<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
CURRENT REPORT
on
FORM 8-K/A
(Amendment No. 6)
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: November 14, 1994
AMERIQUEST TECHNOLOGIES, INC.
_____________________________________________________________________________
(Exact name of registrant as specified in charter)
Delaware
_____________________________________________________________________________
(State of other jurisdiction of incorporation)
1-10397 33-0244136
_____________________________________________________________________________
(Commission File Number) (IRS Employer Identification No.)
2722 Michelson Drive, Irvine, CA 92715
_____________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(714) 222-6000
_____________________________________________________________________________
(Registrant's telephone number, including area code)
______________________________________________________________________________
(Former name or former address, if changed since last report)
1
<PAGE>
Item 2. Acquisition or Disposition of Assets
------------------------------------
Effective November 14, 1994, AmeriQuest Technologies, Inc. ("AQS") issued
1,864,767 shares of its Common Stock and $3,473,312, excluding transaction
costs, in exchange for 100% percent of the issued and outstanding equity
securities of Ross White Enterprises, Inc. d/b/a "National Computer
Distributors" ("NCD").
NCD is a national value-added distributor of microcomputer systems,
peripherals and accessesories. Its key vendors include Acer, AST, Leading Edge
and Canon.
_____________________________
Item 5. Other Events
------------
AQS and Computer 2000 AG ("Computer 2000"), a company duly organized under
the laws of the Federal Republic of Germany, entered into an agreement dated
November 14, 1994 (the "Investment Agreement") pursuant to which Computer 2000
agreed to invest approximately $50 million in AQS in exchange for an
approximately 51 percent ownership interest in AQS, including shares already
owned by Computer 2000. The transaction has been approved by the boards of both
companies, and is subject to approval by the stockholders of AQS and to certain
regulatory approvals.
Under the terms of the Investment Agreement and the related Loan Agreement,
Computer 2000 will initially extend to AmeriQuest 2000, Inc., a Delaware
corporation and a wholly-owned subsidiary of AQS ("Sub"), a loan of $13 million
with an additional $5 million to follow within 45 days if Computer 2000 is
satisfied with a due diligence review of AQS's inventories and accounts
receivable (the "Loan"). Sub's repayment obligations under the Loan will be
satisfied by AQS's issuance to Computer 2000 of up to 8,108,108 shares of its
Common Stock at a conversion rate of $2.22 per share, subject however to
approval thereof by AQS's stockholders. The Investment Agreement further
provides that, subject to certain conditions, on or before September 1, 1995,
Computer 2000 will invest an additional $32 million in AQS in exchange for 14.1
million additional newly issued shares of its Common Stock, bringing Computer
2000's total ownership interest to approximately 22.9 million shares or 51% of
the total outstanding shares of AQS. The $32 million investment is contingent
upon a number of conditions, including but not limited to AQS's meeting certain
monthly and cumulative after-tax operating profitability conditions during the
first half of calendar 1995. AQS will also issue to Computer 2000 an option to
purchase additional shares of AQS in an amount equal to the number of AQS's
shares issuable upon exercise of currently outstanding options and warrants and
conversion of any other convertible securities. All newly issued shares of AQS
will be subject to resale restrictions under Rule 144 of the Securities Act of
1933, but will carry registration rights.
The preceding summary of certain of the material terms of the Investment
Agreement and Loan Agreement, which are attached hereto as Exhibits 2.03 and
2.04, respectively, is not intended to be complete and is qualified by reference
to the Investment Agreement and Loan Agreement.
2
<PAGE>
Item 7. Financial Statements and Exhibits
---------------------------------
(a) The financial statements of NCD required to be filed pursuant to Item
7(a) of Form 8-K are attached hereto and incorporated herein by this
reference.
(b) The pro forma financial information for NCD required to be filed
pursuant to Item 7(b) of Form 8-K and Rule 601 of Regulation S-K are
attached hereto and incorporated herein by this reference, including:
Pro Forma Condensed Balance Sheet at September 30, 1994
Pro Forma Condensed Statements of Operations for the fiscal year
ended June 30, 1994.
Pro Forma Condensed Statements of Operations for the fiscal
quarter ended September 30, 1994.
(c) Exhibit No. Description of Exhibit
----------- ----------------------
2.02* Agreement and Plan of Reorganization dated September
26, 1994 by, between and among AQS, Ross White
Enterprises, Inc. d/b/a "National Computer
Distributors" ("NCD") and the shareholders of NCD.
(Filed as Exhibit 2.02 to the Annual Report on
Form 10-K/A of AQS for the year ended June 30, 1994)
2.03* Investment Agreement dated as of November 14, 1994 by
and between AQS and Computer 2000 AG. (Filed with the
original Current Report on Form 8-K of AQS for November
14, 1994.)
2.04* Loan Agreement dated as of November 14, 1994 by and
between Computer 2000 AG and AmeriQuest 2000,Inc.
(Filed with the original Current Report on Form 8-K of
AQS for November 14, 1994.)
_______________________________
* Incorporated herein by this reference pursuant to Rule 12b-32 under the
Securities Exchange Act of 1934, as amended, and Rule 24 of the
Commission's Rules of Practice.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERIQUEST TECHNOLOGIES, INC.
/s/ Stephen G. Holmes
---------------------------------------------
Stephen G. Holmes
Secretary, Treasurer and
Chief Financial Officer
Dated: May 22, 1995
4
<PAGE>
KPMG PEAT MARWICK LLP
One Biscayne Tower Telephone 305 358 2300 Telefax 305 577 0544
Suite 2900
2 South Biscayne Boulevard
Miami, FL 33131
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ross White Enterprises, Inc.:
We have audited the accompanying balance sheets of Ross White Enterprises, Inc.
(d/b/a National Computer Distributors) as of March 31, 1994 and 1993, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for each of the years in the two-year period ended March 31, 1994. In connection
with our audits of the financial statements, we also have audited the financial
statement schedule. These financial statements and financial statement schedule
are the responsibility of the Company' s management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ross White Enterprises, Inc.
(d/b/a National Computer Distributors) as of March 31, 1994 and 1993, and the
results of its operations and its cash flows for each of the years in the two-
year period ended March 31, 1994 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
July 21, 1994, except as to notes 7,
8, 11(b) and 1l(c) which are as of
September 27, 1994
F-1
<PAGE>
COOPERS COOPERS & LYBRAND L.L.P.
&LYBRAND
a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Ross White Enterprises, Inc.
We have audited the accompanying statements of operations, stockholders' equity
(deficit) and cash flows of Ross White Enterprises, Inc. (d/b/a National
Computer Distributors) for the year ended December 31, 1991. In connection with
our audit of the financial statements, we have also audited financial statement
schedules. These financial statements and the financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedules
based on our audit.
We conduced our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of the operations and the cash flows of Ross
White Enterprise, Inc. (d/b/a National Computer Distributors) for the year ended
December 31, 1991 in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects,the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Miami, Florida
February 5, 1992
F-2
<PAGE>
[LETTERHEAD OF HANSEN, BARNETT & MAXWELL]
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Ross White Enterprises, Inc.
We have audited the accompanying statements of operations, stockholders' equity
(deficit), and cash flows of Ross White Enterprises, Inc. (d/b/a National
Computer Distributors) for the three months ended March 31, 1992. In connection
with our audit of the financial statements, we have also audited the financial
statement schedule for the three months ended March 31, 1992. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of the operations and the cash flows of Ross
White Enterprises, Inc. (d/b/a National Computer Distributors) for the three
months ended March 31, 1992 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.
/s/ HANSEN, BARNETT & MAXWELL
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
February 10, 1995
F-3
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
BALANCE SHEETS
March 31, 1994 and 1993
<TABLE>
<CAPTION>
Assets 1994 1993
------ ----------- ----------
(Restated)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 112,040 $ 26,051
Trade accounts receivable, net of
allowance for doubtful accounts of
$525,000 and $362,374 as of March 31,
1994 and 1993, respectively 20,095,152 9,004,041
Inventory, net 27,845,858 15,774,300
Notes receivable from stockholders,
current portion 66,630 43,750
Prepaid expenses 323,976 650,274
Income tax receivable 108,000 82,818
Other receivables 1,551,806 862,876
Deferred income taxes 115,000 115,000
----------- -----------
Total current assets 50,218,462 26,559,110
Property and equipment, net 707,526 467,186
Notes receivable from stockholders,
excluding current portion 430,858 507,208
Other assets 262,973 391,520
Costs in excess of net assets acquired,
net of accumulated amortization of
$18,280 and $16,406 as of March 31,
1994 and 1993, respectively 56,720 58,594
----------- -----------
$51,676,539 $27,983,618
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
- ----------------------------------------------
Current liabilities:
Accounts payable $21,569,708 $12,959,557
Bank overdrafts 7,294,232 971,711
Revolving credit agreement--current - 11,481,323
Accrued expenses 1,302,121 510,632
Obligations under capital leases,
current portion - 15,703
----------- -----------
Total current liabilities 30,166,061 25,938,926
Revolving credit agreement 18,762,663 -
Subordinated notes payable 2,687,366 2,591,187
Deferred rent 49,256 48,872
Obligations under capital leases - 23,555
----------- -----------
Total liabilities 51,665,346 28,602,540
Commitments and contingencies
Stockholders' equity (deficit):
Class A common stock, $.01 par value.
Authorized 10,000 shares; issued
and outstanding 183.67 shares 2 2
Class B common stock, $.05 par value.
Authorized 10,000 shares; no shares
issued and outstanding - -
Additional paid-in capital 1,841,700 1,841,700
Accumulated deficit (1,830,509) (2,460,624)
----------- -----------
Total stockholders' equity (deficit) 11,193 (618,922)
----------- -----------
$51,676,539 $27,983,618
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
STATEMENTS OF OPERATIONS
For the years ended March 31, 1994 and 1993, the three months ended
March 31, 1992 and the year ended December 31, 1991
<TABLE>
<CAPTION>
Year Year Three months Year
ended ended ended ended
March 31, March 31, March 31, December 31,
1994 1993 1992 1991
------------ ----------- ------------ ------------
(Restated)
<S> <C> <C> <C> <C>
Net sales $196,512,724 113,306,494 15,256,245 40,504,518
Cost of goods sold 181,870,822 107,449,045 14,055,803 36,176,457
------------ ----------- ---------- ----------
Gross profit 14,641,902 5,857,449 1,200,442 4,328,061
Selling, general and administrative expenses 11.297,683 6,700,869 1,081,704 3,595,856
Provision for doubtful accounts 911,545 637,275 - 115,264
------------ ----------- ------------ -----------
Operating profit (loss) 2,432,674 (1,480,695) 118,738 616,941
Other income (expense):
Interest expense (1,805,714) (1,255,652) (67,933) (307,530)
Interest income 3,155 - - -
------------ ----------- ------------ -----------
Income (loss) before income taxes 630,115 (2,736,347) 50,805 309,411
Income tax benefit - 275,723 - -
------------ ----------- ------------ -----------
Net income (loss) $ 630,115 (2,460,624) 50,805 309,411
============ =========== ============ ===========
Net income (loss) per common and common
equivalent share:
Primary $ 3,430 (13,395) 423 3,094
============ =========== ============ ===========
Fully diluted $ 2,859 (13,395) 423 3,094
============ =========== ============ ===========
Weighted average number of common and common
equivalent shares outstanding:
Primary 183.7 183.7 120.2 100
============ =========== ============ ===========
Fully diluted 220.4 220.2 120.2 100
============ =========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended March 31, 1994 and 1993,
the three months ended March 31, 1992
and the year ended December 31, 1991
<TABLE>
<CAPTION>
Class A Class B Retained Total
Common stock Common stock Common stock Additional earnings Treasury stockholders'
------------- ------------- ------------ paid-in (Accumulated stock equity
Shares Amount Shares Amount Shares Amount capital deficit) (at cost) (deficit)
------ ------ ------ ------ ------ ------ ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1990 100 $ 100 - $ - - $ - 9,900 539,853 (50,000) 499,853
Distributions to
shareholders - - - - - - - (111,907) - (111,907)
Net income - - - - - - - 309,411 - 309,411
--- --- ------ -- --- --- --------- --------- ------ ---------
Balance at
December 31, 1991 100 100 - - - - 9,900 737,357 (50,000) 697,357
Retirement of common
stock (100) (100) - - - (49,900) - 50,000 -
Issuance of common
stock A - - 183.67 2 - - 878,708 - - 878,710
Termination of S
corporation status - - - - - - 743,162 (743,162) - -
Distributions to
shareholders - - - - - - - (45,000) - (45,000)
Net income - - - - - - - 50,805 - 50,805
--- --- ------ -- --- --- --------- --------- ------ ---------
Balance at March 31, 1992 - - 183.67 2 - - 1,581,870 - - 1,581,872
Net loss - - - - - - - (2,460,624) - (2,460,624)
Issuance of stock
purchase warrants, net - - - - - - 259,830 - - 259,830
--- --- ------ -- --- --- --------- --------- ------ ---------
Balance at March 31, 1993 - - 183.67 2 - - 1,841,700 (2,460,624) - (618,922)
Net income - - - - - - - 630,115 - 630,115
--- --- ------ -- --- --- --------- --------- ------ ---------
Balance at March 31, 1994 - $ - 183.67 $ 2 - $ - 1,841,700 (1,830,509) - 11,193
=== === ====== == === === ========= ========= ====== =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
STATEMENTS OF CASH FLOWS
For the years ended March 31, 1994 and 1993, the three months ended
March 31, 1992 and the year ended December 31, 1991
<TABLE>
<CAPTION>
Three months
Year ended Year ended ended Year ended
March 31, March 31, March 31, December 31,
1994 1993 1992 1991
------------ ---------- ------------ ------------
(Restated)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 630,115 (2,460,624) 50,805 309,411
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 492,317 221,256 30,469 131,734
Provision for bad debts 911,545 637,275 - 115,264
Provision for inventory obsolescence 500,000 30,000 - -
Deferred tax asset (115,000) (115,000) - -
Gain on disposal of property and equipment (4,784) - - -
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable (12,002,656) (7,902,648) 270,830 (510,141)
(Increase) decrease in inventory (12,571,558) (10,604,025) 435,610 (1,735,511)
(Increase) decrease in prepaid expenses 147,488 (324,064) (11,251) 22,263
(Increase) decrease in income tax receivable 89,818 (82,818) - -
(Increase) decrease in other receivables (688,930) 765,860 (301,070) -
(Increase) decrease in other assets 128,547 (284,471) (5,221) 74,774
Increase in accounts payable 8,610,151 6,795,423 232,661 2,999,293
Increase (decrease) in accrued expenses 825,203 (1,755,285) 1,950,384 20,304
Increase (decrease) in customer deposits - - (109,000) 26,316
Increase (decrease) in deferred rent 384 (30,994) (7,748) 34,537
------------ ----------- ----------- ----------
Net cash (used in) provided by operating
activities (13,047,360) (15,110,115) 2,536,469 1,488,244
------------ ----------- ----------- ----------
Cash flows from investing activities:
Purchase of property and equipment (458,194) (301,976) (4,391) (144,891)
Proceeds from disposal of property and equipment 4,500 - - 6,066
Issuance of notes receivable from stockholders - - (93,508) (27,829)
Proceeds from notes receivable from stockholders 22,440 6,250 - -
------------ ----------- ----------- ----------
Net cash used in investing activities (431,254) (295,726) (97,899) (166,654)
------------ ----------- ----------- ----------
Cash flows from financing activities:
Payments on obligations under capital leases (39,258) (34,329) (7,849) (28,256)
Net borrowing under revolving credit agreement 7,281,340 11,460,713 - -
Principal payments on note payable - - (11,227) (10,740)
Increase in bank overdrafts 6,322,521 971,711 - -
Issuance of Class A common stock (net of costs) - - 878,710 -
Issuance of subordinated notes, net - 2,509,806 - -
Issuance of stock warrants - 259,830 - -
Payments under floor plan credit arrangement - - (3,600,000) (830,285)
Distribution to shareholders - - (45,000) (111,907)
------------ ----------- ----------- ----------
Net cash (used in) provided by financing
activities 13,564,603 15,167,731 (2,785,366) (981,188)
------------ ----------- ----------- ----------
</TABLE>
(Continued)
F-7
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
Three months
Year ended Year ended ended Year ended
March 31, March 31, March 31, December 31,
1994 1993 1992 1991
---------- --------- ------------ ------------
(restated)
<S> <C> <C> <C> <C>
Net increase (decrease) in cash 85,989 (238,110) (346,796) 340,402
Cash and cash equivalents at beginning of year 26,051 264,161 610,957 270,555
---------- -------- -------- -------
Cash and cash equivalents at end of year $ 112,040 26,051 264,161 610,957
========== ======== ======== =======
Supplemental disclosure:
Interest paid $1,647,465 997,564 64,713 287,805
========== ======== ======== =======
Income taxes paid $ 133,000 125,400 - -
========== ======= ======== =======
</TABLE>
Supplemental disclosure of noncash investing activity: During fiscal 1993, the
Company recorded the notes receivable from stockholders at their present value,
resulting in a discount in the amount of $178,304. Amortization expense related
to the discount for the year ended March 31, 1994 and 1993, amounted to $2,684
and $-0-, respectively. In addition, $33,714 in management incentive bonuses,
included in accrued expenses, were applied against the notes receivable from
stockholders for the year ended March 31, 1994.
See accompanying notes to financial statements.
F-8
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
March 31, 1994 and 1993
(1) ORGANIZATION
Ross White Enterprises, Inc. (d/b/a National Computer Distributors) (the
"Company") is a retailer, wholesaler and distributor of computers,
peripherals and related accessories. The Company conducts its retail
operation under the name of Computer Image. All other operations are
conducted using the name National Computer Distributors.
(2) RESTATEMENT
The accompanying financial statements as of, and for the year ended March
31, 1993, have been restated. During fiscal 1994, the Company discovered it
had not recorded liabilities associated with the purchase of inventories
received prior to March 31, 1993; had not reversed certain vendor
receivable accounts after settlement; and had not recorded various
transactions with vendors in which purchases were netted against amounts
due to the Company. The result of the Company' s analysis, as verified by
the Company's independent accountants, was to record in fiscal 1993 an
adjustment to cost of goods sold and accounts payable in the amount of
$2,747,803. In addition, an adjustment was recorded in the accompanying
balance sheet as of March 31, 1993 to record inventory in transit and the
related accounts payable in the amount of $2,955,240.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash
equivalents. Cash equivalents totaled $30,000 and $-0- at March 31,
1994 and 1993, respectively, and are recorded at cost which
approximates market value.
(b) CASH MANAGEMENT SYSTEM
Under the Company's cash management system, disbursements cleared by
the bank are reimbursed on a daily basis from the revolving credit
agreement. As a result, checks issued but not yet presented to the
bank are not considered reductions of cash or accounts payable.
Included in bank overdrafts is $7,186,558 and $964,301 at March 31,
1994 and 1993, respectively, for which checks are outstanding. Cash
receipts deposited into an agency account as part of the bank's
revolving credit agreement are used to reduce the outstanding
borrowings under the revolving credit agreement. As a result, cash
received but unapplied against the outstanding borrowings are not
considered to be cash deposits. Deducted from the outstanding
borrowings under the revolving credit agreement is $2,373,006 and
$325,053 at March 31, 1994 and 1993, respectively, for unapplied cash
receipts.
(c) TRADE ACCOUNTS AND OTHER RECEIVABLES
Trade receivables consist primarily of amounts due from customers for
credit purchases. The Company provides a reserve for uncollectible
trade receivables. Other receivables consist of cooperative
advertising and other amounts earned based on annual promotional and
market development fund agreements with vendors. In general,
F-9
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
vendors provide the Company with various incentive programs. The funds
received under these programs are determined based upon the Company's
purchases or sales of the vendors' products and/or the inclusion of
the vendors' products in the Company's advertising and promotional
programs. Once earned, the funds are applied against product cost or
recorded as a reduction of advertising expense.
(d) INVENTORY
Inventory, which consists primarily of computer equipment and related
products, is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method, and is recorded net of
volume and purchase discounts and rebates. Market is based on net
realizable value. Appropriate consideration is given to deteriora-
tion, obsolescence and other factors in evaluating net realizable
value.
Effective April 1, 1993, the Company changed its accounting policy to
include in inventory certain indirect costs associated with
purchasing, handling and storage of inventories. The Company believes
this method better matches sales with these related costs. Previously,
the Company had expensed these costs as incurred. For the year ended
March 31, 1994, allocated purchasing, handling and storage costs
amounts to $742,457, with $101,177 of this amount capitalized in
inventory at March 31, 1994.
(e) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on
the straight-line method over the estimated useful lives of the
assets, using a standard life of five years. Leasehold improvements
are amortized on the straight-line method over the shorter of the
estimated useful lives of the improvements or the term of the related
leases. Gains or losses on disposition of property and equipment are
credited or charged to income.
(f) COSTS IN EXCESS OF NET ASSETS ACQUIRED
The costs of acquisitions in excess of the fair market value of net
assets acquired is being amortized over a 40-year period using the
straight-line method. Amortization expense amounted to $1,875, $1,875,
$469 and $1,875 for the years ended March 31, 1994 and 1993, the three
months ended March 31, 1992 and the year ended December 31, 1991,
respectively.
(g) INCOME TAXES
Effective March 31, 1992, the Company was required to change its tax
status from an S corporation to a C corporation. Accordingly,
undistributed earnings on the date the sub-chapter S election was
terminated were reclassified to additional paid-in capital.
Effective April 1, 1992, the Company adopted the provisions of
Financial Accounting Standards Board's SFAS No. 109, Accounting for
Income Taxes. Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax basis.
F-10
<PAGE>
ROSS WH1TE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
SFAS No. 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date. The adoption of SFAS No. 109 by the
Company had a cumulative effect of $13,700 on income (loss) from
operations for the year ended March 31, 1993.
(h) EMPLOYEE BENEFIT PLANS
Effective July 1989, as amended, the Company established a 401(k)
Profit Sharing Plan (the "Plan"). All employees who have completed at
least 12 months of service and attained the age of 21 are eligible.
The Plan allows vesting at 20 percent per year for five years,
beginning after the employees' second year of service. The Plan allows
employees to contribute between 2 percent and 15 percent of their
gross annual taxable salary. In fiscal year 1993, the Company made
matching contributions of 50 percent of that portion of the employee's
amount which did not exceed 10 percent of the employee's gross income.
Effective October 1, 1993, the Company can make a discretionary
matching and profit sharing contribution to the Plan subject to the
approval of the board of directors. The Plan is subject to restriction
on matching contributions for highly compensated employees. Total
employer contributions to the Plan were approximately $61,000,
$64,000, $7,000 and $19,000 during the years ended March 31, 1994 and
1993, the three months ended March 31, 1992 and the year ended
December 31, 1991, respectively.
(i) BUSINESS AND CREDIT CONCENTRATIONS
The Company sells its products primarily to value-added resellers,
dealers and computer retailers throughout the United States and
international markets. No single customer accounted for a significant
amount of the Company's sales, and there were no significant trade
accounts receivable from a single customer. The Company performs
ongoing credit evaluations of its customers and generally does not
require collateral. However, if deemed necessary, the Company may
require certain customers to pay on a cash-on-delivery basis. The
Company maintains reserves for potential credit losses.
Approximately $89.3 million or 45 percent, $73.8 million or 65
percent, $11.2 million or 73 percent and $28 million or 75 percent of
the Company's net sales during the years ended March 31, 1994 and
1993, the three months ended March 31, 1992 and the year ended
December 31, 1991, respectively, were derived from products supplied
by three to four vendors, each supplying 10 percent or greater of net
sales.
(j) INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Primary income (loss) per common and common equivalent share is
computed by dividing net income (loss) by the weighted average number
of common shares outstanding and common stock equivalents. Fully
diluted income (loss) per share has been computed based on the
assumption that the warrants, as discussed in note 8, will be
converted to common stock.
(k) REVENUE RECOGNITION, RETURNS AND SALES INCENTIVES
Revenue is comprised of product sales and is recognized upon product
shipment. The Company, subject to certain limitations, permits its
customers to exchange products or receive credits against future
purchases. The Company offers its customers several sales incentive
programs which, among others, include funds available for cooperative
promotion of product sales. Customers earn credit under such programs
based upon volumes of purchases. The cost of these programs is
partially subsidized by marketing allowances provided by the Company's
manufacturers. The allowance for sales returns and costs of customer
incentive programs described above is accrued concurrently with the
recognition of revenue.
F-11
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
(l) RECLASSIFICATION
Certain amounts included in the financial statements have been
reclassified in order to provide consistent financial presentation.
(4) NOTES RECEIVABLE FROM STOCKHOLDERS
Notes receivable from stockholders consist of the following:
March 31,
------------------
1994 1993
---- ----
Unsecured notes from two stockholders/officers $ 497,488 550,958
Less current portion (66,630) (43,750)
------- -------
Long-term receivable, excluding current portion $ 430,858 507,208
======= =======
The notes receivable from two stockholders/officers are noninterest
bearing. The notes have been recorded at their present value utilizing an
imputed interest rate of 6.34 percent, resulting in an original discount of
$178,304 which will be recognized as interest income over the remaining
terms of the notes. During the years ended March 31, 1994 and 1993, $2,782
and $-0-, respectively, was recognized as interest income, with the
remaining unaccreted balance of $175,523 and $178,304 (included in other
receivables) at March 31, 1994 and 1993, respectively. The notes are
payable in the following quarterly installments, including principal and
interest: (i) $18,750 per quarter commencing June 30, 1994; (ii) $25,000
per quarter commencing June 30, 1995, (iii) and a lump sum payment of
$123,012 due on March 31, 2000. Principal payments are due as follows:
<TABLE>
<CAPTION>
Year ending
March 31, Amount
--------- ------
<S> <C>
1995 $ 66,63O
1996 83,39O
1997 78,280
1998 73,484
1999 68,980
Thereafter 126,724
-------
Total $ 497,488
=======
</TABLE>
F-12
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
(5) OTHER RECEIVABLES
Other receivables are primarily comprised of receivables due from vendors
consisting of the following:
<TABLE>
<CAPTION>
March 31,
---------------------
1994 1993
---- ----
<S> <C> <C>
Due from vendors:
Co-op $ 1,224,210 540,684
Returned merchandise 826,694 762,229
Volume rebates and price protection 2,558,142 307,725
--------- ---------
Subtotal 4,609,046 1,610,638
Other 327,596 322,192
Less amounts offset against accounts payable (3,384,836) (1,069,954)
--------- ---------
Other receivables $ 1,551,806 862,876
========= =========
</TABLE>
(6) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
March 31,
---------------------
1994 1993
---- ----
<S> <C> <C>
Machinery and equipment $ 615,575 574,681
Furniture and fixtures 269,895 -
Leasehold improvements 446,786 401,564
Transportation vehicles 61,667 61,667
--------- ---------
1,393,923 1,037,912
Less accumulated depreciation and
amortization (686,397) (570,726)
--------- ---------
Property and equipment, net $ 707,526 467,186
========= =========
</TABLE>
Depreciation and amortization expense amounted to approximately $218,000,
$138,000, $30,000 and $130,000 during the years ended March 31, 1994 and
1993, the three months ended March 31, 1992 and the year ended December 31,
1991, respectively.
(7) REVOLVING CREDIT AGREEMENT
On April 27, 1992, as amended, the Company entered into a revolving line of
credit agreement ("revolver") with a bank that originally provided for
borrowings up to a maximum of $22.5 million through April 30, 1994, limited
to specified percentages of eligible accounts receivable and inventory,
with interest at prime plus 1.5 percent, payable on a monthly basis.
Borrowings under the revolving credit agreement are collateralized by the
Company's trade account receivable, inventories, property and equipment,
and general intangibles.
F-13
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
The revolver contains various affirmative and negative covenants, including
requiring the Company to maintain certain specified financial ratios,
including (a) ratio of earnings before taxes to interest; (b) total
liabilities less subordinated debt to total capitalization; (c) total bank
debt to total capitalization, and (d) maintain a minimum level of
capitalization. There are also restrictive covenants including those
covering the amount of dividends and lease obligations, the occurrence of
additional debt, and the amount of capital expenditures and acquisitions.
At March 31, 1994 and 1993, respectively, the Company had an outstanding
balance under the revolver of $18,762,663 and $11,481,323, with an
available balance of $1,364,331 and $2,018,677. The revolver provides for
an early termination fee of 2 percent of the reduction or termination of
the maximum commitment and an annual fee of 3/8 percent of the difference
between the maximum loan commitment and the average daily balance.
Interest expense under the foregoing financing arrangement was $1,346,642
and $805,000 during the fiscal years ended March 31, 1994 and 1993,
respectively.
At March 31, 1994, the Company was not in compliance with the following
covenant requirements arising under the revolving credit agreement and
entered into negotiations with its bank to amend and reinstate the credit
agreement: (i) ratio of total liabilities less subordinated debt to total
capital funds, as defined; (ii) ratio of bank debt to total capital funds;
(iii) ratio of earnings before interest and taxes to interest expense, as
defined; (iv) accounts payable average turnover; (v) expenditures related
to lease payments and capital expenditures; (vi) providing audited
financial statements within 90 days of year-end; (vii) maintaining adequate
books and records; (viii) incurrence of trade debt not more than 60 days
past due, and (ix) maintaining minimum total capital funds. On September 8,
1994, the Company received waivers from its bank which cured all violations
of debt covenants through August 11, 1994.
On August 11, 1994 and September 8, 1994, amendments to the revolving
credit agreement were executed. The amendments modified the financial
covenants relating to the (i) ratio of earnings before interest and taxes
to interest expense, as defined, to be not less than 1.75 to 1 as of the
last day of each quarter, and not less than 1 to 1 as of the last day of
each month other than the last day of each quarter; (ii) increased the
dollar limit on capital expenditures to $500,000 annually; (iii) limited
the aggregate lease payments for real or personal property to $1.75 million
per year; and (iv) required the Company to maintain total capital funds,
which is defined as total assets (excluding certain intangible assets and
shareholder loans) less total liabilities (excluding subordinated notes),
of not less than the amounts set forth below for the periods specified
plus, on a cumulative basis, an additional $250,000 for each quarter ending
after October 31, 1994:
Period Amount
------ ------
June 30, 1994 - September 29, 1994 $ 2,700,000
September 30, 1994 - October 30, 1994 2,950,000
October 31, 1994 and thereafter 5,000,000
F-14
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
In connection with the total capital funds covenant, the Company received a
representation from the majority stockholder to invest up to $1.5 million
in the Company by October 31, 1994 [see note 11(b) and 1l(c)].
In addition, the amended revolving credit agreement modified (i) the
interest rate to prime plus an applicable margin of either 1.5 percent or 3
percent, which is based on the Company' s ratio of total liabilities less
subordinated notes to total capital funds as determined the last day of
each month beginning August 31, 1994, and (ii) increased the early
termination fee to 3 percent of the maximum commitment. The maturity date
of the revolving credit agreement was extended through December 31, 1995.
(8) SUBORDINATED NOTES
On April 3, 1992, the Company issued 12 percent subordinated notes with
detachable stock purchase warrants with an aggregate principal amount of $3
million. Principal is to be paid in seven quarterly installments of
$250,000 commencing on June 30, 1995 with a final installment of $1.25
million due on March 31, 1997, with interest quarterly commencing on June
30, 1992. Interest expense on the subordinated notes was $360,000 and
$357,000 during the fiscal years ended March 31, 1994 and 1993,
respectively.
The detachable subordinated notes contain various affirmative and negative
covenants, including those covering the use of proceeds, the incurrence of
additional debt, the payment of dividends, the amount of capital
expenditures, and those requiring the Company to maintain certain specified
financial ratios. The Company failed to meet the following covenant
requirements which placed the Company in technical default at March 31,
1994: (i) providing the holders with monthly financial statements along
with the chief financial officer's certificate; (ii) providing the holders
with audited financial statements within 90 days of year-end along with
chief financial officer's certificate; (iii) maintaining adequate books and
records; (iv) maintaining total capital funds, as defined; (v) maintaining
a ratio of total revolving credit agreement debt to total capital funds;
(vi) maintaining a ratio of total liabilities, excluding the subordinated
notes, to total capital funds; (vii) maintaining a ratio of net earnings
before interest and taxes to total interest expense; (viii) capital
expenditure restrictions; (ix)complying with its obligations under the
revolving credit agreement; (x) accounts payable turnover, and (xi)
computation of financial covenants in accordance with GAAP. On August 10,
1994 and September 8, 1994, the Company obtained waivers to its
subordinated notes related to the above noted financial covenants. These
waivers were retroactive to March 31, 1994.
On August 11, 1994 and September 8, 1994, the subordinated notes' financial
covenants were amended on the same terms as the revolving credit
agreement's financial covenants, as fully described in note 7.
The detachable warrants can be converted to 20 percent (36.7340 shares) of
the issued and outstanding Class A common stock for an aggregate purchase
price of $1.00. The warrants may be exercised after April 3, 1992 and
expire on March 31, 1997. The warrants were assigned a value of $259,830,
net of deferred taxes and issuance costs, and are included as a component
of additional paid-in capital. In conjunction with the recording of the
stock purchase warrants, the Company established a related imputed original
issue discount on the
F-15
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
subordinated notes which approximated the market yield on the subordinated
notes, without the stock purchase warrants. The Company is accreting the
discount using the effective yield method over the life of the subordinated
notes. Amortization expense, which is included in interest expense,
amounted to $96,179 and $81,383 during the fiscal years ended March 31,
1994 and 1993, respectively. In addition, there are deferred loan fees in
the amount of $127,735 and $125,796 included in other assets as of March
31, 1994 and 1993, respectively. Amortization expense, which is included in
selling, general and administrative expenses, amounted to $41,699 and
$45,245 during the fiscal years ended March 31, 1994 and 1993,
respectively.
On September 26, 1994, the Company entered into an Agreement and Plan of
Reorganization which provided for the repayment of the subordinated notes
and accrued unpaid interest thereon [(see note 1l(c)].
(9) INCOME TAXES
As of April 1, 1992, the date the Company was required to change its tax
status from an S corporation to a C corporation, the Company adopted SFAS
No. 109. The adoption of SFAS No. 109 had a cumulative effect of $13,700
for the year ended March 31, 1993.
Total income tax attributable to the recovery of detachable stock purchase
warrants, which resulted in a reduction in additional paid-in capital for
the tax effect associated with the issuance of stock warrants, amounted to
$191,176 for the year ended March 31, 1993.
The provision for income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
March 31,
----------------
1994 1993
---- ----
<S> <C> <C>
Current:
Federal $ - (70,713)
State and local - (12,105)
---- --------
- (82,818)
Deferred:
Federal - (164,710)
State and local - (28,195)
---- --------
- (192,905)
---- --------
Total income tax
expense (benefit) $ - (275,723)
==== ========
</TABLE>
(Continued)
F-16
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
Income tax expense (benefit) from continuing operations differed from the amount
computed by applying the statutory federal income tax rate of 34 percent, to
income (loss) before income taxes as a result of the following:
<TABLE>
<CAPTION>
March 31,
-------------------------
1994 1993
---- ----
<S> <C> <C>
Computed expense (benefit) $ 214,239 $(930,358)
Increase (decrease) resulting from:
Establishment of valuation allowance - 719,663
State tax benefit - (40,300)
Other - (24,728)
Income tax expense (benefit) associated
with net operating loss carryforward (214,239) -
--------- ---------
Income tax expense (benefit) $ - $(275,723)
========= =========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
March 31,
-------------------------
1994 1993
---- ----
<S> <C> <C>
Deferred tax asets:
Accounts receivable, principally due to allowance for
doubtful accounts $ 199,369 $ 81,879
Inventories, principally due to reserves for obsolete
inventory and additional costs inventoried for tax pur-
poses pursuant to the Tax Reform Act of 1986 188,000 12,822
Deferred rent, principally due to accrual for financial
reporting purposes 18,520 18,163
Accrued vacation expense, principally due to accrual for
financial reporting purposes 10,111 9,994
Property and equipment, principally due to differences in
depreciation 5,852 -
Net operating loss carryforwards, principally due to
correction of errors in the prior years 474,052 919,308
--------- ---------
Total gross deferred tax assets 895,904 1,042,166
Less valuation allowance (544,129) (719,663)
--------- ---------
Net deferred tax assets 351,775 322,503
--------- ---------
</TABLE>
(Continued)
F-17
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
March 31,
--------------------
1994 1993
--------- -------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation $ - $ (5,135)
Prepaid expenses, principally due to deferral
for financial reporting purposes (119,225) (50,435)
Subordinated notes, principally due to an
unamortized discount associated with the
issuance of detachable stock warrants (117,550) (151,933)
--------- ---------
Total gross deferred tax liabilities (236,775) (207,503)
--------- ---------
Net deferred tax asset $ 115,000 $ 115,000
========= =========
</TABLE>
At March 31, 1994, the Company had available net operating loss
carryforwards of $1.26 million for federal and state income tax purposes,
which expire in 2008. A valuation allowance attributable to the net
operating loss carryforward has been established as of March 31, 1994 and
1993 in the amount of $359,052 and $719,663, respectively. Upon a
subsequent acquisition Internal Revenue Code Section 382 could limit the
utilization of net operating loss carryforwards in future periods.
The valuation allowance for deferred tax assets as of March 31, 1994 and
1993 was $544,129 and $719,663, respectively, a decrease of $175,534. In
assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment.
(10) COMMITMENTS AND CONTINGENCIES
(a) LEASES
Substantially all of the Company's facilities, including distribution
centers and retail stores are leased under long-term leases accounted
for as operating leases. In addition, the Company leases office
equipment and vehicles. Under the terms of the leases, the Company is
required to maintain adequate insurance coverage.
The real estate leases generally contain provisions for increases
based on the Consumer Price Index, and contain options to renew at the
then fair rental value. Certain leases provide for scheduled rent
increases or for rent-free periods. In these cases, the Company
recognizes the aggregate rent expense on a straight-line basis over
the lives of the leases, including the rent-free period, resulting in
deferred rent credits of $49,256 and $48,872 as of March 31, 1994 and
1993, respectively, which are being amortized over the terms of the
related leases.
F-18
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
Future minimum annual rental payments required under operating leases that
have initial or remaining noncancelable lease terms in excess of one year
as of March 3l, 1994 are as follows:
<TABLE>
<CAPTION>
Year ended Amount
---------- -----------
<S> <C>
1995 $1,375,700
1996 1,208,805
1997 1,159,965
1998 730,472
1999 177,630
----------
Total minimum lease
payments $4,652,572
==========
</TABLE>
Rent expense included in selling, general and administrative expenses
amounted to approximately $959,000, $725,000, $136,000 and $531,000 for the
years ended March 31, 1994 and 1993, the three months ended March 31, 1992
and the year ended December 31, 1991, respectively.
(b) LEGAL MATTERS
The Company is subject to claims and legal actions that arise in the
ordinary course of its business. Management believes that the ultimate
liability, if any, with respect to these claims and legal actions will not
have a material effect on the financial position or results of operations
of the Company.
(C) RELATED PARTY AGREEMENTS
In March 1992, the Company entered into two five-year consulting agreements
with a stockholder and a subordinated note holder, respectively, which
provides for an aggregate annual fee of $150,000 for services performed for
the Company.
In March 1992, the Company entered into employment agreements with two
stockholders/officers which expire in March 1997. The aggregate annual
average base compensation under such agreements is approximately $390,000.
The respective employment agreements provide such stockholders/officers
with the use of automobiles, full medical coverage, reimbursement for life
insurance policies, paid vacations, cash incentive bonuses, stock incentive
bonus, additional special equity (stock) incentive and substantial
severance pay if the Company terminates the stockholders/officers without
cause. In addition, 25 percent of the incentive bonuses are applied against
the notes receivable from stockholders (see note 4).
F-19
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
(11) SUBSEQUENT EVENTS
(a) EQUITY INFUSION
On June 30, 1994, the Company sold an aggregate of 11.54 shares of
Class A common stock, $.01 par value per share, for an aggregate
consideration of $351,958 to various members of management of the
Company.
(b) MAJORITY STOCKHOLDER'S FINANCING ARRANGEMENT
On September 2, 1994, the Company received a representation from the
majority stockholder that they are prepared to provide, and will
provide the Company with additional subordinated indebtedness and/or
capital contributions in the aggregate amount up to $1.5 million,
which amount should be sufficient to enable the Company to meet, as of
October 31, 1994, the financial covenants as described in notes 7 and
8. On September 26, 1994, the Company entered into an Agreement and
Plan of Reorganization which may modify the majority stockholder's
financing arrangement [(see note 11(c)].
(c) MERGER WITH AMERIQUEST TECHNOLOGIES, INC.
On September 26, 1994, the Company entered into an Agreement and Plan
of Reorganization with AmeriQuest Technologies, Inc. ("AmeriQuest"), a
publicly held company, for the acquisition of the Company by
AmeriQuest pursuant to a merger of the Company into a wholly-owned
subsidiary of AmeriQuest. In connection with the merger, the Company's
common stock and warrants will be exchanged for approximately 1.86
million newly issued shares of AmeriQuest common stock, $3.5 million
in cash, and the purchase by AmeriQuest of the subordinated notes at
face value plus accrued unpaid interest thereon (see note 8). The
merger is subject to the approval of the bank (as defined in note 7)
and any United States federal or state governmental commission, board
or other regulatory body which are required for the consummation of
the merger on or before October 14, 1994 (the "effective date").
In addition, AmeriQuest shall infuse at least $1.5 million into the
Company and shall provide to the majority stockholder a written
conformation that from and after the effective date of the merger, the
majority stockholder would have no further obligation to provide debt
or equity financing to the Company [see note 1l(b)].
F-20
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(D/B/A NATIONAL COMPUTER DISTRIBUTORS)
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1994
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
CASH $ 127,369
ACCOUNTS RECEIVABLE, NET 21,203,002
INVENTORY 27,368,730
NOTES RECEIVABLE - STOCKHOLDERS 66,856
PREPAID EXPENSES 600,810
OTHER RECEIVABLES 1,276,432
-----------
TOTAL CURRENT ASSETS 50,643,199
-----------
PROPERTY AND EQUIPMENT 1,796,570
LESS ACCUMULATED DEPRECIATION (831,397)
-----------
PROPERTY AND EQUIPMENT, NET 965,173
-----------
NOTES RECEIVABLE - STOCKHOLDERS 423,028
OTHER ASSETS 271,987
GOODWILL, NET 55,786
-----------
$52,359,173
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
REVOLVING CREDIT AGREEMENT $20,593,289
ACCOUNTS PAYABLE 26,982,414
ACCRUED EXPENSES 732,309
-----------
TOTAL CURRENT LIABILITIES 48,308,012
-----------
SUBORDINATED DEBT 2,736,986
DEFERRED RENT 54,484
-----------
TOTAL LIABILITIES 51,099,482
COMMON STOCK 2
PAID IN CAPITAL 2,095,892
RETAINED DEFICIT (836,203)
-----------
STOCKHOLDERS' EQUITY 1,259,691
-----------
$52,359,173
===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-21
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(D.B.A. NATIONAL COMPUTER DISTRIBUTORS)
CONSOLIDATED STATEMENTS OF RESULTS OF OPERATIONS
(Unaudited)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
SALES, NET $117,695,527 $79,341,420
COST OF GOODS SOLD 108,555,636 73,430,484
------------ -----------
GROSS PROFIT 9,139,891 5,910,936
------------ -----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,589,034 4,665,789
------------ -----------
OPERATING INCOME 2,550,857 1,245,147
OTHER INCOME AND EXPENSE:
OTHER EXPENSES, NET 259,957 192,388
INTEREST EXPENSE 1,296,594 798,866
------------ -----------
INCOME BEFORE INCOME TAXES 994,306 253,893
PROVISION FOR INCOME TAXES - -
------------ -----------
NET INCOME $ 994,306 $ 253,893
============ ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-22
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(D/B/A NATIONAL COMPUTER DISTRIBUTORS)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET RESULTS OF OPERATIONS $ 994,306 $ 253,893
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH USED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 145,938 84,937
AMORTIZATION OF SUBORDINATED DEBT ISSUE COSTS 49,620 46,559
PROVISION FOR BAD DEBTS 239,442 323,423
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ACCOUNTS RECEIVABLE (1,347,292) (6,060,185)
(INCREASE) DECREASE IN INCOME TAX RECEIVABLE 369,315 -
(INCREASE) DECREASE IN INVENTORY 477,128 (3,029,418)
(INCREASE) DECREASE IN PREPAID EXPENSES (149,099) (84,198)
(INCREASE) DECREASE IN ACCOUNTS PAYABLE (1,881,526) 1,175,575
(INCREASE) DECREASE IN OTHER RECEIVABLES 275,373 (219,589)
(INCREASE) DECREASE IN OTHER ASSETS (283,061) 43,214
INCREASE (DECREASE) IN ACCRUED EXPENSES (569,817) 802,802
INCREASE (DECREASE) IN DEFERRED RENT 5,228 (13,590)
INCREASE IN DEFERRED INCOME TAX - 90,660
----------- -----------
TOTAL ADJUSTMENTS (2,668,751) (6,839,810)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (1,674,445) (6,585,917)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF FURNITURE AND FIXTURES (402,647) (84,319)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (402,647) (84,319)
----------- -----------
CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES:
NOTE RECEIVABLE PAYMENT 7,604 8,143
SALE OF COMMON STOCK 254,192 -
BORROWINGS CREDIT LINE LOAN, NET 1,830,625 7,251,126
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES 2,092,421 7,259,269
----------- -----------
NET INCREASE (DECREASE) IN CASH 15,329 589,033
CASH AT BEGINNING OF THE PERIOD 112,040 26,051
----------- -----------
CASH AT THE END OF THE PERIOD $ 127,369 $ 615,084
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-23
<PAGE>
ROSS WHITE ENTERPRISES, INC.
(D/B/A National Computer Distributors)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
SEPTEMBER 30, 1994
1. Financial Statement Preparation
The accompanying condensed consolidated financial statements for the six
month periods ended September 30, 1994 and 1993 of Ross White Enterprises, Inc.
(the Company) have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information normally included in the financial statements prepared in accordance
with generally accepted accounting principles has been omitted pursuant to such
rules and regulations. However, the Company believes that the financial
statements, including the disclosures herein, are adequate to make the
information presented not misleading. In the opinion of management of the
Company, the condensed consolidated financial statements reflect all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position and results of operations as of and for the periods
presented. These condensed consolidated financial statements should be read in
conjunction with the Company's audited financial statements for the year ended
March 31, 1994 included elsewhere in this Form 8-K/A.
2. Statement of Cash Flows
Cash interest and income taxes paid during the six month periods ended
September 30, 1994 and 1993 aggregated $1,302,000 and $0, and $722,000 and
$100,000, respectively.
3. Subsequent Event
Effective November 14, 1994, AmeriQuest Technologies, Inc. acquired 100
percent of the outstanding common stock of the Company in exchange for
approximately $3.5 million in cash, extinguishment of the subordinated debt at
face value plus accrued interest thereon and 1,860,000 shares of AmeriQuest
Common Stock.
F-24
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements of AmeriQuest
for fiscal year ended June 30, 1994, and three month period ended September 30,
1994, gives effect to acquisitions of 100 percent of the common stock of Kenfil,
Inc., and NCD, and 50.1 percent of Robec. In addition, the pro forma financial
statements give effect to the October 1994 Private Equity Placement and the
November 1994 Computer 2000 investment transactions. For the purpose of the
unaudited pro forma statement of operations, it is assumed that these
acquisitions and financing transactions were complete on July 1, 1993, and for
the purpose of the unaudited pro forma balance sheet, it is assumed that these
acquisitions and financing transactions were complete on September 30, 1994.
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED BALANCE SHEET
September 30,1994 (Unaudited)
(Dollars in thousands except share and per Share data)
ASSETS
<TABLE>
<CAPTION>
AmeriQuest Pro Forma Pro Forma
Technologies, Inc.(A) NCD Adjustments Combined
--------------------- -------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 1,378 $ 127 $ 3,608 (L) $ 5,113
Accounts receivable, net 42,687 21,203 0 63,890
Inventories 47,291 27,369 0 74,660
Income taxes receivable 0 24 0 24
Prepaid expenses and other 1,668 1,920 0 3,588
-------------- -------- ----------- ---------
Total current assets 93,024 50,643 3,608 147,275
-------------- -------- ----------- ---------
PROPERTY AND EQUIPMENT, NET 4,043 965 0 5,008
INTANGIBLE ASSETS, NET 11,813 56 10,657 (F) 22,526
OTHER ASSETS 1,142 695 0 1,837
-------------- -------- ----------- ---------
$110,022 $52,359 $ 14,265 $176,646
============== ======== =========== =========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AmeriQuest Pro Forma Pro Forma
Technologies, Inc. NCD Adjustments Combined
------------------ -------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 29,722 $27,715 $ 0 $ 57,437
Notes payable 43,211 20,593 (11,287)(K) 52,517
Other 5,358 54 5,270 (N) 10,682
Subordinated notes payable 18,000 (G) 18,000
------------- -------- ----------- --------
Total current liabilities 78,291 48,362 11,983 138,636
------------- -------- ----------- --------
LONG-TERM DEBT 0 2,737 (2,737)(K) 0
DEFERRED INCOME TAXES 267 0 0 267
MINORITY INTEREST 2,800 - - 2,800
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
authorized 10,000,000 shares;
issued and no shares issued
and outstanding 0 0 0 0
Common stock, $.01 par value;
authorized 30,000,000 shares;
issued and outstanding
17,136,935 shares 171 0 27 (H,I) 198
Additional paid-in capital 44,175 2,096 (2,096)(J) 50,427
3,594 (H)
2,658 (I)
Retained deficit (15,682) (836) 836 (J) (15,682)
------------- -------- ----------- --------
Total stockholders' equity 28,664 1,260 5,019 34,943(1)
------------- -------- ----------- --------
$110,022 $52,359 $ 14,265 $176,646
============= ======== =========== ========
OUTSTANDING COMMON
SHARES 17,136,935 20,541,702
============= ==========
</TABLE>
(1) The Company valued its common stock issued in connection with its Kenfil,
Robec and NCD acquisitions at a discounted quoted market price, based upon
the weighted average discounts received in recently completed private
placement equity cash transactions. This valuation represents management's
best estimate of the fair value of the Company's common stock. This
valuation represents a significant discount from quoted market prices due to
the thin public trading volume and small public float of AmeriQuest common
stock.
F-25
<PAGE>
AMERIQUEST TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For year ended June 30, 1994
(Unaudited)
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
AmeriQuest Pro Forma Pro Forma
Technologies, Inc.(A) NCD Adjustments Combined
--------------------- --------- ----------- -------------
<S> <C> <C> <C> <C>
NET SALES (E) $ 394,798 $218,808 $ 0 (D) $ 613,606
COST OF SALES 359,702 202,114 0 561,816
------------- -------- -------- -----------
Gross profit 35,096 16,694 0 51,790
OPERATING EXPENSES
Selling, general and administrative 62,599 13,259 1,066 (M) 76,924
Restructuring charge and
earthquake loss (C) 9,130 0 0 9,130
------------- -------- -------- -----------
71,729 13,259 1,066 86,054
------------- -------- -------- -----------
Income (loss) from operations (36,633) 3,435 (1,066) (34,264)
OTHER INCOME (EXPENSE)
Other income 71 0 0 71
Interest expense (4,587) (1,908) 930 (B) (5,565)
------------- -------- -------- -----------
(4,516) (1,908) 930 (5,494)
------------- -------- -------- -----------
Minority interest 2,800 0 0 2,800
------------- -------- -------- -----------
Income (loss) before taxes (38,349) 1,527 (136) (36,958)
PROVISION FOR INCOME TAXES (797) 0 0 (797)
------------- -------- -------- -----------
Net income (loss) (C)(E) $ (37,552) $ 1,527 $ (136) $ (36,161)
============= ======== ======== ===========
Net income (loss) per common share $ (2.64) $ (2.05)
============= ===========
Common and common equivalent shares 14,235,613 17,640,380
============= ===========
</TABLE>
F-26
<PAGE>
AMERIQUEST TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For three months ended September 30, 1994
(Unaudited)
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
AmeriQuest Pro Forma Pro Forma
Technologies, Inc. Robec, Inc. NCD Adjustments Combined
------------------ ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
NET SALES $ 49,476 $22,351 $ 61,364 $ 0 (D) $133,191
COST OF SALES 44,704 22,450 56,628 0 123,782
--------- -------- -------- -------- --------
Gross profit (loss) 4,772 (99) 4,736 0 9,409
OPERATING EXPENSES
Selling, general and administrative 5,222 3,317 3,582 361 (M) 12,482
Research and development 3 0 0 0 3
--------- -------- -------- -------- --------
5,225 3,317 3,582 361 12,485
--------- -------- -------- -------- --------
Income (loss) from operations (453) (3,416) 1,154 (361) (3,076)
OTHER INCOME (EXPENSE)
Other income 67 0 0 0 67
Interest expense (727) (201) (669) 233 (B) (1,364)
--------- -------- -------- -------- --------
(660) (201) (669) 233 (1,297)
--------- -------- -------- -------- --------
Income (loss) before taxes (1,113) (3,617) 485 (128) (4,373)
PROVISION FOR INCOME TAXES 0 0 0 0 0
--------- -------- -------- -------- --------
Net income (loss) $ (1,113) $ (3,617) $ 485 $ (128) $ (4,373)
========= ======== ======== ======== ========
Net income (loss) per common share $ (0.10) $ (0.21)
========= ========
Weighted average shares 11,622,873 20,647,186
========== ==========
</TABLE>
F-27
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS OF AMERIQUEST TECHNOLOGIES, INC. AND ROBEC INC.
The following footnotes reflect the assumptions made in the preparation of the
Pro Forma Condensed Consolidated Financial Statements.
(A) The AQS pro forma condensed consolidated statement of operations for the
year ended June 30, 1994, under the heading "AmeriQuest Technologies,
Inc.," include the historical operating results of AQS, KENFIL, Inc. and
ROBEC, Inc. and related pro forma adjustments as reflected in the Company's
8-K/A dated September 12, 1994. Effective June 6, 1994, AQS acquired 51
percent of the outstanding common stock of KENFIL. The remaining 49 percent
of outstanding KENFIL common stock was acquired on September 12, 1994.
Effective September 22, 1994, AQS acquired 50.1 percent of the outstanding
common stock of ROBEC, Inc.
The AQS historical consolidated balance sheet at September 30, 1994
includes the balance sheet of KENFIL and ROBEC.
(B) To reduce interest expense associated with the redemptions of the following
instruments related to the NCD acquisition and the Computer 2000
investment.
<TABLE>
<CAPTION>
INTEREST
DEBT INSTRUMENT REDEMPTION EXPENSE ELIMINATED
-------------------------- ------------------------------------
Fiscal Year Three Months Ended
June 30, 1994 September 30, 1994
------------- ------------------
<S> <C> <C>
NCD Subordinated Debt
of $2,737,000 $360,000 $ 82,000
AQS Notes Payable of
$11,287,000 570,000 151,000
-------- --------
$930,000 $233,000
======== ========
</TABLE>
As the funds used to finance the NCD acquisition and the redemption of the
above debt instruments were provided by the October 1994 private placement
and the Computer 2000 investments, no forfeited investment earnings are
included in these pro forma financial statements (See Note L).
(C) The restructuring charge and earthquake loss of $9,130,000 included in
AmeriQuest's historical statement of operations includes $5,700,000 which
relates principally to the write-off of certain former personal computer
joint venture operations of AQS; and $3,430,000 for losses sustained by
Kenfil in the Southern California earthquake.
(D) On July 8, 1994, AmeriQuest reacquired 345,091 shares of its Common Stock
from Mr. James D'Jen, a former officer and director of AmeriQuest, as down
payment on an obligation of Mr. D'Jen to exchange 350,000 shares of
AmeriQuest Common Stock, in exchange for all (100%) of the common stock of
AmeriQuest's Singapore subsidiary, CMS Enhancements (S) PTE Ltd. The
Singapore subsidiary is a distributor of commodity disk drives. Sales for
this Singapore subsidiary approximate $20 million annually, with an
approximate breakeven in operating results. The balance of the 4,909 shares
of AQS Common Stock were never delivered to the Registrant. Accordingly,
after numerous demands of Mr. D'Jen to deliver the balance of the shares
due, the Board of Directors resolved on March 17, 1995 to return the shares
to Mr. D'Jen evidencing the down payment shares and to abandon the proposed
sale.
(E) Effective December 1993, AQS acquired certain assets and assumed certain
liabilities of Management Systems Group and acquired the outstanding common
stock of Rhino Sales Company. Assuming these acquisitions were reflected in
the accompanying pro forma statement of operations as being effective July
1, 1993, the impact of these acquisitions would be to increase revenues
approximately $20 million, with no affect on net income.
(F) To effect the purchase of NCD, AmeriQuest issued 1,864,767 shares of
AmeriQuest Common Stock plus paid cash of $6,713,000 (including the
redemption of subordinate indebtedness of approximately $3 million) in
exchange for all 195 outstanding shares of NCD Common Stock and to
eliminate NCD's historical equity. The AmeriQuest Common Stock is assumed
to have market value of $2.22 per share at the time of the transaction. The
valuation of AmeriQuest common stock is based upon a discounted quoted
market price, using weighted average discounts received on recently
completed private equity cash transactions. AmeriQuest also entered into a
stock repurchase agreement covering 661,586 shares of the Company's Common
Stock at $3.50 per share, issued to certain former NCD shareholders. As
such the obligation of $2.3 million is reflected as a liability in the
accompanying pro forma balance sheet. The total purchase price, including
debt redemption, is approximately $11.8 million. This purchase price
exceeds the fair value of the net assets acquired resulting in goodwill of
approximately $10.7 million. The NCD goodwill amount reflects management's
preliminary estimate of the fair value of NCD net assets acquired.
Management is currently in the process of completing its detailed analysis
of the fair value of NCD net assets acquired, however management does not
expect that additional purchase price allocation adjustments will have a
material effect on the Company's future results of operations or financial
position.
(G) The $18 million advance from Computer 2000 AG to the Company is for the
purchase of 8.1 million shares of AmeriQuest Common stock. This transaction
is subject to approval by AmeriQuest's shareholders. Computer 2000 has
agreed, subject to certain conditions, to invest an additional $32 million
for an approximately 51 percent ownership interest in AmeriQuest, including
shares already owned by AmeriQuest and assuming consummation of the Merger.
Due to the contingent nature of the stock conversion, this advance is
reflected as a current liability in the accompanying pro forma financial
statements. If not approved by June 30, 1995 the advance is due and payable
within 20 days.
(H) AmeriQuest completed a private placement of 1,540,000 Common Stock shares
and warrants in October, 1994 providing net proceeds of $3,608,000.
(I) Represents AmeriQuest's issuance of 1,864,767 shares of its common stock
associated with the acquisition of NCD. The AmeriQuest common stock is
assumed to have a market value of $2.22 per share at the time of the
acquisition (See Note F). The Company entered into a stock repurchase
agreement covering 661,586 of AmeriQuest common shares issued in connection
with this acquisition (See Note N).
(J) To eliminate the historical equity of NCD.
(K) To reflect the reduction of NCD's subordinated indebtedness of $3,046,000,
net of discount of $309,000, and the repayment of a portion of AmeriQuest's
notes payable, financed by the net proceeds of the Computer 2000 investment
(See Note G) and the October, 1994 private placement (See Note H).
(L) Reflects net proceeds remaining from the October, 1994 private placement
and the Computer 2000 investment after the acquisition of NCD and the
retirement of certain debt as set forth in the following table:
<TABLE>
<S> <C>
Private placement $ 3,608,000
Computer 2000 investment 18,000,000
Cash purchase price of NCD (3,473,000)
NCD transaction costs (194,000)
Repayment of NCD
subordinated indebtedness (3,046,000)
Repayment of AQS notes payable (11,287,000)
------------
Pro forma adjustment $ 3,608,000
============
</TABLE>
(M) To record goodwill amortization over the estimated economic life of 10
years.
Management believes that the most significant intangible acquired is that
of the distribution channels. Management has assigned a 10 year economic
life to this intangible asset as that is the period of time that management
expects to derive benefit from the existing vendor relationships and market
position. Management determined that 10 years is an appropriate economic
life based upon the historical length of the acquiree's vendor
relationships and the overall size and equality of the acquiree's vendors
and their product offerings.
(N) Amount reflects the estimated severance and other related costs associated
with the closing of NCD's administrative office and certain warehousing
locations and a agreement to repurchase 661,586 shares of AmeriQuest common
stock, issued to former shareholders of NCD, at $3.50 per share
($2,315,551) (see Note F).
F-28
