expected volatility
of 47.4%.
Option Exercises and Fiscal Year End Values
The following table contains information with respect to
aggregate stock options exercised by the Named Officers during
fiscal 2000 as well as unexercised options to purchase the
Company's Common Stock granted through September 24, 2000 under
the Company's 1995 Stock Option Plan or 1997 Equity Incentive
Plan to the Named Officers and held by them at that date.
<TABLE>
Aggregated Options/SAR Exercises in Last Fiscal Year and Fiscal
Year End Option Value
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Number of Value of Unexercised
Unexercised In-the -Money
Options at at
September 24, 2000 September 24, 2000
Shares Common Stock Common Stock
Acquired ------------- -------------
on Value
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
----- ----------- ----------- ----------- ------------- ----------- -------------
John Allard - - 155,001 89,999 $ 37,500 $ 18,750
Michael Foster - - 317,280 - - -
John Powers - - 44,067 33,333 9,375 4,688
Powers
</TABLE>
(1) Based on the difference between the exercise price of each
grant and the closing price of the Company's Common Stock as
quoted on the OTC Bulletin Board on September 24, 2000, which
was $1.71875.
The foregoing options were granted under either the 1995 Stock
Option Plan (the "1995 Plan") or the 1997 Equity Incentive Plan
(the "1997 Plan"). Both plans are administered by the Stock
Option/Compensation Committee, which consists of not less than
three outside directors. The Committee determines the key
employees to whom, and the time or times at which, options will
be granted, the number of shares subject to each option and the
terms upon which each option may be granted. An aggregate of
550,000 shares of common stock are reserved for issuance under
the 1995 Plan and an aggregate of 750,000 shares of common stock
30
<PAGE>
are reserved for issuance under the 1997 Plan. Since the
adoption of the 1995 Plan on June 6, 1995, options for a total of
550,000 shares of common stock (or all of the shares reserved for
issuance) have been granted to selected officers and key
employees of the Company. Since the adoption of the 1997 Plan on
June 10, 1997, options for a total of 750,000 shares of common
stock have been granted to selected officers and key employees of
the Company.
Change In Control Plan and Severance Agreements
The Board of Directors has adopted a Change in Control Plan
covering nine officers and key employees, including the Named
Executive Officers. The provisions of the Change in Control Plan
become effective only upon the occurrence of an event
constituting a change in control of the Company. Under the
Change in Control Plan, a "Change in Control" shall be deemed to
have occurred if any of the following events occur: (i) any
"person" (as such term is defined in Section 13 and 14 under the
Exchange Act) except for Michael Foster, directly or indirectly,
is or becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 under the Exchange Act) of 25% or more of the
Company's Common Stock; (ii) any change occurs in the composition
of NEXIQ's Board of Directors resulting in a majority of the
present directors not constituting a majority two years from such
date, provided that directors who were elected by or on the
recommendation of such present majority shall be excluded; or
(iii) any other event that would be required to be reported under
Item 1 of Form 8-K pursuant to Section 13 or Section 15(d) of the
Exchange Act. A change in control shall not be deemed to have
occurred if such change in control results from a distressed sale
of NEXIQ due to the Company's material default with respect to
any applicable debt covenants with its lender.
The Change in Control Plan provides that if, within one (1) year
after a change of control of WPI, a Named Executive Officer is
discharged without Cause (as defined below) or has resigned for
reasons relating to a diminution of responsibilities,
compensation or benefits or relocation of place of employment,
NEXIQ shall pay to such individual a lump sum severance benefit.
For purposes of the Change in Control Plan, "Cause" shall mean
conviction of certain crimes, willful misconduct or conduct that
caused NEXIQ to suffer a substantial loss or damage. Currently,
each Named Executive Officer would receive between nine and
eighteen months of base salary, plus bonus, depending upon the
Named Executive Officer's years of service and status with the
Company. At the discretion of the Board of Directors, the
vesting of options may be accelerated in the event of a Change in
Control. A Named Executive Officer may resign at any time and
for any reason within one year of a Change in Control and receive
the base salary component only of the lump sum benefit.
In addition to being covered by the Change In Control Plan, Mr.
Allard has a Severance Agreement with the Company which provides,
in relevant part, that if the Company terminates his employment
for any reason other than cause, or in connection with a change-
in-control, the Company will continue to pay him at his then
present salary rate for a period of eighteen months.
Mr. Foster has a severance agreement with the Company which
provides, in relevant part, for severance and benefits totaling
approximately $294,000 per year for the next five years,
effective January 1, 2000. The agreement also provides for the
full vesting of options held by Mr. Foster. The expiration and
option exercise prices remain unchanged.
31
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
-----------------------------------------------------------------
Management
----------
<TABLE>
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
<CAPTION>
The following table sets forth certain information regarding
beneficial ownership of the common stock as of December 9, 2000
by (i) each person who is known by the Company to beneficially
own more than 5% of the outstanding shares of common stock; (ii)
each of the Company's directors; and (iii) all directors and
officers of the Company as a group:
<S> <C> <C> <C> <C>
Number of Shares
Name and Address Beneficially Owned Percentage Beneficially Owned
----------------- ------------------- -----------------------------
John R. Allard (1) 464,527 6%
1155 Elm Street
Manchester, NH 03101
Paul G. Giovacchini (2) 15,333 *
55 Ferncroft Road
Danvers, MA 01923
Irwin N. Gold (3) 14,048,529 69%
685 Third Avenue,
15th Floor
New York, NY 10017
Joseph A. Julian Jr.(4) 14,048,529 69%
685 Third Avenue,
15th Floor
New York, NY 10017
John W. Powers (5) 79,800 *
1155 Elm Street
Manchester, NH 03101
David A. Preiser (6) 14,048,529 69%
685 Third Avenue,
15th Floor
New York, NY 10017
Michael D. Stewart (7) 14,048,529 69%
685 Third Avenue,
15th Floor
New York, NY 10017
Bernard H.Tenenbaum (8) 18,428 *
767 5th Avenue, 48th
Floor
New York, NY 10053
Gerald R. Allard (9) 706,770 9%
520 South Collier
Boulevard
Chalet Number 301
Marco Island, FL
38937
Dimensional Fund 468,300 6%
Advisors (10)
1299 Ocean Avenue,
11th Floor
Santa Monica, CA
90401
Michael H. Foster (11) 925,937 11%
35 Harbour Green
Key Largo, FL 33037
Sunrise Capital 14,048,529 69%
Partners, L.P. (12)
685 Third Avenue,
15th Floor
New York, NY 10017
All executive 14,626,618 70%
officers and
directors a group
(8 persons) (13)
</TABLE>
* Less than one percent
32
<PAGE>
(1) Mr. Allard has shared voting power (with Sunrise, see footnote
(12)) and sole dispositive power with respect to the 464,527
shares (which figure includes 295,167 shaers of common stock
which Mr. Allard has the right to acquire within 60 days pursuant
to exercise of stock options, 17,142 shares of common stock which
Mr. Allard has the right to acquire within 60 days pursuant to
exercise of common stock purchase warrants and 87,429 shares of
common stock which Mr. Allard has the right to acquire within 60
days pursuant to the conversion of convertible promissory notes
held by him.)
(2) Includes 15,333 shares of the Company's common stock which Mr.
Giovacchini has the right to acquire within 60 days pursuant to
exercise of stock options.
(3) Includes 14,048,529 shares of the Company's common stock
beneficially owned by Sunrise (see footnote (12)). Mr. Gold may
be deemed to share beneficial ownership of the common stock
owned by Sunrise by virtue of his status as a principal of
Sunrise Advisors, LLC, the managing partner of Sunrise. Mr. Gold
disclaims any beneficial ownership in these shares.
(4) Includes 14,048,529 shares of the Company's common stock
beneficially owned by Sunrise (see footnote (12)). Mr. Julian
may be deemed to share beneficial ownership of the common stock
owned by Sunrise by virtue of his status as a principal of
Sunrise Advisors, LLC, the managing partner of Sunrise. Mr.
Julian disclaims any beneficial ownership in these shares.
(5) Includes 79,800 shares of the Company's common stock which Mr.
Powers has the right to acquire within 60 days pursuant to
exercise of stock options.
(6) Includes 14,048,529 shares of the Company's common stock
beneficially owned by Sunrise (see footnote (12)). Mr. Preiser
may be deemed to share beneficial ownership of the common stock
owned by Sunrise by virtue of his status as a principal of
Sunrise Advisors, LLC, the managing partner of Sunrise. Mr.
Preiser disclaims any beneficial ownership in these shares.
(7) Includes 14,048,529 shares of the Company's common stock
beneficially owned by Sunrise (see footnote (12)). Mr. Stewart
may be deemed to share beneficial ownership of the common stock
owned by Sunrise by virtue of his status as a principal of
Sunrise Advisors, LLC, the managing partner of Sunrise. Mr.
Steward disclaims any beneficial ownership in these shares.
(8) Includes 15,333 shares of the Company's common stock which Mr.
Tenebaum has the right to acquire within 60 days pursuant to
exercise of stock options.
(9) According to a Schedule 13D filed with the Securities and
Exchange Commission (the "Commission") on September 8, 2000,
Gerald R. Allard and a subsequent transaction, Mr. Allard, a
private investor with an address of 520
South Collier Boulevard, Chalet Number 301, Marco Island,
Florida 38937, has shared voting power (with Sunrise, see footnote
(12)) and sole dispositive voting power with respect to the
706,770 shares of common stock (which figure includes 36,785 shares
of common stock which Mr. Allard has the right to acquire within 60
days pursuant to the exercise of common stock purchase warrants and
187,607 shares of common stock which Mr. Allard has the right to
acquire within 60 days pursuant to the conversion of convertible
promissory notes held by him).
(10) According to a Schedule 13G filed with the Commission on
February 3, 2000, Dimensional Fund Advisers, a Commission-
registered investment adviser with its principal place of
business at 1299 Ocean Avenue, 11th Floor, Santa Monica,
California 90401, has sole voting and dispositive power with
respect to the 468,300 shares of common stock.
(11) Includes 317,280 shares of the Company's common stock which Mr.
Foster has the right to acquire within 60 days pursuant to
exercise of stock options. Mr. Foster retired as Chairman and
Chief Executive Officer of the Company on December 21, 1999.
(12) According to a Schedule 13D filed with the Commission on
November 17, 2000, Sunrise, a private investment fund with its principal
place of business at 685 Third Avenue, 15th Floor, New York, NY
10017, has sole voting and dispositive power with respect to
12,689,187 shares of common stock (which figure includes
1,828,572 shares of common stock which Sunrise has the right
to acquire within 60 days pursuant to the exercise of common stock
purchase warrants and 9,325,715 shares of common stock which Sunrise
has the right to acquire within 60 days pursuant to the conversion
of convertible promissory notes held by Sunrise). Sunrise also
has shared voting power (but not shared dispositive power) with
respect to 1,359,342 shares of common stock not held of record by
Sunrise but which are the subject of a stockholders agreement
between Sunrise and the owners of such shares.
(13) Includes 14,626,618 shares of the Company's Common Stock which
certain officers and directors have a right to acquire within 60
days of the date hereof pursuant to the exercise of stock
options which are deemed to be outstanding for the purpose of
computing the percentage ownership of officers and directors as
a group.
33
<PAGE>
Item 13. Certain Relationships and Related Transactions
-------------------------------------------------------
Certain Relationships and Related Transactions
On July 31, 2000, the Company and its subsidiaries entered into
a Convertible Note Agreement with Sunrise Capital Partners, L.P.,
a private investment fund. David A. Presier, Joseph A. Julian Jr.,
Michael D. Stewart and Irwin N. Gold, directors of the Company, are
affiliated with Sunrise. Pursuant to the Convertible Note Agreement,
Sunrise and certain other participants (which include John R. Allard
and certain members of the Allard-Nazarian Group, Inc.) agreed to
invest up to $24.1 million in convertible promissory notes, common
stock of the Company, and warrants to purchase common stock. Sunrise
and the other participants will purchase the securities from the Company
in three series. The first and second series of securities were
purchased on August 9, 2000 and November 16, 2000, respectively. The
purchase of the third series of securities is at the option of Sunrise.
See Note 4 to the consolidated financial statement for a more complete
description of the Sunrise transaction.
Prior to the sale of WPI Instruments in November 2000, the
Company leased and occupied a building at 850 Perimeter Road,
Manchester, New Hampshire (the "Perimeter Road Facility") from
850 Perimeter Road Associates NA, LLC, a New Hampshire limited
liability company in which Mr. Allard is a member. The yearly
base rental for the Perimeter Road facility, which houses the
operations of WPI Instruments, Inc., was approximately
$468,000. In management's opinion, the lease rate for this facility
is not in excess of the range of fair market rentals in the relevant area.
Hinckley, Allen & Snyder, a law firm of which Stephen Carlotti, a
former director, is a member, provided legal services to the
Company during its 2000 and 1999 fiscal year.
Item 14. Exhibits, Financial Statement Schedules and Reports on
-----------------------------------------------------------------
Form 8-K
--------
(a) Documents filed as part of the Report:
(1) Financial Statements of the Registrant and Report of
Independent Public Accountants Reference is made to the Index of
Financial Statements under Item 8 of Part II hereof.
(2) Financial Statement Schedule and Auditors' Report
Title Schedule
----- ---------
Valuation and Qualifying Accounts II
All schedules omitted are inapplicable or the
information required is shown in the Consolidated
Financial Statements or notes thereto. The
auditors' report of Arthur Andersen LLP with
respect to the Financial Statement Schedule is
located on page 39 of this Report.
(3) Exhibits:
Incorporated by reference to the Exhibit Index at
the end of this report.
(b) The Registrant has filed the following reports on Form
8-K during quarter ended September 24, 2000:
On August 16, 2000, the Registrant filed a Current
Report on Form 8-K dated as of August 9, 2000
announcing the Company had entered into a
Convertible Note Agreement with Sunrise Capital
Partners, L.P.
34
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO NEXIQ TECHNOLOGIES, INC.
We have audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheets as
of September 24, 2000 and September 26, 1999 and the related
statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended September 24,
2000 of NEXIQ Technologies, Inc. included in this Form 10-K, and
have issued our report thereon dated December 18, 2000. Our audit
was made for the purpose of forming an opinion on those statements
taken as a whole. The schedule listed in Item 14(a) of the index
is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic
consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the
basic financial statements and, in our opinion, fairly state, in
all material respects, the supplemental financial data required
to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 18, 2000
35
<PAGE>
SCHEDULE II
<TABLE>
NEXIQ TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the years ended September 24, 2000, September 26, 1999 and
September 27, 1998
<CAPTION>
<S> <C> <C> <C> <S> <C> <S> <C> <C> <C>
Additions
-------------------------------------------
Balance at Charged to
beginning costs and Charged to Balance at
of period Expense Acquisitions other accounts Deductions end of period
---------- ----------- ------------- --------------- ---------- --------------
2000
Allowance for
doubtful accounts $ 542,709 $ 204,812 $ - $ - $ 385,021 (1) $ 362,500
Acquisition 151,945 - - - 151,945 (2) -
reserves
Restructuring
reserves 148,269 1,840,000 - - 749,831 (3) 1,238,438
1999
Allowance for
doubtful accounts $1,283,000 $ 164,668 $ - $ - $ 904,959 (1) $ 542,709
Acquisition
reserves 872,085 - - - 720,140 (2) 151,945
Restructuring
reserves - 510,000 - - 361,731 (3) 148,269
1998
Allowance for
doubtful accounts $1,237,000 $ 49,164 $ 75,728 $ 6,170 $ 85,062 (1) $1,238,000
Acquisition
reserves 286,226 - 948,011 - 362,152 (2) 872,085
</TABLE>
-------------------------------------
(1) Accounts deemed uncollectible, net of recoveries
(2) Acquisition costs paid/charges incurred
(3) Restructuring costs paid/charges incurred
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf of the undersigned,
thereunto duly authorized.
NEXIQ TECHNOLOGIES, INC.
December 21, 2000 By: /s/John R. Allard
-----------------
Chairman and CEO
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant in the capacities and on the
dates indicated.
Signature Title Date
----------- ------- ----
/s/John R. Allard Chairman of the Board and December 21, 2000
John R. Allard Chief Executive Officer
(Principal Executive Officer)
/s/ John W. Powers Vice President and December 21, 2000
John W. Powers Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Paul G. Giovacchini Director December 21, 2000
Paul G. Giovacchini
/s/Irwin N. Gold Director December 21, 2000
Irwin N. Gold
/s/Joseph A. Julian, Jr. Director December 21, 2000
Joseph A. Julian, Jr.
/s/David A. Preiser Director December 21, 2000
David A. Preiser
/s/ Michael D. Stewart Director December 21, 2000
Michael D. Stewart
/s/Bernard H. Tenenbaum Director December 21, 2000
Bernard H. Tenenbaum
37
<PAGE>
EXHIBIT INDEX
Certain of the following exhibits, designated with an
asterisk (*) are filed herewith. The exhibits not designated have
been previously filed with the Commission and are incorporated
herein by reference to the documents indicated following the
descriptions of such exhibits.
Page No.
Exhibit No. Description Of Paper Filing
----------- ----------- ---------------
3.1 Amended and Restated Articles of
Incorporation of the Company are
incorporated by reference to Exhibit 3.1
to the Registrant's Report on Form 10-
KSB for the year ended September 29,
1996.
3.2 Bylaws of the Company are incorporated
by reference to Exhibit 3.2 of the
Registrant's Registration Statement on
Form S-4 filed with the Commission on
February 22, 1994, Registration No. 33-
75656.
10.1 Asset Purchase Agreement, dated
September 28, 1993 among WPI Group, Inc.
and Magnetec Corporation and Tridex
Corporation, previously filed and
incorporated by reference to
Registrant's report on Form 10-KSB for
the year ended September 26, 1993.
10.2 Agreement and Plan of Merger, dated as
of January 27, 1994, by and between WPI
Group, Inc. and Termiflex Corporation,
previously filed and incorporated by
reference to Exhibit 28.11 of
Registrant's report on Form 8-K filed on
September 30, 1994.
10.3 Agreement and Plan of Merger, dated
August 31, 1994, by and between WPI
Group, Inc. and Micro Palm Computers,
Inc., previously filed and incorporated
by reference to Exhibit 28.11 of
Registrant's report on Form 8-K filed on
September 30, 1994.
10.4 Stock Purchase Agreement, dated November
7, 1995 between WPI Group, Inc. and IVHS
Technologies, Inc., previously filed and
incorporated by reference to Exhibit
28.13 of Registrant's report on Form 8-
K, dated November 10, 1995.
10.5 Share Purchase Agreement dated July 16,
1996 by and between WPI Group (U.K.) and
D.R. Watkins and others, previously
filed and incorporated by reference to
Exhibit 28.15 in Registrant's Report on
Form 8-K, dated July 16, 1996.
10.6 Agreement for the sale and purchase of
the share capital of Husky Computers
Limited, Husky Computers, Inc. and Husky
Computers GmbH, previously filed and
incorporated by reference to Exhibit
4.12 in Registrant's report on Form 8-K
dated June 25, 1997.
38
<PAGE>
Page No.
Exhibit No. Description Of Paper Filing
----------- ----------- ---------------
10.7 Asset Purchase Agreement dated as of
July 31, 1998 by and among WPI
Instruments, Inc., Allard-Nazarian
Group, Inc., Modutec, Inc., A & M
Instruments, Inc., and others,
previously filed and incorporated by
reference to Exhibit 10.24 in
Registrant's report on Form 8-K dated
August 3, 1998.
10.8 Inertial Products Purchase Agreement
dated July 30, 1998 by and among Allard-
Nazarian Group, Inc. and Lucas
Automation and Control Engineering, Inc.
previously filed and incorporated by
reference to Exhibit 10.8 in
Registrant's report on Form 10-K dated
September 27, 1998.
10.9 Walker Power, Inc. Employee Stock
Purchase Plan and Bonus Award Plan
adopted May 7, 1992, previously filed
and incorporated by reference to Exhibit
28.1 of Registrant's Registration on
Form S-8 filed on June 1, 1992,
Registration No. 33-48285.
10.10 Termiflex Corporation 1981 Employee
Incentive Stock Option Plan,
previously filed and incorporated by
reference to Exhibit 10.1 of the
Termiflex Registration Statement No. 2-
85910-B on Form S-8.
10.11 The 1992 Stock Option Plan for Directors
of Micro Palm Computers, Inc.,
previously filed and incorporated by
reference to Exhibit 99.4 of the
Registrant's Registration Statement on
Form S-8 filed February 28, 1996,
Registration No. 333-1696.
10.12 WPI Group, Inc. Change in Control Plan
adopted December 15, 1995, previously
filed and incorporated by reference to
Exhibit 10.8 to the Registrant's Report
on Form 10-KSB for the year ended
September 29, 1996.
10.13 WPI Group, Inc. 1995 Stock Option Plan,
adopted June 6, 1995, previously filed
and incorporated by reference to Exhibit
10.10 of Registrant's report on Form 10-
KSB for the year ended September 24,
1995.
10.14 WPI Group, Inc. 1997 Employee Stock
Purchase Plan and Bonus Award Plan, each
adopted on February 12, 1997, previously
filed and incorporated by reference to
Exhibit 99 to the Registrant's
Registration on Form S-8 filed June 3,
1997 Registration No. 333-28335.
10.15 WPI Group, Inc. 1997 Equity Incentive
Plan, adopted June 10, 1997, as amended
on December 12, 1997, previously filed
and incorporated by reference to Exhibit
A of the Registrant's Proxy Statement
dated January 9, 1998.
10.16 Noncompetition agreement, dated January
17, 1994, by and between WPI Group, Inc.
and William E. Fletcher, previously
filed and incorporated by reference to
Exhibit 10.7 of the Registrant's report
on Form 10-KSB for the year ended
September 25, 1996.
10.17 Lease agreement, dated October 7, 1994,
by and between WPI Group, Inc. and State
Mutual Life Assurance Company of
America, previously filed and
incorporated by reference to Exhibit
10.9 of the Registrant's report on Form
10-KSB for the year ended September 24,
1995.
39
<PAGE>
Page No.
Exhibit No. Description Of Paper Filing
----------- ----------- ---------------
10.18 Lease agreement dated September 10, 1986
as amended on September 10, 1986,
September 1, 1991 and January 1, 1998 by
and between 850 Perimeter Rd/NA, LLC
(formerly NA Realty) and WPI
Instruments, Inc. previously filed and
incorporated by reference to Exhibit
10.43 of the Registrant's report on Form
10-K dated September 27, 1998.
10.19 Commercial Loan Agreement, dated October
24, 1995, previously filed and
incorporated by reference to Exhibit 4.9
of the Registrant's Report on Form 10-
KSB for the year ended September 24,
1995.
10.20 First Amendment dated March 20, 1996 to
Commercial Loan Agreement dated October
24, 1995, previously filed and
incorporated by reference to Exhibit 4.4
of the Registrant's Report on Form 10-
KSB for the year ended September 29,
1996.
10.21 Second Amendment dated July 12, 1996 to
Commercial Loan Agreement dated October
24, 1995, previously filed and
incorporated by reference to Exhibit 4.6
of the Registrant's Report on Form 10-
KSB for the year ended September 29,
1996.
10.22 Third Amendment dated February 27, 1997
to Commercial Loan Agreement dated
October 24, 1995 is incorporated by
reference to Registrant's report on Form
10-Q for the period ended March 30,
1997.
10.23 Revolving Line of Credit Promissory Note
dated February 27, 1997, replacement to
Revolving Line of Credit Promissory Note
dated July 12, 1996, previously filed
and incorporated by reference to Exhibit
4.1 of the Registrant's Report on Form 8-
K for the period ended March 30, 1997.
10.24 Fourth Amendment dated June 20, 1997 to
Commercial Loan Agreement dated October
24, 1997, previously filed and
incorporated by reference to Exhibit
4.13 in Registrant's Report on Form 8-K
dated June 25, 1996.
10.25 Promissory Note dated June 20, 1997,
previously filed and incorporated by
reference to Exhibit 4.14 in
Registrant's Report on Form 8-K dated
June 25, 1997.
10.26 Stock Pledge and Security Agreement
dated June 20, 1997, previously filed
and incorporated by reference to Exhibit
4.15 in Registrant's Report on Form 8-K
dated June 25, 1997.
10.27 Credit Agreement dated August 3, 1998 by
and among Fleet Bank-NH and the
Registrant previously filed and
incorporated by reference to Exhibit
10.26 in Registrant's report on Form 10-
K dated September 27, 1998.
10.28 First Amendment dated October 30, 1998
to Credit Agreement dated August 3, 1998
previously filed and incorporated by
reference to Exhibit 10.27 in
Registrant's report on Form 10-K dated
September 27, 1998.
40
<PAGE>
Page No.
Exhibit No. Description Of Paper Filing
----------- ----------- ---------------
10.29 Second Amendment dated December 27, 1998
to Credit Agreement dated August 3, 1998
previously filed and incorporated by
reference to Exhibit 10.41 of the
Registrant's report on Form 10-K dated
September 27, 1998.
10.30 Revolving Noted dated October 30, 1998
in the principal amount of $3,333,333.33
previously filed and incorporated by
reference to Exhibit 10.28 of the
Registrant's report on Form 10-K dated
September 27, 1998.
10.31 Revolving Noted dated October 30, 1998
in the principal amount of $4,000,000
previously filed and incorporated by
reference to Exhibit 10.29 of the
Registrant's report on Form 10-K dated
September 27, 1998.
10.32 Revolving Noted dated October 30, 1998
in the principal amount of $2,666,666.67
previously filed and incorporated by
reference to Exhibit 10.30 of the
Registrant's report on Form 10-K dated
September 27, 1998.
10.33 Revolving Noted dated October 30, 1998
in the principal amount of $4,000,000
previously filed and incorporated by
reference to Exhibit 10.31 of the
Registrant's report on Form 10-K dated
September 27, 1998.
10.34 Revolving Noted dated October 30, 1998
in the principal amount of $6,000,000
previously filed and incorporated by
reference to Exhibit 10.32 of the
Registrant's report on Form 10-K dated
September 27, 1998.
10.35 Term A Note dated October 30, 1998 in
the principal amount of $5,000,000
previously filed and incorporated by
reference to Exhibit 10.33 of the
Registrant's report on Form 10-K dated
September 27, 1998.
10.36 Term A Note dated October 30, 1998 in
the principal amount of $6,000,000
previously filed and incorporated by
reference to Exhibit 10.34 of the
Registrant's report on Form 10-K dated
September 27, 1998.
10.37 Term A Note dated October 30, 1998 in
the principal amount of $4,000,000
previously filed and incorporated by
reference to Exhibit 10.35 of the
Registrant's report on Form 10-K dated
September 27, 1998.
10.38 Term A Note dated October 30, 1998 in
the principal amount of $6,000,000
previously filed and incorporated by
reference to Exhibit 10.36 of the
Registrant's report on Form 10-K dated
September 27, 1998.
10.39 Term A Note dated October 30, 1998 in
the principal amount of $9,000,000
previously filed and incorporated by
reference to Exhibit 10.37 of the
Registrant's report on Form 10-K dated
September 27, 1998.
10.40 Term B Note dated October 30, 1998 in
the principal amount of $4,166,666.67
previously filed and incorporated by
reference to Exhibit 10.38 of the
Registrant's report on Form 10-K dated
September 27, 1998.
41
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Page No.
Exhibit No. Description Of Paper Filing
----------- ----------- ---------------
10.41 Term B Note dated October 30, 1998 in
the principal amount of $5,000,000
previously filed and incorporated by
reference to Exhibit 10.39 of the
Registrant's report on Form 10-K dated
September 27, 1998.
10.42 Term B Note dated October 30, 1998 in
the principal amount of $15,833,333.33
previously filed and incorporated by
reference to Exhibit 10.40 of the
Registrant's report on Form 10-K dated
September 27, 1998.
10.43 Waiver dated as of December 27, 1998
previously filed and incorporated by
reference to Exhibit 10.42 of the
Registrant's report on Form 10-K dated
September 27, 1998.
10.44 Asset Purchase Agreement, dated December
22, 1999 among Warner Power, LLC and
Warner Power Conversion, LLC and WPI
Power Systems, Inc. and WPI Electronics,
Inc. and WPI Group, Inc., previously
filed and incorporated by reference to
Exhibit 10.24 of Registrant's Report on
Form 8-K, dated January 4, 2000.
10.45 Non-Competition Agreement, dated
December 22, 1999 among WPI Group, Inc.
and WPI Electronics, Inc. and WPI Poster
Systems, Inc. and Warner Power, LLC,
previously filed and incorporated by
reference to Exhibit 10.24 of
Registrant's Report on Form 8-K, dated
January 4, 2000.
10.46 Purchase and Sale Agreement, dated
December 22, 1999 among WPI Group, Inc.
and 40 Depot Street, LLC, previously
filed and incorporated by reference to
Exhibit 10.24 of Registrant's Report on
Form 8-K, dated January 4, 2000.
10.47 Terminal Products Manufacturing
Agreement, dated December 22, 1999 among
Warner Power, LLC and WPI Group, Inc and
WPI Oyster Termiflex, Inc., previously
filed and incorporated by reference to
Exhibit 10.24 of Registrant's Report on
Form 8-K, dated January 4, 2000.
10.48 Services Agreement, dated December 22,
1999 among WPI Group, Inc. and Warner
Power, LLC and Warner Power Conversion,
LLC previously filed and incorporated by
reference to Registrant's Report on Form
8-K, dated January 4, 2000.
10.49 Third Amendment to Credit Agreement
dated as of August 16, 1999, previously
filed and incorporated by reference to
Exhibit 10.49 of Registrant's Report on
Form 10-K, dated September 26, 1999.
10.50 Limited Waiver dated as of August 16,
1999,previously filed and incorporated
by reference to Exhibit 10.50 of Registrant's
Report on Form 10-K, dated September 26, 1999.
10.51 Common Stock Purchase Warrant dated as
of August 16, 1999 for 20,670 shares
of WPI Group, Inc. Common Stock to FSC
Corp., previously filed and incorporated by
reference to Exhibit 10.51 of Registrant's
Report on Form 10-K, dated September 26, 1999.
10.52 Common Stock Purchase Warrant dated as
of August 16, 1999 for 24,800 shares of
WPI Group, Inc. Common Stock to Bank of
NH, filed and incorporated by reference to
Exhibit 10.52 of Registrant's Report on
Form 10-K, dated September 26, 1999.
NH,
42
<PAGE>
Page No.
Exhibit No. Description Of Paper Filing
----------- ----------- ---------------
10.53 Common Stock Purchase Warrant dated as
of August 16, 1999 for 37,200 shares of
WPI Group, Inc. Common Stock to Fleet
Bank - NH, previously filed and incorporated
by reference to Exhibit 10.53of Registrant's
Report on Form 10-K, dated September 26, 1999.
10.54 Common Stock Purchase Warrant dated as
of August 16, 1999 for 16,530 shares of
WPI Group, Inc. Common Stock to Key
Bank, previously filed and incorporated by
reference to Exhibit 10.54 of Registrant's
Report on Form 10-K, dated September 26, 1999.
10.55 Common Stock Purchase Warrant dated as
of August 16, 1999 for 24,800 shares of
WPI Group, Inc. Common Stock to
Sovereign Bank, previously
filed and incorporated by reference to
Exhibit 10.55 of Registrant's Report on
Form 10-K, dated September 26, 1999.
10.56 Registration Rights Agreement dated as
of August 16, 1999.
10.57 Sale and Purchase Agreement dated February
22,2000 among WPI Group (UK), WPI Group, Inc.
and Dynatech Nominees Limited previously
filed and incorporated by reference to Exhibit
10.24 of Registrant's Report on Form 8-K
dated February 29, 2000.
10.58 Business Sale Agreement dated February 22,
2000 among WPI Oyster Termiflex Limited and
Dynatech Corporation Limited previously filed
and incorporated by reference to Exhibit 10.25
of Registrant's Report on Form 8-K, dated
February 29, 2000.
10.59 Asset Purchase Agreement dated February 11,
2000 dated February 11, 2000 among Itronix
Corporation, WPI Husky Technology, Inc. and
WPI Group, Inc. previously filed and
incorporated by reference to Exhibit 10.26
of Registrant's Report on Form 8-K, dated
February 29, 2000.
10.60 Forbearance Agreement dated January 24, 2000
previously filed and incorporated by reference
to Exhibit 10.1 of the Registrant's Report on
Form 10-Q for the period ended March 26, 2000.
10.61 Bill of Sale and Assumption Agreement dated
June 8, 2000 among WPI Termiflex, Inc. and
Warner Power, LLC previously filed and incorporated
by reference to Exhibit 10.24 of Registrant's
Report on Form 8-K, dated June 21, 2000.
10.62 Forbearance Agreement dated March 31, 2000
previously filed and incorporated by reference
to Exhibit 10.1 of Registrant's Report on
Form 10-Q for the period ended June 25, 2000.
10.63 Forbearance Agreement dated May 3, 2000 previously
filed and incorporated by reference to Exhibit
10.2 of the Registrant's Report on Form 10-Q
for the period ended June 25, 2000.
10.64 Convertible Note Agreement dated as of July
31, 2000 previously filed and incorporated by
reference to Exhibit 2.1 of Registrant's Report
on Form 8-K, dated August 16, 2000.
10.65 Asset Purchase Agreement dated October 13, 2000
dated October 13, 2000 among WPI Instruments, Inc.,
WPI Magnetec, Inc., Crompton Modutec (Barbados)
Limited and Jewell Instruments, LLC previously
filed and incorporated by reference to Exhibit
10.24 of Registrant's Report on Form 8-K,
dated November 28, 2000.
* 10.66 Forbearance Agreement dated June 30, 2000.
* 10.67 Forbearance Agreement dated July 31, 2000.
* 10.68 Loan Modification Agreement dated August 9, 2000.
* 10.69 Form of Term A Note.
* 10.70 Form of Term B Note.
* 10.71 Form of Warrant.
* 21 List of subsidiaries of the Registrant
as of September 24, 2000.
* 23 Consent of Arthur Andersen LLP.
* 27 Financial Data Schedule.
43
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