<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, 1999
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.)
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 May 7, 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>
MARCH 31, SEPTEMBER 30,
--------- -------------
ASSETS 1999 1998
------ ---- ----
<S> <C> <C>
Current Assets:
- ---------------
Cash and cash equivalents .................................................. $ 308 $ 755
Accounts receivable, less allowance for doubtful accounts of $270
and $609, respectively ................................................... 5,771 6,535
Inventories ................................................................ 3,338 4,191
Prepaid and other current assets ........................................... 381 354
--------- ---------
Total current assets ................................................ 9,798 11,835
--------- ---------
Property and equipment, net ................................................... 927 799
Other assets .................................................................. 324 321
--------- ---------
Total assets ........................................................ $ 11,049 $ 12,955
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
- --------------------
Lines of credit ............................................................ $ -- $ --
Accounts payable ........................................................... 2,076 2,132
Other current liabilities .................................................. 1,175 1,805
--------- ---------
Total current liabilities ........................................... 3,251 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 ........................................................... (167,255) (166,034)
--------- ---------
Total stockholders' equity .......................................... 7,797 9,018
--------- ---------
Total liabilities and stockholders' equity ......................... $ 11,049 $ 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 SIX MONTHS ENDED
------------------ ----------------
MARCH 31 MARCH 31
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales ..................................................... $ 12,560 $ 13,581 $ 24,364 $ 29,111
Cost of Sales ................................................. 11,709 12,157 22,403 26,254
------------ ------------ ------------ ------------
Gross Profit ............................................. 851 1,424 1,960 2,857
Operating Expenses:
Selling, General and Administrative ...................... 1,530 1,299 3,181 2,728
------------ ------------ ------------ ------------
Income (Loss) from Operations ......................... (679) 125 (1,221) 129
Interest Income 16 69 35 160
Interest Expense 15 105 35 105
------------ ------------ ------------ ------------
Net Income (loss) ....................................... $ (678) $ 89 $ (1,221) $ 184
========== ========== ========== ==========
Dividends on Preferred Stock .................................. -- (525) -- (1,050)
------------ ------------ ------------ ------------
Net Loss to Common Stockholders ............................... $ (678) $ (436) $ (1,221) $ (866)
------------ ------------ ------------ ------------
Basic Loss per Common Share ................................... $ (0.01) $ (0.01) $ (0.02) $ (0.01)
------------ ------------ ------------ ------------
Diluted Loss per Common Share ................................. $ (0.01) $ (0.01) $ (0.02) $ (0.01)
------------ ------------ ------------ ------------
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>
3
<PAGE> 4
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
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flow from operating activities:
- ------------------------------------
Net Income (loss) .......................................................... $ (678) $ 89 $ (1,221) $ 184
-------- -------- -------- --------
Gain on sale of subsidiaries ............................................... -- -- -- (184)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization ......................................... 67 82 131 162
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............................ (686) (26) 764 (89)
(Increase) decrease in inventories .................................... 243 (271) 853 (8,354)
(Increase) decrease in other assets ................................... (154) (569) (30) (1,284)
(Decrease) in accounts payable and accrued expenses ................... (164) (1,529) (686) (4,968)
-------- -------- -------- --------
Net cash provided by (used in) operating activities ................... (1,372) (2,224) (188) (14,533)
-------- -------- -------- --------
Cash flow from investing activities:
- ------------------------------------
Net cash received from sale of subsidiaries
-- -- -- 450
Capital expenditures .................................................. (57) (27) (259) (65)
-------- -------- -------- --------
Net cash provided by (used in) investing activities .............. (57) (27) (259) 385
-------- -------- -------- --------
Cash flow from financing activities:
- ------------------------------------
Net borrowings (repayment) under lines of credit ...................... -- 302 -- 9,591
-------- -------- -------- --------
Net cash provided by (used in) financing activities ................... -- 302 -- 9,591
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents ....................... (1,429) (1,949) (447) (4,557)
-------- -------- -------- --------
Cash and cash equivalents at beginning of period ........................... 1,737 5,072 755 7,680
-------- -------- -------- --------
Cash and cash equivalents at end of period ................................. $ 308 $ 3,123 $ 308 $ 3,123
======== ======== ======== ========
</TABLE>
Supplemental Disclosures of Cash Flow Information
-------------------------------------------------
Interest on lines of credit:
During the six months ended March 31, 1999 and 1998, the Company paid
interest of $35 and $105, respectively.
Income taxes:
During the six months ended March 31, 1999 and 1998, the Company made
no income tax payments.
4
<PAGE> 5
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1999
(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 the Company's 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 six month period ended March
31, 1999 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
shares equivalents, calculated using the treasury stock method and are included
in the calculation of diluted net income per share. Diluted loss per common
share is computed using the "if-converted method" applicable for convertible
preferred stock. For the six months ended March 31, 1999 and 1998, no common
stock equivalents are included in the calculation of dilutive earnings per share
as they are antidilutive.
(3) LINES OF CREDIT
At March 31, 1999, 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 certain
covenants as of March 31, 1999 and received a waiver from Fleet on May 5, 1999
for non-compliance with such covenants.
(4) 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 estimates that a
25% increase in sales will be required in order for the Company to achieve
operating profitability at its current cost structure, margin and product mix.
The Company's objective is to achieve improvement through its new "solution"
selling method and associated sales force restructuring, but no assurance can be
given that such a sales increase or improved product mix will occur or that
operating profitability will be maintained on a consistent basis.
5
<PAGE> 6
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(5) 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)
MARCH 31, 1999
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, installation and post-sale 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 $678,000 and net sales of $12,560,000 for the
quarter ended March 31, 1999 compared to net income of $89,000 (which included
reversal of accruals and restructuring reserves of $250,000) and net sales of
$13,581,000 for the quarter ended March 31, 1998.
The Company had a net loss of $1,221,000 and net sales of $24,364,000 for the
six months ended March 31, 1999 compared to net income of $171,000 (which
included reversal of accruals and restructuring reserves of $250,000,
significant bad debt recoveries and a $184,000 gain on sale of AmeriQuest's
Asian subsidiaries) and net sales of $29,111,000 for the six months ended March
31, 1998.
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 estimates that a
25% increase in sales will be required in order for the Company to achieve
operating profitability at its current cost structure, margin and product mix.
The Company's objective is to achieve improvement through its new "solution"
selling method and associated sales force restructuring, but no assurance can be
given that such a sales increase or improved product mix 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 SIX MONTHS
------------ ----------
ENDED ENDED
----- -----
MARCH 31, MARCH 31
--------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales....................................................... 100.0 100.0 100.0 100.0
Cost of sales................................................... 93.2 89.5 92.0 90.2
Gross profit.................................................... 6.8 10.5 8.0 9.8
Selling, general and administrative............................. 12.2 9.6 13.1 9.4
Interest income (expense), net ................................. 0.0 (0.4) 0.0 0.1
Net Income (Loss) .............................................. (5.4) 0.6 (5.0) 0.6
</TABLE>
7
<PAGE> 8
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
RESULTS OF OPERATIONS FOR THE SECOND QUARTER ENDED MARCH 31, 1999
Revenues for the second quarter increased to $12,560,000 compared to $11,804,000
in the previous quarter ended December 31, 1998. The revenue increase occurred
across most vendor lines and resulted in part from the efforts of the Company's
recently expanded and restructured sales force towards "solution" selling with a
focus on client server, networking, and storage products and services revenues.
Sales for the quarter ended March 31, 1999 declined by 8% from $13,581,000 for
the quarter ended March 31, 1998. However, net sales of the Company's new focus
replaced 99% of the prior year's approximately $3,635,000 of net sales from
discontinued vendors (including the IBM 2nd tier RS6000 business) as the prior
year quarter also included revenue of $980,000 relating to the liquidation of
excess inventory.
Cost of sales increased to 93.2% of sales for the quarter ended March 31, 1999
compared to 89.5% of sales in the same quarter for the prior year, primarily as
a result of the unfavorable change in vendor sales mix compared to the year ago
quarter. Gross profit performance for the current quarter was thus degraded,
compared to the year ago quarter, and reflects the delay in the desired
transition of the Company's recently expanded sales force towards higher margin
"solution" selling with a focus on client server, networking, storage products
and services revenues, and away from low margin commodity type sales.
Selling, general and administrative expenses of $1,463,000 decreased by $4,000
for the quarter ended March 31, 1999 compared to $1,467,000 for the same quarter
of the prior year, before consideration of reversal of accruals and
restructuring reserves of $250,000 included in that period.
Depreciation and amortization of $67,000 for the quarter ended March 31, 1999
decreased from $82,000 in the quarter ended March 31, 1998.
Net interest income of $1,000 in the quarter ended March 31, 1999 compares to
net interest expense of $36,000 for the quarter ended March 31, 1998.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1999
Sales of $24,364,000 for the first six months ended March 31, 1999 declined by
$4,747,000, or 16%, compared to $29,111,000 for the first six months of the
prior fiscal year. As the prior year first half sales included revenue of
$980,000 relating to the liquidation of excess inventory and $8,835,000 of net
sales from discontinued vendors (including the IBM 2nd tier RS6000 business),
the Company has replaced 43% of the non-recurring revenue from fiscal 1998. Most
of the revenue improvement occured in the second quarter.
Cost of sales increased to 92% of sales for the six months ended March 31, 1999
compared to 90% of sales in the same six months for the prior year, primarily as
a result of the unfavorable change in vendor sales mix compared to the year ago
six month period that included a higher proportion of client server revenue.
Gross profit performance for the six months ended March 31, 1999 continues to
reflect the delay in the desired transition of the Company's sales force towards
higher margin "solution" selling with a focus on client server, networking,
storage products and services revenues, and away from low margin commodity type
sales of the prior year.
Selling, general and administrative expenses of $3,050,000 increased by $236,000
for the six months ended March 31, 1999 compared to $2,816,000 for the same six
months of the prior year before consideration of reversal of accruals and
restructuring reserves of $250,000 included in that period. Significant bad debt
recoveries and a $184,000 gain on sale of AmeriQuest's Asian subsidiaries in the
prior year also reduced operating expense for the prior six month period.
Depreciation and amortization of $131,000 for the six months ended March 31,
1999 decreased from $162,000 in the six months ended March 31, 1998.
Interest income, net of interest expense, was $0 in the six months ended March
31, 1999 and compares to net interest income of $55,000 for the six months ended
March 31, 1998.
8
<PAGE> 9
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
INCOME TAXES
No income tax benefit was recorded on the net operating loss for the three
months and six months ended March 31, 1999 and the operating profit for March
31, 1998, 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 sales 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 March 31, 1999, the Company had $308,000 in cash and had no outstanding
borrowings under its existing lines of credit.
The Company used $1,372,000 of cash in operating activities in the quarterly
period ended March 31, 1999, primarily due to funding of the operating loss,
rapid payment of vendors, and an increase in accounts receivable due to high
sales in March.
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 certain
covenants as of March 31, 1999 and received a waiver from Fleet on May 5, 1999
for non-compliance with such covenants.
Management believes that cash on hand and the availability of credit from Fleet
will be adequate for the Company to meet its financial obligations on a timely
basis during fiscal 1999.
9
<PAGE> 10
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 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 and withdrew from its program to
distribute IBM's networking products on March 31, 1999. However, the Company
continues to resell, rather than distribute, IBM's mid-range systems and
networking products.
Since August 31, 1998 the Company has sold the Hewlett Packard ("HP") Netserver
and Vectra product, as a reseller rather than as a distributor, 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.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software programs are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries, or be otherwise
modified, to distinguish 21st century dates from 20th century dates. As a
result, computer systems and/or software used by many companies and governmental
agencies may need to be upgraded to comply with such Year 2000 requirements or
risk system failure or miscalculations causing disruptions of normal business
activities.
State of Readiness. To date, AmeriQuest has made a preliminary assessment of the
Year 2000 readiness of mission critical third party software and hardware used
by the Company. The Company has taken steps to upgrade such software and
hardware used by the Company known to it not to be Year 2000 compliant or where
the manufacturer of such software or hardware has provided upgrades to the
Company. In addition, AmeriQuest has performed a Year 2000 simulation on all
such software and hardware. The Company has similarly tested all mission
critical software and hardware with respect to leap year calculations. The
Company believes that, based on upgrades performed to date and/or upgrades
provided by the manufacturer, all mission critical software and hardware used by
the Company is either Year 2000 compliant or the Company has taken steps to
upgrade or replace such systems so that they are Year 2000 compliant. Such
upgrades or replacements were completed during the second quarter of fiscal
1999.
Costs. To date, AmeriQuest has not incurred any material expenditures in
connection with identifying or evaluating Year 2000 compliance issues. Most of
its expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters generally. Although the Company does
not anticipate that any such expenses incurred in the future will be material,
such expenses, if higher than anticipated, could have a material adverse effect
on the Company's business, results of operations and financial condition.
Risks. Except where plans have been made to upgrade or replace software and
hardware that is not Year 2000 compliant, AmeriQuest is not currently aware of
any Year 2000 compliance problems relating to third party software, hardware and
services used by the Company that would have a material adverse effect on the
Company's business, results of operations and financial condition. There can be
no assurance that the Company will not discover Year 2000 compliance problems in
third party software, hardware and services used by the
10
<PAGE> 11
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
Company which will need to be addressed or replaced, any of which could be time
consuming and expensive. The failure of the Company to identify, address and/or
replace any such third party software, hardware or services used by the Company
on a timely basis, if at all, that are not Year 2000 compliant could result in
lost revenues, increased operating costs and other business interruptions, any
of which could have a material adverse effect on the Company's business, results
of operations and financial condition.
The Company has not ascertained the Year 2000 compliance of hardware or software
which may have been sold by the Company in the past. AmeriQuest is also not
currently aware of any specific Year 2000 compliance problems relating to third
party software and hardware currently sold by the Company to its customers which
is supplied to the Company by its vendors. The Year 2000 compliance of software
and hardware supplied to the Company by its vendors is outside the Company's
control. The Company makes available to its customers the warranties offered by
manufacturers whose products it sells. While the Company believes that ultimate
responsibility for claims arising from the Year 2000 compliance of the software
and hardware it sells should be borne the products' manufacturer, there can be
no assurance that the Company will have no liability for any such claims and any
related liability could have a material adverse effect on the Company's
business, results of operations and financial condition.
In addition, there can be no assurance that other third parties outside the
Company's control, including, without limitation, governmental agencies,
financial institutions, public utilities, other service providers with which the
Company does business and others, will be Year 2000 compliant. The failure of
any such entity to be Year 2000 compliant could result in systematic failures
beyond the control of the Company which could have a material adverse effect on
the Company's business, results of operations and financial condition.
Contingency Plans. To date, the Company has not established a formal contingency
plan for dealing with a failure by the Company, any of its vendors or others to
achieve Year 2000 compliance. However, the Company recognizes the need to
develop contingency plans and expects to have these plans in place, where
applicable, by the end of fiscal 1999.
11
<PAGE> 12
AMERIQUEST TECHNOLOGIES, INC.
MARCH 31, 1999
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
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.
AmeriQuest Technologies, Inc.
May 14, 1999
/s/ ALEXANDER C. KRAMER
Alexander C. Kramer
Chief Executive Officer
May 14, 1999
/s/ JON D. JENSEN
Jon D. Jensen
Chief Operating Officer,
Chief Financial Officer and Secretary
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 308
<SECURITIES> 0
<RECEIVABLES> 5,771
<ALLOWANCES> 0
<INVENTORY> 3,338
<CURRENT-ASSETS> 9,798
<PP&E> 927
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,049
<CURRENT-LIABILITIES> 3,251
<BONDS> 0
0
0
<COMMON> 669
<OTHER-SE> 174,383
<TOTAL-LIABILITY-AND-EQUITY> 11,049
<SALES> 24,364
<TOTAL-REVENUES> 24,364
<CGS> 22,403
<TOTAL-COSTS> 3,181
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,221)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,221)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,221)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
