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, 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.
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(Exact name of registrant as specified in its charter)
Delaware 33-0244136
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
48 Swan Way, Suite 101, Warminster, PA 18974
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(Address of principal executive office) (Zip Code)
Registrant's telephone number: (267) 280-0430
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
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At February 14, 2002 there were 68,046,906 shares of the Registrant's
Common Stock outstanding.
PART I. FINANCIAL INFORMATION
FORM 10-Q
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, September 30,
ASSETS 2001 2001
------ ------------ -------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents.................................................... $ 91 $77
Accounts receivable, less allowance for doubtful accounts of $340
and $340, respectively................................................... 333 473
Other current assets......................................................... 294 399
------ ------
Total current assets.................................................. 718 949
PROPERTY AND EQUIPMENT, NET..................................................... 274 301
OTHER ASSETS.................................................................... 204 188
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Total assets.......................................................... $1,196 $1,438
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIE
Line of credit............................................................... $ 178 $ 192
Accounts payable............................................................. 4,125 4,137
Accrued expenses and other................................................... 483 356
Liabilities, net of assets held for disposal................................. 153
------ ------
Total current liabilities....................................................... 4,786 4,838
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STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $.01 par value; 5,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value; 200,000,000 shares authorized;
68,046,906 shares issued and outstanding......................... 681 681
Additional paid-in capital........................................... 174,718 174,718
Accumulated deficit.................................................. 178,989) (178,799)
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Net stockholders' deficiency......................................... (3,590) (3,400)
Total liabilities and stockholders' equity........................... $1,196 $1,438
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2
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Three Months Ended
December 31
------------------------
2001 2000
------ ------
(Unaudited)
NET SALES....................................................................... $357 $11,908
COST OF SALES................................................................... 213 10,819
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Gross Profit............................................................... 144 1,089
OPERATING EXPENSES
Selling, General and Administrative....................................... 676 2,504
Gain on Sale of Subsidiary................................................ 348 --
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328 2,504
LOSS FROM OPERATIONS............................................................ (184) (1,415)
INTEREST EXPENSE, net........................................................... 6 184
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NET LOSS........................................................................ $ (190) $(1,599)
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BASIC AND DILUTED NET LOSS PER SHARE ........................................... $(0.00) $(0.02)
====== ======
SHARES USED IN COMPUTING BASIC AND DILUTED NET LOSS
PER SHARE....................................................................... 68,047 67,842
====== ======
3
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended
December 31,
--------------------------
2001 2000
------ ------
(Unaudited)
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss................................................................... $(190) $(1,599)
------ ------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation.......................................................... 49 105
Gain on sale of subsidiary ........................................... (348) --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............................ 140 1,785
(Increase) decrease in inventories.................................... -- (366)
(Increase) decrease in other assets................................... 89 (81)
Increase (Decrease) in accounts payable and accrued
expenses and other............................................... 115 437
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Net cash provided by operating activities.................................. (145) 281
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CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures.................................................. (22) (36)
Proceeds from sale of subsidiary ..................................... 195 --
------ ------
173 (36)
CASH FLOW FROM FINANCING ACTIVITIES:
NET BORROWINGS (REPAYMENT) UNDER LINES OF CREDIT.......................... (14) (499)
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................................................ 14 (254)
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CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD................................................................... 77 723
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $91 $469
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Supplemental Disclosures of Cash Flow Information
Interest:
During the three months ended December 31, 2001 and 2000, the Company
paid interest of $7 and $186, respectively.
Income taxes:
During the three months ended December 31, 2001 and 2000, the Company
made no income tax payments.
4
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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, 2001, as filed with the Securities
and Exchange Commission.
The results of operations and cash flows for the three month period ended
December 31, 2001 are not necessarily indicative of the results of operations or
cash flows which may be reported for the remainder of fiscal 2002.
(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, 2001 and 2000 are the same, as all common stock
equivalents are anti-dilutive due to the net loss for the periods presented.
(3) Line of Credit
At December 31, 2001, the Company had borrowings of $178,000 against its expired
line of credit with Fleet Financial Corporation ("Fleet") with no remaining
ability or capacity to draw further advances. The Credit Facility expired on
July 20, 2001.
(4) Segment Information
By the end of fiscal 2001, the Company had limited its focus to its solutions
business and had sold its product distribution division, and by November 2001,
its equity interest in the leasing business.
The Company evaluated and managed the product distribution division 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 product distribution.
The following table represents information about the Company's divisions for the
three months ended December 31, 2001 and 2000 (dollars in thousands):
2001 Sales Gross Profit
---- ----- ------------
Solutions......................................... $357 $144
======= ========
2000 Sales Gross Profit
---- ----- ------------
Product distribution and leasing.................. $10,656 $855
Solutions......................................... 1,252 234
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$11,908 $ 1,089
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5
AMERIQUEST TECHNOLOGIES, INC.
DECEMBER 31, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Future operating results may be impacted by a number of factors that could cause
actual results to differ materially from management's current expectations.
These factors include worldwide economic and political conditions, the Company's
ability to obtain a new line of credit, the Company's ability to increase gross
profit margins, the Company's ability to reduce expense levels, the Company's
ability to retain key vendors and employees, the Company's clients' continued
financial strength, the Company's ability to accurately anticipate customer
demand, and, most importantly in the short term, the Company's ability to
successfully negotiate the conversion of September 30, 2001 vendor payable debt
to equity.
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 be unsuccessful in negotiating the conversion of
vendor payable debt to equity; the Company may be unable to achieve profitable
operations; the Company may encounter competitive, technological, financial,
legal and business challenges making it more difficult than expected to continue
as a solutions provider; competitive conditions within the computer industry may
change adversely; demand for the products sold 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; 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 for the fiscal year ended September 30,
2001.
Summary
AmeriQuest historically conducted its business as a distributor of services and
computer products providing value added solutions. During fiscal 2000,
AmeriQuest began to refocus its outside sales force to sell business information
solutions directly to corporate, educational, financial, healthcare and local
government clients. The Company completed this transition by selling its product
distribution division to Seneca Data Distributors, Inc. ("Seneca Data") in
March, 2001 and its leasing subsidiary, Consultants Group Commercial Funding
("CG Commercial"), to CG Commercial management in November, 2001.
Prior to the March 2001 sale of the product distribution division, the division
accounted for a substantial majority of the Company's sales. With the sale of
the division and the subsequent sale of CG Commercial, the Company's sole
business today is providing business information solutions for corporate,
educational, financial, healthcare and local government clients. AmeriQuest's
strategy is to emphasize the sale of higher margin, complete solutions for its
clients and to provide a high level of value-added services, including
consultation on component selection, system assembly, configuration, testing,
operational start-up, installation, technical support services and lease
financing through unrelated third parties. As part of this solutions business,
AmeriQuest markets and sells to its clients and supports a variety of
applications and products ranging from individual components to complete systems
that have been fully configured, assembled and tested prior to delivery to the
client.
The Company had a net loss of $190,000 and net sales of $357,000 for the quarter
ended December 31, 2001, compared to a net loss of $1,599,000 and net sales of
$11,908,000 for the quarter ended December 31, 2000. Included in the net loss
for the quarter ended December 31, 2001 was a gain on sale of the leasing
subsidiary of $348,000.
As noted above, during fiscal 2001, the Company sold its low margin hardware
product distribution business. The Company's current business strategy is a sole
focus on providing business information solutions to corporate, educational,
financial, healthcare and local government clients. The goal of this narrow
focus is to improve the Company's margins.The Company's action to sell its
distribution business will result in dramatically lower sales. The Company also
has reduced its selling, general and administrative expenses, including outside
consulting and professional expenses, payroll expenses, property rental costs
and communications expenses with the objective to increase operating profit even
on lower sales. Although management believes that this change in strategy, with
significantly decreased sales and 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, 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 is not successful, the Company may not be able to continue in business.
6
AMERIQUEST TECHNOLOGIES, INC.
DECEMBER 31, 2001
Results of Operations for the quarter ended December 31, 2001
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,
----------------
2001 2000
------ ------
Net sales.............................................. 100.0 100.0
Cost of sales.......................................... 59.7 90.9
Gross profit........................................... 40.3 9.1
Selling, general and administrative.................... 189.4 21.0
Gain on sale of leasing subsidiary..................... 97.5 -
Interest income (expense), net......................... (1.6) (1.6)
Net Income (Loss)...................................... (53.2) (13.4)
Sales for the quarter ended December 31, 2001 decreased by 97% from $11,908,000
for the quarter ended December 31, 2000 to $357,000, as a result of the
Company's strategy to eliminate low gross profit hardware sales. This strategy,
as described above and in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 2001, will lead to significantly lower sales in
fiscal 2002 as compared to fiscal 2001. The sales for the quarter include only
hardware purchases that clients could not obtain directly from vendors or
required the Company to purchase as part of the total solution provided. No
sales for certain partially completed client projects have been recognized for
the period ended December 31, 2001. There were no partially completed projects
for the prior year quarter ended December 31, 2000.
Cost of sales decreased to 59.7% of sales for the quarter ended December 31,
2001 compared to 90.9% of sales in the same quarter for the prior year solely as
a result of the favorable change to service driven sales with limited hardware
content, compared to the same three months ended December 31, 2000 where
distribution sales accounted for 97% of sales.
Selling, general and administrative expenses of $676,000 decreased by $1,828,000
for the quarter ended December 31, 2001 compared to $2,504,000 for the quarter
ended December 31, 2000. The current quarter expenses included $55,000 of costs
related to facility occupancy costs that were materially reduced in the middle
of the current quarter ended December 31, 2001 and other accrued expenses that
are not expected to continue in future quarters.
The $348,000 gain on sale of the leasing subsidiary offset 51.5% of the $676,000
of quarterly operating expenses of the Company, without which the net loss would
have been $538,000.
Depreciation and amortization decreased to $49,000 for the quarter ended
December 31, 2001 from $105,000 for the quarter ended December 31, 2000 due to
the disposal of fully depreciated assets and the relocation to new headquarters.
Net interest expense decreased to $6,000 for the quarter ended December 31, 2001
compared to net interest expense of $184,000 for the quarter ended December 31,
2000, due primarily to the decrease in the outstanding balance of the Company's
expired line of credit.
.
No income tax benefit was recorded on the net operating loss for the three
months ended December 31, 2001 and December 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.
7
AMERIQUEST TECHNOLOGIES, INC.
DECEMBER 31, 2001
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 for services and products; (ii) shifts in scheduling of implementation
for the Company's sale of services resulting, in part, from the introduction of
updates of existing software or products; and (iii) client training, client
staff availability and requirements for Company staff access to client
facilities. 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 or sell 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, 2001, the Company had $91,000 in cash and had borrowings of
$178,000 against its existing line of credit. The Company generated $49,000 of
cash from operating activities in the quarterly period ended December 31, 2001,
primarily due to the proceeds of $195,0000 received from the sale of the 90%
equity interest in CG Commercial, Inc.
The Company had maintained a $10 million line of credit with Fleet Capital
Corporation ("Fleet"). The Fleet line expired on July 20, 2001 and was not
renewed but borrowings of $178,000 remain outstanding thereunder. The
outstanding debt balance is secured by substantially all of the Company's
assets. No new borrowings may be made under the expired Fleet line.
Vendor Relations
During fiscal 2001, AmeriQuest discontinued its relationship as a distributor
for a substantial number of manufacturers.
AmeriQuest has continued its relationship with IBM as a Solutions Provider, and
has restructured its agreements with Gates-Arrow and SupportNet to be its
product and IBM mid-range distributors, respectively. AmeriQuest has maintained
its agreements with Interact Commerce Corporation to market its SalesLogix CRM
product and FrontRange to market its Goldmine and Heat help desk products.
Subsequent Events
While the Company believes that its new business model can be successful, it had
vendor trade debt at September 30, 2001 of approximately $4,137,000, most of
which related to the product distribution business. As more fully described
under "Vendor Payable Negotiations Critical to Viability of the Company" in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
2001, the Company's ability to continue as a going concern depends, in part, on
being able to convert most of this debt into equity since the Company does not
have the ability to pay this debt in cash. If such a conversion is not agreed to
by creditors, liquidation or bankruptcy reorganization are the likely
alternatives.
As of February 14, 2001, 7 vendors, representing 24% or $975,000 of the
$4,137,000 vendor debt have agreed, in writing, to convert their trade payable
debt to the form of equity proposed by the Company. Additional vendors are
considering or have indicated willingness for acceptance of the proposal but
have not provided written consent at this date. None to date have formally
declined the offer.
Restatement
The statement of operations for the quarter ended December 31, 2000 has been
restated to properly account for transactions relating to the leasing business
consistent with the accounting treatment on Form 10-K for the fiscal year ended
September 30, 2001. The net effect to the quarterly financial statements for the
period ended December 31, 2000 was neglible.
8
AMERIQUEST TECHNOLOGIES, INC.
DECEMBER 31, 2001
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
AmeriQuest is both a plaintiff and defendant from time-to-time in
lawsuits incidental to its business. AmeriQuest management believes that none of
such current proceedings will individually have a material adverse effect on
AmeriQuest's financial position or results of operations. However, in the
aggregate, successful lawsuits regarding failure to pay debts remaining from the
sold distribution business could cause the Company to seek bankruptcy protection
or liquidation.
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, 2002
/s/ JON D. JENSEN
-------------------------------
Jon D. Jensen
President,Chief Executive Officer, Chief
Financial Officer and a Director
9