FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
------------------- --------------------------
Commission file number 0-13324
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QUESTRON TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2257354
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
6400 Congress Avenue, Suite 200A, Boca Raton, FL 33487
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(561) 241 - 5251
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- -------
As of August 9, 1999, there were 6,635,847 shares of the issuer's
common stock, par value $.001 per share, outstanding.
<PAGE>
QUESTRON TECHNOLOGY, INC.
INDEX
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, which
involves certain risks and uncertainties. The Company's actual results in future
periods may be materially different from any future performance anticipated
herein. Each forward-looking statement that the Company believes is material is
accompanied by a cautionary statement or statements identifying important
factors that could cause actual results to differ materially from those
described in the forward-looking statement. In the context of forward-looking
information provided in this Quarterly Report on Form 10-Q and in other reports,
please refer to the discussion of risk factors detailed in, as well as the other
information contained in, the Company's filings with the Securities and Exchange
Commission during the past 12 months.
<TABLE>
<CAPTION>
Page No.
-----------------
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
At June 30, 1999 (unaudited) and December 31, 1998 3
Consolidated Statement of Income (unaudited) -
Three months and six months ended June 30, 1999 and 1998 4
Consolidated Statement of Cash Flows (unaudited) -
Six months ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-15
Item 3. Quantitative and Qualitative Disclosure About Market Risk 15
PART II. Other Information 16
Signature Page 17
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999 (unaudited) AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------------- ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 992,507 $ 229,285
Accounts receivable, less allowance for
doubtful accounts of $187,211 and $186,256 15,365,203 11,279,876
Other receivables 277,718 70,412
Inventories 31,916,361 20,972,593
Income taxes paid 254,656 --
Other current assets 665,245 345,814
--------------------- ------------
Total current assets 49,471,690 32,897,980
Property and equipment - net 2,541,965 2,042,786
Cost in excess of net assets of businesses acquired,
less accumulated amortization of $1,835,585 and $1,165,977, respectively 70,561,034 37,575,334
Deferred income taxes 2,841,852 2,848,497
Other assets 4,497,756 2,360,656
--------------------- ------------
Total assets $129,914,297 $77,725,253
===================== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,336,528 $ 5,328,023
Accrued expenses 2,701,578 1,415,626
Income taxes payable -- 1,715,501
Current portion of long-term debt 1,415,000 1,811,802
--------------------- ---------------
Total current liabilities 11,453,106 10,270,952
Deferred income taxes payable 821,616 364,639
Long-term debt 84,130,681 39,285,698
--------------------- ---------------
Total liabilities 96,405,403 49,921,289
--------------------- ---------------
Commitments and contingencies
Common stock subject to put option agreement 294,404 339,697
Shareholders' Equity:
Common stock, $.001 par value; authorized 20,000,000
shares; issued 6,647,696 shares in 1999 and 4,795,175 in 1998 6,648 4,795
Additional paid-in capital 45,498,554 39,615,998
Accumulated deficit (11,935,234) (11,801,048)
--------------------- ---------------
33,569,968 27,819,745
Less: Treasury stock, 11,849 shares, at cost (355,478) (355,478)
--------------------- ---------------
Total shareholders' equity 33,214,490 27,464,267
--------------------- ---------------
Total liabilities and shareholders' equity $ 129,914,297 $77,725,253
===================== ===============
</TABLE>
See notes to Consolidated Financial Statements.
3
<PAGE>
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS AND SIX MONTHS
ENDED JUNE 30, 1998 AND 1997 (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- -----------------------------------
1999 1998 1999 1998
------------ ---------------- ----------------- -----------
<S> <C> <C> <C> <C>
Sales $29,973,887 $10,670,970 $49,278,373 $21,071,936
Cost of goods sold 18,465,421 6,380,473 30,281,073 12,561,823
------------ ---------------- ----------------- -----------
Gross Profit 11,508,466 4,290,497 18,997,300 8,510,113
Selling, general & administrative expenses 7,575,498 2,573,014 12,252,134 5,063,581
Depreciation and amortization 563,468 169,559 932,416 333,159
------------ ---------------- ----------------- -----------
Total operating expenses 8,138,966 2,742,573 13,184,550 5,396,740
------------ ---------------- ----------------- -----------
Operating income 3,369,500 1,547,924 5,812,750 3,113,373
Interest expense 1,790,731 331,398 3,042,683 612,773
------------ ---------------- ----------------- -----------
Income before income taxes and extraordinary charge 1,578,769 1,216,526 2,770,067 2,500,600
Provision for income taxes 710,446 498,776 1,198,879 1,025,246
------------ ---------------- ----------------- -----------
Income before extraordinary charge 868,323 717,750 1,571,188 1,475,354
Extraordinary charge in connection with the early
extinguishment of debt (less applicable income
taxes of $1,187,604) 1,451,516 -- 1,451,516 --
------------ ---------------- ----------------- -----------
Net income (loss) $ (583,193) $ 717,750 $ 119,672 1,475,354
============ ================ ================= ===========
Net income (loss) $ (583,193) $ 717,750 $ 119,672 1,475,354
Deduct: Preferred Stock dividend -- 33,063 -- 66,126
Imputed non-cash Preferred Stock dividend -- 214,709 -- 412,478
------------ ---------------- ----------------- -----------
Net income (loss) used in per common share calculation $ (583,193) $ 469,978 $ 119,672 $ 996,750
============ ================ ================= ===========
Per common share:
Income per common share before extraordinary charge $ .15 $ .22 $ .29 $ .47
Extraordinary charge (.25) -- (.27) --
---------- ------------ ---------- -----------
Net income (loss) per common share $ (.10) $ .22 $ .02 $ .47
========== ============ ========== ===========
Per diluted common share:
Income per diluted common share before extraordinary charge $ .15 $ .15 $ .28 $ .31
Extraordinary charge (.25) -- (.26) --
---------- ------------ ---------- -----------
Net income (loss) per diluted common share $ (.10) $ .15 $ .02 $ .31
========== ============ ========== ===========
Average number of common shares outstanding 5,913,996 2,127,934 5,461,084 2,121,897
============ ================ ================= ===========
Average number of diluted common shares outstanding 5,980,365 4,911,357 5,530,352 4,816,487
============ ================ ================= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
June 30, June 30,
1999 1998
------------------------ ------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 119,672 $ 1,475,354
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 932,416 333,159
Provision for doubtful accounts -- 20,013
Extraordinary charge in connection with the early extinguish-
ment of debt (less applicable income taxes of $1,187,604) 1,451,516 --
Change in assets and liabilities:
Increase in accounts receivable (285,378) (1,268,049)
Increase in other receivables (207,306) (14,272)
Increase in inventories (3,771,660) (2,401,562)
(Decrease) increase in accounts payable (344,811) 1,448,528
Increase (decrease) in accrued expenses 658,817 (442,599)
(Decrease) increase in income taxes payable (2,112,068) 674,671
Increase in deferred income taxes 125,477 363,427
Increase in other assets (287,640) (458,813)
------------------------ ------------------------
Net cash used in operating activities (3,720,965) (270,143)
------------------------ ------------------------
Cash flows from investing activities:
Net cash consideration paid for acquired business (28,799,567) (605,966)
Acquisition of property and equipment (194,294) (448,849)
------------------------ ------------------------
Net cash used in investing activities (28,993,861) (1,054,815)
------------------------ ------------------------
Cash flows from financing activities:
Proceeds from borrowings under revolving facility 1,762,927 2,900,000
Proceeds from long-term debt financing 72,500,000 --
Repayment of long-term debt (35,000,000) (833,334)
Repayment of revolving facilities -- (1,325,000)
Fees and expenses associated with long-term debt financing (4,112,982) --
Extraordinary charge in connection with the early extinguish-
ment of debt (less applicable income taxes of $1,187,604) (1,451,516) --
Proceeds from capital lease for computer system -- 371,228
Payments on capital leases (79,772) (55,090)
Payments in respect of exercise of put options (45,293) --
Payments on notes issued for acquired businesses (95,316) (64,718)
------------------------ ------------------------
Net cash provided by financing activities 33,478,048 993,086
------------------------ ------------------------
Increase (decrease) in cash and cash equivalents 763,222 (331,872)
Cash and cash equivalents at beginning of period 229,285 875,080
------------------------ ------------------------
Cash and cash equivalents at end of period $ 992,507 $ 543,208
======================== ========================
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Note 1. Basis of presentation.
The accompanying unaudited consolidated financial statements include
the accounts of Questron Technology, Inc., a Delaware corporation (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 Securities and Exchange
Commission's instructions for Form 10-Q. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
Management believes that all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the six month period ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. The consolidated balance sheet at December 31, 1998 has been
derived from 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, 1998.
6
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Note 2. Earnings per share.
The following table sets forth the calculation of net income per
common share and net income per diluted common share:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
-------------------------------------- ------------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary charge $ 868,323 $ 717,750 $ 1,571,188 $ 1,475,354
Less: Preferred stock dividends -- 247,772 -- 478,604
----------------- -------------- ---------------- ----------------
Numerator for income per common
share before extraordinary charge 868,323 469,978 1,571,188 996,750
Effect of dilutive securities:
Preferred stock dividends -- 247,772 -- 478,604
----------------- -------------- ---------------- ----------------
Numerator for income per diluted
common share before extraordinary
charge 868,323 717,750 1,571,188 1,475,354
================= ============== ================ ================
Numerator for income per common
share before extraordinary charge 868,323 469,978 1,571,188 996,750
Extraordinary charge (1,451,516) -- (1,451,516) --
----------------- -------------- ---------------- ----------------
Numerator for net income per common
share (583,193) 469,978 119,672 996,750
Effect of dilutive securities:
Preferred stock dividends -- 247,772 -- 478,604
----------------- -------------- ---------------- ----------------
Numerator for net income per diluted
common share (583,193) 717,750 119,672 1,475,354
================= ============== ================ ================
Denominator:
Denominator for income per common
share before extraordinary charge
and for net income per common share 5,913,996 2,127,934 5,461,084 2,121,897
Effect of dilutive securities:
Options 1,803 129,144 4,525 120,779
Warrants 543 1,001,154 720 920,686
Contingent shares - deferred
purchase price 64,023 -- 64,023 --
Convertible preferred stock -- 1,653,125 -- 1,653,125
----------------- -------------- ---------------- ----------------
Denominator for income per diluted
common share before extraordinary
charge and for net income per diluted
common share 5,980,365 4,911,357 5,530,352 4,816,487
================= ============== ================ ================
Per common share:
Income per common share before
extraordinary charge $ .15 $ .22 $ .29 $ .47
Extraordinary charge (.25) -- (.27) --
------------ ----------- ------------ ------------
Net income (loss) per common share $ (.10) $ .22 $ .02 $ .47
============ =========== ============ ============
Per diluted common share:
Income per diluted common share
before extraordinary charge $ .15 $ .15 $ .28 $ .31
Extraordinary charge (.25) -- (.26) --
------------ ----------- ------------ ------------
Net income (loss) per diluted common
share $ (.10) $ .15 $ .02 $ .31
============ =========== ============ ============
</TABLE>
7
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Note 3. Acquisition of Action Threaded Products, Inc.
Effective April 1, 1999, the Company acquired 100% of the issued and
outstanding capital stock of Action Threaded Products, Inc., an Illinois
corporation ("Action"), a privately owned company.
The purchase price for Action consisted of:
(i) $8,437,280 in cash;
(ii) the assumption of $2,062,720 in debt net of cash on hand;
(iii) 470,588 shares of the Company's common stock valued at $1,800,000;
(iv) a note payable to the sellers of Action in the amount of $1,500,000;
and
(v) up to $1,800,000 if Action attains certain earnings targets for the
twelve months ending March 31, 2000.
The Company has accounted for such acquisition using the purchase
method of accounting. In connection with this acquisition, the Company recorded
$10,012,494 of cost in excess of net assets of the business acquired.
Note 4. Acquisition of Capital Fasteners, Inc.
Effective April 1, 1999, the Company acquired of 100% of the issued
and outstanding capital stock of Capital Fasteners, Inc., a North Carolina
corporation ("Capital"), a privately owned company.
The purchase price for Capital consisted of:
(i) $7,037,197 in cash;
(ii) the assumption of $1,220,078 in debt net of cash on hand;
(iii) 169,935 shares of the Company's common stock valued at $650,000;
(iv) a note payable to the sellers of Capital in the amount of $2,000,000;
and
(v) up to $1,500,000 if Capital attains certain earnings targets for the
twelve months ending March 31, 2000.
The Company has accounted for such acquisition using the purchase
method of accounting. In connection with this acquisition, the Company recorded
$9,415,759 of cost in excess of net assets of the business acquired.
8
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Note 5. Acquisition of Olympic Fasteners.
Effective April 1, 1999, the Company acquired the business and
operating assets of Metro Form Corporation, an Ohio corporation d/b/a Olympic
Fasteners ("Olympic").
The purchase price for Olympic consisted of:
(i) $5,550,113 in cash;
(ii) the assumption of $960,481 in debt net of cash on hand;
(iii) 261,438 shares of the Company's common stock valued at $1,000,000;
(iv) a note payable to the sellers of Olympic in the amount of $1,500,000;
and
(v) up to $1,000,000 if Olympic attains certain earnings targets for the
twelve months ending March 31, 2000.
The Company has accounted for such acquisition using the purchase
method of accounting. In connection with this acquisition, the Company recorded
$7,941,709 of cost in excess of net assets of the business acquired.
Note 6. Acquisitions - Pro forma financial information.
The following unaudited pro forma information for the three and six
month periods ended June 30, 1999 and 1998 presents the combined operating
results of: the Company; Fas-Tronics, Inc., a Texas corporation ("Fas-Tronics"),
Fortune Industries, Inc., a Texas corporation ("Fortune"), and the operations of
AFCOM, Inc., a Florida corporation ("AFCOM"), which were acquired in the second
half of 1998; and Action, Capital and Olympic, as though each of the
acquisitions had been made on January 1, 1998. The unaudited pro forma combined
summary of operations includes the additional interest expense on debt incurred
in connection with the acquisitions as if the debt had been outstanding since
January 1, 1998. The pro forma net income per common share and diluted common
share assume that all shares of common stock of the Company outstanding as of
June 30, 1999 were outstanding as of January 1, 1998. This pro forma information
does not purport to be indicative of what would have occurred had the
acquisitions been completed as of January 1, 1998 or results which may occur in
the future:
9
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------------------- --------------------------------------------
1999 1998 1999 1998
-------------- ---------------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
Sales $ 29,973,887 $ 27,233,823 $ 58,537,627 $ 54,259,328
---------------- -------------------- -------------------- ---------------------
Operating income 3,369,500 3,508,915 6,877,416 7,371,178
---------------- -------------------- -------------------- ---------------------
Net income $ 868,323 $ 603,601 $ 1,471,375 $ 1,401,544
================ ==================== ==================== =====================
Net income $ 868,323 $ 603,601 $ 1,471,375 $ 1,401,544
Less:
Preferred stock dividends -- 33,063 -- 66,126
Imputed non-cash dividend -- 214,709 -- 412,478
---------------- -------------------- -------------------- ---------------------
Net income used in per
common share calculation $ 868,323 $ 355,829 $ 1,471,375 $ 922,940
================ ==================== ==================== =====================
Pro forma net income per common share $ .13 $ .09 $ .22 $ .24
========== ========= ========= =========
Pro forma net income per diluted common
share $ .13 $ .09 $ .22 $ .21
========== ========= ========= =========
Average number of common shares
outstanding 6,586,524 3,923,914 6,588,318 3,917,877
================ ==================== ==================== =====================
Average number of diluted
common shares outstanding 6,652,892 6,707,337 6,657,069 6,612,467
================ ==================== ==================== =====================
</TABLE>
10
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Note 7. Revolving Credit Facility and Long-Term Debt.
In connection with the acquisitions of Action, Capital and Olympic,
the Company entered into a $75,000,000 senior secured credit facility with
Ableco Finance L.L.C. and Congress Financial Corporation (Florida). Also in
connection with the above acquisitions, the Company completed a $20,000,000
senior subordinated debt private placement. The senior subordinated notes were
placed with affiliates of Albion Alliance LLC and Alliance Capital Management
LP, The Equitable Life Assurance Society of the United States and IBJ Whitehall
Financial Group.
The senior secured credit facility consists of a four and one-quarter
year term loan for $52,500,000 and a $22,500,000 revolving credit facility. The
term loan is divided into two notes: Note A for $25,000,000 and Note B for
$27,500,000. The loan agreement includes a provision for the calculation of a
borrowing base, which determines the amount of borrowings available under the
revolving facility. At June 30, 1999, $7,078,146 was borrowed and outstanding
under the revolving facility. Of the remaining amount of the $22,500,000
revolving facility, $15,421,854 was available at June 30, 1999 for future
working capital needs. Interest on the revolving facility is due monthly at the
prime rate plus 1.5%, with a minimum rate of interest of 9.25% per annum. The
Company can elect a LIBOR Rate Election for amounts borrowed and outstanding
under the revolving facility. During all times that a LIBOR Rate Election is in
effect, the interest due on the principal amount of the LIBOR revolving credit
portion outstanding is at an interest rate of LIBOR plus 2.75%. Interest on term
loan Note A is due monthly at the prime rate plus 1.5% with a minimum rate of
interest of 9.5% per annum. Interest on term loan Note B is due monthly at the
prime rate plus 3% with a minimum rate of interest of 11% per annum.
Interest on the $20,000,000 senior subordinated debt is due quarterly
in arrears at a fixed rate of 12.5% payable in cash and 2.00% payable in kind.
Principal on the senior subordinated debt is payable in full at the end of six
years. In connection with the financing, the Company issued 680,000 shares of
the Company's common stock to the senior subordinated lenders.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
- ---------------------
For the three month and six month periods ended June 30, 1999.
- --------------------------------------------------------------
The results of operations through June 30, 1999 include the operating
results of the Company's inventory logistics management business, Questron
Distribution Logistics, Inc., a Delaware corporation ("QDL"), its master
distribution of fasteners business, Integrated Material Systems, Inc., an
Arizona corporation ("IMS") and its lithium battery and battery pack
distribution business, Power Components, Inc., a Pennsylvania corporation
("PCI"). QDL, formerly Quest Electronic Hardware, Inc., also includes the
operating results of Fortune, Fas-Tronics, AFCOM, Action, Capital and Olympic
since their dates of acquisition.
The Company's revenues for the three month and six month periods
ended June 30, 1999 amounted to $29,973,887 and $49,278,373, respectively,
compared with $10,670,970 and $21,071,936 for the comparable prior year periods.
The significant growth in the Company's revenues for the periods is primarily
attributable to the acquisitions of Fortune, Fas-Tronics, AFCOM, Action, Capital
and Olympic, as well as the internal growth of the other QDL branches and the
opening of a new QDL branch in Grand Rapids, MI during the second quarter of
1998. The revenues associated with the above acquired businesses for the three
and six month periods ended June 30, 1999 amounted to $16,034,255 and
$22,913,343, respectively.
The Company's operating income was $3,369,500 and $5,812,750,
respectively, for the three month and six month periods ended June 30, 1999,
compared with operating income of $1,547,924 and $3,113,373 for the comparable
prior year periods. The increase in operating income for the three month and six
month periods ended June 30, 1999, compared with the comparable prior year
periods, is primarily due to the increased operating income attributable to the
acquired businesses, as well as continued internal growth. Operating income as a
percentage of sales for the three and six month periods ended June 30, 1999
amounted to 11.2% and 11.8%, respectively, compared with 14.5% and 14.8% for the
three month and six month periods ended June 30, 1998, respectively. This
decline is primarily due to the higher level of selling, general and
administrative expenses associated with expansion to support growth in Anaheim,
CA, Grand Rapids, MI, San Diego, CA and San Jose, CA and the opening of new
branches in Tucson, AZ, and Nogales, Mexico, as well as the increased
amortization of goodwill related to the acquisitions. In addition, the operating
expenses of the acquired businesses include redundant costs which will be
eliminated by the integration of these businesses.
Interest expense, which reflects the cost of borrowings associated
with the acquisitions of Fortune, Fas-Tronics, AFCOM, Action, Capital and
Olympic, as well as borrowings associated with QDL's working capital needs, for
the three month and six month periods ended June 30, 1999 amounted to $1,790,731
and $3,042,683, respectively. For the comparable periods of the prior year, the
Company's results include interest expense of $331,398 and $612,773,
respectively. The increase in interest expense principally reflects the costs of
increased borrowings to complete the acquisitions of
12
<PAGE>
Fortune, FasTronics, AFCOM, Action, Capital and Olympic and to support the
working capital needs of QDL.
The provision for income taxes for the three month and six month
periods ended June 30, 1999 and 1998, respectively, reflects a federal income
tax provision at an effective rate of 39.6% and 37.6%, respectively, and a state
income tax provision at an effective rate of 5.4% and 5.7%, respectively, for
the states in which the Company does business.
During the quarter, the Company refinanced its existing debt and, as
a result, incurred an extraordinary charge to earnings in the quarter for the
unamortized balance of loan costs related to the previous financing. Income for
the three month and six month periods ended June 30, 1999, before the
extraordinary charge in connection with the early extinguishments of debt,
amounted to $868,323 and $1,571,188, respectively, compared with net income of
$717,750 and $1,475,354 for the comparable prior year periods. After the
extraordinary charge, the Company incurred a net loss for the three months ended
June 30, 1999 of $583,193 and net income of $119,672 for the six months ended
June 30, 1999. The improvement of income before the extraordinary charge in the
current year periods as compared with the net income in the comparable prior
year periods reflects the increased operating income attributable to the
acquired businesses, as well as continued internal growth, partially reduced by
increased selling, general and administrative expenses, interest expense, income
taxes and redundant expenses associated with the acquired businesses.
Liquidity and Capital Resources
- -------------------------------
As of June 30, 1999, the Company had $2,496,572 in cash and
short-term investments, compared to $992,507 as of December 31, 1998. As of June
30, 1999, the Company had working capital of $38,018,584, compared with working
capital of $22,627,028 as of December 31, 1998.
For the six months ended June 30, 1999, the net cash used by the
Company's operating activities amounted to $3,720,965, principally reflecting
the increase in inventories and receivables and decreases in accounts payable
and income taxes payable, as well as the increases in other assets and other
receivables, offset in part by the profits of the Company and an increase in
accrued expenses.
For the six months ended June 30, 1999, the net cash used in the
Company's investing activities amounted to $28,993,861, including $25,773,031
net cash consideration paid in connection with the acquisitions of Action,
Capital and Olympic and $3,026,536 net cash consideration paid in connection
with the deferred purchase prices of Calfast, Fortune and Fas-Tronics. The
Company also had capital expenditures of $194,294 for the acquisition of fixed
assets. The Company does not have significant commitments for capital
expenditures as of June 30, 1999 and no significant commitments are anticipated
for the remainder of 1999, other than the expansion of the Company's computer
system to complete the integration of Fortune, Fas-Tronics, Action, Capital and
Olympic.
13
<PAGE>
For the six months ended June 30, 1999, the net cash provided by the
Company's financing activities amounted to $33,478,048, which consists of
$72,500,000 of borrowings associated with the acquisitions of Action, Capital
and Olympic and the refinancing of existing bank debt, $1,762,927 of bank
borrowings under the Company's revolving credit facility, reduced by long-term
debt principal payments of $35,000,000, fees and expenses associated with the
subordinated debt financing and the new senior secured financing of $4,112,982,
$1,451,516 written off as an extraordinary charge in connection with the early
extinguishments of debt (less applicable income taxes of $1,187,604), principal
payments of $79,772 on various capital leases, principal payments of $95,316 on
notes issued for acquired businesses and payments of $45,293 in respect of the
exercise of put options.
In connection with the acquisitions of Action, Capital and Olympic,
the Company entered into a $75,000,000 senior secured credit facility with
Ableco Finance L.L.C. and Congress Financial Corporation (Florida). Also in
connection with the above acquisitions, the Company completed a $20,000,000
senior subordinated debt private placement. The senior subordinated notes were
placed with affiliates of Albion Alliance LLC and Alliance Capital Management
LP, The Equitable Life Assurance Society of the United States and IBJ Whitehall
Financial Group.
The senior secured credit facility consists of a four and one-quarter
year term loan for $52,500,000 and a $22,500,000 revolving credit facility. The
term loan is divided into two notes: Note A for $25,000,000 and Note B for
$27,500,000. The loan agreement includes a provision for the calculation of a
borrowing base, which determines the amount of borrowings available under the
revolving facility. At June 30, 1999, $7,078,146 was borrowed and outstanding
under the revolving facility. Of the remaining amount of the $22,500,000
revolving facility, $15,421,854 was available at June 30, 1999 for future
working capital needs. Interest on the revolving facility is due monthly at the
prime rate plus 1.5%, with a minimum rate of interest of 9.25% per annum. The
Company can elect a LIBOR Rate Election for amounts borrowed and outstanding
under the revolving facility. During all times that a LIBOR Rate Election is in
effect, the interest due on the principal amount of the LIBOR revolving credit
portion outstanding is at an interest rate of LIBOR plus 2.75%. Interest on term
loan Note A is due monthly at the prime rate plus 1.5% with a minimum rate of
interest of 9.5% per annum. Interest on term loan Note B is due monthly at the
prime rate plus 3% with a minimum rate of interest of 11% per annum.
Interest on the $20,000,000 senior subordinated debt is due quarterly
in arrears at a fixed rate of 12.5% payable in cash and 2.00% payable in kind.
Principal on the senior subordinated debt is payable in full at the end of six
years. In connection with the financing, the Company issued 680,000 shares of
the Company's common stock to the senior subordinated lenders.
In order to secure the obligations of the Company and its
subsidiaries 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 each of its subsidiaries at the date of
such agreement and any shares of its subsidiaries in which the Company may
14
<PAGE>
thereafter acquire an interest. In addition, the Company and its subsidiaries
granted a security interest in substantially all of their assets to the lender.
Year 2000 Compliance
- --------------------
The Year 2000 presents potential concerns for business and consumer
computing. The consequences of this issue may include systems failures and
business process interruption. It may also include additional business and
competitive differentiation. Aside from the well-known calculation problems with
the use of 2-digit date formats as the year changes from 1999 to 2000, the Year
2000 is a special case leap year and in many organizations using older
technology, dates were used for special programmatic functions.
The Year 2000 issue may affect the Company's internal systems,
including information technology ("IT") and non-IT systems. While the Company's
IT system is prepared to handle all dating implications associated with the new
millennium, the Company's management is presently engaged in an ongoing
assessment of the readiness of all its systems for handling the Year 2000.
Although the assessment is still underway, management currently believes that it
will be successful in identifying and resolving any potential deficiencies in
its non-IT systems with respect to the Year 2000 issue by September 1999 and
that all such material systems will be compliant by the Year 2000 and that the
cost to address the issues is not material.
All organizations dealing with the Year 2000 issue must address the
effect this issue will have on their third-party supply chain. The Company is in
the process of identifying whether its customers and vendors have sufficiently
identified and are taking steps to address the Year 2000 issue. Management has
completed a survey and plan for working with key third-parties to understand
their ability to continue providing services and products through the change to
2000 and is in the process of receiving and evaluating responses to these
surveys. The Company will continue to work directly with its key vendors,
distributors, and resellers, and coordinate its action with respect to the Year
2000 issue with them, if necessary, to avoid any business interruptions in 2000.
For these key third-parties, contingency plans may be required.
Although the impact of the Year 2000 issue is difficult to discern,
the Company's management does not believe that the Year 2000 issue will cause a
material disruption in the Company's operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's interest expense is sensitive to changes in the general
level of U.S. interest rates. In this regard, changes in the U.S. rates may
effect the interest paid on a portion of its debt. The Company does not enter
into derivative financial instruments.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes In Securities and Use of Proceeds.
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.
a) Exhibits:
The exhibits listed on the Exhibit Index immediately
following the signature page are filed as part of this
Quarterly Report on Form 10-Q.
b) Reports on Form 8-K:
A Current Report on Form 8-K, dated June 30, 1999, was
filed July 15, 1999 in connection with the acquisitions of
Action, Capital and Olympic, and was amended on August 13,
1999.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
QUESTRON TECHNOLOGY, INC.
(1) Principal Executive Officer:
Date: August 16, 1999 By: /s/ Dominic A. Polimeni
-----------------------
Name: Dominic A. Polimeni
Title: Chief Executive Officer
(2) Principal Financial and Accounting Officer:
Date: August 16, 1999 By: /s/ Robert V. Gubitosi
----------------------
Name: Robert V. Gubitosi
Title: President and Chief Financial Officer
17
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report
on Form 10-Q:
Exhibit No. Description
2.1 Asset Purchase Agreement, dated as of January 29, 1999, by
and between the Company, Questron Distribution Logistics,
Inc. and AFCOM, Inc., and each of the persons listed on
Schedule 1.1 thereto and signatory thereto, incorporated by
reference to Exhibit 10.19 to the Company's Quarterly
Report on Form 10-Q for the three month period ended March
31, 1999 (File No. 0-13324).
2.2 Asset Purchase Agreement, dated as of March 11, 1999, by
and between Questron Technology, Inc., Questron
Distribution Logistics, Inc., and Metro Form Corporation,
d.b.a. Olympic Fasteners & Electronic Hardware, and each of
the persons listed on Schedule 1.1 thereto and signatory
thereto (the "Olympic Purchase Agreement"), incorporated by
reference to Exhibit 10.20 to the Company's Quarterly
Report on Form 10-Q for the three month period ended March
31, 1999 (File No. 0-13324).
2.3 Amendment to the Olympic Purchase Agreement, dated June 28,
1999, incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K, dated June 30, 1999
(File No. 0-13324).
2.4 Stock Purchase Agreement, dated as of April 26, 1999,
between Questron Distribution Logistics, Inc., Questron
Technology, Inc., James R. Gilchrist and Capital Fasteners,
Inc. (the "Capital Purchase Agreement"), incorporated by
reference to Exhibit 2.3 to the Company's Current Report on
Form 8-K, dated June 30, 1999 (File No. 0-13324).
2.5 Amendment to the Capital Purchase Agreement, dated June 25,
1999, incorporated by reference to Exhibit 2.4 to the
Company's Current Report on Form 8-K, dated June 30, 1999
(File No. 0-13324).
2.6 Letter Agreement, dated as of June 29, 1999, amending the
Capital Purchase Agreement, incorporated by reference to
Exhibit 2.5 to the Company's Current Report on Form 8-K,
dated June 30, 1999 (File No. 0-13324).
2.7 Stock Purchase Agreement, dated as of May 7, 1999, by and
between Questron Technology, Inc, Questron Distribution
Logistics, a Delaware corporation, Action Threaded
Products, Inc. and the persons signatory thereto (the
"Action Purchase Agreement"), incorporated by reference to
Exhibit 2.6 to the Company's Current Report on Form 8-K,
dated June 30, 1999 (File No. 0-13324).
2.8 Letter Agreement, dated as of June 29, 1999, amending the
Action Purchase Agreement, incorporated by reference to
Exhibit 2.7 to the Company's Current Report on Form 8-K,
dated June 30, 1999 (File No. 0-13324).
<PAGE>
3.0 Certificate of Incorporation, incorporated by reference to
Exhibit 3(i) to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1987 (File No.
0-13324).
3.1 Certificate of Amendment, dated March 20, 1985, to
Certificate of Incorporation of the Company, incorporated
by reference to Exhibit 4.1 to Amendment No. 1 of the
Company's Registration Statement on Form S-3 dated March 9,
1995 (File No. 33-44331).
3.3 Certificate of Amendment, dated June 9, 1989, to
Certificate of Incorporation of the Company, incorporated
by reference to Exhibit 4.1 to Amendment No. 1 of the
Company's Registration Statement on Form S-3 filed dated
March 9, 1995 (File No. 33-44331).
3.4 Certificate of Correction, dated May 17, 1991, to
Certificate of Incorporation of the Company, incorporated
by reference to Exhibit 4.1 to Amendment No. 1 of the
Company's Registration Statement on Form S-3 dated March 9,
1995 (File No. 33-44331).
3.5 Certificate of Amendment, dated December 20, 1993, to
Certificate of Incorporation of the Company, incorporated
by reference to Exhibit 3(i) to the Company's Annual Report
on Form 10-KSB filed for the fiscal year ended December 31,
1993 (File No. 0-13324).
3.6 Certificate of Correction, dated July 19, 1994, to
Certificate of Incorporation of the Company, incorporated
by reference to Exhibit 4.1 to Amendment No. 1 to the
Company's Registration Statement on Form S-3 dated March 9,
1995 (File No. 33-44331).
3.7 Certificate of Amendment, dated April 2, 1996, to
Certificate of Incorporation of the Company, incorporated
by reference to Exhibit 3.5 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1995
(File No. 0-13324).
3.8 Certificate of Amendment, filed December 31, 1996, to
Certificate of Incorporation of the Company, incorporated
by reference to Exhibit 3.10 to Amendment No. 1 to the
Company's Registration Statement on Form SB-2 dated
February 25, 1997 (File No. 333-18243).
3.9 By-Laws of the Company, incorporated by reference to
Exhibit 3b(ii) to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1987 (File
No. 0-13324).
3.10 Amendment to By-Laws of the Company, incorporated by
reference to Exhibit 3.4 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1992
(File No. 0-13324).
<PAGE>
4.0 Specimen Common Stock Certificate, incorporated by
reference to Exhibit 4.0 to Amendment No. 1 to the
Company's Registration Statement on Form SB-2 dated
February 25, 1997 (File No. 333-18243).
4.1 Specimen Preferred Stock Certificate, incorporated by
reference to Exhibit 4.1 to Amendment No. 1 to the
Company's Registration Statement on Form SB-2 dated
February 25,1997 (File No. 333-18243).
4.2 Certificate of Designations, Preferences and Rights of the
Company's Series B Convertible Preferred Stock,
incorporated by reference to Exhibit 4.2 to Amendment No. 1
to the Company's Registration Statement on Form SB-2 dated
February 25, 1997 (File No. 333-18243).
4.3 Form of Series IV Warrant Agreement, incorporated by
reference to Exhibit 4.3 to Amendment No. 1 to the
Company's Registration Statement on Form SB-2 dated
February 25, 1997 (File No. 333-18243).
4.4 Form of Series III Warrant Agreement, dated as of November
7, 1994, incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1994 (File No. 0-13324).
4.5 Form of Underwriters' Purchase Option, incorporated by
reference to Exhibit 4.5 to Amendment No. 1 to the
Company's Registration Statement on Form SB-2 dated on
February 25, 1997 (File No. 333-18243).
4.6 Stock Purchase Warrant Certificate for Purchase of Common
Stock of the Company, incorporated by reference to Exhibit
4.6 to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 dated February 25, 1997 (File No.
333-18243).
4.7 Amended Certificate of Designation Establishing a Series of
Preferred Stock of the Company, incorporated by reference
to Exhibit 4.7 to the Company's Quarterly Report on Form
10-QSB for the three month period ended June 30, 1998 (File
No. 0-13324).
4.8 Registration Rights Agreement, dated as of September 24,
1998, by and between the Company and the persons listed on
Schedule A thereto, incorporated by reference to the
Company's Current Report on Form 8-K, dated October 8, 1998
(File No. 0-13324).
4.9 Certificate of Designation of Series A Junior Participating
Preferred Stock of Questron Technology, Inc., incorporated
by reference to Exhibit 4.9 to the Company's Quarterly
Report on Form 10-QSB for the three month period ended
September 30, 1998 (File No. 0-13324)
4.10 Form of 14.50% Senior Subordinated Note due June 30, 2005
(included as Attachment A to Exhibit 10.22 below),
incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K dated June 30, 1999 (File No.
0-13324).
4.2 Form of Senior A Note (included as Exhibit 2.5(c) to
Exhibit 2.3 above and Exhibit A to Exhibits 2.6 and 2.8
above, each as incorporated by reference herein).
<PAGE>
4.3 Form of Senior B Note (included as Exhibit 2.5(d) to
Exhibit 2.3 above and Exhibit B to Exhibits 2.6 and 2.8
above, each as incorporated by reference herein).
10.1 1996 Stock Option Plan, incorporated by reference to
Exhibit 10.19 to Amendment No. 1 to the Company's
Registration Statement on Form SB-2 dated February 25, 1997
(File No. 333-18243).
10.2 Exchange Agreement, dated November 8, 1996 by and among the
Company, Gulfstream Financial Group, Inc. and Phillip D.
Schwiebert, incorporated by reference to Exhibit 10.21 to
Amendment No. 1 to the Company's Registration Statement on
Form SB-2 dated February 25, 1997 (File No. 333-18243).
10.3 Stock Purchase Agreement dated as of December 16, 1996
relating to Webb Distribution, Inc., incorporated by
reference to Exhibit 2.0 to Amendment No. 1 to the
Company's Registration Statement on Form SB-2 dated
February 25, 1997 (File No. 333-18243).
10.4 Form of Underwriting Agreement, incorporated by reference
to Exhibit 2.0 to Amendment No. 1 to the Company's
Registration Statement on Form SB-2 dated February 25, 1997
(File No. 333-18243).
10.5 Stock Option Grant Agreement between the Company and
Gulfstream Financial Group, Inc. made as of November 8,
1996, incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996 (File No. 0-13324).
10.6 Stock Option Grant Agreement between the Company and
Phillip D. Schwiebert made as of November 8, 1996,
incorporated by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996 (File No. 0-13324).
10.7 Amendment No. 4, dated as of April 9, 1997, to the Loan and
Security Agreement, dated as of March 31, 1995, between
Silicon Valley Bank and Quest Electronics Hardware, Inc.,
incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-QSB for the three month period
ended March 31, 1997 (File No. 0-13324).
10.8 Stock Purchase Agreement dated as of August 29, 1997
relating to the acquisition of all of the outstanding stock
of California Fasteners, Inc., incorporated by reference to
the Company's Current Report on Form 8-K, filed October 7,
1997 (File No. 0-13324).
10.9 Asset Purchase Agreement dated September 4, 1997 relating
to the acquisition of substantially all of the assets of
Power Components, Inc. with the related Stock Purchase
Agreement dated September 4, 1997 relating to the
acquisition of all of the stock of AR Acquisition Company,
incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-QSB for the three month period
ended September 30, 1997 (File No. 0-13324).
<PAGE>
10.10 Stock Purchase Agreement, dated as of June 12, 1998, by and
between the Company, Gregory Fitzgerald, Valerie Fitzgerald
and Fas-Tronics, Inc. (the "Fas-Tronics Stock Purchase
Agreement"), incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-QSB for the three
month period ended June 30, 1998 (File No. 0-13324).
10.11 Stock Purchase Agreement, dated as of June 12, 1998, by and
between the Company, Fortune Industries, Inc. and the
Stockholders listed on Schedule 1.1 thereto (the "Fortune
Stock Purchase Agreement"), incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form
10-QSB for the three month period ended June 30, 1998 (File
No. 0-13324).
10.12 Letter Agreement, dated July 29, 1998, by and between the
Company, Gregory Fitzgerald, Valerie Fitzgerald and
Fas-Tronics, Inc., incorporated by reference to Exhibit
10.4 to the Company's Quarterly Report on Form 10-QSB for
the three month period ended June 30, 1998 (File No.
0-13324).
10.13 Letter Agreement, dated July 29, 1998, by and between the
Company, Fortune Industries, Inc. and the Stockholders
listed on Schedule 1.1 to the Fortune Stock Purchase
Agreement, incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-QSB for the three
month period ended June 30, 1998 (File No. 0-13324).
10.14 Second Amendment to the Fas-Tronics Stock Purchase
Agreement, incorporated by reference to the Company's
Current Report on Form 8-K, filed October 8, 1998 (File No.
0-13324).
10.15 Second Amendment to the Fortune Stock Purchase Agreement,
incorporated by reference to the Company's Current Report
on Form 8-K, October 8, 1998 (File No. 0-13324).
10.16 Rights Agreement, dated as of October 23, 1998, between the
Company and American Stock Transfer & Trust Company, as
Rights Agent, incorporated by reference to the Company's
Registration Statement on Form 8-A, filed November 6, 1998
(File No. 0-13324).
10.17 Loan and Security Agreement dated as of September 24, 1998,
by and among the Company, Questron Distribution Logistics,
Inc., Integrated Material Systems, Inc., Power Components,
Inc., California Fasteners, Inc., Comp Ware, Inc.,
Fas-Tronics, Inc., Fortune Industries, Inc., each of the
signatories which is a signatory thereto, Congress
Financial Corporation (Florida), as administrative agent
and Madeleine L.L.C., as collateral agent, incorporated by
reference to Exhibit 10.17 to the Company's Quarterly
Report on Form 10-QSB for the three month period ended
September 30, 1998 (File No. 0-13324).
10.18 Amendment Number One to the Loan and Security Agreement,
dated as of November 2, 1998, by and among the Company,
Questron Distribution Logistics, Inc., Integrated Material
Systems, Inc., Power Components, Inc., California
Fasteners, Inc., Comp Ware, Inc., Fas-Tronics, Inc.,
Fortune Industries, Inc., each of the Lenders, Congress
Financial Corporation (Florida), as Administrative Agent
and Madeleine L.L.C., as
<PAGE>
Collateral Agent, incorporated by reference to Exhibit
10.18 to the Company's Quarterly Report on Form 10-QSB for
the three month period ended September 30, 1998 (File No.
0-13324).
10.21 Securities Purchase Agreement (identical agreement executed
separately with each of four purchasers), dated as of June
29, 1999, by and between Questron Technology, Inc.,
Questron Operating Company, Inc., and, separately, each of
Albion Alliance Mezzanine Fund, L.P., Alliance Investment
Opportunities Fund, L.L.C., The Equitable Life Assurance
Society of the United States and IBJ Whitehall Bank & Trust
Company, incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K, dated June 30, 1999
(File No. 0-13324).
10.22 Note Agreement, dated as of June 29, 1999, among Questron
Operating Company, Inc. and Albion Alliance Mezzanine Fund,
L.P., Alliance Investment Opportunities Fund, L.L.C., The
Equitable Life Assurance Society of the United States and
IBJ Whitehall Bank & Trust Company, incorporated by
reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K, dated June 30, 1999 (File No. 0-13324).
10.23 Investors Rights Agreement, dated as of June 29, 1999,
among Questron Technology, Inc. and Albion Alliance
Mezzanine Fund, L.P., Alliance Investment Opportunities
Fund, L.L.C., The Equitable Life Assurance Society of the
United States and IBJ Whitehall Bank & Trust Company,
incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K, dated June 30, 1999 (File No.
0-13324).
10.24 Unconditional Guaranty, dated as of June 30, 1999, by
Questron Technology, Inc., Questron Finance Corp., Questron
Distribution Logistics, Inc., Integrated Material Systems,
Inc., Power Components, Inc., Fortune Industries, Inc.,
Fas-Tronics, Inc., California Fasteners, Inc., Comp Ware,
Inc., Action Threaded Products, Inc., Action Threaded
Products of Georgia, Inc., Action Threaded Products of
Minnesota, Inc. and Capital Fasteners, Inc., in favor of
each of Albion Alliance Mezzanine Fund, L.P., Alliance
Investment Opportunities Fund, L.L.C., The Equitable Life
Assurance Society of the United States and IBJ Whitehall
Bank & Trust Company, incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K, dated
June 30, 1999 (File No. 0-13324).
10.25 Amended and Restated Loan and Security Agreement, dated as
of June 29, 1999, by and between Questron Technology, Inc.
and its subsidiaries and Congress Financial Corporation
(Florida) and Ableco Finance LLC, incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form
8-K, dated June 30, 1999 (File No. 0-13324).
27.1 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND
THE CONSOLIDATED BALANCE SHEET FOR THE QUARTER ENDED JUNE, 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 992,507
<SECURITIES> 0
<RECEIVABLES> 15,365,203
<ALLOWANCES> 187,211
<INVENTORY> 31,916,361
<CURRENT-ASSETS> 49,471,690
<PP&E> 2,541,965
<DEPRECIATION> 1,096,895
<TOTAL-ASSETS> 129,914,297
<CURRENT-LIABILITIES> 11,453,106
<BONDS> 0
0
0
<COMMON> 6,648
<OTHER-SE> 33,207,841
<TOTAL-LIABILITY-AND-EQUITY> 129,914,297
<SALES> 49,278,373
<TOTAL-REVENUES> 49,278,373
<CGS> 30,281,073
<TOTAL-COSTS> 42,533,207
<OTHER-EXPENSES> 932,416
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,042,683
<INCOME-PRETAX> 2,770,067
<INCOME-TAX> 1,198,879
<INCOME-CONTINUING> 1,571,188
<DISCONTINUED> 0
<EXTRAORDINARY> 1,451,516
<CHANGES> 0
<NET-INCOME> 119,672
<EPS-BASIC> .02
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