UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
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EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
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EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-13324
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QUESTRON TECHNOLOGY, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 23-2257354
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification Number)
6400 Congress Avenue, Suite 200, Boca Raton, FL 33487
- ----------------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
(407) 241 - 5251
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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
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As of May 10, 1996, the issuer had 15,354,842 shares of common stock,
$.0001 par value, outstanding.
<PAGE>
QUESTRON TECHNOLOGY, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C> <C>
PART I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet -
At March 31, 1996 and December 31, 1995 3
Consolidated Statement of Operations -
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis or Plan of Operation 8 - 10
PART II. Other Information 11
Signature Page 12
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------------- ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 159,456 $ 39,358
Accounts receivable, less allowance for
doubtful accounts of $60,389 and $43,798, respectively 1,378,864 1,347,128
Other receivables 27,709 52,808
Inventories 3,577,668 3,554,263
Other current assets 32,895 60,205
-------------- --------------
Total current assets 5,176,592 5,053,762
Property and equipment - net 424,972 418,980
Cost in excess of net assets of business acquired,
less accumulated amortization of $131,203 6,823,722 6,866,305
Other assets 162,050 93,951
============== ==============
Total assets $ 12,587,336 $ 12,432,998
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,379,658 $ 1,520,094
Current portion of long-term debt 550,000 550,000
-------------- --------------
Total current liabilities 1,929,658 2,070,094
Long-term debt 2,362,500 2,185,000
-------------- --------------
Total liabilities 4,292,158 4,255,094
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Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $.01 par value; authorized 1,000,000
shares; none issued and outstanding --
Common stock, $.0001 par value; authorized 20,000,000
shares; issued and outstanding 15,473,335 shares 1,547 1,547
Additional paid-in capital 23,887,894 23,887,894
Accumulated deficit (15,238,785) (15,356,059)
-------------- --------------
8,650,656 8,533,382
Less: Treasury stock, 118,493 shares, at cost (355,478) (355,478)
-------------- --------------
Total shareholders' equity 8,295,178 8,177,904
-------------- --------------
Total liabilities and shareholders' equity $ 12,587,336 $ 12,432,998
============== ==============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1996 1995
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<S> <C> <C>
Revenue:
Sales $ 2,767,137 $ --
Fee income 51,363 107,092
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2,818,500 107,092
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Operating costs and expenses:
Cost of products and services sold 1,675,487 40,680
Selling, general & administration expenses 861,354 195,010
Non-recurring charges -- 125,000
Depreciation and amortization 64,272 11,000
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2,601,113 371,690
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Operating income (loss) 217,387 (264,598)
Interest income (expense):
Interest expense (79,160) --
Interest income -- 14,832
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Total interest income (expense) (79,160) 14,832
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Income (loss) before income taxes 138,227 (249,766)
Provision for income taxes 20,953 --
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Net income (loss) $ 117,274 $ (249,766)
============= =============
Net income (loss) per common share $ .01 $ (.04)
============= =============
Average number of common shares and common share
equivalents outstanding 15,410,391 6,844,138
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 117,274 $ (249,766)
Adjustments to reconcile net income (loss) to net
cash to net cash used in operating activities:
Depreciation and amortization 64,272 11,000
Provision for doubtful accounts 16,591 4,500
Change in assets and liabilities:
(Increase) in accounts receivable (48,327) (148,152)
Decrease in other receivables 25,099 --
(Increase) in inventories (23,405) --
(Increase) decrease in prepaid expenses and other assets (40,789) 89,684
(Decrease) increase in accounts payable and accrued
expenses (140,436) 355,781
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Net cash (used) provided by operating activities (29,721) 63,047
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Cash flows from investing activities:
Net cash consideration paid for acquired business -- (5,229,847)
Acquisition of property and equipment (27,681) --
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Net cash used for investing activities (27,681) (5,229,847)
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Cash flows from financing activities:
Proceeds from short-term borrowings -- 300,000
Proceeds from borrowings under revolving facility 315,000 100,000
Proceeds from borrowings under term loan facility -- 2,200,000
Proceeds from private placement -- 1,740,000
Costs associated with private placement -- (238,039)
Repayment of long-term debt (137,500) --
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Net cash provided by financing activities 177,500 4,101,961
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Increase (decrease) in cash and cash equivalents 120,098 (1,064,839)
Cash and cash equivalents at beginning of period 39,358 1,520,730
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Cash and cash equivalents at end of period $ 159,456 $ 455,891
========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Note 1. Basis of presentation.
The accompanying unaudited consolidated financial statements
include the accounts of the Company and its subsidiaries. The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and in accordance with
the instructions for Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. The consolidated balance sheet as of December 31, 1995
reflects the audited balance sheet at that date. For further information, refer
to the financial statements and footnotes thereto included in the Company's
annual report on Form 10-KSB for the year ended December 31, 1995.
Note 2. Acquisition of electronic hardware distribution business.
On March 31, 1995, the Company acquired Quest Electronic
Hardware, Inc. ("Quest"), a specialized distributor of fasteners and electronic
hardware sold to electronic equipment manufacturers, in exchange for 3,872,000
shares of the Company's common stock. Simultaneously, the Company contributed to
Quest cash of $2,850,000 as additional paid-in capital and Quest purchased the
fasteners distribution business from Arrow Electronics, Inc. ("Arrow") for net
cash consideration of $5,229,847. In connection with these transactions, the
company recorded $6,503,837 of cost in excess of net assets of the business
acquired. The Company does not expect that Statement of Accounting Financial
Standards No. 121, Accounting for the Impairment of Long-Lived Assets, will have
any impact on the Company's Financial Statements.
Note 3. Provision for restructuring.
As a result of declining revenues of the Company's ADR
business, stemming in part from increased competition, and the resultant
historical losses, the Company undertook a plan of action to downsize and
restructure its ADR business in order to establish a more acceptable
relationship of expenses of that business to its revenues. The Company's
operating results for the three month period ended March 31, 1995 include a
provision for restructuring of $125,000. More than $60,000 of such provision is
attributable to the write-off of fixed assets and idle equipment associated with
the downsizing of the ADR business. The balance of the provision is associated
with lease termination costs, the relocation of the ADR business to more
suitable office space, forfeiture of security deposits, and other costs
associated with the downsizing and restructuring of the ADR business. During
August 1995, the Company relocated the ADR business to more suitable office
space. The Company is evaluating its alternatives with respect to its ADR
business, including the possible sale, disposition or discontinuance of the
business.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
For the three months ended March 31, 1996.
The results of operations through March 31, 1996 include the operating
results of Quest Electronic Hardware, Inc. ("Quest"), the Company's fasteners
and electronic hardware distribution business, and the operating results of the
Company's alternative dispute resolution ("ADR") business.
The following summarizes the results of operations for each of the
Company's businesses and corporate for the three months ended March 31, 1996:
<TABLE>
<CAPTION>
Quest ADR Corporate Total
----------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue $2,767,137 $ 51,363 $ $ 2,818,500
Costs and expenses 2,452,448 69,539 79,126 2,601,113
------------ ------------ ------------ ------------
Operating income 314,689 (18,176) (79,126) 217,387
Interest expense 78,378 -- 782 79,160
------------ ------------ ------------ ------------
Income (loss) before taxes 236,311 (18,176) (79,908) 138,227
Tax provision 20,953 -- -- 20,953
============ ============ ============ ============
Net income (loss) $ 215,358 $ (18,176) $ (79,908) $ 117,274
============ ============ ============ ============
</TABLE>
The significant growth in the Company's revenues for the three months
ended March 31, 1996 over the three months ended March 31, 1995 is due to the
acquisition of Quest on March 31, 1995. Revenues for Quest for the three month
period ended March 31, 1996 were $2,767,137, which represent a record level of
revenues for the business. The growth in revenues of Quest is attributable to
its expansion into the Austin, Texas market as well as growth in the other
markets that it serves. The opening of a new branch in Austin is primarily
directed at servicing Applied Materials, which signed a three-year Master
Purchase Order and Sales Agreement with Quest on November 13, 1995. Revenues of
the ADR business were $51,363 for the three month period ended March 31, 1996
compared with $107,092 for the three month period ended March 31, 1995. This
reflects a decrease in ADR fee income of 52% compared with the comparable period
in the prior year. This decline reflects the Company's downsizing and
restructuring of the ADR business in response to increased competition and
historical losses. Such restructuring has resulted in bringing the ADR business,
excluding corporate expenses, to a modest operating loss for the three months
ended March 31, 1996 of $18,176. The Company is continuing to evaluate its
alternatives with respect to the future operation of its ADR business, including
the possible sale, disposition or discontinuance of the business.
7
<PAGE>
The Company's operating income was $217,387 for the three months ended
March 31, 1996 compared with an operating loss of $264,598 for the comparable
period of the prior year. These improvements are due to the operating income
achieved by Quest of $314,689, as well as the significant reductions in costs
and expenses of the ADR business. Such expenses were $148,665 for the three
months ended March 31, 1996 compared with $371,690 for the comparable period of
the prior year. Quest's operating income of $314,689 for the three months ended
March 31, 1996 represents 11% of its revenues, a relationship which is slightly
less than the historical performance of the business due to the start-up costs
associated with the opening of its new branch in Austin, Texas.
Interest expense for the three months ended March 31, 1996 amounted to
$79,160, which principally reflects the cost of borrowings associated with the
acquisition and operation of the fasteners and electronic hardware distribution
business. For the comparable period of the prior year, the Company's results
include $14,832 of interest income resulting from the investment of excess cash.
The provision for income taxes for the three months ended March 31,
1996 principally reflects state income tax provisions for states in which Quest
does business. The provision for income taxes also includes a minimal provision
for federal income taxes for the federal alternative minimum tax. The Company is
not expected to have a regular federal income tax liability for 1996, as a
result of the availability of net operating loss income tax carryforwards of
approximately $13.1 million as of December 31, 1995, expiring in the years 2000
through 2009.
Net income for the three months ended March 31, 1996 amounted to
$117,274 compared with a net loss of $249,766 for the comparable period of the
prior year. These improvements reflect the operating income of Quest (partially
reduced by interest expense and income taxes) and the reduction in operating
losses of the ADR business.
Liquidity and Capital Resources
As of March 31, 1996, the Company had $159,456 in cash and short-term
investments, compared to $39,358 as of December 31, 1995. As of March 31, 1996,
the Company had working capital of $3,246,934, compared with working capital of
$2,983,668 as of December 31, 1995.
8
<PAGE>
For the three months ended March 31, 1996, the net cash used in the
Company's operating activities amounted to $29,721, principally reflecting cash
requirements associated with increased accounts receivable and inventories
associated with the business of Quest, as well as decreased accounts payable and
accrued expenses. Such cash requirements were partially offset by a decrease in
other receivables and profits generated by Quest. Corporate expenses and the
operations of the Company's ADR business continued to use cash, although at a
reduced rate compared with prior years. As previously discussed, the Company is
continuing to evaluate its alternatives with respect to the future operations of
the ADR business and there can be no assurance that the Company will continue
its ADR operations.
For the three months ended March 31, 1996, the net cash used in the
Company's investing activities amounted to $27,681 for the acquisition of fixed
assets, primarily computer equipment to support the continued growth of Quest's
fastener distribution business. The Company does not have significant
commitments for capital expenditures as of March 31, 1996 and no significant
commitments are anticipated for 1996.
For the three months ended March 31, 1996, the net cash provided by the
Company's financing activities amounted to $177,500, which consists of advances
drawn on its revolving credit facility of $315,000 less $137,500 of principal
repaid on the term debt.
At March 31, 1996, $1,262,500 was borrowed and outstanding under the
revolving facility. The remaining amount of the $1,500,000 revolving facility,
or $237,500, was fully available at March 31, 1996 for future working capital
needs. Amounts outstanding under the revolving facility bear interest at a rate
equal to: (i) 1.5% above the lender's prime rate should Quest's tangible net
worth be less than or equal to $1,750,000; or (ii) 1.0% above the lender's prime
rate should Quest's tangible net worth be in excess of $1,750,000. As of March
27, 1996, the interest rate on the amount outstanding under the revolving
facility was 9.75%. In order to secure the obligations of Quest under the
revolving facility and the related term loan facility under the loan and
security agreement with the lender, the Company entered into a stock pledge
agreement with the lender whereby the Company pledged to the lender the shares
of capital stock of Quest which the Company held at the date of such agreement
and any shares of Quest in which the Company may thereafter acquire an interest.
In addition, Quest granted a security interest in substantially all of its
assets to the lender and a major shareholder of the Company guaranteed the
obligations of Quest under the loan agreement.
The Company intends to identify and evaluate potential merger and
acquisition candidates engaged in lines of business complementary to the
fasteners and electronic hardware distribution business of Quest. While certain
of such potential acquisition opportunities are at various stages of
consideration and evaluation, none is at any definitive stage at this time.
Management believes that its working capital, funds available under its credit
agreement, and funds generated from operations will be sufficient to meets its
obligations through 1996, exclusive of any cash requirements which may come
about as a result of other business acquisitions.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
QUESTRON TECHNOLOGY, INC.
(1) Principal Executive Officer:
Date: May 14, 1996 /s/ Dominic A. Polimeni
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Dominic A. Polimeni
Chief Executive Officer
(2) Principal Financial and Accounting
Officer:
Date: May 14, 1996 /s/ Milton M. Adler
------------- --------------------------
Milton M. Adler
Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE 3 MONTHS ENDED MARCH 31, 1996 AND THE
CONSOLIDATED BALANCE SHEET FOR THE YEAR ENDED MARCH 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 159,456
<SECURITIES> 0
<RECEIVABLES> 1,378,864
<ALLOWANCES> 60,389
<INVENTORY> 3,577,668
<CURRENT-ASSETS> 5,176,592
<PP&E> 424,972
<DEPRECIATION> 80,902
<TOTAL-ASSETS> 12,587,336
<CURRENT-LIABILITIES> 1,929,658
<BONDS> 0
1,547
0
<COMMON> 0
<OTHER-SE> 8,293,631
<TOTAL-LIABILITY-AND-EQUITY> 12,587,336
<SALES> 2,767,137
<TOTAL-REVENUES> 2,818,500
<CGS> 1,675,487
<TOTAL-COSTS> 2,536,841
<OTHER-EXPENSES> 64,272
<LOSS-PROVISION> 16,591
<INTEREST-EXPENSE> 79,160
<INCOME-PRETAX> 138,227
<INCOME-TAX> 20,593
<INCOME-CONTINUING> 117,274
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117,274
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
