<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 JUNE 30, 2000
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 reports), and (2) has been subject to
filing requirements for the past 90 days. Yes X No
At August 14, 2000 there were 67,841,906 shares of the Registrant's Common
Stock outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
FORM 10-Q
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
ASSETS 2000 1999
<S> <C> <C>
Current Assets:
Cash and cash equivalents ........................................................... $ 639 $ 667
Accounts receivable, less allowance for doubtful accounts of $213
and $264, respectively ............................................................ 9,417 8,323
Inventories ......................................................................... 2,007 3,565
Prepaid and other current assets .................................................... 411 319
--------- ---------
Total current assets ......................................................... 12,474 12,874
--------- ---------
Property and equipment, net ............................................................ 914 961
Other assets ........................................................................... 332 333
--------- ---------
Total assets ................................................................. $ 13,720 $ 14,168
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Lines of credit ..................................................................... $ 4,534 $ 2,443
Accounts payable .................................................................... 3,807 3,709
Other current liabilities ........................................................... 1,005 847
--------- ---------
Total current liabilities .................................................... 9,346 6,999
--------- ---------
Stockholders' Equity
Common stock, $.01 par value; 200,000,000 shares authorized;
67,841,906 shares issued and outstanding ........................................... 679 679
Additional paid-in capital ............................................................. 174,433 174,433
Accumulated deficit .................................................................... (170,738) (167,943)
--------- ---------
Total stockholders' equity ................................................... 4,374 7,169
--------- ---------
Total liabilities and stockholders' equity .................................. $ 13,720 $ 14,168
========= =========
</TABLE>
2
<PAGE> 3
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales .............................................. $ 15,127 $ 15,761 $ 45,600 $ 40,125
Cost of Sales .......................................... 14,135 14,177 42,176 36,580
------------ ------------ ------------ ------------
Gross Profit ...................................... 992 1,584 3,424 3,545
Operating Expenses:
Selling, General and Administrative ............... 2,012 1,641 5,961 4,822
------------ ------------ ------------ ------------
Loss from Operations ........................... (1,020) (57) (2,537) (1,277)
Interest Income ........................................ 28 2 30 37
Interest Expense ....................................... (111) (43) (288) (78)
------------ ------------ ------------ ------------
Net Loss ......................................... $ (1,103) $ (98) $ (2,795) $ (1,318)
============ ============ ============ ============
Basic and Diluted Net Loss per Common Share ............ $ (0.02) $ (0.00) $ (0.04) $ (0.02)
------------ ------------ ------------ ------------
Basic and Diluted Common Shares Outstanding (Note 2) ... 67,841,906 66,881,906 67,841,906 66,881,906
------------ ------------ ------------ ------------
</TABLE>
3
<PAGE> 4
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net Loss .................................................................... $(1,103) $ (98) $(2,795) $(1,318)
------- ------- ------- -------
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization .......................................... 79 82 258 213
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............................. (718) (1,441) (1,093) (677)
(Increase) decrease in inventories ..................................... 2,090 (229) 1,559 624
(Decrease) increase in accounts payable and accrued expenses ........... (480) (144) 256 (830)
(Increase) decrease in other assets .................................... (24) 89 (93) 59
------- ------- ------- -------
Net cash provided by (used in) operating activities .................... (156) (1,741) (1,908) (1,929)
------- ------- ------- -------
Cash flow from investing activities:
Capital expenditures ................................................... (129) (67) (211) (326)
------- ------- ------- -------
Net cash used in investing activities ............................. (129) (67) (211) (326)
------- ------- ------- -------
Cash flow from financing activities:
Net borrowings under lines of credit ................................... 541 1,914 2,091 1,914
Net cash provided by financing activities .............................. 541 1,914 2,091 1,914
------- ------- ------- -------
Net increase in cash and cash equivalents ................................... 256 106 (28) (341)
------- ------- ------- -------
Cash and cash equivalents at beginning of period ............................ $ 383 $ 308 $ 667 $ 755
------- ------- ------- -------
Cash and cash equivalents at end of period .................................. $ 639 $ 414 $ 639 $ 414
======= ======= ======= =======
</TABLE>
Supplemental Disclosures of Cash Flow Information
Interest:
During the nine months ended June 30, 2000 and 1999, the Company paid
interest of $258 and $78, respectively.
Income taxes:
During the nine months ended June 30, 2000 and 1999, the Company made no
income tax payments.
4
<PAGE> 5
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(1) BASIS OF PRESENTATION
The accompanying unaudited Consolidated 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, 1999, as filed with the Securities
and Exchange Commission.
The results of operations and cash flows for the nine month period ended June
30, 2000 are not necessarily indicative of the results of operations or cash
flows which may be reported for the remainder of fiscal 2000.
(2) LOSS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share," effective the year ended September 30, 1998. This
statement requires the disclosure of both basic and diluted earnings per share
as well as the retroactive restatement of prior years' per share disclosures.
Basic and dilutive shares outstanding for the nine months ended June 30, 2000
and 1999 are the same, as all common stock equivalents are anti-dilutive due to
the loss to common stockholders.
(3) LINES OF CREDIT
At June 30, 2000, the Company had borrowings of $4,534,000 against its line of
credit with Fleet Financial Corporation ("Fleet"). 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 June 30, 2000 and is currently in the process of obtaining a waiver from
Fleet for non-compliance with such covenants.
5
<PAGE> 6
AMERIQUEST TECHNOLOGIES, INC.
JUNE 30, 2000
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 markets, sells and leases products and services providing business
information solutions for value-added resellers ("VARs") and systems
integrators. AmeriQuest's strategy is to emphasize the sale of complete
solutions for its clients and to provide a high level of value-added services,
including consultation on component selection, system assembly, configuration,
testing, logistics, start-up, installation and technical support services.
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 ultimate customer.
The Company had a net loss of $1,103,000 and net sales of $15,127,000 for the
quarter ended June 30, 2000 compared to a net loss of $98,000 and net sales of
$15,761,000 for the quarter ended June 30, 1999. The fiscal 1999 third quarter
loss was substantially reduced by bad debt recovery of $236,000 and $398,000
related to the return of excess inventory. Without these items, the net loss for
the third quarter of fiscal 1999 would have been $732,000 or $0.01 per share.
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. Although management believes that
the Company's strategy, when coupled with planned increases in net sales, will
return AmeriQuest to profitability, there are numerous risks and uncertainties,
including those described in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1999, and no assurance can be given that the
Company's strategy will succeed or that the Company will become operationally
profitable. Management will periodically review the need to further reduce costs
should sales for any reason not materialize in amounts sufficient to cover the
existing cost structure. 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 Statements
of Income as a percent of net sales.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales .......................................... 100.0 100.0 100.0 100.0
Cost of sales ...................................... 93.4 89.9 92.5 91.2
Gross profit ....................................... 6.6 10.1 7.5 8.8
Selling, general and administrative ................ 13.3 10.4 13.1 12.0
Interest income (expense), net ..................... (0.5) (0.3) (0.6) (0.1)
Net Income (Loss) .................................. (7.3) (0.6) (6.1) (3.3)
</TABLE>
6
<PAGE> 7
AMERIQUEST TECHNOLOGIES, INC.
JUNE 30, 2000
RESULTS OF OPERATIONS FOR THE THIRD QUARTER ENDED JUNE 30, 2000
Sales for the quarter ended June 30, 2000 of $15,127,000 decreased by 4% from
$15,761,000 for the quarter ended June 30, 1999 due to less than desired
performance from its "solution" sales group and a continuation of the
consequence of closure of a key supplier in the previous quarter, an event that
forced the Company to accept one-time price increases when it was forced to
shift suppliers.
Cost of sales increased to 93% of sales for the quarter ended June 30, 2000
compared to 92% of sales in the same quarter for the prior year before
recognition of the benefit of a one time recovery of inventory reserves of
$398,000 for that quarter which ended June 30, 1999. The gross profit
performance deteriorated slightly as a result of the significant change in a
major supplier that resulted in poor margin performance of the Company's sourced
distribution products.
Selling, general and administrative expenses of $2,012,000 increased $135,000
for the quarter ended June 30, 2000 compared to $1,877,000 for the same quarter
of the prior year, before recognition of the benefit of bad debt recoveries of
$236,000 for that quarter ended June 30, 1999. The increased costs result solely
from the expenses incurred in expanding the solution sales group.
Depreciation and amortization decreased to $79,000 for the quarter ended June
30, 2000 from $82,000 for the quarter ended June 30, 1999.
Net interest expense and fees of $83,000 in the quarter ended June 30, 2000
compares to net interest expense of $41,000 for the quarter ended June 30, 1999.
This increase was attributable to both the cost of borrowings and the increased
borrowings against the line of credit.
No income tax benefit was recorded on the net operating loss for the three
months ended June 30, 2000 and June 30, 1999 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.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 2000
Sales of $45,600,000 for the first nine months ended June 30, 2000 increased
13.6%, or $5,475,000, compared to $40,125,000 for the first nine months of the
prior fiscal year. The increase reflects progress in the desired transition of
the Company's recently expanded sales force towards "solution" selling with a
focus on client server, networking, storage products and services revenues and
an increase in the Company's overall buying customer base.
Cost of sales, as a percentage of net sales, increased 1.3% to 92.5% for the
nine months ended June 30, 2000 compared to 91.2% for the nine months ended June
30, 1999. The prior nine month period included a one time benefit of $398,000 in
recovery of inventory reserves. When taking into consideration the one time
benefit, cost of sales would have been 92.2% of net sales for the nine months
ended June 30, 1999. In contrast to increased pressures for declining prices
within the information technology marketplace, the Company's continued focus
towards "solution" selling, including the results of its leasing division, has
begun to show slight improvement in the Company's gross margins.
Selling, general and administrative expenses of $5,961,000 increased 10%, or
$595,000, when compared to $5,366,000 for the nine months ended June 30, 1999
before consideration of a $544,000 benefit from bad debt recovery. The increase
was due solely to the Company's continued effort to recruit and train higher
caliber sales, technical, and leasing staff.
Depreciation and amortization increased to $258,000 for the nine months ended
June 30, 2000 from $213,000 for the nine months ended June 30, 1999 due to
amortization of leasehold improvements.
No income tax benefit was recorded on the net operating loss for the nine months
ended June 30, 2000 and June 30, 1999 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.
7
<PAGE> 8
AMERIQUEST TECHNOLOGIES, INC.
JUNE 30, 2000
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 unforeseeable additional
expenses and impede the prospects for the Company to obtain the additional sales
needed to consistently achieve operating profitability.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had $639,000 in cash and had borrowings of
$4,534,000 against its existing line of credit. The Company used $156,000 of
cash from operating activities in the quarterly period ended June 30, 2000,
primarily due to an increase in quarter ending accounts receivable and a
decrease in accounts payable and accrued expenses, offset nearly in full by a
substantial decrease in inventories. The Company's increased use of direct
shipments (shipments from the supplier to the client or end use consumer) has
significantly increased over prior periods and has resulted in the ability to
carry smaller inventory balances.
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 June 30, 2000 and is currently in the process of obtaining a
waiver from Fleet for non-compliance with such covenants.
On July 20, 2000, the Company entered into a Common Stock Purchase Agreement
(the "Agreement") with Wanquay Limited, an entity organized under the laws of
the British Virgin Islands (the "Investor"), establishing what is sometimes
referred to as an "equity line of credit" or an "equity drawdown facility."
Pursuant to the Agreement, the Investor has committed to purchase, at the
Company's option, up to $13.5 million of the Company's common stock over the
next 18 months, at a 12% discount to the average trading price over a specified
period prior to each such drawdown. The amount that can be drawn down by the
Company at any one time is dependent upon a number of factors, including the
Company's stock price and trading volume during the drawdown period. In
connection with the transaction, the Investor was issued warrants to purchase up
to 100,000 shares of the Company's common stock at an exercise price of $0.506
In addition, the Company's investment advisor with respect to the transaction,
Ladenburg Thalman & Co., Inc., was issued warrants to purchase 1,467,391 shares
of common stock at an exercise price of $0.506
Management believes that cash on hand, the availability of credit from Fleet,
and the possibility of a capital infusion from the Investor will be adequate for
the Company to meet its financial obligations on a timely basis during fiscal
2000 and 2001.
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, SCO, 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.
8
<PAGE> 9
AMERIQUEST TECHNOLOGIES, INC.
JUNE 30, 2000
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Exhibit
<S> <C>
4.1* Form of Warrant issued to Wanquay
Limited and Ladenburg Thalman &
Co., Inc.
10.1* Stock Purchase Agreement, dated as
of July 19, 2000.
10.2* Escrow Agreement among the Company,
Wanquay Limited and Epstein
Becker & Green, P.C.
10.3* Registration Rights Agreement,
between the Company and Wanquay
Limited.
27 Summary Financial Data Schedule
--------------------------
* EXHIBITS TO BE FILED BY AMENDMENT
</TABLE>
9
<PAGE> 10
AMERIQUEST TECHNOLOGIES, INC.
JUNE 30, 2000
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.
August 14, 2000
/s/ ALEXANDER C. KRAMER
Alexander C. Kramer
Chief Executive Officer
August 14, 2000
/s/ JON D. JENSEN
Jon D. Jensen
Chief Operating Officer,
Chief Financial Officer
and Secretary
10
