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, 2001
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 15, 2001 there were 67,841,906 shares of the Registrant's Common
Stock outstanding.
2
PART I. FINANCIAL INFORMATION
FORM 10-Q
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
MARCH 31, SEPTEMBER 30,
ASSETS 2001 2000
--------- -------------
Current Assets:
Cash and cash equivalents ................................................. $ 629 $ 723
Accounts receivable, less allowance for doubtful accounts of $379
and $381, respectively .................................................. 5,462 8,069
Inventories ............................................................... 1,295 1,843
Other current assets ...................................................... 874 478
--------- ---------
Total current assets ............................................... 8,260 11,113
--------- ---------
Property and equipment, net .................................................. 752 909
Property acquired for lease transactions in process, net ..................... 4,213
---------
Lease receivables assigned to lenders ........................................ 842
---------
Other assets ................................................................. 283 294
--------- ---------
Total assets ....................................................... $ 14,350 $ 12,316
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit ............................................................ $ 3,697 $ 5,269
Accounts payable .......................................................... 4,202 3,393
Accrued Expenses and other current liabilities ............................ 1,096 929
--------- ---------
Total current liabilities .......................................... 8,995 9,591
--------- ---------
Long Term Obligations
Nonrecourse debt .......................................................... 5,023
---------
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 .......................................................... (175,045) (172,652)
--------- ---------
Total stockholders' equity ......................................... 332 2,725
--------- ---------
Total liabilities and stockholders' equity ......................... $ 14,350 $ 12,316
========= =========
2
3
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31
------------------------------- -------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net Sales ................................. $ 11,015 $ 14,837 $ 23,207 $ 30,473
Cost of Sales ............................. 9,723 13,685 20,825 28,040
------------ ------------ ------------ ------------
Gross Profit ......................... 1,292 1,152 2,382 2,433
Selling, General and Administrative ....... 2,075 2,054 4,593 3,947
------------ ------------
Gain on Sale of Distribution Business ..... (229) (229)
------------ ------------
Loss from Operations .............. (554) (902) (1,982) (1,514)
Interest Expense, net ..................... (226) (96) (411) (175)
------------ ------------ ------------ ------------
Net Loss .................................. $ (780) $ (998) $ (2,393) $ (1,689)
============ ============ ============ ============
Basic and Diluted Loss per Share .......... $ (0.01) $ (0.01) $ (0.03) $ (0.02)
------------ ------------ ------------ ------------
Shares used in computing Net Loss per share 67,841,906 67,841,906 67,841,906 67,841,906
------------ ------------ ------------ ------------
3
4
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31
--------------------- ---------------------
2001 2000 2001 2000
(UNAUDITED)
Cash flow from operating activities:
Net Loss ........................................................ $ (780) $ (998) $(2,393) $(1,689)
------- ------- ------- -------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation ............................................... 238 91 343 179
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ................. 826 139 2,610 (376)
(Increase) decrease in inventories ......................... 914 13 548 (531)
(Increase) in lease receivables assigned to lenders ........ (719) (719)
(Increase) in property acquired for lease transactions ..... (4,476) (4,476)
Increase (Decrease) in accounts payable and accrued expenses 518 1,105 972 734
.Increase in nonrecourse debt ............................... 5,023 5,023
(Increase) decrease in other assets ........................ (300) 23 (384) (68)
------- ------- ------- -------
Net cash provided by (used in) operating activities ........ 1,244 373 1,524 (1,751)
Cash flow from investing activities:
Capital expenditures ....................................... (10) (50) (46) (84)
Cash flow from financing activities:
Net borrowings (repayment) under lines of credit .......... (1,074) (596) (1,572) 1,551
------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents ............ 160 (273) (94) (284)
------- ------- ------- -------
Cash and cash equivalents at beginning of period ................ 469 656 723 667
------- ------- ------- -------
Cash and cash equivalents at end of period ...................... $ 629 $ 383 $ 629 $ 383
======= ======= ======= =======
Supplemental Disclosures of Cash Flow Information
Interest:
During the six months ended March 31, 2001 and 2000, the Company paid
interest of $369 and $177, respectively.
Income taxes:
During the six months ended March 31, 2001 and 2000, the Company made
no income tax payments.
4
5
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(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 and the Company's Current
Report on Form 8-K filed on April 5, 2001, each as filed with the Securities and
Exchange Commission.
The results of operations and cash flows for the six month period ended March
31, 2001 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
and six months ended March 31, 2001 and 2000 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 March 31, 2001, the Company had borrowings of $3,697,000 against its line of
credit with Fleet Financial Corporation ("Fleet"), inclusive of outstanding but
unpresented checks. The Fleet credit facility expires on July 20, 2001. The
Company has received notice from Fleet that it does not intend to renew the
Company's line of credit when it expires.
(4) SEGMENT INFORMATION
Beginning in fiscal 2000, the Company was organized into three
segments: fulfillment distribution, solutions and leasing. The fulfillment
distribution division sold product 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 subsidiary provides vendor lease
financing programs for various types of equipment and software dealers in
addition to providing lease financing directly to middle market corporations
for technology, production and other types of business equipment, nationwide.
The Company evaluates and manages these segments only at the sales and cost of
sales level. Therefore, operating income, total assets, depreciation and
capital expenditures by division are not presented.
The following table represents information about the Company's divisions for the
six months ended March 31, 2001 and 2000 (dollars in thousands):
2001 SALES GROSS PROFIT
---- ----- ------------
Fulfillment distribution ............. $19,030 $ 1,419
Leasing .............................. 1,071 388
Solutions ............................ 3,106 575
------- -------
$23,207 $ 2,382
======= =======
2000 SALES GROSS PROFIT
---- ----- ------------
Fulfillment distribution ............. $26,654 $ 2,019
Leasing .............................. 197 39
Solutions ............................ 3,622 375
------- -------
$30,473 $ 2,433
======= =======
5
6
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
On March 30, 2001, the Company consummated the sale of certain assets related to
its fulfillment distribution to Seneca Data Distributors, Inc., a New York
corporation ("Seneca"), pursuant to an Asset Purchase Agreement.
(5) LEASES
Property acquired for transactions in process represents partial completion or
delivery of property which the lessee of the Company's leasing subsidiary has
accepted on in-process lease transactions.
For capital leases that qualify as direct financing leases, the aggregate lease
payments receivables are recorded on the balance sheet net of unearned income.
The unearned income is recognized as direct financing revenue over the lease
term. For capital leases that qualify as sales-type leases, the Company
recognizes profit or loss at lease inception to the extent the fair value of the
property leased differs from the Company's carrying value. The discounted value
of the aggregate lease payments receivable is recorded as sales-type lease
revenue. The property cost and any initial direct costs are recorded as
sales-type lease costs.
The Company assigns, on a nonrecourse basis, the minimum lease payments
receivable to various financial institutions at various interest rates. In the
event of default by a lessee, the lender has a first lien against the underlying
leased property with no further recourse against the Company. If this occurs,
the Company may not realize any future residual value in the leased property.
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 fail to grow the solutions business as expected;
the Company's sales force may fail to generate enough high margin sales to
offset the higher cost structure of providing expert business solutions; the
Company may encounter competitive, technological, financial, legal and business
challenges making it more difficult than expected to continue as a solutions and
leasing provider; competitive conditions within the computer industry may change
adversely; demand for the solutions provided by the Company may weaken; the
Company may be unable to retain existing key management, sales and technical
personnel; 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 Current Report on Form 8-K filed on
April 5, 2001.
SUMMARY
AmeriQuest markets, sells and provides lease financing for business
information solutions, products and services. On March 30, 2001, the Company
consummated the sale of certain assets related to its fulfillment distribution
to Seneca. AmeriQuest's current strategy is to emphasize the sale of complete
solutions to its corporate clients and to provide a high level of value-added
services, including consultation on component selection, system assembly,
configuration, testing, logistics, start-up, installation, technical support
services. The Company also has a leasing subsidiary which assists Ameriquest
clients in addition to other qualified lessees in obtaining lease financing for
business information products through third parties.
The Company had a net loss of $780,000 and net sales of $11,015,000 for the
quarter ended March 31, 2001, compared to a net loss of $998,000 and net sales
of $14,837,000 for the quarter ended March 31, 2000.
The Company intends to focus on providing application solutions and
implementation to corporate clients. The goal of this new focus is to
significantly improve the Company's margins as compared to the margins of the
fulfillment distribution business. Although management believes that this change
in strategy, which is expected to significantly increase the Company's sales
margins, and, 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 Current Report on Form 8-K filed on
April 5, 2001. No assurance can be given that the Company's strategy will
succeed or that the Company will become operationally profitable, and if this
strategy
6
7
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
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.
On April 17, 2001, Jon D. Jensen was appointed as President and Chief Executive
Officer, while also continuing as the Company's Chief Financial Officer,
replacing Alexander C. Kramer who remains a member of the Company's Board of
Directors. Mr. Kramer will also advise the Company in his capacity as Managing
Director of Listen Group Partners, LLC, a partnership jointly owned by Messrs.
Kramer and Jensen which owns 31,349,878 shares, or approximately 46.9%, of
AmeriQuest's outstanding common stock. The Company believes that the interests
of its stockholders will be best served if Mr. Jensen and Mr. Kramer each focus
their efforts on parallel courses of action to restore the Company to
profitability and growth; Mr. Jensen will work to foster internal growth and
profitability, while Mr. Kramer will pursue external growth opportunities,
including strategic acquisitions, to build AmeriQuest's solutions business,
although the Company has no current agreements pertaining thereto and has not
had any recent discussions with any potential acquisition targets.
The Company has undertaken a number of measures to improve competitiveness.
Salary expense has been cut by 50% and other expenses have been reduced by
approximately 35% during the quarter ended March 31, 2001.These actions will
begin to provide savings in the third quarter of fiscal 2001. Also The Company
has narrowly defined its business solution target markets to focus on asset
management, networking infrastructure and distribution management, which the
Company expects should improve the performance of this segment of the Company's
business.
The following table sets forth certain items in the Consolidated Statements
of Operations as a percent of net sales.
PERCENT OF SALES
---------------------------------------------
THREE MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
------ ------ ------ ------
Net sales ......................... 100.0 100.0 100.0 100.0
Cost of sales ..................... 88.3 92.2 89.7 92.0
Gross profit ...................... 11.7 7.8 10.3 8.0
Selling, general and administrative 16.7 13.8 18.8 13.0
Interest income (expense), net .... (2.1) (0.6) (1.8) (0.6)
Net Income (Loss) ................. (7.1) (6.7) (10.3) (5.5)
Sales for the quarter ended March 31, 2001 decreased by 26% from $14,837,000 for
the quarter ended March 31, 2000 to $11,015,000, as a result of the Company's
strategy to dramatically reduce the amount of low gross profit sales, and was
partially offset by improvement in revenue generated by the leasing subsidiary.
The Company expects that this strategy, as described in the Company's Current
Report on Form 8-K filed on April 5, 2001, will lead to significantly lower
sales in fiscal 2001 as compared to fiscal 2000.
Cost of sales decreased to 88.3% of sales for the quarter ended March 31, 2001
compared to 92.2% of sales in the same quarter for the prior year primarily as a
result of a favorable change in sales mix (low margin commodity sales decreased
as a percentage of sales while high margin leasing revenue increased) compared
to the same three months ended March 31, 2000.
Selling, general and administrative expenses of $1,837,000 decreased by $126,000
for the quarter ended March 31, 2001 compared to $1,963,000 for the same quarter
of the prior year, primarily as a result of cost reduction actions taken in the
previous first quarter.
The $229,000 net gain on sale of the distribution business assets represented
the minimum liability for purchase. Further gains on the sale will be recorded
as earned in future quarters.
7
8
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
Depreciation and amortization increased to $238,000 for the quarter ended March
31, 2001 from $91,000 for the quarter ended March 31, 2000 due to normal levels
of system upgrades and due to the depreciation on property acquired by the
leasing subsidiary for transactions in progress upon which the Company receives
interim rental payments prior to lease inception.
Net interest expense of $226,000 in the quarter ended March 31, 2001 is compared
to net interest expense of $96,000 for the quarter ended March 31, 2000, due to
an overall increase in borrowings under the Company's line of credit and due to
interest expense on non-recourse debt utilized to finance the property acquired
by the leasing subsidiary for transactions in progress.
No income tax benefit was recorded on the net operating loss for the six months
ended March 31, 2001 and March 31, 2000 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 information technology industry; (ii) shifts in short-term demand
for the Company's solutions; 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 profitability.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company had $629,000 in cash and had borrowings of
$3,697,000 against its existing line of credit. The Company generated $1,244,000
of cash from operating activities in the quarterly period ended March 31, 2001,
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 Current Report on Form 8-K
filed on April 5, 2001, will lead to significantly lower accounts receivable
balances in fiscal 2001 than in fiscal 2000.
Management believes that cash on hand and the availability of credit from Fleet
Financial Corporation until collection of outstanding accounts receivable in
sufficient amounts to repay outstanding borrowings will be adequate for the
Company to meet its financial obligations on a timely basis. The Fleet credit
facility expires on July 20, 2001. The Company has received notice from Fleet
that it does not intend to renew the Company's line of credit when it expires.
The sale of the assets related to the Company's distribution business will
significantly reduce the Company's future cash and borrowing needs. The Company
believes that it will be able to repay its existing borrowings under such line
of credit prior to its expiration date out of working capital. Moreover, the
Company does not currently believe that, following the sale of the distribution
business assets, it will have to replace the bank line of credit in the near
term. In the event that the Company desires to enter into a new line of credit,
there is no assurance that a bank line of credit would be available, or if
available, could be secured on terms favorable to the Company.
8
9
AMERIQUEST TECHNOLOGIES, INC.
MARCH 31, 2001
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 2001 Annual Meeting held on March 1, 2001, the
following directors were elected to serve until the 2002 Annual Meeting and
until each of their successors are elected and qualified:
DIRECTOR FOR WITHHELD
-------- --- --------
Edward Cloues, II 60,647,772 248,288
Jon D. Jensen 60,648,197 247,863
Alexander C. Kramer 60,648,197 247,863
Walter Reimann 60,648,197 247,863
Charles Soltis 60,648,347 247,713
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 15, 2001
/s/ Jon D. Jensen
Chief Executive Officer
(Principal executive officer and
principal accounting officer)
9