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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, 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 (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
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 14, 2001 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. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30,
ASSETS 2000 2000
------- --------- ---------
(UNAUDITED)
Current Assets:
Cash and cash equivalents .......................................... $ 469 $ 723
Accounts receivable, less allowance for doubtful accounts of $381
and $381, respectively ........................................... 6,284 8,069
Inventories ........................................................ 2,209 1,843
Other current assets ............................................... 571 478
--------- ---------
Total current assets ........................................ 9,532 11,113
--------- ---------
Property and equipment, net ........................................... 840 909
Other assets .......................................................... 284 294
--------- ---------
Total assets ................................................ $ 10,656 $ 12,316
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Line of credit ..................................................... $ 4,770 $ 5,269
Accounts payable ................................................... 3,588 3,393
Accrued Expenses and other current liabilities ..................... 1,185 929
--------- ---------
Total current liabilities ................................... 9,543 9,591
--------- ---------
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 ............................................ 174,698 174,698
Accumulated deficit ................................................... (174,264) (172,652)
--------- ---------
Total stockholders' equity .................................. 1,113 2,725
--------- ---------
Total liabilities and stockholders' equity ................. $ 10,656 $ 12,316
========= =========
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AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
DECEMBER 31
------------------
2000 1999
------------ ------------
(UNAUDITED)
Net Sales $ 12,192 $ 15,636
Cost of Sales 11,101 14,356
------------ ------------
Gross Profit 1,091 1,280
Selling, General and Administrative 2,519 1,893
------------ ------------
Loss from Operations (1,428) (613)
Interest Expense, net (184) (79)
------------ ------------
Net Loss $ (1,612) $ (692)
------------ ------------
Basic and Diluted Loss per Share $ (0.02) $ (0.01)
------------ ------------
Shares used in computing Net Loss per share 67,841,906 67,841,906
------------ ------------
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AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS
ENDED
DECEMBER 31,
---------------------------
2000 1999
------- -------
(UNAUDITED)
Cash flow from operating activities:
Net Loss (1,612) (692)
------- -------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 105 89
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 1,785 (508)
(Increase) decrease in inventories (366) (647)
Increase (Decrease) in accounts payable and accrued expenses 450 (353)
(Increase) decrease in other assets (81) 8
------- -------
Net cash provided by (used in) operating activities 281 (2,103)
------- -------
Cash flow from investing activities:
Capital expenditures (36) (31)
------- -------
Cash flow from financing activities:
Net borrowings (repayment) under lines of credit (499) 2,149
------- -------
Net increase (decrease) in cash and cash equivalents (254) 15
------- -------
Cash and cash equivalents at beginning of period 723 667
------- -------
Cash and cash equivalents at end of period $ 469 $ 682
======= =======
Supplemental Disclosures of Cash Flow Information
Interest:
During the three months ended December 31, 2000 and 1999, the Company paid
interest of $186 and $79, respectively.
Income taxes:
During the three months ended December 31, 2000 and 1999, the Company made
no income tax payments.
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AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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, 2000, as filed with the Securities
and Exchange Commission.
The results of operations and cash flows for the three month period ended
December 31, 2000 are not necessarily indicative of the results of operations or
cash flows which may be reported for the remainder of fiscal 2001.
(2) LOSS PER SHARE
The Company follows Statement of Financial Accounting Standards No. 128,
"Earnings per Share". This statement requires the disclosure of both basic and
diluted earnings per share. Basic and dilutive shares outstanding for the three
months ended December 31, 2000 and 1999 are the same, as all common stock
equivalents are anti-dilutive due to the net loss for the periods presented.
(3) LINES OF CREDIT
At December 31, 2000, the Company had borrowings of $4,770,000 against its line
of credit with Fleet Financial Corporation ("Fleet"), inclusive of outstanding
but unpresented checks. The terms of the Fleet lending agreement include a
certain restrictive covenant which requires the maintenance of a specified
financial ratio related to tangible net worth. The Credit Facility expires on
July 20, 2001.
(4) SEGMENT INFORMATION
Beginning in fiscal 2000, the Company was organized into three divisions:
fulfillment distribution, solutions and leasing. The fulfillment distribution
division markets and sells products and applications to VARs and systems
integrators. The Solutions division provides engineering, integration and
implementation services to corporate accounts in addition to the sales of
products and applications to those customers. The Leasing division assists
customers in obtaining equipment leasing and technology upgrade programs through
third parties. The Company evaluates and manages these divisions only at the
sales and cost of sales level. Therefore, operating income, total assets,
depreciation and capital expenditures by division are not presented.
During the three months ended December 31, 2000, leasing represented less than
5% of total sales and therefore has been presented with fulfillment
distribution. The following table represents information about the Company's
divisions for the three months ended December 31, 2000 and 1999 (dollars in
thousands):
2000 SALES GROSS PROFIT
---- ----- ------------
Fulfillment distribution and leasing....................... $10,940 $ 790
Solutions.................................................. 1,252 296
------- ------
$12,192 $1,091
======= ======
1999 SALES GROSS PROFIT
---- ----- ------------
Fulfillment distribution and leasing....................... $13,756 $1,046
Solutions.................................................. 1,880 234
------- ------
$15,636 $1,280
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AMERIQUEST TECHNOLOGIES, INC.
DECEMBER 31, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The comments below contain certain forward-looking statements that are based on
current expectations. In light of the important factors that can materially
affect results, including those set forth above, the inclusion of
forward-looking information herein should not be regarded as a representation by
the Company or any other person that the objectives or plans of the Company will
be achieved. The Company may encounter competitive, technological, financial,
legal and business challenges making it more difficult than expected to continue
as a value-added wholesale distributor and solutions provider; competitive
conditions within the computer industry may change adversely; demand for the
products distributed by the Company, or solutions provided by the Company, may
weaken; the Company may be unable to retain existing key vendors and existing
key management personnel; inventory risks may rise due to shifts in market
demand; the Company's forecasts may not accurately anticipate market demand; the
Company's insistence on only accepting higher margin business may not allow the
Company to generate sufficient revenue to cover its fixed operating expenses;
and there may be other material adverse changes in the Company's operations or
business. 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"), systems integrators
and, beginning in fiscal 2000, corporate clients. 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 has also developed a leasing division which facilitates
customers in obtaining lease financing through third parties.
The Company had a net loss of $1,612,000 and net sales of $12,192,000 for the
quarter ended December 31, 2000, compared to a net loss of $692,000 and net
sales of $15,636,000 for the quarter ended December 31, 1999.
During fiscal 2000, the Company continued to de-emphasize low margin hardware
product distribution. The Company's current business strategy is to increase the
emphasis on providing application solutions and implementation to corporate
clients while providing value-added services such as engineering design and
system configuration, installation capability, and marketing, financial and
technical support to its VAR and systems integrator client base. The goal of
this new focus is to improve the Company's margins as compared to the margins of
distributors who provide for sale of equipment only. Although management
believes that this change in strategy, which is expected to significantly
decrease low margin sales, when coupled with planned decreases in expenses, may
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, 2000. No assurance can be given that the
Company's strategy will succeed or that the Company will become operationally
profitable, and if this strategy is not successful, the Company may not be able
to continue in business. Management will periodically review the need to further
reduce costs should gross profits, for any reason, not materialize in amounts
sufficient to cover the existing cost structure.
-------------------------------------
The following table sets forth certain items in the Consolidated Statements
of Operations as a percent of net sales.
PERCENT OF SALES
THREE MONTHS
ENDED
DECEMBER 31,
2000 1999
------ ------
Net sales 100.0 100.0
Cost of sales 91.1 91.8
Gross profit 8.9 8.2
Selling, general and
administrative 20.6 12.1
Interest income (expense),
net (1.5) (0.5)
Net Income (Loss) (13.2) (4.4)
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AMERIQUEST TECHNOLOGIES, INC.
DECEMBER 31, 2000
RESULTS OF OPERATIONS FOR THE QUARTER ENDED DECEMBER 31, 2000 (CONTINUED)
Sales for the quarter ended December 31, 2000 decreased by 22% from $15,636,000
for the quarter ended December 31, 1999 to $12,192,000, as a result of the
Company's strategy to reduce the amount of low gross profit sales. This
strategy, as described in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 2000, will lead to significantly lower sales in
fiscal 2001 as compared to fiscal 2000.
Cost of sales decreased to 91.1% of sales for the quarter ended December 31,
2000 compared to 91.8% of sales in the same quarter for the prior year primarily
as a result of the favorable change in sales mix (low margin commodity sales
decreased as a percentage of sales) compared to the same three months ended
December 31, 1999.
Selling, general and administrative expenses of $2,519,000 increased by $626,000
for the quarter ended December 31, 2000 compared to $1,893,000 for the same
quarter of the prior year, primarily as a result of increased expense whose
reduced levels are not expected to be reflected in financial statements until
later quarterly periods this fiscal year.
Depreciation and amortization increased to $105,000 for the quarter ended
December 31, 2000 from $89,000 for the quarter ended December 31, 1999 due to
normal levels of system upgrades.
Net interest expense of $184,000 in the quarter ended December 31, 2000 compared
to net interest expense of $79,000 for the quarter ended December 31, 1999, due
to an overall increase in borrowings under the Company's line of credit.
No income tax benefit was recorded on the net operating loss for the three
months ended December 31, 2000 and December 31, 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.
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, 2000, the Company had $469,000 in cash and had borrowings of
$4,770,000 against its existing line of credit. The Company generated $280,000
of cash from operating activities in the quarterly period ended December 31,
2000, primarily due to the overall decrease in accounts receivable, which is a
result of the Company's desired strategy to reduce the amount of low gross
profit sales. This strategy, as described in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 2000, will lead to significantly
lower accounts receivable balances in fiscal 2001 than in fiscal 2000.
The terms of the Fleet lending agreement include a certain restrictive covenant
which requires the maintenance of a specified financial ratio related to
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. The Credit Facility expires on
July 20, 2001. If the credit facility is not renewed or replaced, the Company
may not be able to pay its debts as they become due, which could result in a
reorganization or liquidation.
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AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 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.
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AMERIQUEST TECHNOLOGIES, INC.
DECEMBER 31, 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
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 14, 2001
/s/ ALEXANDER C. KRAMER
Alexander C. Kramer
Chief Executive Officer
February 14, 2001
/s/ JON D. JENSEN
Jon D. Jensen
Chief Operating Officer,
Chief Financial Officer and Secretary