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 June 30, 1996
[_]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
incorporation
or (I.R.S. Employer
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 August 2, 1996 there were 61,750,874 shares of the Registrant's Common
Stock outstanding.
PART I. FINANCIAL INFORMATION
AMERIQUEST TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
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.
On September 30, 1995, the Company changed its fiscal year end from June 30
to September 30. Due to the change in fiscal year end, it may also be useful
to read the 10-Q for the transition period from June 30, 1995 to September 30,
1995.
2
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1995
--------- -------------
(DOLLARS IN THOUSANDS)
ASSETS
------
CURRENT ASSETS
Cash................................................ $ 2,592 $ 210
Accounts receivable, less allowance for doubtful
accounts of $6,279 and $7,786 as of June 30, 1996
and September 30, 1995, respectively............... 57,223 51,103
Inventories......................................... 48,869 42,335
Other current assets................................ 1,937 975
--------- --------
Total current assets.............................. 110,621 94,533
PROPERTY AND EQUIPMENT, NET........................... 7,061 7,527
INTANGIBLE ASSETS, NET................................ 9,787 10,536
Other assets.......................................... 1,839 2,359
--------- --------
$ 129,308 $114,955
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable.................................... $ 45,317 $ 36,216
Notes payable....................................... 72,517 45,244
Other current liabilities........................... 8,690 9,244
--------- --------
Total current liabilities......................... 126,524 90,704
--------- --------
LONG-TERM OBLIGATIONS................................. 3,101 6,686
--------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 5,000,000
shares; issued and outstanding 0 shares as of June
30, 1996 and 2,596,525 shares as of September 30,
1995................................................. 0 26
Common stock, $.01 par value; authorized 200,000,000
shares; issued and outstanding 61,750,874 shares as
of June 30, 1996 and 23,896,140 shares as of
September 30, 1995................................... 618 239
Additional paid-in capital............................ 110,917 106,476
Accumulated deficit................................... (111,852) (89,176)
--------- --------
Total stockholders' equity........................ (317) 17,565
--------- --------
$ 129,308 $114,955
========= ========
3
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Net sales...................... $ 110,983 $ 110,907 $ 320,953 $ 367,095
Cost of sales.................. 104,206 115,491 299,740 356,116
---------- ---------- ---------- ----------
Gross Profit................. 6,777 (4,584) 21,213 10,979
Operating expenses
Selling, general and
administrative.............. 11,313 28,136 33,652 48,246
Intangibles write-off........ 23,777 23,777
Lease termination and
restructuring costs......... 2,700 -- 6,400 --
---------- ---------- ---------- ----------
14,013 51,913 40,052 72,023
---------- ---------- ---------- ----------
Loss from operations......... (7,236) (56,497) (18,839) (61,044)
Interest expense............. 1,236 1,626 3,601 5,409
---------- ---------- ---------- ----------
Income (loss) before income
taxes....................... (8,472) (58,123) (22,440) (66,453)
PROVISION FOR INCOME TAXES..... -- -- -- --
Net Income (loss).............. $ (8,472) $ (58,123) $ (22,440) $ (66,453)
========== ========== ========== ==========
Net (loss) per common share and
common stock equivalent (Note
2):........................... $ (0.14) $ (2.85) $ (0.59) $ (3.28)
========== ========== ========== ==========
COMMON AND COMMON EQUIVALENT
shares outstanding (Note 2):
Weighting average shares
outstanding................. 60,332,570 20,360,478 38,006,160 20,248,193
========== ========== ========== ==========
4
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
JUNE 30,
------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
Cash Flow from Operating Activities:
Net loss............................................ $ (22,440) $ (66,453)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization..................... 2,295 4,134
Intangibles write-off............................. 23,777
Provision for losses on accounts receivable....... 1,344 5,660
Provision for losses on inventories............... 17,039
Changes in operating assets and liabilities:
Loss on sale of equipment....................... 1,540
(Increase) decrease in accounts receivable...... (7,554) (747)
(Increase) decrease in inventories and other.... (6,534) 6,748
(Increase) decrease in other assets............. (442) (149)
Increase (decrease) in accounts payable and
other.......................................... 9,280 (26,153)
----------- -----------
Net cash used in operating activities............... (24,051) (34,604)
----------- -----------
Cash Flow from Investing Activities:
Purchases of property and equipment............... (1,080) (3,933)
Net cash paid for acquisition of businesses, net
of cash acquired................................. -- (2,275)
----------- -----------
Net cash used in investing activities............... (1,080) (6,208)
----------- -----------
Cash Flow from Financing Activities:
Proceeds from line of credit borrowings, net...... 27,273 14,999
Proceeds from subordinated debt, less refundings.. -- 18,000
Proceeds from sale of preferred and common stock.. 240 7,405
----------- -----------
Net cash provided by financing activities........... 27,513 40,404
----------- -----------
Increase (Decrease) in cash......................... 2,382 (408)
Cash--beginning of the year......................... 210 1,378
----------- -----------
Cash--end of the year............................... $ 2,592 $ 970
=========== ===========
Supplemental Disclosures of Cash Flow Information
Interest on line of credit:
During the nine months ended June 30, 1996 and 1995, the Company
paid interest costs of $3,241,000 and $5,190,000 respectively.
Income taxes:
During the nine months ended June 30, 1996 and 1995, the Company
made no federal income tax payments.
5
AMERIQUEST TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ ----------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
---------- ------ ---------- ------ ---------- -----------
(DOLLARS IN THOUSANDS)
BALANCES AT SEPTEMBER
30, 1995............... 2,596,525 $ 26 23,896,140 $239 $106,476 $ (89,176)
Exercise of employee
stock options.......... 82,500 1 3
Preferred stock issued
for acquisitions....... 25,830 1,603
Common stock issued for
acquisitions........... 3,969,905 40 2,367
Proceeds from issuance
of preferred stock..... 301,249 3 232
Common stock issued to
settle lawsuit......... 500,000 5 305
Preferred stock
dividend............... 197,958 2 233 (236)
Preferred stock
conversion............. (2,923,604) (29) 33,104,371 331 (302)
Net (loss) for the nine
months ended June 30,
1996................... -- -- -- -- -- (22,440)
---------- ---- ---------- ---- -------- ---------
BALANCES AT JUNE 30,
1996................... 0 $ 0 61,750,874 $618 $110,917 $(111,852)
========== ==== ========== ==== ======== =========
6
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
(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 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
and September 30. For clarity of presentation, the Company has described year-
ends and presented as if the years ended on September 30 and quarter-ends
presented as if the quarters ended on December 31, March 31, and June 30. The
1994 and 1995 fiscal years are 52 weeks, while the quarters presented are 13
weeks in duration.
The Company changed its fiscal year end to September 30 on September 30,
1995. The attached Financial Statements do not include the operations from
July 1, 1995 through September 30, 1995.
(4) ACQUISITIONS
During November 1995, the Company issued 25,830.1 shares as Series G
Preferred Stock (convertible into 2,583,011 shares of Common Stock) and
3,969,905 shares of Common Stock to acquire the 49 percent of Robec, Inc.
Common Stock not already owned by the Company and to complete the Robec
acquisition. The Company had previously recorded this consideration as an
obligation in its consolidated financial statements.
(5) COMMON STOCK
During November 1995, the Company issued 25,830.1 shares of Series G
Preferred Stock (convertible into 2,583,011 shares of Common Stock) and
3,969,905 shares of Common Stock to complete its acquisition of Robec, Inc. In
February 1996, the Company issued 301,249 shares of Preferred Stock
(convertible into 4,556,110 shares of Common Stock) to Computer 2000 upon the
exercise of certain warrants previously granted to Computer 2000.
During April 1996, the Company converted the outstanding shares of its
Preferred Stock into 33,104,371 shares of Common Stock, which included 197,959
shares of Common Stock issued in satisfaction of the dividend accrued on the
Series G Prepared Stock. After this conversion the Company had 61,750,874
shares of Common Stock outstanding.
Assuming the exercise of all warrants and options outstanding on June 30,
1996, AmeriQuest would have approximately 96 million shares of common stock
outstanding on that date, of which Computer 2000 would hold approximately 58.4
percent.
(6) NOTES PAYABLE
The Company maintains lines of credit with financial institutions which in
the aggregate provide for revolving credit of over $66 million at June 30,
1996, and floor planning arrangements with lines of credit totaling $45
million. Available credit lines total $38 million at June 30, 1996.
7
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
(6) NOTES PAYABLE--(CONTINUED)
During December 1995 the lines of credit with U.S. banks were replaced with
bank lines from four German-based banks at Libor based financing. The lines
are guaranteed by Computer 2000 through September 30, 1996, and mature on that
date, except as to $7 million which matures on September 13, 1996. Computer
2000 has agreed to extend its guarantees for the lines of credit through
September 1997. Management expects that current working arrangements will
allow the Company to meet its obligations and capital needs as they arise
through fiscal 1996; and that the continuing guarantees from Computer 2000
will allow the Company to meet its obligations and capital needs as they arise
until the Company can secure additional funding in fiscal 1997. Management is
exploring available alternatives to secure additional equity funding, which it
believes is obtainable.
[THIS SPACE INTENTIONALLY LEFT BLANK]
8
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
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 NINE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------ ------------
1996 1995 1996 1995
----- ----- ----- -----
Net sales........................................... 100.0 100.0 100.0 100.0
Cost of sales....................................... 93.9 104.1 93.4 97.0
Gross profit........................................ 6.1 (4.1) 6.6 3.0
Selling, general and administrative................. 10.2 25.4 10.5 13.1
Intangibles write off............................... 21.4 6.5
Restructuring charge (1)............................ 2.4 2.0
Interest and other expense, net..................... 1.1 1.5 1.1 1.5
(Loss) from operations.............................. (7.6) (52.4) (7.0) (18.1)
- --------
(1) Includes a provision for lease termination costs of $3.7 million and a 2.7
million restructuring charge related to moving the Company's
administrative offices.
AmeriQuest had followed a business strategy of growth by acquisition, in
recent years, consistent with the consolidation that is occurring in the
maturing personal computer marketplace. This strategy created 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 provide
working capital required for continuing operations
Current strategy is to complete the consolidation and integration of
previously acquired companies which will include reducing costs and improving
productivity. In November 1995, the Company completed its acquisition of
Robec, Inc. allowing for the integration of this business.
9
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1996
Sales increased for the third quarter in a row. Sales increased by .1% to
$110,983 for the quarter ended June 30, 1996 compared to $110,907 for the
quarter ended June 30, 1995.
Cost of Sales decreased to 93.9% of sales for the quarter ending June 30,
1996 compared to 104.1% of sales in the same quarter the prior year. The
quarter ended June 30, 1995 included the write-off of inventories as the
Company discontinued the sale of various hardware and software products.
Margins have decreased in the last two quarters, in large part due to intense
competition in the industry.
Selling, General and Administrative expenses remained at 10.2% of sales
consistent with the prior quarter before recording a $2.7 million loss for the
move of the Company's purchasing and administrative offices to Florida in an
effort to reduce costs and increase synergy in domestic distribution
operations. During the quarter ended June 30, 1995 selling general and
administrative expenses were 25.4% of sales reflecting the write-off of
significant customer receivables and other costs related to discontinuing the
sale of entertainment software.
Interest expense declined due to lower interest rates on debt obligations
guaranteed by Computer 2000.
NINE MONTHS ENDED JUNE 30, 1996
Sales for the nine months ended June 30, 1996 decreased $46 million to
$320,953 compared to $367,095 for the same period the prior year. The decrease
is due to competitive pressures, discontinued entertainment software, closed
non-profitable branch sales offices in the U.S. and Australia and the sale of
Singapore operations. Sales in each of the last three quarters have increased.
Cost of Sales for the nine months ended June 30, 1996 was 93.4% compared to
97.0% for the same period the prior year. The prior year included a $17
million loss related to the elimination of certain product lines. Margins
continue under intense industry competition with high obsolescence costs due
to constantly changing technology.
Selling, General and Administrative expenses for nine months ended June 30,
1996 were 10.5% before costs to terminate a significant lease and costs to
move the companies purchasing, marketing and administrative offices to
Florida. Selling general and administrative expenses in the same period the
prior year were 13.1% including the write-off of significant customer
receivables and other costs related to discontinuing the sale of entertainment
software.
Operating costs the prior year also included the write-off of goodwill
related to closed operations.
Interest expense declined due to lower interest rates on notes payable
guaranteed by Computer 2000.
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 instability 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.
10
LIQUIDITY OF CAPITAL RESOURCES
At June 30, 1996, the Company had $2,592,000 in cash and had borrowed
approximately $73 million against its existing lines of credit. The Company
used $24 million of cash in operating activities in the nine months ended June
30, 1996. The significant amount of cash used in operating activities resulted
from operating losses and investment in working capital required to support
daily business activity. Management has focused its efforts on integrating
acquisitions, improving the effectiveness of its sales force and reducing its
cost structure. Operating activities during the remainder of 1996 will require
additional cash investment. Cash used in operating activities will be financed
through equity financing and borrowings.
The Company maintains lines of credit with financial institutions which in
the aggregate provide for revolving credit of over $66 million at June 30,
1996, and floor planning arrangements with lines of credit totaling $45
million. Available credit lines total $38 million at June 30, 1996.
During December 1995 the line of credit with U.S. banks were replaced with
bank lines from four German-based banks at Libor based financing. The lines
are guaranteed by Computer 2000 through September 30, 1996, and mature on that
date, except as to $7 million which matures on September 13, 1996. Computer
2000 has agreed to extend its guarantees for the lines of credit through
September 1997. Management expects that current working arrangements will
allow the Company to meet its obligations and capital needs as they arise
through fiscal 1996; and that the continuing guarantees from Computer 2000
will allow the Company to meet its obligations and capital needs as they arise
until the Company can secure additional funding in fiscal 1997. Management is
exploring available alternatives to secure additional equity funding, which it
believes is obtainable.
11
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three months ended June 30,
1996.
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.
August 5, 1996 /s/ D. Stephen DeWindt
-------------------------------------
D. Stephen DeWindt
Chief Executive Officer
August 5, 1996 /s/ Dennis C. Fairchild
-------------------------------------
Dennis C. Fairchild
Vice President--Finance
13