<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 DECEMBER 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)
<TABLE>
<CAPTION>
DELAWARE 33-0244136
<S> <C>
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
2465 MARYLAND ROAD, WILLOW GROVE, PA 19090
(Address of principal executive office) (Zip Code)
Registrant's telephone number: (215) 658-8900
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 February 15, 1999 there were 66,881,906 shares of the Registrant's
Common Stock outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
FORM 10-Q
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------ -------------
ASSETS 1998 1998
------ ---- ----
<S> <C> <C>
Current Assets:
---------------
Cash and cash equivalents................................................ $1,737 $755
Accounts receivable, less allowance for doubtful accounts of $445
and $609, respectively ................................................ 5,084 6,535
Inventories................................. ............................ 3,580 4,191
Prepaid and other current assets......................................... 229 354
------ ------
Total current assets.............................................. 10,630 11,835
------ ------
Property and equipment, net ................................................ 937 799
Other assets................................................................ 323 321
------ ------
Total assets...................................................... $11,890 $12,955
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
--------------------
Lines of credit.......................................................... $ - $ -
Accounts payable......................................................... 1,966 2,132
Other current liabilities................................................ 1,449 1,805
------- -------
Total current liabilities......................................... 3,415 3,937
----- -----
Stockholders' Equity
--------------------
Common stock, $.01 par value; 200,000,000 shares authorized;
66,881,906 shares issued and outstanding................................ 669 669
Additional paid-in capital.................................................. 174,383 174,383
Accumulated deficit......................................................... (166,577) (166,034)
---------- ----------
Total stockholders' equity........................................ 8,475 9,018
------- -----
Total liabilities and stockholders' equity ...................... $11,890 $12,955
======= =======
</TABLE>
2
<PAGE> 3
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
DECEMBER 31
-----------
1998 1997
---- ----
<S> <C> <C>
Net Sales................................................... $11,804 $15,530
Cost of Sales............................................... 10,694 14,097
------ ------
Gross Profit........................................... 1,110 1,433
Operating Expenses:
Selling, General and Administrative.................... 1,652 1,429
Restructuring Costs.................................... - -
---------- ---------
Income (Loss) from Operations....................... (542) 4
Interest Income............................................. 18 104
Interest Expense............................................ 19 13
---------- --------
Net Income (loss)..................................... $(543) $95
====== ===
Dividends on Preferred Stock................................ - (525)
-------- -----
Net Loss to Common Stockholders............................. (543) (430)
----- -----
Basic Loss per Common Share................................. $(0.01) $(0.01)
------- -------
Diluted Loss per Common Share............................... $(0.01) $(0.01)
------- -------
Basic Common Shares Outstanding (Note 2).................... 66,881,906 66,881,906
---------- ----------
Diluted Common Shares Outstanding (Note 2).................. 66,881,906 66,881,906
---------- ----------
</TABLE>
3
<PAGE> 4
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
DECEMBER 31,
------------
1998 1997
---- ----
<S> <C> <C>
Cash flow from operating activities:
------------------------------------
Net Income (loss)............................................... (543) $95
----- ---
Gain on sale of subsidiaries.................................... - (184)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization.............................. 64 80
Restructuring costs........................................ - -
Provision for losses on accounts receivable................ - -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable................. 1,451 (63)
(Increase) decrease in inventories......................... 611 (8,083)
(Decrease) in accounts payable and accrued expenses........ (522) (3,439)
(Increase) decrease in other assets........................ 123 (715)
--- -----
Net cash provided by (used in) operating activities........ 1,184 (12,309)
----- --------
Cash flow from investing activities:
------------------------------------
Net cash received from sale of subsidiaries................ - 450
Capital expenditures....................................... (202) (38)
----- ----
Net cash provided by (used in) investing activities... (202) 412
----- ---
Cash flow from financing activities:
------------------------------------
Net borrowings (repayment) under lines of credit.......... - 9,289
Issuance of Preferred Stock............................... - -
----------- ---------
Net cash provided by (used in) financing activities........ - 9,289
----------- -----
Net increase (decrease) in cash and cash equivalents............ 982 (2,608)
--- -------
Cash and cash equivalents at beginning of period................ $755 $7,680
---- ------
Cash and cash equivalents at end of period $1,737 $5,072
====== ======
</TABLE>
Supplemental Disclosures of Cash Flow Information
Interest on lines of credit:
During the three months ended December 31, 1998 and 1997, the Company
paid interest of $19 and $13, respectively.
Income taxes:
During the three months ended December 31, 1998 and 1997, the Company
made no income tax payments.
4
<PAGE> 5
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) BASIS OF PRESENTATION
The accompanying unaudited Consolidated Condensed Financial Statements included
herein have been prepared by AMERIQUEST TECHNOLOGIES, INC. ("AmeriQuest" or the
''Company'' in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X 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 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, 1998, as filed with
the Securities and Exchange Commission.
The results of operations and cash flows for the three month period ended
December 31, 1998 are not necessarily indicative of the results of operations
or cash flows which may be reported for the remainder of fiscal 1999.
(2) LOSS PER SHARE
The Company calculates net income (loss) pre share under the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS No. 128 requires a dual presentation of "basic" and "diluted"
earnings per share. Basic EPS is computed by dividing net income (loss) less
dividends on preferred stock by the weighted average number of common shares
outstanding during the period. When dilutive, options are considered as common
stock equivalents, calculated using the treasury stock method and are included
in the calculation of diluted net income per share. Diluted loss per converted
method applicable for convertible preferred stock. For the three months ended
December 31, 1998 and 1997, no common stock equivalents are included in the
calculation of dilutive earnings per share as they are antidilutive.
(3) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS 130 is effective for financial statements issued for
fiscal years beginning after December 15, 1997. Management believes that SFAS
130 will not have a material effect on the Company's financial statements.
In June 1997, the FASB issued Statement No. 131, "Disclosure About Segments of
an Enterprise and Related Information" ("SFAS 131"). This statement establishes
additional standards for segment reporting in the financial statements and is
effective for fiscal years beginning after December 15, 1997. Management
believes that SFAS 131 will not have a material effect on the Company's
financial statements.
(4) 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.
(5) LINES OF CREDIT
At December 31, 1998, the Company had no borrowings against its line of credit
with Fleet Financial Corporation ("Fleet"). The terms of the Fleet Financial
Corporation ("Fleet") lending agreement include certain restrictive covenants
which require the maintenance of specified financial ratios generally related
to cash flow and tangible net worth. The Company was not in compliance with the
year to date cash flow covenant of $250,000 as of December 31, 1998 and
received a waiver from Fleet on February 12, 1999 for non-compliance with such
covenant.
5
<PAGE> 6
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(6) NEED FOR ADDITIONAL REVENUE
It is important to note that the Company was not profitable in the quarter and
has not been profitable in prior quarterly periods without the benefit of
reversal of restructuring and other reserves, and management now estimates that
a 25% increase in sales will be required in order for the Company to achieve
operating profitability at its current cost structure and product mix. The
Company's objective is to achieve this improvement through its new "solution"
selling method, but no assurance can be given that such a sales increase will
occur or that operating profitability will be maintained on a consistent basis.
(7) ACQUISITION OF COMPUTER 2000 AG MAJORITY STOCK HOLDINGS BY SENIOR
MANAGEMENT
On July 20, 1998, Listen Group Partners, LLC, a group headed by AmeriQuest's
senior management, Alex Kramer (CEO) and Jon Jensen (COO and CFO), acquired the
36,349,878 shares of AmeriQuest common stock owned by Computer 2000. The
transaction was approved by the outside directors of AmeriQuest and by the full
Board of Directors of AmeriQuest.
AmeriQuest's management arranged for a new $10 million asset-backed bank credit
line for AmeriQuest, in part to release Computer 2000 from its guarantee of
IBMCC, obtained the release of Computer 2000 and its affiliates from all other
guarantees of AmeriQuest obligations, and agreed to pay certain transaction
costs totaling approximately $220,000. As part of the transaction, Computer
2000 contributed to the capital of AmeriQuest approximately $28 million in
intercompany debt obligations and an additional $3 million in cash. Computer
2000 further agreed to the redemption by AmeriQuest of all of the outstanding
AmeriQuest preferred stock, convertible into approximately 42 million common
shares, and to the cancellation of all outstanding dividends, interest and
AmeriQuest options and warrants held by Computer 2000. As a result of the
transaction, the number of outstanding shares of AmeriQuest, on a fully diluted
basis, was reduced from approximately 118 million to approximately 67 million.
The Board of Directors of the Company agreed to reserve 6.7 million shares of
common stock for future issuance to AmeriQuest employees as incentive
compensation pursuant to terms to be approved by outside directors of the board.
6
<PAGE> 7
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The comments below contain forward-looking statements that involve a number of
risks and uncertainties. Among other factors that could cause actual operating
results to differ materially are general economic and business 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 changes in agreements with manufacturers and master distributors
regarding the terms of product sales to the Company. A more comprehensive
description of these risks and other factors is set forth in the Company's
Annual Report on Form 10-K
SUMMARY
AmeriQuest is a valued-added wholesale distributor of mid-range, Unix and NT
server systems, networking systems, storage sub-systems, printers and related
products to value-added resellers ("VARs") and systems integrators. Mid-range
computers and servers range in price from $5,000 to $800,000. 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 "solutions" for its customers and to provide a
high level of value-added services, including consultation on component
selection, system assembly, configuration, testing and technical support
services. AmeriQuest also provides a variety of programs and seminars designed
to enhance its customers' technical capabilities.
The Company had a net loss of $543,000 and net sales of $11,804,000 for the
quarter ended December 31, 1998 compared to net income of $95,000 and net sales
of $15,530,000 for the quarter ended December 31, 1997.
It is important to note that the Company was not profitable in the quarter and
has not been profitable in prior quarterly periods without the benefit of
reversal of restructuring and other reserves, and management now estimates that
a 25% increase in sales will be required in order for the Company to achieve
operating profitability at its current cost structure and product mix. The
Company's objective is to achieve this improvement through its new "solution"
selling method, but no assurance can be given that such a sales increase will
occur or that operating profitability will be maintained on a consistent
basis..
-------------------------------------
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
-------------
ENDED
------
DECEMBER 31,
------------
1998 1997
---- ----
<S> <C> <C>
Net sales ..................................................... 100.0 100.0
Cost of sales ................................................. 90.6 90.8
Gross profit ................................................. 9.4 9.2
Selling, general and administrative............................ 13.5 8.7
Depreciation and amortization.................................. 0.5 0.5
Interest income (expense), net................................. 0.0 0.6
Net Income (Loss) ............................................. (4.6) 0.6
</TABLE>
RESULTS OF OPERATIONS FOR THE QUARTER ENDED DECEMBER 31, 1998
Sales for the quarter ended December 31, 1998 declined by 24% from $15,530,000
for the quarter ended December 31, 1997 to $11,804,000, reflecting both the
delay in replacing approximately $5,200,000 of net sales from discontinued
vendors (including the IBM 2nd tier RS6000 business), and the delay in the
7
<PAGE> 8
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
RESULTS OF OPERATIONS FOR THE QUARTER ENDED DECEMBER 31, 1998 (CONTINUED)
desired transition of the Company's recently expanded sales force towards
"solution" selling with a focus on client server, networking, and storage
products and services revenues, and away from commodity sales. Net sales of the
Company's new focus has thus replaced, in the quarter ended December 31, 1998,
only 33% of the prior year's dropped business lines and vendors.
Cost of sales decreased to 90.6% of sales for the quarter ended December 31,
1998 compared to 90.8% of sales in the same quarter for the prior year, and
gross profit performance for the current quarter was improved slightly,
primarily as a result of the favorable change in sales mix compared to the year
ago quarter.
Selling, general and administrative expenses of $1,588,000 increased by
$239,000 for the quarter ended December 31, 1998 compared to $1,349,000 for the
same quarter of the prior year, primarily as a result of significant bad debt
recoveries and a $184,000 gain on sale of AmeriQuest's Asian subsidiaries in the
prior year quarter which reduced operating expense for that period.
Depreciation and amortization of $64,000 for the quarter ended December 31,
1998 decreased from $80,000 in the quarter ended December 31, 1997.
Net interest expense and fees of $1,000 in the quarter ended December 31, 1998
compares to net interest income of $91,000 for the quarter ended December 31,
1997.
No income tax benefit was recorded on the net operating loss for the three
months ended December 31, 1998 and the operating profit for December 31, as
valuation allowances were provided, because it is more likely than not, as
defined in SFAS 109, that deferred tax benefits will not 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 net saless and earnings may be subject to
material volatility, particularly on a quarterly basis. In addition the
decisions to close former businesses could involve unforseeable additional
expenses and impede the prospects for the Company to obtain the additional
sales needed to consistently achieve operating profitablity.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had $1,737,000 in cash and had not borrowed
against its existing lines of credit. The Company generated $1,184,000 of cash
from operating activities in the quarterly period ended December 31, 1998,
primarily due to improvement in collection of accounts receivable and
liquidation of excess inventories.
The terms of the Fleet lending agreement include certain restrictive covenants
which require the maintenance of specified financial ratios generally related
to cash flow and tangible net worth. The Company was not in compliance with the
year to date cash flow covenant of $250,000 as of December 31, 1998 and
received a waiver from Fleet on February 12, 1999 for non-compliance with such
covenant.
8
<PAGE> 9
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Management believes that cash on hand and the availability of credit from Fleet
Financial Corporation will be adequate for the Company to meet its financial
obligations on a timely basis during fiscal 1999.
VENDOR RELATIONS
The marketing and selling efforts of AmeriQuest concentrate on a limited number
of key manufacturers including Acer, American Power, Digi-board, Hewlett
Packard, IBM, Multitech, Okidata, Unisys, and Wyse. With this strategy the
company is able to maintain a superior level of solution or application
expertise on products from these manufacturers. Additionally, the Company
sources significant volumes of other vendors products from fulfillment
distributors to complete solutions.
AmeriQuest, during the past year, had maintained both reseller and distribution
agreements with IBM for mid-range systems. The Company withdrew from IBM's mid
range distribution program on August 31, 1998. However, the Company continues
to distribute IBM's networking products and resell, rather than distribute,
IBM's mid-range systems.
The Company sells the Hewlett Packard ("HP") Netserver and Vectra product, not
as a distributor since August 31, 1998, but as a partner with HP and is
required to purchase products from one of HP's larger fulfillment distributors.
This arrangement affords greater product availability as well as a broader
range of products. In the short term, this arangement has impacted product
pricing and marketing funding. However, the Company believes that there is a
strong possibility that product margins can be maintained or increased as a
result of better product availability, buying power, and purchasing
arrangements.
During the calendar year 1998, Unisys chose to limit its distribution
agreements to only two distributors, one of which is AmeriQuest. AmeriQuest
also expanded its relationship with Unisys by negotiating a corporate account
reseller ("CAR") agreement which allows AmeriQuest to sell Unisys products,
that are not available to AmeriQuest's resellers, directly to end users. The
CAR allows the Company to serve as the "silent partner" of the Company's
resellers by being able to sell products directly to the reseller's end users
when the reseller is unable and desires AmeriQuest to do so.
9
<PAGE> 10
AMERIQUEST TECHNOLOGIES, INC.
DECEMBER 31, 1998
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 4, 1999, AmeriQuest received notice of suit of Techmedia
Computer Systems Corporation vs. AmeriQuest Technologies, Inc., Orange County
Superior Court of the State of California, No. 804507, filed January 19, 1999.
The suit by a discontinued vendor against AmeriQuest involves suit for breach
of contract, for goods sold and delivered at agreed price and for amount due on
stated account by Plaintiff. AmeriQuest management believes that such
proceedings have no merit and will not have a material adverse effect on
AmeriQuest's financial position and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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.
<TABLE>
<S> <C>
AmeriQuest Technologies, Inc.
February 15, 1999
/s/ ALEXANDER C. KRAMER
Alexander C. Kramer
Chief Executive Officer
February 15, 1999
/s/ JON D. JENSEN
Jon D. Jensen
Chief Operating Officer,
Chief Financial Officer and Secretary
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,737
<SECURITIES> 0
<RECEIVABLES> 5,084
<ALLOWANCES> 0
<INVENTORY> 3,580
<CURRENT-ASSETS> 10,630
<PP&E> 937
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,890
<CURRENT-LIABILITIES> 3,415
<BONDS> 0
0
0
<COMMON> 669
<OTHER-SE> 174,383
<TOTAL-LIABILITY-AND-EQUITY> 11,890
<SALES> 11,804
<TOTAL-REVENUES> 11,804
<CGS> 10,694
<TOTAL-COSTS> 1,652
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (543)
<INCOME-TAX> 0
<INCOME-CONTINUING> (543)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (543)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
