SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM JUNE 30, 1995 TO
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SEPTEMBER 30, 1995
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Commission File Number 1-10397
AMERIQUEST TECHNOLOGIES, INC.
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(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.)
3 Imperial Promenade, Santa Ana, CA 92707
- --------------------------------------- --------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number: (714) 445-5000
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 September 30, 1995 there were 23,791,696 shares of the
Registrant's Common Stock outstanding.
1
PART I. FINANCIAL INFORMATION
AMERIQUEST TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
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 June
30, 1995 as filed with the Securities and Exchange Commission.
2
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, JUNE 30,
1995 1995
------------- --------
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash $ 210 $ 970
Accounts receivable, less allowance for doubtful accounts
of $9,021 and $9,572 as of September 30 and June 30,
1995 respectively 51,013 56,342
Inventories 42,335 49,101
Other current assets 975 1,362
-------- --------
Total current assets 94,533 107,775
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PROPERTY AND EQUIPMENT, NET 7,527 6,649
INTANGIBLE ASSETS, NET 10,536 10,411
OTHER ASSETS 2,359 3,173
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$114,955 $128,008
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 36,216 $ 42,023
Notes payable 45,244 72,945
Other current liabilities 9,244 14,234
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Total current liabilities 90,704 129,202
-------- --------
LONG-TERM OBLIGATIONS 6,686 6,515
-------- --------
SUBORDINATED NOTES PAYABLE - 18,000
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.1 par value; authorized 10,000,000 shares;
issued and outstanding 2,596,525 26 -
Common stock, $0.1 per value; authorized 30,000,000 shares;
issued and outstanding 23,896,140 and 22,966,711 shares as of
September 30, and June 30, 1995 239 230
Additional paid-in capital 106,476 56,196
Accumulated deficit (89,176) (82,135)
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Total stockholders' equity (deficit) 17,565 (25,709)
-------- --------
$114,955 $128,008
======== ========
3
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30
---------------------------
1995 1994
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(DOLLARS IN THOUSANDS)
NET SALES $ 100,723 $ 49,476
COST OF SALES 93,308 44,704
----------- -----------
Gross Profit 7,415 4,772
OPERATING EXPENSES
Selling, general and administrative 13,019 5,158
=========== ===========
Loss from operations (5,604) (386)
Interest expense 1,437 727
----------- -----------
Net Loss $ (7,041) $ (1,113)
=========== ===========
Net loss per common share and common stock equivalent $ (0.30) $ $(0.10)
=========== ===========
Weighted average shares 23,786,127 11,622,873
=========== ===========
4
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30
------------------------
1995 1994
----------- ----------
(DOLLARS IN THOUSANDS)
Cash Flow from Operating Activities
Net loss $ (7,041) $(1,113)
Adjustments to reconcile net loss to
Net cash provided by operating activities:
Depreciation and amortization 691 589
Provision for losses on accounts receivable 758 127
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 4,571 (2,269)
(Increase) decrease in inventories and other 6,766 (7,138)
(Increase) decrease in other assets 868 (40)
Increase (decrease) in accounts payable and other (11,626) 841
-------- -------
Net cash used in operating activities (5,013) (9,003)
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Cash Flow from Investing Activities
Purchases of property and equipment (361) (383)
Net cash paid for acquisition of businesses, net of acquired cash of $1,656 - 302
-------- -------
Net cash used in investing activities (361) (81)
-------- -------
Cash Flow from Financing Activities
Proceeds from line of credit borrowings, net (27,701) 5,927
Proceeds from sale of preferred and common stock 32,315 1,335
-------- -------
Net cash provided by financing activities 4,614 7,262
-------- -------
Decrease in cash (760) (1,822)
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Cash--beginning of the year 970 3,200
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Cash--end of the year $ 210 $ 1,378
======== =======
Supplemental Disclosures of Cash Flow Information
Interest on line of credit: During the three months ended September 30, 1995
and 1994, the Company paid interest costs of
$1,724,000 and $727,000 respectively.
Income taxes: During the three months ended September 30, 1995
and 1994, the Company made no tax payments.
5
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(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
Loss per common share and common share equivalent is computed on the basis
of the weighted average number of common shares outstanding. No effect is given
to stock options as they are anti-dilutive.
(3) FISCAL PERIODS
The Company's fiscal year is the 52- or 53- week period ending on the
Saturday nearest to June 30 and its fiscal quarters are the 13- or 14- week
periods ending on the Saturday nearest to March 31, June 30, September 30, and
December 31. For clarity of presentation, the Company has described year-ends
presented as if the years ended on June 30 and quarter-ends presented as if the
quarters ended on March 31, June 30, September 30, and December 31. The 1994
and 1995 fiscal years are 52 weeks, while the quarters presented are 13 weeks in
duration.
(4) ACQUISITIONS
The Company has pursued a strategy of growth through acquisition by
acquiring regional distributors with the goal of creating a national distributor
of value-added computers, subsystems and peripherals. The success of this
strategy is dependent upon the ability of the Company to effectively consolidate
and integrate the operations of the acquired businesses, combine different
cultures and obtain adequate financing to complete acquisitions and fund working
capital requirements. All of the Company's acquisitions completed during fiscal
years 1993 through 1995 have been accounted for in accordance with the purchase
method of accounting. The Company's Consolidated Financial Statements include
acquiree's results of operations from the effective acquisition dates.
The per share valuation of the Company's common stock issued in connection
with the following acquisitions represents a discount from the quoted market
price, based upon the weighted average discounts received on recently completed
private equity transactions. Management believes this method of valuation is the
best indication of fair value due to the Company's thin stock trading value and
small public float.
Regional distributors. During fiscal year 1994 and 1993, CDS Distribution,
Inc., a wholly-owned subsidiary of the Company completed the acquisition of
several smaller regional distributors ("regional distributors"). Total
consideration given to complete these acquisitions was 1,730,330 shares of the
Company's common stock valued at $3 million. In fiscal 1995, as a result of the
acquisitions of Robec and NCD discussed below, these distributors were
considered to be redundant, resulting in their closure and the write off of
their intangibles of approximately $3.4 million.
Kenfil Inc. ("Kenfil"). As of June 1994, the Company acquired 51% of the
outstanding common stock of Kenfil for common stock of the Company. Kenfil
distributed microcomputer software in both the U.S. and Asia. As of September
1994, the Company acquired the remaining outstanding 49% of the common stock of
Kenfil and converted certain trade and subordinated debt of Kenfil for common
and preferred stock, subsequently converted to common stock of the Company.
During fiscal year 1995, the former U.S. operations of Kenfil, including
6
principally educational and entertainment software distribution, were terminated
by the Company. Total consideration given for the Kenfil acquisition was
5,846,162 shares of the Company's common stock valued at approximately $14
million, plus transaction costs of $785,000.
Robec, Inc. ("Robec"). As of September 1994, the Company acquired 50.1% of
the outstanding common stock of Robec for common stock of the Company. Robec is
a distributor of computer products and services, specializing in systems and
UNIX applications, and is based in Horsham, Pennsylvania. The Company proposes
to acquire the remaining 49.9% of outstanding common stock of Robec during
fiscal year 1996. In September 1995, Robec's shareholders approved the
acquisition by AmeriQuest of the remaining 49.9% of Robec common stock not owned
by the Company.
The Robec merger agreement requires the Company to issue additional common
shares to provide former and current Robec shareholders participating in the
merger with a minimum value associated with the Company's common stock issued or
to be issued to complete the merger transaction. Based upon the exchange ratio
included in the Robec merger agreement, 1,402,805 shares of the Company's common
stock valued at $2.7 million was issued in exchange for 50.1% of Robec's common
stock in September 1994. Due to the minimum value provisions and adjustments to
the exchange ratio included in the amended Robec merger agreement, an additional
6.8 million shares of the Company's common stock is expected to be issued to
complete the Robec merger. The additional shares to be issued are valued at $5.8
million and is recorded as a long term liability in the accompanying
consolidated balance sheet. Total consideration is expected to be 8.2 million
shares of the Company's common stock valued at $8.5 million, plus transaction
costs of $265,000. Intangible assets recorded at September 30, 1995 related to
Robec are approximately $164,000.
November 13, 1995, AmeriQuest completed the acquisition of Robec, Inc.
through a merger whereby Robec has become a wholly-owned subsidiary of
AmeriQuest. In the merger, AmeriQuest issued 3,969,905 shares of common stock to
Robec's shareholders and assumed options held by Robec's employees to purchase
301,978 shares of common stock. Under the terms of the original acquisition
agreement, at the closing of the merger, certain principal stockholders of Robec
were entitled to receive 2,583,010 additional shares of AmeriQuest common stock
as partial consideration for shares of Robec common stock previously exchanged;
however, AmeriQuest did not have sufficient authorized common stock to issue
these additional shares. In lieu of the issuance of these additional shares at
the merger closing, the Robec principal shareholders were issued shares of
AmeriQuest preferred stock convertible into 2,583,010 shares of AmeriQuest
common stock upon the approval of AmeriQuest's shareholders and satisfaction by
AmeriQuest of certain other conditions. The preferred stock carries a stock
dividend at an initial rate of 15% per annum. The acceptance of the preferred
stock in lieu of common shares represents an accommodation by the former
principal shareholders of Robec, permitting the merger to go forward in advance
of AmeriQuest stockholder approval of the conversion of the preferred stock into
common stock and the increase in AmeriQuest's authorized common stock to a
number of shares sufficient for the conversion to be accomplished.
National Computer Distributors ("NCD"). In November 1994, the Company
acquired all of the outstanding common stock of NCD for cash and common stock of
the Company. NCD is a distributor of computer products and services,
specializing in systems and connectivity applications. Total consideration given
in the NCD acquisition was 1,864,767 shares of the Company's common stock valued
at $4.1 million and cash of $3.4 million. Intangible assets recorded at
September 30, 1995 related to NCD are approximately $9.7 million.
In connection the issuance of the Company' common stock associated with the
NCD acquisition, the Company entered into a stock repurchase agreement with
holders of 661,586 shares of the Company's common stock. The holders of the
Company's common stock covered by this agreement have required the Company to
repurchase the stock at $3.50 per share which is recorded as a current liability
in the accompanying balance sheet.
Management believes that distribution channel access represents the most
significant intangible acquired in connection with the acquisitions discussed
above. Management initially assigned a 10 year economic life to this intangible
asset as that is the period of time that management expects to derive benefit
from the existing vendor relationships and market position. Management
determined that 10 years is an appropriate economic life based
7
upon the historical length of the acquiree's vendor relationships and the
overall size and quality of the acquiree's vendors and their product offerings.
Intangible assets relate primarily to acquired distribution channels and
related vendor relationships and market positions. Intangibles are amortized
using the straight-line method from the date of acquisition over the expected
period to be benefited, currently estimated at 10 years. In determining the
appropriate amortization period the Company considered the historical length of
the acquiree's vendor relationships and the overall size and quality of the
vendors and their product offerings. On a quarterly basis, the Company assesses
the recoverability of intangible assets based upon consideration of past
performance and future expectations of undiscounted cash flow on an acquisition
by acquisition basis to the extent separately identifiable, in accordance with
State of Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long Lived Assets and For Long Lived Assets to be Disposed of". To the extent
separate assessment of such acquired intangibles is no longer feasible (i.e. as
a result of integrating multiple acquisitions into a single business unit) such
assessment is performed on a combined basis as appropriate.
The following unaudited pro forma combined information shows the results of
the Company's operations for the three months ended September 30, 1995 and 1994
as though the acquisitions and the Computer 2000 equity investment all had
occurred as of the beginning of each respective period (in thousands except per
share data):
QUARTER ENDED SEPTEMBER 30,
---------------------------
1995 1994
------------ ------------
Revenues $ 100,723 $ 133,191
Gross profit 7,415 9,409
Net loss 7,041 3,936
Net loss per share $0.11 $0.08
Weighted average shares 61,817,901 51,401,784
The pro forma results have been prepared for comparative purposes only and
are not necessarily indicative of the actual results of operations had the
acquisitions taken place at the beginning of the indicated period or the results
that may occur in the future. Furthermore, the pro forma results do not give
effect to cost savings or incremental costs which may occur as a result of the
integration and consolidation of the acquired companies.
(5) COMMON STOCK
In November 1994, AmeriQuest and Computer 2000 entered into an agreement
pursuant to which Computer 2000 agreed to invest approximately $50 million in
AmeriQuest in exchange for a majority ownership interest in AmeriQuest. Under
the agreement Computer 2000 initially loaned AmeriQuest $18 million.
In August 1995, Computer 2000 exchanged these notes for 810,811 shares of
AmeriQuest's Series A preferred stock (convertible into 8,108,110 shares of
common stock, subject to adjustment) and warrants to purchase 657,289 shares of
Series D preferred stock (convertible up to 6,572,890 shares of common stock,
subject to adjustment) exercisable at $0.53 per share of Series D preferred
stock ($0.05 per share of common stock on an as-if-converted to common stock
basis). The $18 million loan is reflected as a non-current liability at June 30,
1995 in the accompanying consolidated balance sheet. In addition, Computer 2000
purchased from AmeriQuest, for $31.2 million, 1,785,714 shares of Series B
preferred stock (convertible into 17,857,140 shares of common stock) and
warrants to purchase 746,186 shares of Series D preferred stock (convertible up
to 7,461,860 shares of common stock, subject to adjustment) exercisable at $0.53
per share of Series D preferred stock ($0.05 per share of common stock on an as-
if-converted to common stock basis). Assuming the exercise of warrants referred
to above the conversion of the preferred stock issuable upon such exercise and
the conversion of the preferred stock AmeriQuest will have issued 40 million
shares of common stock at an average purchase price of $1.25 per share and
Computer 2000 will hold approximately 62% of AmeriQuest's outstanding voting
stock.
8
Further, in consideration for Computer 2000's exchange of the notes of $18
million and Computer 2000's additional investment of $31.2 million, AmeriQuest
also granted to Computer 2000 pari passu rights with respect to other
outstanding warrants, options and other rights to acquire shares of AmeriQuest's
Common Stock that AmeriQuest has previously granted, or is obligated to grant in
the future, to others:
(i) If AmeriQuest issues in connection with its acquisition of Robec
any shares in excess of 2,800,000 shares of common stock, including all
shares already issued and all shares issued in the future, including shares
issued upon the exercise of options or warrants granted, assumed or
exchanged in connection with the Robec acquisition, then Computer 2000 will
have the right, pursuant to certain warrants to be granted by AmeriQuest to
purchase a number of shares of Series E preferred stock as will be
convertible into a number of shares of common stock that will be equal to
the number of incremental shares that are issued in connection with the
Robec acquisition. The exercise price of the acquisition maintenance
warrants will be $1.25 per share of Series E preferred stock ($0.05 per
share of common stock on an as-if-converted to common stock basis).
(ii) In connection with a private placement in June 1995 AmeriQuest
issued common stock and warrants to investors, which included warrants to
purchase up to 5,148,574 shares of common stock at an exercise price of
$1.05 per share. If and to the extent that any of the unit warrants are
exercised, then Computer 2000 will have the right, pursuant to certain
warrants to be issued by AmeriQuest, to purchase a number of Series F
preferred stock that will be convertible into a number of shares of common
stock equal to the shares issued upon the exercise of the unit warrants.
The exercise price of these warrants will be $5.25 per share of Series F
preferred stock ($.525 per share of common stock on an as-if-converted to
common stock).
(iii) AmeriQuest granted to Computer 2000 an option to purchase a
number of shares of common stock that will be equal to the number of shares
of common stock that AmeriQuest issues upon exercise or conversion of all
currently outstanding options, warrants or other rights (other than shares
subject to the unit maintenance warrants and acquisitions maintenance) to
acquire (upon conversion or otherwise) any shares of common stock or other
equity securities of AmeriQuest. This option will be exercisable for the
same consideration and on the same terms as the consideration for which the
terms under which such additional shares are issued.
On August 31, 1995, after completion of the Computer 2000 equity investment
and assuming conversion of all the preferred stock to common stock, the Company
would have 48,931,961 shares of common stock outstanding. Assuming the
completion of the Robec merger and exercise of outstanding warrants and Computer
2000's maintenance warrant arrangements, the Company would have approximately 96
million shares of common stock outstanding.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Summary
The following table sets forth certain items in the Consolidated Condensed
Statements of Income as a percent of net sales.
PERCENT OF NET SALES
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1995 1994
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Net sales 100.00% 100.00%
Cost of sales 92.64% 90.35%
Gross profit 7.36% 9.65%
Selling, general and administrative 12.93% 10.43%
Interest and other expense, net 1.43% 1.47%
(Loss) from operations (5.56%) (0.78%)
AmeriQuest is following a business strategy of growth by acquisition,
consistent with the consolidation that is occurring in the maturing personal
computer marketplace. This strategy creates the following risks involving the
ability to successfully:
. Consolidate the operations of previously unaffiliated businesses, all
but one of which were unprofitable
. Combine the business cultures of diverse operations
. Obtain adequate capital resources to complete acquisitions and working
capital required for continuing operations
RESULTS OF OPERATIONS
For the three months ended September 30, 1995 sales increased by $51
million to $101 million. The sales increase was due to the inclusion of NCD and
Robec purchased in November and September 1994, respectively. Due to the
significant impact of these acquisitions and the movement from manufacturing to
distribution results of operations from year to year reflect numerous
deviations. Sales increases were offset by sales declines in distribution due to
the closing of non profitable sales centers and in the value-added storage
operation due to competition.
Costs of sales as a percentage of net sales increased significantly for the
three months ended September 30, 1995 as compared to the same period in the
prior year due to the significant sales volume contributed by the companies
acquisition of lower margin distribution businesses. Prior period gross margin
percentages reflected significantly higher sales mix of higher margin value-
added storage operations. Cost of sales is also increased by competitive pricing
in the marketplace.
Selling general and administrative expenses increased with sales and
represent a higher percentage of sales than during the same period a year ago
due to fixed operating costs which have not been eliminated due to delays in the
acquisition process of Robec and the financing of the company by the sale of
stock to Computer 2000. During this process sales have declined. Additional
costs are currently being incurred to implement systems which will allow the
company to reduce future costs. During the quarter the Atlanta warehouse was
consolidated into existing operations to reduce future costs.
Interest expense was increased to $1.4 million reflecting an increased
borrowing during the first quarter offset by a debt reduction during August
following the sale of stock to Computer 2000.
No income tax benefit was recorded on operating losses due to net operating
loss carryforwards from prior years.
10
The Company anticipates that gross margins will continue to decline in the
future due to industry price competition.
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 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.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended September 30, 1995, the Company has generated cash
to meet its operating needs by sales of common stock. At September 30, 1995, the
Company had $210,000 in cash and had borrowed approximately $45 million against
its existing lines of credit. During the quarter ended September 30, 1995, the
Company used $5 million of cash in operating activities, compared to the use of
$9 million in operating activities in the same quarter of the year. The
significant amount of cash used in operating activities resulted from operating
losses and investment in working capital required to support the business
associated with the distribution companies acquired in 1995.
In November 1994, AmeriQuest and Computer 2000 entered into an agreement
pursuant to which Computer 2000 agreed to invest approximately $50 million in
AmeriQuest in exchange for a majority ownership interest in AmeriQuest. Under
the agreement Computer 2000 initially loaned AmeriQuest $18 million. In August
1995, Computer 2000 exchanged the $18 million note and provided the Company with
additional cash proceeds of approximately $31 million in exchange for the
issuance by AmeriQuest of certain shares of AmeriQuest's preferred stock,
convertible into common stock and warrants, all subject to adjustment for
certain defined activities. Further, as consideration for Computer 2000's
exchange of $18 million note and Computer 2000's additional investment of $31
million, AmeriQuest also granted to Computer 2000 certain pari passu rights with
respect to other outstanding warrants, options and other rights to acquire
shares of AmeriQuest's common stock that AmeriQuest has previously granted, or
is obligated to grant in the future, to others. After the completion of the
Computer 2000 equity investment, Computer 2000's ownership of the Company
approximated 51 percent. Computer 2000 holds warrants allowing it to increase
its ownership in the Company to approximately 61 percent. The Company used these
proceeds to repay trade debt and borrowings under its line of credit agreements.
November 13, 1995, AmeriQuest completed the acquisition of Robec, Inc.
through a merger whereby Robec has become a wholly-owned subsidiary of
AmeriQuest. In the merger, AmeriQuest issued 3,969,905 shares of common stock to
Robec's shareholders and assumed options held by Robec's employees to purchase
301,978 shares of common stock. Under the terms of the original acquisition
agreement, at the closing of the merger, certain principal stockholders of Robec
were entitled to receive 2,583,010 additional shares of AmeriQuest common stock
as partial consideration for shares of Robec common stock previously exchanged;
however, AmeriQuest did not have sufficient authorized common stock to issue
these additional shares. In lieu of the issuance of these additional shares at
the merger closing, the Robec principal shareholders were issued shares of
AmeriQuest preferred stock convertible into 2,583,010 shares of AmeriQuest
common stock upon the approval of AmeriQuest's shareholders and satisfaction by
AmeriQuest of certain other conditions. The preferred stock carries a stock
dividend at an initial rate of 15% per annum. The acceptance of the preferred
stock in lieu of common shares represents an accommodation by the former
principal shareholders of Robec, permitting the merger to go forward in advance
of AmeriQuest stockholder approval of the conversion of the preferred stock into
common
11
stock and the increase in AmeriQuest's authorized common stock to a number of
shares sufficient for the conversion to be accomplished.
In addition to the additional equity capital provided by Computer 2000, the
Company has begun a program to reduce operating costs through the consolidation
of distribution warehouses and the elimination of duplicate labor and non
payroll operating costs. In addition, administrative costs have been reduced
through the flattening of the Company's management structure. Management is
continuing these cost reduction activities. Further cost reductions should also
result through the elimination of duplicate administration and other operating
costs now that the merger is complete.
The Company maintains lines of credit with financial institutions which in
the aggregate provide for revolving credit of over $80 million at September 30,
1995, including a $20 million facility extended to Robec, Inc. Current lines of
credit totaling $27.5 million expire on December 31, 1995 relate to NCD.
Borrowings under these facilities are limited to a contractual percentage
of eligible inventories and receivables. At September 30, 1995, all inventories
and accounts receivable were pledged as collateral under these facilities and
the lenders hold liens on substantially all of the other assets owned by the
Company. The terms of the lending agreements include certain restrictive
covenants which require the maintenance of specified financial covenants
generally related to tangible net worth, working capital and total debt to
tangible net worth. Borrowings under these lines bear interest from 1 to 3
percent over the prime rate and are limited to specified percentages of
AmeriQuest's eligible accounts receivable (a borrowing base in excess of $27.5
million) and inventories (a borrowing base of over $27.5 million). At various
dates during fiscal year 1995 and continuing at September 30, 1995, the Company
was in default to its primary lender due to non-compliance with certain
financial ratio and other covenant compliance. In October 1995, the Company
received a waiver from its primary lenders for non-compliance of the financial
covenants of the NCD credit agreement. The Company has also amended its credit
agreements covering its remaining borrowings to remove the financial covenants
which the Company was not in compliance with at June 30, 1995, pending
renegotiation of the financial covenants. The amendment also allows the lender
to cancel the credit agreement with 60 days notice. At September 30, 1995,
AmeriQuest, through NCD, had approximately $8 million available under its
existing credit facilities based upon then available collateral.
The Company is in the process of negotiating the refinancing of its credit
agreements. Management expects that the Company will complete this refinancing
by December 31, 1995. Management believes that improvements in operating cash
flows resulting from the cost containment activities discussed above, together
with available borrowings on current credit agreements and the expected
refinancing will allow the Company to meet its obligations and capital needs as
they arise through June 30, 1996.
In August 1995 the Company sold its Singapore subsidiary ("CMS Singapore")
to a former officer and director of the Company. The Company exchanged all of
the stock of CMS Singapore for 350,000 shares of the Company's previously issued
common stock. The consideration received for CMS Singapore is approximately
equal to its net book value.
12
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.
-----------------------------
(Registrant)
Date: November 20, 1995 By: /s/ Mark C. Mulford
---------------------------
Mark C. Mulford
Executive Officer
Date: November 20, 1995 By: /s/ Donald W. Resnick
------------------------------
Donald W. Resnick
Chief Financial Officer
13