<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, 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 reports), and (2) has been subject to
filing requirements for the past 90 days. Yes X No
At February 9, 2000 there were 67,841,906 shares of the Registrant's Common
Stock outstanding.
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PART I. FINANCIAL INFORMATION
FORM 10-Q
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1999 1999
------ ------------ -------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
- ---------------
Cash and cash equivalents ....................................... $ 682 $ 667
Accounts receivable, less allowance for doubtful accounts of $156
and $264, respectively ........................................ 8,832 8,323
Inventories ..................................................... 4,212 3,565
Prepaid and other current assets ................................ 273 319
--------- ---------
Total current assets ........................................... 13,999 12,874
--------- ---------
Property and equipment, net ..................................... 907 961
Other assets .................................................... 366 333
--------- ---------
Total assets ................................................... $ 15,272 $ 14,168
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
- --------------------
Lines of credit ................................................. $ 4,592 $ 2,443
Accounts payable ................................................ 3,422 3,709
Other current liabilities ....................................... 781 847
--------- ---------
Total current liabilities ...................................... 8,795 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 ............................................. (168,635) (167,943)
--------- ---------
Total stockholders' equity ..................................... 6,477 7,169
--------- ---------
Total liabilities and stockholders' equity .................... $ 15,272 $ 14,168
========= =========
</TABLE>
2
<PAGE> 3
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31
------------------------------
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net Sales .......................................... $ 15,636 $ 11,804
Cost of Sales ...................................... 14,356 10,694
------------ ------------
Gross Profit ..................................... 1,280 1,110
Operating Expenses:
Selling, General and Administrative .............. 1,893 1,652
------------ ------------
Loss from Operations ............................. (613) (542)
Interest Income .................................... -- 18
Interest Expense ................................... (79) (19)
------------ ------------
Net Loss ........................................... $ (692) $ (543)
============ ============
Basic and Diluted Net Loss per Common Share ........ $ (0.01) $ (0.01)
============ ============
Basic and Diluted Common Shares Outstanding (Note 2) 67,841,906 66,881,906
============ ============
</TABLE>
3
<PAGE> 4
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1999 1998
------- -------
(UNAUDITED)
<S> <C> <C>
Cash flow from operating activities:
- ------------------------------------
Net Loss ...................................................... (692) (543)
------- -------
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization ............................... 89 64
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable .................. (508) 1,451
(Increase) decrease in inventories .......................... (647) 611
(Decrease) in accounts payable and accrued expenses ......... (353) (522)
(Increase) decrease in other assets ......................... 8 123
------- -------
Net cash provided by (used in) operating activities ......... (2,103) 1,184
------- -------
Cash flow from investing activities:
- ------------------------------------
Capital expenditures ........................................ (31) (202)
------- -------
Net cash used in investing activities ........................ (31) (202)
------- -------
Cash flow from financing activities:
- ------------------------------------
Net borrowings under lines of credit ........................ 2,149 --
------- -------
Net cash provided by financing activities ................... 2,149 --
------- -------
Net increase in cash and cash equivalents ..................... 15 982
------- -------
Cash and cash equivalents at beginning of period .............. $ 667 $ 755
======= =======
Cash and cash equivalents at end of period .................... $ 682 $ 1,737
======= =======
</TABLE>
Supplemental Disclosures of Cash Flow Information
-------------------------------------------------
Interest:
During the three months ended December 31, 1999 and 1998, the Company paid
interest of $79 and $19, respectively. Income taxes:
During the three months ended December 31, 1999 and 1998, the Company made
no income tax payments.
4
<PAGE> 5
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(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 three month period ended
December 31, 1999 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 three months ended December 31,
1999 and 1998 are the same, as all common stock equivalents are anti-dilutive
due to the loss to common stockholders.
(3) LINES OF CREDIT
At December 31, 1999, the Company had borrowings of $4,592,000 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.
5
<PAGE> 6
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 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 markets and sells 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 $692,000 and net sales of $15,636,000 for the
quarter ended December 31, 1999 compared to a net loss of $543,000 and net sales
of $11,804,000 for the quarter ended December 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. 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
ENDED
DECEMBER 31,
-----------------
1999 1998
---- ----
<S> <C> <C>
Net sales ........................... 100.0 100.0
Cost of sales ....................... 91.8 90.6
Gross profit ........................ 8.2 9.4
Selling, general and administrative . 12.1 14.0
Interest income (expense), net ...... (0.5) 0.0
Net Income (Loss) ................... (4.4) (4.6)
</TABLE>
RESULTS OF OPERATIONS FOR THE QUARTER ENDED DECEMBER 31, 1999
Sales for the quarter ended December 31, 1999 increased by 32% from $11,804,000
for the quarter ended December 31, 1998 to $15,636,000, reflecting 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.
6
<PAGE> 7
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
RESULTS OF OPERATIONS FOR THE QUARTER ENDED DECEMBER 31, 1999 (CONTINUED)
Cost of sales increased to 91.8% of sales for the quarter ended December 31,
1999 compared to 90.6% of sales in the same quarter for the prior year primarily
as a result of unfavorable change in sales mix (low margin commodity sales grew
faster than high margin solution sales) compared to the year ago quarter.
Selling, general and administrative expenses of $1,804,000 increased by $216,000
for the quarter ended December 31, 1999 compared to $1,588,000 for the same
quarter of the prior year, primarily as a result of increased selling expense.
Depreciation and amortization increased to $89,000 for the quarter ended
December 31, 1999 from $64,000 for the quarter ended December 31, 1998 due to
amortization of leasehold improvements in the Company's new location.
Net interest expense and fees of $79,000 in the quarter ended December 31, 1999
compares to net interest expense of $1,000 for the quarter ended December 31,
1998. The increase was attributed to the borrowings against the line of credit.
No income tax benefit was recorded on the net operating loss for the three
months ended December 31, 1999 and December 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.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had $682,000 in cash and had borrowings of
$4,592,000 against its existing lines of credit. The Company used $2,103,000 of
cash from operating activities in the quarterly period ended December 31, 1999,
primarily to finance accounts receivable and inventory growth related to
increased revenues.
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. 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 2000.
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.
7
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AMERIQUEST TECHNOLOGIES, INC.
DECEMBER 31, 1999
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
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.
February 9, 2000
/s/ ALEXANDER C. KRAMER
Alexander C. Kramer
Chief Executive Officer
February 9, 2000
/s/ JON D. JENSEN
Jon D. Jensen
Chief Operating Officer,
Chief Financial Officer and Secretary
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the balance
sheet and income statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 682
<SECURITIES> 0
<RECEIVABLES> 8,832
<ALLOWANCES> 0
<INVENTORY> 4,212
<CURRENT-ASSETS> 13,999
<PP&E> 907
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,272
<CURRENT-LIABILITIES> 8,795
<BONDS> 0
0
0
<COMMON> 679
<OTHER-SE> 174,433
<TOTAL-LIABILITY-AND-EQUITY> 15,272
<SALES> 15,636
<TOTAL-REVENUES> 15,636
<CGS> 14,356
<TOTAL-COSTS> 1,893
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (79)
<INCOME-PRETAX> (692)
<INCOME-TAX> 0
<INCOME-CONTINUING> (692)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (692)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
