SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/XX/QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 30, 2001
OR
/__/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ______________ to ______________
Commission file number: 0-19717
NEXIQ TECHNOLOGIES, INC.
(formerly WPI GROUP, INC.)
(Exact name of Registrant as specified in its charter)
New Hampshire | 02-0218767 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
1155 Elm Street, Manchester, New Hampshire 03101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 627-3500
_________________________________________________________________________________
Former name, former address, and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YesXNo ___
Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ___ No___
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Class | Outstanding as of December 30, 2001 |
Common Stock, par value $.01 | 12,839,510 shares |
NEXIQ TECHNOLOGIES, INC.
INDEX
PART I -FINANCIAL INFORMATION | Page No. | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Item 1. Condensed Consolidated Financial Statements | ||||||||||
Condensed Consolidated Balance Sheets - December 30, 2001 and September 30, 2001 | 3 | |||||||||
Condensed Consolidated Statements of Operations - Thee Months Ended December 30, 2001 and December 24, 2000 | 4 | |||||||||
Condensed Consolidated Statements of Stockholders' Deficit - Thee Months Ended December 30, 2001 and December 24, 2000 | 5 | |||||||||
Condensed Consolidated Statements of Cash Flows - Three months Ended December 30, 2001 and December 24, 2000 | 6 | |||||||||
Notes to Condensed Consolidated Financial Statements | 7 | |||||||||
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 10 | |||||||||
Item 3 Quantitative and Qualitative Disclosure About Market Risk | 12 | |||||||||
PART II - OTHER INFORMATION | ||||||||||
Item 6. Exhibits and Reports on Form 8-K | 13 | |||||||||
SIGNATURES | 14 |
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NEXIQ TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2001 | December 30, 2001 | ||||||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 1,030,601 | $ | 823,399 | |||
Accounts receivable - net of allowance for doubtful accounts of $57,675 and $62,675, respectively | 1,657,738 | 2,212,206 | |||||
Inventories | 844,768 | 1,074,055 | |||||
Costs in excess of billings | 113,564 | 199,873 | |||||
Prepaid expenses and other current assets | 469,975 | 497,183 | |||||
Refundable income taxes | 102,735 | 102,735 | |||||
Total current assets | 4,219,381 | 4,909,451 | |||||
Property,Plant and Equipment,at cost, less accumulated depreciation | 1,626,038 | 1,647,760 | |||||
Other Assets | 8,519,306 | 7,909,364 | |||||
Total assets | $ | 14,364,725 | $ | 14,466,575 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | | ||||||
Current liabilities | |||||||
Notes payable | $ | 10,872,335 | $ | 11,056,580 | |||
Accounts payable | 1,503,225 | 1,486,636 | |||||
Accrued expenses | 5,010,436 | 6,362,601 | |||||
Total current liabilities | 17,385,996 | 18,905,817 | |||||
Convertible Notes Payable | 17,931,649 | 20,362,359 | |||||
Other Long-Term Liabilities | 848,457 | 775,984 | |||||
Stockholders' Deficit | |||||||
Common stock, $0.01 par value; authorized 75,000,000 shares; | |||||||
issued and outstanding 11,629,819 and 12,839,510, respectively | 116,298 | 128,395 | |||||
Additional paid-in capital | 36,283,795 | 38,243,647 | |||||
Accumulated deficit | (58,201,470 | ) | (63,949,627 | ) | |||
Total stockholders' deficit | (21,801,377 | ) | (25,577,585 | ) | |||
Total liabilities and stockholders' deficit | $ | 14,364,725 | $ | 14,466,575 | |||
See notes to condensed consolidated financial statements
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NEXIQ TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| December 24, 2000 | December 30, 2001 | ||||||||
Net Sales | $ | 3,166,695 | $ | 2,931,016 | ||||||
Cost of Goods Sold | 1,396,327 | 1,155,668 | ||||||||
Gross Profit | 1,770,368 | 1,775,347 | ||||||||
Operating expenses: | ||||||||||
Research and new product development | 1,671,784 | 1,765,885 | ||||||||
Selling, general and administration | 1,731,671 | 2,859,088 | ||||||||
Total operating expenses | 3,403,455 | 4,624,973 | ||||||||
Operating Loss | (1,633,087 | ) | (2,849,625 | ) | ||||||
Other Income (Expense): | ||||||||||
Interest expense | (1,247,180 | ) | (2,928,476 | ) | ||||||
Other, net | — | 29,944 | ||||||||
Loss Before Income Taxes | (2,880,267 | ) | (5,748,157 | ) | ||||||
Income Tax Expense (Benefit) | — | — | ||||||||
Loss Before Cumulative Effect of Change in Accounting Principle | (2,880,267 | ) | (5,748,157 | ) | ||||||
Cumulative Effect of Change in Accounting Principle | (2,485,475 | ) | — | |||||||
Net Loss | $ | (5,365,742 | ) | $ | (5,748,157 | ) | ||||
Earnings (Loss) Per Share: | ||||||||||
Loss Before Cumulative Effect of Change in Accounting Principle | $ | (0.37 | ) | $ | (0.48 | ) | ||||
Cumulative Effect of Change in Accounting Principle | (0.31 | ) | — | |||||||
Net loss | $ | (0.68 | ) | $ | (0.48 | ) | ||||
Weighted Average Common Shares | 7,892,182 | 11,988,738 |
See notes to condensed consolidated financial statements
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NEXIQ TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
DEFICIT
For the Three Months Ended December 30, 2001
| Common Stock $.01 Par Value | Additional Paid-in | Retained Earnings (Accumulated | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Shares | Amount | Capital | Deficit) | Total | |||||||||||
Balance Septembere 30,2001 | 11,629,819 | $ | 116,298 | $ | 36,283,795 | $ | (58,201,470) | $ | (21,801,377 | ) | ||||||
Sale of common stock | 1,209,691 | 12,097 | 926,935 | — | 939,032 | |||||||||||
Sale of warrants to purchase common stock | — | — | 186,997 | — | 186,997 | |||||||||||
Non-cash compensation expense related to stock options | — | — | 192,747 | — | 186,997 | |||||||||||
Effect of beneficial conversion | — | — | 653,173 | — | 653,173 | |||||||||||
Net loss | — | — | — | (5,748,157) | (5,748,157 | ) | ||||||||||
Balance December 30,2001 | 12,839,510 | $ | 128,395 | $ | 38,243,647 | $ | (63,949,627) | $ | (25,577,585 | ) | ||||||
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NEXIQ TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Three Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| December 24, 2000 | December 30, 2001 | ||||||||
Cash Flows From Operating Activities: | ||||||||||
Net loss | $ | (5,365,742 | ) | $ | (5,748,157 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||
Depreciation and amortization | 645,550 | 2,112,957 | ||||||||
Cumulative effect of change in accounting principle | 2,485,475 | — | ||||||||
Other | 5,919 | 192,747 | ||||||||
Changes in current assets and liabilities net of effects of businesses divested: | ||||||||||
Accounts receivable | (22,957 | ) | (554,468 | ) | ||||||
Inventories | (69,805 | ) | (229,287 | ) | ||||||
Cost in Excess of Billings | 3,361 | (86,309 | ) | |||||||
Prepaid expenses and other current assets | (209,531 | ) | (31,095 | ) | ||||||
Accounts payable | (174,539 | ) | (16,589 | ) | ||||||
Accrued expenses | 426,192 | 1,169,694 | ||||||||
Total adjustments | 3,089,665 | 2,577,560 | ||||||||
Net cash used in operating activities | (2,276,077 | ) | (3,190,507 | ) | ||||||
Cash Flows From Investing Activities: | ||||||||||
Proceeds from sale of businesses, net of expenses | 5,550,572 | — | ||||||||
Additions to property, plant and equipment | (145,916 | ) | (209,940 | ) | ||||||
Net cash provided by (used in) investing activities | 5,404,656 | (200,940 | ) | |||||||
Cash Flows From Financing Activities: | ||||||||||
Borrowings (payments) of notes payable | (7,517,620 | ) | 184,245 | |||||||
Proceeds from debt, net of debt issuance costs | 4,599,092 | 1,806,330 | ||||||||
Proceeds from sale of warrants to purchase common stock and beneficial conversion feature | 308,571 | 198,230 | ||||||||
Proceeds from issuance of common stock | 3,344 | 995,440 | ||||||||
Net cash provided by (used in) investing activities | (2,606,623 | ) | 3,184,245 | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 521,956 | (207,202 | ) | |||||||
Cash and Cash Equivalents, Beginning of Period | 102,156 | 1,030,601 | ||||||||
Cash and Cash Equivalents, End of Period | $ | 624,112 | $ | 823,999 | ||||||
Supplemental Disclosure of Cash Information: | ||||||||||
Income taxes paid (refunded) | $ | — | $ | — | ||||||
Interest paid | 433,569 | 211,077 | ||||||||
Supplemental Disclosure of Non-cash Transactions: | ||||||||||
Insuance of Transaction Fee PIK Conversion Shares | $ | — | $ | 60,000 |
See notes to condensed consolidated financial statements
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The financial statements for the three months ended December 30, 2001 are prepared in accordance with Rule 10-01 of Regulation S-X and include all adjustments which, in the opinion of management, are necessary to present fairly the results of operations for the periods then ended. All such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K filed with the Securities and Exchange Commission (File No. 333-72391), which included financial statements for the years ended September 30, 2001.
Certain prior year amounts have been reclassified to conform to current year presentation.
The results of the Company's operations for any interim period are not necessarily indicative of the results of the Company's operations for any other interim period or for a full fiscal year.
2. INVENTORIES
Inventory consists of: | ||||||||||
September 30, | December 30, | |||||||||
2001 | 2001 | |||||||||
Raw Materials | $ | 618,538 | $ | 184,857 | ||||||
Finished Goods | 226,230 | 889,198 | ||||||||
Total | $ | 844,768 | $ | 1,074,055 | ||||||
3. LONG-TERM DEBT
In December 2001, the Company completed the Term E Financing under the Convertible Note Agreement. Under the terms of the Term E Financing, the Company received $3.0 million in cash in exchange for the following securities: 1,209,691 shares of common stock, warrants to purchase 342,857 shares of common stock at $1.75 per share and Term E Convertible Note with a principal value of $3.0 million. The Term E Convertible Note matures on July 31, 2003, bears interest at an annual rate of 10.75% payable in cash or in additional notes at the option of the Company. The Term E Convertible Note is convertible into common stock at the option of the holder or the Company, under certain conditions, at $1.75 per share.
Subsequent to December 30,2001, the Company received $1.0 million in cash in connection with partial funding of the Term F Financing under the Convertible Note Agreement in exchange for the following securities: 200,679 shares of common stock, warrants to purchase 114,286 shares of common stock at $1.75 per share and Term F Convertible Note with a principal value of $1.0 million. The Term F Note matures on July 31, 2003, bears interest at an annual rate of 10.75% payable in cash or in additional notes at the option of the Company. The Term F Convertible Note is convertible into common stock at the option of the holder or the Company, under certain conditions, at $1.75 per share.
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4. NET LOSS PER COMMON SHARE
Basic earnings per share ("EPS") is calculated by dividing income or loss available to common stockholders by the weighted average number of common shares outstanding during the period. Other obligations, such as stock options and warrants, are considered to be potentially dilutive common shares. Diluted EPS assumes the issuance of potential dilutive common shares outstanding during the period and adjusts for any changes in income and the repurchase of common shares that would have occurred from the assumed issuance.
During the three-month period ended December 30, 2001, options and warrants to purchase 8,052,673 shares of common stock were outstanding and were not included in the computation of diluted EPS because the effect would have been anti-dilutive. For the comparable three-month period ended December 24, 2000, options and warrants to purchase 4,108,749 shares of common stock were outstanding and were not included in the computation of diluted EPS because the effect would have been anti-dilutive.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS 141 replaces Accounting Principles Board Opinion 16, "Business Combinations," and requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 142 replaces APB 17, "Intangible Assets." In accordance with SFAS No. 141 and 142, effective for the Company's fiscal year 2003, as a replacement to amortization of goodwill and intangible assets with indefinite lives, the Company will evaluate goodwill and intangible assets for impairment annually. The Company is currently reviewing these statements to determine their impact.
In 2001, the FASB issued SFAS No. 143, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets." SFAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. SFAS 143 also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective for the Company's fiscal year 2003. The Company is currently reviewing the statement to determine its impact.
In 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 address significant issues related to implementation of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 144 is effective for the Company's fiscal year 2003. The Company is currently reviewing the statement to determine its impact.
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ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and footnotes contained in the Company's Form 10-Q for the period ended December 24, 2000 and the Form 10-K for the year ended September 30, 2001, filed with the Securities and Exchange Commission. In addition to historical information, this report contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this section. Readers should carefully review the risks described in other documents the Company files from time to time with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2001. Readers are cautioned not to place undue reliance on the forward-looking statements which speak as of the date of this report only. The Company undertakes no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.
RESULTS OF OPERATIONS
Net sales of $2.9 million for the first quarter of fiscal 2002 decreased 7.4% from sales of $3.2 million for the first quarter of fiscal 2001. The decrease was primarily due to the effects of weaker economic conditions on sales of the Company's diagnostic tools in the first quarter of 2002.
Cost of sales of $1.2 million for the first quarter of fiscal 2002 resulted in a gross profit of 60.6%, compared to a gross profit of 55.9% for the same period of fiscal 2001. The increase in the Company's gross profit percentage in the first quarter of 2002 was primarily attributable to a change in mix of products sold.
Research and new product development expenses were $1.8 million and 60.2% of sales for the first quarter of fiscal 2002. For the same quarter of fiscal 2001, research and new product development expenses were $1.7 million and 52.8% of sales. The increase was attributed to the development e-Technician, a web-based remote diagnostic and "telematics" platform for commercial vehicles.
Selling, general and administration expenses were $2.9 million and $1.7 million for the first quarter of fiscal 2002 and 2001, respectively. As a percentage of sales, selling, general and administrative expenditures were 97.5% and 54.7% for the fiscal 2002 and 2001 first quarters, respectively. The changes in selling, general and administrative expenses in fiscal 2002 are primarily attributable to an increase as a result of the acquistion of Diversified Software and staffing to support the launch of e-Technician.
The Company's operating loss for the first quarter of fiscal 2002 and 2001 was $2.8 million and $1.6 million, respectively. The increase in the operating loss was primarily due to reduced sales and the increase in selling, general and administrative expenses.
The Company's other income (expense) was ($2.9) million for the first quarter of fiscal 2002 compared to ($1.2) million in the first quarter of fiscal 2001. The increase in the Company's interest expense in 2002 compared to 2001 is primarily the result of increased debt related to continued operations and the development and sales efforts to support the launch of e-Technician.-9-
LIQUIDITY AND CAPITAL RESOURCES
As of December 30, 2001 the Company had a working capital deficit of $14.0 million compared to $13.2 million deficit at September 30, 2001. Net cash used in operating activities totaled $3.2 million and $2.3 million for the three months ended December 30, 2001 and December 24, 2000, respectively.
As of December 30, 2001, the Company had no material commitments for capital expenditures.
On July 31, 2000, the Company entered into a Convertible Note Agreement with Sunrise Capital Partners, L.P., a private investment fund ("Sunrise") and certain other participants, which include certain members of the Company's management and certain members of the Allard-Nazarian Group. The Convertible Note Agreement provides for a series of investment transactions: the Term A Financing, Term B Financing and the Term C financing, as follows:
Term A Financing - On September 21, 2001, the Company entered into and Amended Convertible Note Agreement with Sunrise and certain other participants, which included a member of the Company's management and certain members of the Allard-Nazarian Group, Inc. The Amended Convertible Note Agreement provides for a series of investment transactions: the Term D Financing ($5.0 million) and the Term E Financing ($3.0 million).
On September 21, 2001, the Company amended its credit facility agreement with a syndicate of banks. The terms of the modified agreement provide a $2,500,000 revolving line of credit and term notes, which expire on July 30, 2002. As of December 30, 2001, there were $11,056,580 borrowings outstanding under the agreement, consisting of $2,500,000 million under the revolving line of credit and $8,556,580 of term notes. Interest on all borrowings is payable monthly at prime (4.75% at December 30 , 2001) plus 3.0% through December 31, 2001, prime plus 3.5% from January 1, 2002 through March 31, 2002 and prime plus 4.0% thereafter.
On January 23, 2002, the Company entered into a second Amended Convertible Note Agreement with Sunrise and certain other participants, which included a member of the Company's management and certain members of the Allard-Nazarian Group, Inc. The Second Amendment to the Convertible Note Agreement provides for the issuance of additional convertible notes up to $6 million - the Term F Financing.
The Company intends to utilize the proceeds from the financing transactions under the Convertible Note Agreement to fund operations. The Company anticipates the need to either amend the existing credit facility or obtain additional financing to repay the remaining amounts outstanding under the credit facility when it expires in June 2002.
The Company has begun efforts to obtain funding to replace the existing bank facility and provide sufficient cash to support the Company until positive cash flow is achieved, which management believes will occur in 2003. Management is working with investment banks, venture capital firms, and other advisors to investigate altervative funding sources and financing structures and is confident that these efforts will prove successful. Implementation is targeted for the third quarter of 2002, however, the amount, structure, and timing of this financing is subject to external factors including market conditions, economic factors, and investor preferences that are beyond the control of NEXIQ.
There can be no assurance that the Company will be successful in obtaining additional financing or amending the credit facility. If the Company is not successful in extending the credit facility or obtaining additional financing to repay borrowings under the facility, management would consider all of the options then available, including a bankruptcy financing.
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RECENT ACCOUNTING PROUNCEMENTS
In 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS 141 replaces Accounting Principles Board Opinion 16, "Business Combinations," and requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 142 replaces APB 17, "Intangible Assets." In accordance with SFAS No. 141 and 142, effective for the Company's fiscal year 2003, as a replacement to amortization of goodwill and intangible assets with indefinite lives, the Company will evaluate goodwill and intangible assets for impairment annually. The Company is currently reviewing these statements to determine their impact.
In 2001, the FASB issued SFAS No. 143, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets." SFAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. SFAS 143 also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective for the Company's fiscal year 2003. The Company is currently reviewing the statement to determine its impact.
In 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 address significant issues related to implementation of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 144 is effective for the Company's fiscal year 2003. The Company is currently reviewing the statement to determine its impact.
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ITEM 3.
Quantitative and Qualitative Disclosure About Market Risk
The Company has considered the provisions of Financial Reporting Release No. 48, "Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative Information about Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments." The Company had no holdings of derivative financial or commodity-based instruments as if December 30, 2001. A review of the Company's other financial instruments and risk exposures at that date revealed that the Company had exposure to interest risk. At December 30, 2001, the Company had $11,056,580 of borrowings outstanding under its credit facility with a syndicate of banks. The Company performed sensitivity analysis to assess exposure to interest rate movements relative to this debt. A hypothetical change of 100 basis points in average interest rates would have an annual impact on the interest cost of $110,568. The Company concluded that a change of this magnitude would not be expected to materially affect the Company's financial position, results of operations or cash flows.
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NEXIQ TECHNOLOGIES, INC.
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None.
B. Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned thereunto duly authorized.
NEXIQ TECHNOLOGIES, INC.
(Registrant)
By | /s/ John R. Allard John R. Allard Chief Executive Officer | |||
By | /s/ Kevin F. Kelly Kevin F. Kelly Vice President and Chief Financial Officer |
Date: February 12, 2002
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