<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES
EXCHANGE ACT OF 1934 from __________ to ______________ .
Commission File Number 1-10397
AMERIQUEST TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0244136
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 PRIVET ROAD, HORSHAM, PENNSYLVANIA, 19044
(Address of principal executive office) (Zip Code)
Registrant's telephone number: (215) 675-9300
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 preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to
filing requirements for the past 90 days.
Yes /X/ No / /
At April 30, 1998 there were 66,881,906 shares of the Registrant's Common
Stock outstanding; and 300,000 shares of the Registrant's Series H Cumulative
Convertible Preferred Stock were also outstanding, equivalent to 41,858,042
common shares on an "as if converted" basis.
<PAGE> 2
PART I. FINANCIAL INFORMATION
AMERIQUEST TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
ITEM 1. FINANCIAL STATEMENTS
The financial statements included herein have been prepared by AMERIQUEST
TECHNOLOGIES, INC. (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. It is suggested that the financial statements be read in
conjunction with the Annual Report on Form 10-K for the fiscal year ended
September 30, 1997 as filed with the Securities and Exchange Commission.
2
<PAGE> 3
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31 SEPTEMBER 30
-------- ------------
ASSETS 1998 1997
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................................................... $ 3,123 $ 7,680
Accounts receivable, less allowance for doubtful accounts of $1,748 and
$2,156 as of March 31, 1998 and September 30, 1997, respectively .......... 6,674 9,006
Inventories, net of valuation allowance ........................................ 14,995 7,066
Prepaid and other current assets ............................................... 1,018 935
--------- ---------
Total current assets ................................................. 25,810 24,687
--------- ---------
Property and equipment, net .................................................... 697 1,272
Other assets ................................................................... 120 120
--------- ---------
Total assets ......................................................... $ 26,627 $ 26,079
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Lines of credit ............................................................. $ 12,655 $ 3,064
Due to Computer 2000 ........................................................ 27,664 27,664
Accounts payable ............................................................ 5,476 9,492
Other current liabilities ................................................... 5,090 9,251
--------- ---------
Total current liabilities ............................................ 50,885 49,471
--------- ---------
Stockholders' Deficit
Preferred Stock, $.01 par value, 7% cumulative dividend, convertible into Common
Stock, 300,000 shares authorized and outstanding; entitled to
$30,000,000 in involuntary liquidation ...................................... 30,000 30,000
Common stock, $.01 par value; authorized 200,000,000 shares; issued and
outstanding 66,881,906 shares as of March 31, 1998 and
September 30, 1997, respectively .......................................... 669 669
Additional paid-in capital ..................................................... 111,145 111,145
Accumulated deficit ............................................................ (166,072) (165,206)
--------- ---------
Total stockholders' deficit .......................................... (24,258) (23,392)
--------- ---------
Total liabilities and stockholders' deficit ......................... $ 26,627 $ 26,079
========= =========
</TABLE>
3
<PAGE> 4
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ................................ $ 13,581 $ 75,295 $ 29,111 $ 164,624
Cost of sales ............................ 12,157 73,518 26,254 155,112
------------ ------------ ------------ ------------
Gross profit ........................ 1,424 1,777 2,857 9,512
Operating Expenses:
Selling, general and administrative . 1,217 12,849 2,566 21,916
Depreciation and amortization ....... 82 816 162 1,640
Restructuring costs ................. 0 20,037 0 20,437
------------ ------------ ------------ ------------
Income (Loss) from operations .... 125 (31,925) 129 (34,481)
Interest income .......................... (69) 0 (160) 0
Interest expense ......................... 105 1,176 105 2,341
------------ ------------ ------------ ------------
Net Income (loss) .................. $ 89 ($ 33,101) $ 184 ($ 36,822)
============ ============ ============ ============
Basic loss per common share .............. ($ 0.01) ($ 0.49) ($ 0.01) $ 0.55)
------------ ------------ ------------ ------------
Diluted loss per common share ............ ($ 0.01) ($ 0.49) ($ 0.01) ($ 0.55)
------------ ------------ ------------ ------------
Basic Common shares outstanding (Note 2) . 66,881,906 66,881,906 66,881,906 66,881,906
------------ ------------ ------------ ------------
Diluted Common shares outstanding (Note 2) 66,881,906 66,881,906 66,881,906 66,881,906
------------ ------------ ------------ ------------
</TABLE>
4
<PAGE> 5
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31
1998 1997 1998 1997
------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net Income (loss) ........................................... $ 89 ($33,101) $ 184 ($36,822)
Gain on sale of subsidiaries ................................ 0 0 (184) 0
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization .......................... 82 816 162 1,640
Restructuring costs .................................... 0 20,037 0 20,437
Provision for losses on accounts receivable ............ 0 4,864 0 5,278
Provision for losses on inventory ...................... 0 3,264 348 3,575
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............. (26) 5,179 (89) 14,620
(Increase) decrease in inventories ..................... (271) 8,521 (8,702) 8,804
(Decrease) in accounts payable and accrued expenses .... (1,529) (4,075) (4,968) (9,160)
(Increase) decrease in other assets .................... (569) 992 (1,284) (31)
------- -------- -------- --------
Net cash provided by (used in) operating activities .... (2,224) 6,497 (14,533) 8,341
------- -------- -------- --------
Cash flow from investing activities:
Net cash received from sale of subsidiaries ............ 0 0 450 0
Capital expenditures, net of disposals ................. (27) (238) (65) (371)
------- -------- -------- --------
Net cash provided by (used in) investing activities (27) (238) 385 (371)
------- -------- -------- --------
Cash flow from financing activities:
Net borrowings (repayment) under lines of credit ...... 302 (6,772) 9,591 (8,350)
------- -------- -------- --------
Net cash provided by (used in) financing activities .... 302 (6,772) 9,591 (8,350)
------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents ........ (1,949) (513) (4,557) (380)
------- -------- -------- --------
Cash and cash equivalents at beginning of period ............ 5,072 2,433 7,680 2,300
------- -------- -------- --------
Cash and cash equivalents at end of period .................. $ 3,123 $ 1,920 $ 3,123 $ 1,920
======= ======== ======== ========
</TABLE>
Supplemental Disclosures of Cash Flow Information
Interest on lines of credit:
During the six months ended March 31, 1998 and 1997, the
Company paid interest of $35,000 and $2,144,000, respectively.
Income taxes:
During the six months ended March 31, 1998 and 1997, the
Company made no federal income tax payments.
5
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AMERIQUEST TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
SIX MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED
--------------- ------------ ------- -----------
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
------ ------ ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT SEPTEMBER 30, 1997............ 300,000 $30,000 66,881,906 $669 $111,145 ($165,206)
======= ======= ========== ==== ======== =========
Accrued dividend on Preferred stock
(525)
Net Income for the Quarter ended
December 31, 1997.................. 95
Accrued dividend on Preferred stock
(525)
Net Income for the Quarter ended
March 31, 1998..................... 89
---------
BALANCES AT MARCH 31, 1998................ 300,000 $30,000 66,881,906 $669 $111,145 ($166,072)
======= ======= ========== ==== ======== =========
</TABLE>
6
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AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(1) BASIS OF PRESENTATION
The accompanying unaudited Consolidated Condensed Financial Statements have bee
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 or
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (which
include only normal recurring adjustments and accruals) considered necessary for
a fair presentation are included. For further information, refer to the audited
Consolidated Financial Statements and Notes thereto included in AmeriQuest
Technologies, Inc. Annual Report on Form 10-K for the fiscal year ended
September 30, 1997, as filed with the Securities and Exchange Commission.
The results of operations and cash flows for the three and six month periods
ended March 31, 1998 are not necessarily indicative of the results of operations
or cash flows which may be reported for the remainder of fiscal 1998.
(2) LOSS PER SHARE
In February, 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share" effective for periods ending after December 15, 1997. SFAS
No. 128 simplifies the calculation of earnings per share to measure the
performance of an entity over a reporting period for both basic earnings per
share and diluted earnings per share. The Company has accordingly adopted the
provisions of SFAS 128 for the current year. Previously reported earnings per
share amounts have been restated, if applicable.
Basic loss per common share is computed by dividing net income (loss) less
dividends applicable to convertible preferred stock by the weighted average
number of common stock outstanding during the period. Diluted loss per common
share is computed using the "if-converted method' applicable for convertible
preferred stock. The "if-converted method" is not applied if the preferred
dividend adjustment results in a loss for basic earnings per share and income
for diluted earnings per share. Because of the net loss attributable to common
shareholders, outstanding options of 565,504 and warrants of 9,392,515 are
antidilutive. Accordingly, the basic and diluted per share loss is the same.
(3) FISCAL PERIODS
The Company's fiscal year is the 52- or 53-week period ending on the Saturday
nearest to September 30 and its fiscal quarters are the 13- or 14-week periods
ending on the Saturday nearest to December 31, March 31, June 30 or September
30. For clarity of presentation, the Company has presented year-ends as if the
years ended on September 30; and quarter-ends are presented as if the quarters
ended on December 31, March 31, and June 30. The 1997 and 1998 fiscal years are
52 weeks, while the quarters presented are 13 weeks in duration.
(4) COMMON AND PREFERRED STOCK
On May 6, 1997 the Company issued and sold to Computer 2000 AG ("C-2000")
300,000 shares of its Series H Cumulative Convertible Preferred Stock for a
purchase price of $30.0 million. The proceeds of the sale were used to partially
pay down the Company's outstanding bank lines of credit. The Preferred stock is
convertible at the option of C-2000 into 41,958,042 shares of the Company's
Common Stock. The Preferred Stock has a 7% per annum cumulative dividend payable
in either Company shares or cash until June 30, 1998, at the option of the
Company. Thereafter such dividends must be paid in cash.
Assuming the exercise of all warrants options and preferred stock outstanding on
March 31, 1998, AmeriQuest would have approximately 118 million shares of Common
Stock outstanding on that date, of which C-2000 would hold approximately 74.2
percent.
7
<PAGE> 8
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(5) LINES OF CREDIT
At March 31, 1998, the Company's line of credit with IBM Credit Corporation
(IBMCC) utilizing a floor planning arrangement, totalled $19 million. The IBMCC
$19 million line of credit is to be reduced to $12.5 million on April 1, 1998,
to $10.5 million on May 1, 1998, to $8.5 million on June 1, 1998, to $6.5
million on July 1, 1998, to $5 million on August 1, 1998 and expires on
September 30, 1998.
At March 31, 1998, the terms of the IBM Credit Corporation ("IBMCC") lending
agreement included certain restrictive covenants which required the maintenance
of specified financial ratios generally related to net income, tangible net
worth as defined by IBMCC, and working capital. The Company is in compliance
with those covenants as of March 31, 1998.
The weighted average interest rate for all borrowings under the above credit
facilities was 0% at March 31, 1998, as all payments under the lending
arrangement were made before the end of the free financing period.
(6) NEED FOR ADDITIONAL REVENUE
It is important to note that to date the AmeriQuest Technologies, Inc. ("AQS")
has not been profitable in prior quarterly periods without benefit of
non-operating income. Therefore, management estimates that a 15% to 25% increase
in sales would be required in order for AQS to achieve profitability without
benefit of such non-operating income. No assurance can be given that such a
sales increase will occur or that AQS will be profitable on an operating basis
only.
The Company had net income of $89,000 for the quarter ended March 31, 1998
compared to a net loss of $33,101,000 for the quarter ended March 31, 1997.
Without the $156,000 reduction of inventory reserves and bad debt recovery of
$219,000 achieved during the current quarter, the Company would have a net loss
of $286,000 for the quarter.
(7) NEGATIVE TANGIBLE NET WORTH AND ADDITIONAL CAPITAL REQUIRED
As of March 31, 1998, the Company has a working capital deficit and
Stockholder's deficit of $25.1 and $24.3 million, respectively. As C-2000 has
agreed to either subordinate its $27.7 million intercompany loan or guarantee
payment to the working capital lender, such loan may be treated by such lenders,
as an increase in tangible net worth. IBMCC has received a $5 million guarantee
from C-2000 in support of the Company's line of credit.
(8) SALE OF SUBSIDIARIES
AmeriQuest/Kenfil Inc. sold its wholly-owned subsidiaries Kenfil Distribution
(Far East) Limited, a Hong Kong corporation and Kenfil Distribution (M) Sdn.
Bhd., a Malaysian corporation, to Regentland Holdings Ltd. for proceeds of
$2,939,062, pursuant to a Stock Purchase Agreement dated November 20, 1997. The
purchase price was equivalent to repayment of a loan and the net book value of
the assets sold plus a premium of $450,000, and was paid by issuance of a
dividend from Kenfil Distribution (Far East) Limited to AmeriQuest/Kenfil Inc.
in the amount of $1,717,106, the loan repayment of $771,956 from Kenfil
Distribution (Far East) Limited to AmeriQuest/Kenfil Inc., and the payment of
$450,000 from Regentland Holdings Ltd. The Company recognized a gain, net of
expenses, of $184,000 during the first quarter of fiscal 1998.
(9) NYSE LISTING
The New York Stock Exchange ("NYSE") suspended trading of the Company's Common
Stock before the opening of trading on Tuesday, March 10, 1998. Following
suspension, the NYSE indicated that it expects to make an application to the
Securities and Exchange Commission to delist the issue. The NYSE's action is
based on the fact that the Company fell below the NYSE' continued
listing criteria related to net tangible assets available to common stock (less
than $12 million) and average net income for the last three years (less than
$600,000); and aggregate market value of publicly held shares (less than $8
million).
8
<PAGE> 9
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(9) NYSE LISTING (CONTINUED)
The Company is currently traded on the Bulleting Board of NASDAQ under the
"AMQT" symbol.
The Company has applied to list its shares on the American Stock Exchange. The
Company does not anticipate that it will be accepted for listing by the American
Stock Exchange in the near future. However, several brokerage firms have
indicated that they will agree to serve as market makers for the Company.
(10) SALE OF COMPUTER 2000 AG
In April 1998, Tech-Data Corp. of Clearwater, Florida entered into an agreement
with Kloeckner & Co. AG to purchase the latters 80% interest in Computer 2000
AG, the majority stockholder of the Company.
9
<PAGE> 10
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUMMARY
AmeriQuest is primarily a national valued-added wholesale distributor of micro,
mini and mid-range computers and related products to value-added resellers
("VARs") and systems integrators. Mid-range computers range in price from
$15,000 to $500,000. AmeriQuest markets, sells and supports a variety of
products ranging from individual components to complete systems that have been
fully configured, assembled and tested prior to delivery to the customer.
AmeriQuest's strategy is to emphasize the sale of complete systems and to
provide a high level of value-added services, including consultation on
component selection and system assembly and configuration, testing and technical
support services. AmeriQuest also provides a variety of programs and seminars
designed to enhance its customers' technical capabilities.
It is important to note that to date the AmeriQuest Technologies, Inc. ("AQS")
has not been profitable in prior quarterly periods without benefir of
non-operating income. Therefore, management estimates that a 15% to 25% increase
in sales would be required in order for AQS to achieve profitability without
benefit of such non-operating income. No assurance can be given that such a
sales increase will occur or that AQS will be profitable on an operating basis
only.
The Company had net income of $89,000 for the quarter ended March 31, 1998
compared to a net loss of $33,101,000 for the quarter ended March 31, 1997.
Without the $156,000 reduction of inventory reserves and bad debt recovery of
$219,000 achieved during the current quarter, the Company would have a net loss
of $286,000 for the quarter.
-------------------------------------
The following table sets forth certain items in the Consolidated Condensed
Statements of Income as a percent of net sales.
<TABLE>
<CAPTION>
PERCENT OF SALES
----------------
THREE MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales ......................... 100.0 100.0 100.0 100.0
Cost of sales ..................... 89.5 97.6 90.2 94.2
Gross profit ...................... 10.5 2.4 9.8 5.8
Selling, general and administrative 9.0 17.1 8.8 13.3
Depreciation and amortization ..... 0.6 1.1 0.6 1.0
Restructuring costs ............... 0.0 26.6 0.0 12.4
Interest income (expense) ......... (0.3) (1.6) 0.2 (1.4)
Net Income (Loss) ................. 0.7 (44.0) 0.6 (22.4)
</TABLE>
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1998
Sales for the quarter ended March 31, 1998 declined by 82% from $75,295,000 for
the quarter ended March 31, 1997 to $13,581,000, reflecting the closing of the
standard distribution business, the sale of the Company's Asian subsidiaries and
the sale of the assets of CMS Enhancements, Inc.
10
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AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1998 (CONTINUED)
Cost of sales decreased to 89.5% of sales for the quarter ended March 31, 1998
compared to 97.6% of sales in the same quarter for the prior year primarily as a
result of the improved profit mix of the ASG business compared to the standard
and export distribution businesses. The Company's gross profit margin of 10.5%
for the quarter ended March 31, 1998 compared to 2.4% for the quarter ended
March 31, 1997. During the quarter ended March 31, 1998 the Company reduced its
inventory reserves by $156,000 based on its current assessment of inventories.
Without this inventory reserve reduction, the gross profit margin would have
been 9.3%.
Selling, general and administrative expenses of $1,217,000 decreased by
$11,632,000 for the quarter ended March 31, 1998 compared to the expenditure of
$12,849,000 for the same quarter of the prior year, primarily as a result of the
closing of the standard and export distribution businesses, the sale of the
Company's Asian subsidiaries and the sale of the assets of CMS Enhancements,
Inc. Additionally, bad debt recoveries of $219,000 were achieved during the
current quarter, thereby reducing total expenditures.
Depreciation and amortization of $82,000 for the quarter ended March 31, 1998
decreased from $816,000 in the quarter ended March 31, 1997 primarily as a
result of sale or disposal of assets related to the standard and export
distribution businesses, the Company's Asian subsidiaries and the assets of CMS
Enhancements, Inc.
Net interest expense of $36,000 in the quarter ended March 31, 1998 compares to
$1,176,000 for the quarter ended March 31, 1997. The reduction is primarily as a
result of repayment of $30 million in bank debt by the Company, from proceeds
derived from the sale of 300,000 shares of the Company's Series H Cumulative
Convertible Preferred Stock (the "Preferred Stock"), and the repayment of all
other outrstanding bank debt by Computer 2000 AG, the guarantor of such debt,
and because most of the payments under the lending arrangement with IBM Credit
Corporation were made before the end of the free financing period of 75 days.
No income tax expense was recorded against net operating profit at March 31,
1998 nor was an income tax benefit recorded on the net operating loss at March
31, 1997 as valuation allowances were provided, because it is not more likely
than not, as defined in SFAS 109, that deferred tax benefits will be realized
through operations. The valuation allowances recorded against deferred tax
assets are based on management's estimates related to the Company's ability to
realize these benefits. Appropriate adjustments will be made to the valuation
allowances if circumstances warrant in future periods. Such adjustments may have
a significant impact on the Company's financial statements.
The Company had net income of $89,000 for the quarter ended March 31, 1998
compared to a net loss of $33,101,000 for the quarter ended March 31, 1997.
Without the $156,000 reduction of inventory reserves and bad debt recovery of
$219,000 achieved during the current quarter, the Company would have a net loss
of $286,000 for the quarter.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1998
Sales for the six months ended March 31, 1998 declined by 82% from $164,624,000
for the six months ended March 31, 1997 to $29,111,000, reflecting the closing
of the standard distribution business, the sale of the Company's Asian
subsidiaries and the sale of the assets of CMS Enhancements, Inc.
Cost of sales decreased to 90.2% of sales for the six months ended March 31,
1998 compared to 94.2% of sales in the same six months for the prior year
primarily as a result of the improved profit mix of the ASG business compared to
the standard and export distribution businesses.
Selling, general and administrative expenses of $2,566,000 decreased by
$19,350,000 for the six months ended March 31, 1998 compared to the expenditure
of $21,916,000 for the same six months of the prior year, primarily as a result
of the closing of the standard and export distribution businesses, the sale of
the Company's Asian subsidiaries and the sale of the assets of CMS Enhancements,
Inc.
Depreciation and amortization of $162,000 for the six months ended March 31,
1998 decreased from $1,640,000 in the six months ended March 31, 1997 primarily
as a result of sale or disposal of assets related to the standard and export
distribution businesses, the Company's Asian subsidiaries and the assets of CMS
Enhancements, Inc.
11
<PAGE> 12
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
Net interest income of $55,000 in the six months ended March 31, 1998 compares
to $2,341,000 for the six months ended March 31, 1997. The reduction is
primarily as a result of repayment of $30 million in bank debt by the Company,
from proceeds derived from the sale of 300,000 shares of the Company's Series H
Cumulative Convertible Preferred Stock (the "Preferred Stock"), and the
repayment of all other outrstanding bank debt by Computer 2000 AG, the guarantor
of such debt, and because most of the payments under the lending arrangement
with IBM Credit Corporation were made before the end of the free financing
period of 75 days. No income tax expense was recorded against net operating
profit at March 31, 1998 nor was an income tax benefit recorded on the net
operating loss at March 31, 1997 as valuation allowances were provided, because
it is not more likely than not, as defined in SFAS 109, that deferred tax
benefits will be realized through operations. The valuation allowances recorded
against deferred tax assets are based on management's estimates related to the
Company's ability to realize these benefits. Appropriate adjustments will be
made to the valuation allowances if circumstances warrant in future periods.
Such adjustments may have a significant impact on the Company's financial
statements.
VARIABILITY OF QUARTERLY RESULTS
Historically, the Company has experienced variability in its net sales and
operating margins on a quarterly basis and expects these patterns to continue in
the future. Management believes that the factors influencing quarterly
variability include: (i) the overall growth and seasonal fluctuations in market
demand in the microcomputer industry; (ii) shifts in short-term demand for the
Company's products resulting, in part, from the introduction of new products or
updates of existing products; and (iii) the fact that virtually all sales in a
given quarter result from orders booked in that quarter. Due to the factors
noted above, as well as the fact that the Company participates in a highly
dynamic industry, the Company's revenues and earnings may be subject to material
volatility, particularly on a quarterly basis. In addition the decision to close
the standard distribution and export businesses could involve unforeseeable
additional expenses and impede the prospects for ASG to obtain the additional
sales needed to achieve profitability.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had $3,123,000 in cash and had borrowed
$12,655,000 against its existing lines of credit. The Company used $2,224,000 of
cash in operating activities in the quarterly period ended March 31, 1998,
funded partially by an increase in its line of credit borrowings of $302,000
primarily to increase inventories to maintain and build its IBM business, and
secondarily to complete the payment of liabilities resulting from the closing of
the standard distribution and export businesses. Operating activities during the
remainder of the fiscal year are not expected to require significant additional
cash usage either related to the closing of the standard distribution and
export businesses or an additional build of inventory.
On September 30, 1997, C-2000 paid the outstanding bank lines of credit which
totalled $27.7 million and converted the loans to a non-interest bearing
intercompany demand loan, and agreed to defer demand of payment through
September 30, 1998 and either subordinate its loan or guarantee payment to the
working capital lender. IBMCC has received a $5 million guarantee from C-2000 in
support of the Company's line of credit. C-2000 has also guaranteed certain
amounts to two of the Company's suppliers.
The Company also maintains a $19 million line of credit with IBMCC which is
secured by substantially all of the Company's assets. The line of credit is
scheduled to be reduced to $12.5 million on April 1, 1998, to $10.5 million on
May 1, 1998, to $8.5 million on June 1, 1998, to $6.5 million on July 1, 1998,
to $5 million on August 1, 1998 and expires on September 30, 1998. Borrowings
under the IBMCC line of credit at March 31, 1998 totalled $12.7 million. The
Company is exploring various alternatives relating to its line of credit
including seeking an increased line and reducing inventory through product sales
and returns.
Management believes that the guarantees and inter-company loans from C-2000 and
the continued availability of credit from IBMCC will be adequate for the Company
to meet its financial obligations on a timely basis during fiscal 1998. No
assurance can be given that the credit lines or that the direct or indirect
financing by C-2000 during fiscal 1998 will be adequate in amount and as
favorable in terms and conditions as the bank credit lines previously guaranteed
by C-2000, or that the Company will be able to obtain replacement financing from
other independent sources, or that even if available, it will be on terms
favorable to the Company.
12
<PAGE> 13
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
The comments above contain forward looking statements that involve a number of
risks and uncertainties. Among other factors that could cause actual results to
differ materially are general business and economic conditions, the rate of
growth in the computer industry, competitive factors and pricing pressures,
changes in product mix, inventory risks due to shifts in market demand, and the
effect of the decision to close the standard distribution and export businesses
on the Company's vendor and customer relationships.
The New York Stock Exchange ("NYSE") suspended trading of the Company's Common
Stock before the opening of trading on Tuesday, March 10, 1998. Following
suspension, the NYSE indicated that it expects to make an application to the
Securities and Exchange Commission to delist the issue. The NYSE's action is
based on the fact that the Company fell below the NYSE's continued listing
criteria related to net tangible assets available to common stock (less than $12
million) and average net income for the last three years (less than $600,000);
and aggregate market value of publicly held shares (less than $8 million).
The Company is currently traded on the Bulletin Board of NASDAQ under the "AMQT"
symbol.
The Company has applied to list its shares on the American Stock Exchange. The
Company does not anticipate that it will be accepted for listing by the American
Stock Exchange in the near future. However, several brokerage firms have
indicated that they will agree to serve as market makers for the Company.
VENDOR RELATIONS
To maintain strong relationships with its principal vendors, AmeriQuest focuses
on marketing the products of a limited number of key vendors such as Unisys,
IBM, Hewlett Packard and Acer.
IBM requires distributors of its mid-range computer systems to resellers to meet
certain minimum purchase levels. AmeriQuest is required to purchase $30 million
of IBM mid-range computers during calendar 1998 in order to retain the right to
distribute IBM mid-range computers. No assurance can be given that AmeriQuest
will be able to meet the sales requirements imposed upon it by IBM. If
AmeriQuest were to no longer have the right to distribute IBM mid-range computer
systems, AmeriQuest would focus its sales efforts on selling a competitive
product manufactured by Unisys, Hewlett Packard, Acer and other vendors.
The annual contract with Hewlett Packard has been extended from March, 1998 and
will expire on June 30, 1998. During the past year the Company has started to
sell the HP Netserver and Vectra product lines. Sale of these products has been
slow and have not increased as rapidly as desired. HP recently informed the
Company that it will remain a distributor beyond June, 1998, but that it may be
required to purchase products from one of their larger fulfillment distributors
rather than directly from HP, beginning in July, 1998. The positive aspects of
this development are the ability to access a broader range of products
(including HP's printer products in addition to Intel based computers and
networking products) and greater product availability. The concerning aspects of
this change are the product pricing, marketing funding, and return privileges,
although there is also a possibility that margin levels can be increased due to
the greater buying power and discounts of a fulfillment distributor.
13
<PAGE> 14
AMERIQUEST TECHNOLOGIES, INC.
MARCH 31, 1998
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report.
27 Financial Data Schedule
AMERIQUEST TECHNOLOGIES, INC.
MARCH 31, 1998
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 thereunto duly authorized.
AmeriQuest Technologies, Inc.
April 30, 1998
/s/ ALEXANDER C. KRAMER
Alexander C. Kramer
Chief Executive Officer
April 30, 1998
/s/ JON D. JENSEN
Jon D. Jensen
Chief Operating Officer,
Chief Financial Officer and Secretary
14
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The schedule contains summary financial information extracted from the balance
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
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<CURRENT-ASSETS> 25,810
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0
30,000
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