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, 1997
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.)
425 PRIVET ROAD, HORSHAM, PENNSYLVANIA, 19044
(Address of principal executive office) (Zip Code)
Registrant's telephone number: (215) 675-9300
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 January 23, 1998 there were 66,881,906 shares of the Registrant's
Common Stock outstanding; and 300,000 shares of the Registrant's Series H
Cumulative Convertible Preferred Stock were also outstanding, equivalent to
41,858,042 common shares on an "as if converted" basis.
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PART I. FINANCIAL INFORMATION
AMERIQUEST TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
ITEM 1. FINANCIAL STATEMENTS
The financial statements included herein have been prepared by AMERIQUEST
TECHNOLOGIES, INC. (the "Company"), without audit, pursuant to the rules and
regulations 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 Annual Report on Form 10-K for the
fiscal year ended September 30, 1997 as filed with the Securities and Exchange
Commission.
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AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31 SEPTEMBER 30
----------- ------------
ASSETS 1997 1997
------ ---- ----
(DOLLARS IN THOUSANDS)
Current Assets:
- ---------------
Cash and cash equivalents................................................. $5,072 $7,680
Accounts receivable, less allowance for doubtful accounts of $2,033 and
$2,156 as of December 31, 1997 and September 30, 1997, respectively.... 6,648 9,006
Inventories, net of valuation allowance................................... 14,724 7,066
Prepaid and other current assets.......................................... 974 935
--- ----
Total current assets............................................... 27,418 24,687
------ ------
Property and equipment, net.................................................. 752 1,272
Other assets................................................................. 120 120
--- ---
Total assets...................................................... $28,290 $26,079
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
- --------------------
Lines of credit........................................................... 12,353 3,064
Due to Computer 2000...................................................... 27,664 27,664
Accounts payable.......................................................... 5,982 9,492
Other current liabilities................................................. 6,113 9,251
----- -----
Total current liabilities.......................................... 52,112 49,471
------ ------
Stockholders' Deficit
- ---------------------
Preferred Stock, $.01 par value, 7% cumulative dividend, convertible into
common, 300,000 shares authorized and outstanding; entitled to
$30,000,000 in involuntary liquidation.................................. 30,000 30,000
Common stock, $.01 par value; authorized 200,000,000 shares; issued and
outstanding 66,881,906 shares as of December 31, 1997 and
September 30, 1997, respectively....................................... 669 669
Additional paid-in capital................................................... 111,145 111,145
Accumulated deficit.......................................................... (165,636) (165,206)
--------- ---------
Total stockholders' deficit........................................ (23,822) (23,392)
-------- --------
Total liabilities and stockholders' deficit........................ $28,290 $26,079
======= =======
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AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
------------------
DECEMBER 31
-----------
1997 1996
---- ----
Net sales.......................................... $15,530 $89,329
Cost of sales...................................... 14,097 81,594
------ ------
Gross profit................................... 1,433 7,735
Operating Expenses:
Selling, general and administrative............. 1,349 9,067
Depreciation and amortization................... 80 824
Restructuring costs............................. 0 400
- ---
Income (Loss) from operations................. 4 (2,556)
Interest income.................................... (91) 0
Interest expense................................... 0 1,165
- -----
Net Income (loss)............................. $95 ($3,721)
=== ========
Basic loss per common share........................ ($0.01) ($0.06)
------- -------
Diluted loss per common share...................... ($0.01) ($0.06)
------- -------
Basic Common shares outstanding (Note 2)........... 66,881,906 66,881,906
---------- ----------
Diluted Common shares outstanding (Note 2)......... 66,881,906 66,881,906
---------- ----------
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AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
------------------
DEC 31
------
1997 1996
---- ----
Cash flow from operating activities:
- ------------------------------------
Net Income (loss).............................................................. $95 ($3,721)
Gain on sale of subsidiaries................................................... (184) 0
Adjustments to reconcile net Income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization ............................................ 80 824
Restructuring costs....................................................... 0 400
Provision for losses on accounts receivable............................... 0 414
Provision for losses on inventory......................................... 348 311
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable................................ (63) 9,441
(Increase) decrease in inventories........................................ (8,431) 283
(Decrease) in accounts payable and accrued expenses ...................... (3,439) (4,685)
(Increase) in other assets................................................ (715) (1,423)
----- -------
Net cash provided by (used in) operating activities.................... (12,309) 1,844
-------- -----
Cash flow from investing activities:
- ------------------------------------
Net cash received from sale of subsidiaries................................ 450 0
Capital expenditures, net of disposals..................................... (38) (133)
---- -----
Net cash provided by (used in) investing activities.................... 412 (133)
--- -----
Cash flow from financing activities:
- ------------------------------------
Net borrowings (repayment) under lines of credit........................... 9,289 (1,578)
----- -------
Net cash provided by (used in) financing activities.................... 9,289 (1,578)
----- -------
Net increase (decrease) in cash and cash equivalents........................... (2,608) 133
------- ---
Cash and cash equivalents at beginning of period............................... 7,680 2,300
----- -----
Cash and cash equivalents at end of period..................................... $5,072 $2,433
====== ======
Supplemental Disclosures of Cash Flow Information
Interest on lines of credit:
During the three months ended December 31, 1997 and 1996, the
Company paid interest of $0 and $1,165, respectively.
Income taxes:
During the three months ended December 31, 1997 and 1996, the
Company made no federal income tax payments.
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AMERIQUEST TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ADDITIONAL
----------
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED
--------------- --------------------------- ------- -----------
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
------- --------- ------------ --------- ------- ---------
BALANCES AT SEPTEMBER 30, 1997.......... 300,000 $30,000 66,881,906 $ 669 $111,145 $ (165,206)
======= ======= ========== ======= ======== =============
Accrued dividend on Preferred stock (525)
Net Income for the Quarter ended
December 31, 1997................ 95
--
BALANCES AT DECEMBER 31, 1997........... 300,000 $30,000 66,881,906 $ 669 $111,145 $ (165,636)
======= ======= ========== ======= ======== ==============
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AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) MANAGEMENT OPINION
In the opinion of management, the consolidated condensed financial statements
reflect all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position and results of operations as
of and for the periods presented.
(2) LOSS PER SHARE
In February, 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share" effective for periods ending after December 15, 1997.
SFAS No. 128 simplifies the calculation of earnings per share to measure the
performance of an entity over a reporting period for both basic earnings per
share and diluted earnings per share. The Company has accordingly adopted the
provisions of SFAS 128 for the current quarter. Previously reported earnings
per share amounts have been restated, if applicable.
Basic loss per common share is computed by dividing net income (loss) less
dividends applicable to convertible preferred stock in 1997 by the weighted
average number of common stock outstanding during the period. Diluted loss per
common share is computed using the "if-converted method" applicable for
convertible preferred stock. The "if-converted method" is not applied if the
preferred dividend adjustment results in a loss for basic earnings per share
and income for diluted earnings per share. Because of the net loss attributable
to common shareholders, outstanding options and warrants are antidilutive.
Accordingly, the basic and diluted per share loss is the same.
(3) FISCAL PERIODS
The Company's fiscal year is the 52- or 53-week period ending on the Saturday
nearest to September 30 and its fiscal quarters are the 13- or 14-week periods
ending on the Saturday nearest to December 31, March 31, June 30 or September
30. For clarity of presentation, the Company has presented year-ends as if the
years ended on September 30; and quarter-ends are presented as if the quarters
ended on December 31, March 31, and June 30. The 1997 and 1998 fiscal years are
52 weeks, while the quarters presented are 13 weeks in duration.
(4) COMMON AND PREFERRED STOCK
On May 6, 1997 the Company issued and sold to Computer 2000 AG ("C-2000")
300,000 shares of its Series H Cumulative Convertible Preferred Stock for a
purchase price of $30.0 million. The proceeds of the sale were used to
partially pay down the Company's outstanding bank lines of credit. The
Preferred stock is convertible at the option of C-2000 into 41,958,042 shares
of the Company's Common Stock. The Preferred Stock has a 7% per annum
cumulative dividend payable in either company shares or cash until June 30,
1998, at the option of the Company. Thereafter such dividends must be paid in
cash.
Assuming the exercise of all warrants options and preferred stock outstanding
on December 31, 1997, AmeriQuest would have approximately 116 million shares of
Common Stock outstanding on that date, of which C-2000 would hold approximately
75.8%.
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AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(5) LINES OF CREDIT
At December 31, 1997, the Company's line of credit, utilizing a floor planning
arrangement, totalled $20 million. Available and unused credit lines totalled
approximately $7.6 million at December 31, 1997.
The weighted average interest rate for all borrowings under the above credit
facilities was 0% at December 31, 1997, as all payments under the lending
arrangement were made before the end of the free financing period.
At December 31, 1997, the terms of the IBM Credit Corporation ("IBMCC") lending
agreement included certain restrictive covenants which required the maintenance
of specified financial ratios generally related to net income, tangible net
worth as defined by IBMCC, and working capital. In February 1998, certain of
the IBMCC covenants were modified retroactive to December 31, 1997 to allow the
Company to be in compliance with those covenants as of December 31, 1997.
The IBMCC $20 million line of credit is scheduled to be reduced to $5 million
on February 28, 1998 and expires on September 30, 1998. At the Company's
request, IBMCC agreed on February 11, 1998 to reduce the line to $7.5 million
on February 28, 1998. Borrowings under the IBMCC line of credit at December 31,
1997 totalled $12.4 million. The Company is exploring various alternatives
relating to its line of credit including seeking an increased line and reducing
inventory through product sales and returns.
(6) NEED FOR ADDITIONAL REVENUE.
It is important to note that to date the AmeriQuest Systems Group ("ASG") has
been profitable in prior quarterly periods only on an operating basis prior to
corporate overhead allocations. Therefore, management estimates that a 15 to
25% increase in sales would be required in order for ASG to achieve
profitability on a stand-alone basis. No assurance can be given that such a
sales increase will occur or that ASG will be profitable on a stand-alone
basis.
(7) NEGATIVE TANGIBLE NET WORTH AND ADDITIONAL CAPITAL REQUIRED
As of December 31, 1997, the Company has a working capital deficit and
Stockholders' deficit of $24.7 million and $23.8 million, respectively. As
C-2000 has agreed to either subordinate its $27.7 million intercompany loan or
guarantee payment to the working capital lender, such loan may be treated by
such lenders, as an increase in tangible net worth. IBMCC has elected to accept
a $5 million guarantee from C-2000 in support of the Company's expected
reduction in its line of credit to $7.5 million.
(8) SALE OF SUBSIDIARIES
AmeriQuest/Kenfil Inc. sold its wholly-owned subsidiaries Kenfil Distribution
(Far East)Limited, a Hong Kong corporation and Kenfil Distribution (M) Sdn.
Bhd., a Malaysian corporation, to Regentland Holdings Ltd. for proceeds of
$2,939,062, pursuant to a Stock Purchase Agreement dated November 20, 1997. The
purchase price was equivalent to repayment of a loan and the net book value of
the assets sold plus a premium of $450,000, and was paid by issuance of a
dividend from Kenfil Distribution (Far East) Limited to AmeriQuest/Kenfil Inc.
in the amount of $1,717,106, the loan repayment of $771,956 from Kenfil
Distribution (Far East) Limited to AmeriQuest/Kenfil Inc., and the payment of
$450,000 from Regentland Holdings Ltd. The Company recognized a gain, net of
expenses, of $184,000.
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AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUMMARY
AmeriQuest is primarily a national valued-added wholesale distributor of micro,
mini and mid-range computers and related products to value-added resellers
("VARs") and systems integrators. Mid-range computers range in price from
$15,000 to $500,000. 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 systems and to
provide a high level of value-added services, including consultation on
component selection and system assembly and configuration, testing and
technical support services. AmeriQuest also provides a variety of programs and
seminars designed to enhance its customers' technical capabilities.
It is important to note that to date ASG has not been profitable on an
operating basis. Therefore, management estimates that a 15% to 25% increase in
sales would be required in order for ASG to achieve profitability on a
stand-alone basis. No assurance can be given that such a sales increase will
occur or that ASG will be profitable on a stand-alone basis.
-------------------------------------
The following table sets forth certain items in the Consolidated
Condensed Statements of Income as a percent of net sales.
PERCENT OF SALES
----------------
THREE MONTHS
------------
ENDED
-----
DECEMBER 31,
------------
1997 1996
------ ------
Net sales..................................... 100.0 100.0
Cost of sales................................. 90.8 91.3
Gross profit.................................. 9.2 8.7
Selling, general and administrative........... 8.7 10.2
Depreciation and amortization................. 0.5 0.9
Restructuring costs........................... 0.0 0.4
Interest and other expense, net............... 0.0 1.3
Profit (Loss) from operations................. 0.0 (4.2)
RESULTS OF OPERATIONS FOR THE QUARTER ENDED DECEMBER 31, 1997
Sales for the quarter ended December 31, 1997 declined by 83% from $89,329,000
for the quarter ended December 31, 1996 to $15,530,000, reflecting the closing
of the standard distribution business, the sale of the Company's Asian
subsidiaries and the sale of the assets of CMS Enhancements, Inc.
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AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
RESULTS OF OPERATIONS FOR THE QUARTER ENDED DECEMBER 31, 1997 (CONTINUED)
Cost of sales decreased to 90.8% of sales for the quarter ended December 31,
1997 compared to 91.3% of sales in the same quarter for the prior year
primarily as a result of the improved proft mix of the ASG business.
Selling, general and administrative expenses of $1,349,000 decreased by
$7,718,000 for the quarter ended December 31, 1997 compared to the expenditure
of $9,067,000 for the same quarter of the prior year, primarily as a result of
the closing of the standard and export distribution businesses, the sale of the
Company's Asian subsidiaries and the sale of the assets of CMS Enhancements,
Inc.
Depreciation and amortization of $80,000 for the quarter ended December 31,
1997 decreased from $824,000 in the quarter ended December 31, 1996 primarily
as a result of sale or disposal of assets related to the standard and export
distribution businesses, the Company's Asian subsidiaries and the assets of CMS
Enhancements, Inc.
Interest expense of $0 in the quarter ended December 31, 1997 compares to
$1,165,000 for the quarter ended December 31, 1996. The reduction is primarily
as a result of repayment of all bank debt by Computer 2000 AG, from proceeds
derived from the sale of 300,000 shares of the Company's Series H Cumulative
Convertible Preferred Stock (the "Preferred Stock") and because all payments
under the lending arrangement with IBM Credit Corporation were made before the
end of the free financing period of 30 days.
No income tax expense was recorded against net operating profit at December 31,
1997 nor was an income tax benefit recorded on the net operating loss at
December 31, 1996 as valuation allowances were provided, because it is not more
likely than not, as defined in SFAS 109, that deferred tax benefits will 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 revenues and earnings may be subject to
material volatility, particularly on a quarterly basis. In addition the
decision to close the standard distribution and export businesses could involve
unforseeable additional expenses and impede the prospects for ASG to obtain the
additional sales needed to achieve stand-alone profitablity.
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AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had $5,072,000 in cash and had borrowed
$12,353,000 against its existing lines of credit. The Company used $12,309,000
of cash in operating activities in the quarterly period ended December 31,
1997, funded by an increase in its line of credit borrowings of $9,289,000,
primarily to increase inventories to maintain and build its IBM business, and
secondarily to complete the payment of liabilities resulting from the closing
of the standard distribution and export businesses. Operating activities during
the remainder of the fiscal year are not expected to require significant
additional cash useage either related to the closing of the standard
distribution and export businesses or an additional build of inventory.
On September 30, 1997, C-2000 paid the outstanding bank lines of credit which
totalled $27.7 million and converted the loans to a non-interest bearing
intercompany demand loan, and agreed to defer demand of payment through
September 30, 1998 and either subordinate its loan or guarantee payment to the
working capital lender. IBMCC has elected to accept a $5 million guarantee from
C-2000 in support of the Company's expected reduction in its line of credit to
$7.5 million. C-2000 has also guaranteed certain amounts to two of the
Company's suppliers.
The Company also maintains a $20 million line of credit with IBMCC which is
secured by substantially all of the Company's assets. The line of credit is
scheduled to be reduced to $7.5 million on February 28, 1998. Borrowings under
the IBMCC line of credit at December 31, 1997 totalled $12.4 million. The
Company is exploring various alternatives relating to its line of credit
including seeking an increased line and reducing inventory through product
sales and returns.
Management believes that the guarantees and inter-company loans from C-2000 and
the continued availability of credit from IBMCC will be adequate for the
Company to meet its financial obligations on a timely basis during fiscal 1998.
No assurance can be given that the credit lines or that the direct or indirect
financing by C-2000 during fiscal 1998 will be adequate in amount and as
favorable in terms and conditions as the bank credit lines previously
guaranteed by C-2000, or that the Company will be able to obtain replacement
financing from other independent sources, or that even if available, it will be
on terms favorable to the Company.
The comments above contain forward looking statements that involve a number of
risks and uncertainties. Among other factors that could cause actual results to
differ materially are general business and economic 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 the
effect of the decision to close the standard distribution and export businesses
on the Company's vendor and customer relationships.
NYSE LISTING
The New York Stock Exchange ("NYSE") has repeatedly indicated that AmeriQuest
is not in compliance with certain of the NYSE's requirements for continued
listing on the NYSE. The NYSE could delist AmeriQuest's Common Stock at any
time, thereby adversely affecting the public market for such securities.
.
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AMERIQUEST TECHNOLOGIES, INC.
DECEMBER 31, 1997
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report.
27 Financial Data Schedule
(b) Reports on Form 8-K were filed during the quarter ended September 30,
1997.
Current Report on Form 8-K dated November 20, 1997 reporting
the sale of the stock of the Asian subsidiary of
AmeriQuest/Kenfil, Inc.
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AMERIQUEST TECHNOLOGIES, INC.
DECEMBER 31, 1997
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 12, 1998
/s/ ALEXANDER C. KRAMER
Alexander C. Kramer
Chief Executive Officer
February 12, 1998
/s/ JON D. JENSEN
Jon D. Jensen
Chief Operating Officer,
Chief Financial Officer and Secretary
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