-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WliEAGVcGH+xkt6ewgpYCHhk3sNmnSwdDhcNLmj3X6bx7wq8nHddp4knhdddk2sZ okwvNR26quP1YFkWQtRnSA== 0000732152-96-000004.txt : 19960814 0000732152-96-000004.hdr.sgml : 19960814 ACCESSION NUMBER: 0000732152-96-000004 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUESTRON TECHNOLOGY INC CENTRAL INDEX KEY: 0000732152 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-LEGAL SERVICES [8111] IRS NUMBER: 232257354 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-13324 FILM NUMBER: 96610913 BUSINESS ADDRESS: STREET 1: 6400 CONGRESS AVENUE STREET 2: SUITE 200 CITY: BOCA RATON STATE: FL ZIP: 33487 BUSINESS PHONE: 4072415251 MAIL ADDRESS: STREET 1: 6400 CONGRESS AVENUE STREET 2: SUITE 200 CITY: BOCA RATON STATE: FL ZIP: 33487 FORMER COMPANY: FORMER CONFORMED NAME: JUDICATE INC DATE OF NAME CHANGE: 19920703 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ------------------------- FORM 10-QSB (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND - ------- EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 -------------------------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND - ------- EXCHANGE ACT OF 1934 For the transition period from to ----------- ----------- Commission File Number 0-13324 --------------------------------- QUESTRON TECHNOLOGY, INC. - ------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 23-2257354 - --------------------------------- --------------------------------- (State or other jurisdiction of (I.R.S Employer incorporation or organization) Identification Number) 6400 Congress Avenue, Suite 200, Boca Raton, FL 33487 - -------------------------------------------------- -------------------------- (Address of principal executive offices) (Zip Code) (407) 241 - 5251 - ------------------------------------------------------------------------------- (Issuer's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- As of August 10, 1996, the issuer had 15,354,842 shares of common stock, $.0001 par value, outstanding. QUESTRON TECHNOLOGY, INC. INDEX
Page No. -------------- PART I. Financial Information Item 1. Financial Statements (unaudited) Consolidated Balance Sheet - At June 30, 1996 and December 31, 1995 3 Consolidated Statement of Operations - Three Month and Six Month Periods Ended June 30, 1996 and 1995 4 Consolidated Statement of Cash Flows - Six Months Ended June 30, 1996 and 1995 5 Notes to Consolidated Financial Statements 6 - 7 Item 2. Management's Discussion and Analysis or Plan of Operation 8 - 11 PART II. Other Information 12 Signature Page 13
PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEET JUNE 30, 1996 AND DECEMBER 31, 1995 ASSETS
June 30, December 31, 1996 1995 ------------------ ------------------ Current assets: Cash and cash equivalents $ 289,575 $ 39,358 Accounts receivable, less allowance for doubtful accounts of $72,773 and $43,798, respectively 1,397,113 1,347,128 Other receivables 15,853 52,808 Inventories 3,413,009 3,554,263 Other current assets 37,859 60,205 ------------------ ------------------ Total current assets 5,153,409 5,053,762 Property and equipment - net 421,048 418,980 Cost in excess of net assets of business acquired, less accumulated amortization of $216,825 and $131,203, respectively 6,780,684 6,866,305 Other assets 252,336 93,951 ================== ================== Total assets $ 12,607,477 $ 12,432,998 ================== ================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 1,256,879 $ 1,520,094 Current portion of long-term debt 550,000 550,000 ------------------ ------------------ Total current liabilities 1,806,879 2,070,094 Long-term debt 2,380,000 2,185,000 ------------------ ------------------ Total liabilities 4,186,879 4,255,094 ------------------ ------------------ Commitments and Contingencies Shareholders' Equity: Preferred stock, $.01 par value; authorized 10,000,000 shares; none issued and outstanding Common stock, $.0001 par value; authorized 50,000,000 shares; issued and outstanding 15,473,335 shares in 1996 and 1995 1,547 1,547 Additional paid-in capital 23,887,894 23,887,894 Accumulated deficit (15,113,365) (15,356,059) ------------------- ----------------- 8,776,076 8,533,382 Less: Treasury stock, 118,493 shares, at cost (355,478) (355,478) ------------------- ----------------- Total shareholders' equity 8,420,598 8,177,904 ------------------- ----------------- Total liabilities and shareholders' equity $ 12,607,477 $ 12,432,998 =================== =================
See notes to consolidated financial statements. 3 QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
Three Months Ended Six Months Ended June 30, June 30, --------------------------------- --------------------------------- 1996 1995 1996 1995 -------------- -------------- -------------- -------------- Revenue: Sales $ 2,848,086 $ 2,357,607 $ 5,615,223 $ 2,357,607 Fee income 40,550 73,273 91,913 180,364 ------------- ------------- ------------- ------------- 2,888,636 2,430,880 5,707,136 2,537,971 ------------- ------------- ------------- ------------- Operating costs and expenses: Cost of products and services sold 1,691,449 1,403,105 3,366,936 1,472,440 Selling, general & administration expenses 908,298 620,645 1,769,652 786,998 Non-recurring charges -- -- -- 125,000 Depreciation and amortization 64,677 57,918 128,949 68,918 ------------- ------------- ------------- ------------- 2,664,424 2,081,668 5,265,537 2,453,356 ------------- ------------- ------------- ------------- Operating income (loss) 224,212 349,212 441,599 84,615 Interest expense 80,093 72,808 159,253 57,976 ------------- ------------- ------------- ------------- Income before income taxes 144,119 276,404 282,346 26,639 Provision for income taxes 18,697 26,440 39,650 26,440 ------------- ------------- ------------- ------------- Net income $ 125,422 $ 249,964 $ 242,696 $ 199 ============= ============= ============= ============= Net income per common share $ .01 $ .02 $ .02 $ .00 ============= ============= ============= ============= Average number of common shares and common share equivalents outstanding 15,398,166 15,005,822 15,405,329 13,058,507 ============= ============= ============= =============
See Notes to Consolidated Financial Statements. 4 QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1996 AND 1995
June 30, June 30, 1996 1995 ---------- ---------- Cash flows from operating activities: Net income (loss) $ 242,696 $ 199 Adjustments to reconcile net income (loss) to net cash to net cash used in operating activities: Depreciation and amortization 128,949 68,918 Provision for doubtful accounts 28,975 -- Loss on sale of fixed assets 2,184 -- Change in assets and liabilities: (Increase) in accounts receivable (78,960) (648,002) Decrease in other receivables 36,955 -- Decrease in inventories 141,254 92,723 (Increase) decrease in prepaid expenses and other assets (136,039) 85,979 (Decrease) increase in accounts payable and accrued expenses (263,215) (13,131) ---------- ---------- Net cash provided(used) by operating activities 102,799 (413,314) Cash flows from investing activities: Net cash consideration paid for acquired business -- (5,229,847) Proceeds from sale of fixed assets 280 -- Acquisition of property and equipment (47,862) (65,270) ---------- ---------- Net cash used for investing activities (47,582) (5,295,117) ---------- ---------- Cash flows from financing activities: Proceeds from short-term borrowings -- 300,000 Proceeds from borrowings under revolving facility 470,000 100,000 Proceeds from borrowings under term loan facility -- 2,200,000 Proceeds from private placement -- 1,740,000 Proceeds from exercise of stock options -- 281,250 Costs associated with private placement -- (238,039) Repayment of long-term debt (275,000) (137,500) ---------- ---------- Net cash provided by financing activities 195,000 4,245,711 ---------- ---------- Increase (decrease) in cash and cash equivalents 250,217 (1,462,720) Cash and cash equivalents at beginning of period 39,358 1,520,730 ---------- ---------- Cash and cash equivalents at end of period $ 289,575 $ 58,010 ========== ==========
See Notes to Consolidated Financial Statements. 5 QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1996 AND 1995 Note 1. Basis of presentation. The accompanying unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month and six month periods ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. The consolidated balance sheet as of December 31, 1995 reflects the audited balance sheet at that date. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended December 31, 1995. Note 2. Acquisition of electronic hardware distribution business. On March 31, 1995, the Company acquired Quest Electronic Hardware, Inc. ("Quest"), a specialized distributor of fasteners and electronic hardware sold to electronic equipment manufacturers, in exchange for 3,872,000 shares of the Company's common stock. Simultaneously, the Company contributed to Quest cash of $2,850,000 as additional paid-in capital and Quest purchased the fasteners distribution business from Arrow Electronics, Inc. ("Arrow") for net cash consideration of $5,229,847. In connection with these transactions, the company recorded $6,503,837 of cost in excess of net assets of the business acquired. The Company does not expect that Statement of Accounting Financial Standards No. 121, Accounting for the Impairment of Long-Lived Assets, will have any impact on the Company's Financial Statements. Note 3. Provision for restructuring. As a result of declining revenues of the Company's ADR business, stemming in part from increased competition, and the resultant historical losses, the Company undertook a plan of action to downsize and restructure its ADR business in order to establish a more acceptable relationship of expenses of that business to its revenues. The Company's operating results for the six month period ended June 30, 1995 includes a provision for restructuring of $125,000. More than $60,000 of such provision is attributable to the write-off of fixed assets and idle equipment associated with the downsizing 6 of the ADR business. The balance of the provision is associated with lease termination costs, the relocation of the ADR business to more suitable office space, forfeiture of security deposits, and other costs associated with the downsizing and restructuring of the ADR business. During August 1995, the Company relocated the ADR business to more suitable office space. The Company is evaluating its alternatives with respect to its ADR business, including the possible sale, disposition or discontinuance of the business. 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Results of Operations For the three month and six month periods ended June 30, 1996. The results of operations through June 30, 1996 include the operating results of Quest Electronic Hardware, Inc. ("Quest"), the Company's fasteners and electronic hardware distribution business, and the operating results of the Company's alternative dispute resolution ("ADR") business. The following summarizes the results of operations for each of the Company's businesses and corporate for the three month and six month periods ended June 30, 1996:
Three months ended June 30, 1996 ----------------------------------------------------- Quest ADR Corporate Total ----------- ----------- ----------- ----------- Revenue $2,848,086 $ 40,550 $ $ 2,888,636 Costs and expenses 2,513,807 69,352 81,265 2,664,424 ----------- ----------- ----------- ----------- Operating income 334,279 (28,802) (81,265) 224,212 Interest expense 79,912 -- 181 80,093 ----------- ----------- ----------- ----------- Income (loss) before taxes 254,367 (28,802) (81,446) 144,119 Tax provision 18,697 -- -- 18,697 =========== =========== =========== =========== Net income (loss) $ 235,670 $ (28,802) $ (81,446) $ 125,422 =========== =========== =========== ===========
7
Six months ended June 30, 1996 ----------------------------------------------------- Quest ADR Corporate Total ----------- ----------- ----------- ----------- Revenue $5,615,223 $ 91,913 $ $ 5,707,136 Costs and expenses 4,966,255 138,891 160,391 5,265,537 ----------- ----------- ----------- ----------- Operating income 648,968 (46,978) (160,391) 441,599 Interest expense 158,290 -- 963 159,253 ----------- ----------- ----------- ----------- Income (loss) before taxes 490,678 (46,978) (161,354) 282,346 Tax provision 39,650 -- -- 39,650 =========== =========== =========== =========== Net income (loss) $ 451,028 $ (46,978) $ (161,354) $ 242,696 =========== =========== =========== ===========
The significant growth in the Company's revenues for the six months ended June 30, 1996 over the six months ended June 30, 1995 is due to the acquisition of Quest on March 31, 1995. Revenues for Quest were $2,848,086 and $5,615,223 for the three month and six month periods ended June 30, 1996, respectively, which represent a record level of revenues for the business. The growth in revenues of Quest is attributable to its expansion into the Austin, Texas market as well as growth in the other markets that it serves. The opening of a new branch in Austin is primarily directed at servicing Applied Materials, which signed a three-year Master Purchase Order and Sales Agreement with Quest on November 13, 1995. Revenues of the ADR business for the three month and six month periods ended June 30, 1996 declined 30% and 49%, respectively, compared with the comparable periods in the prior year. This decline reflects the Company's downsizing and restructuring of the ADR business in response to increased competition and historical losses. The Company is continuing to evaluate its alternatives with respect to the future operation of its ADR business, including the possible sale, disposition or discontinuance of the business. The Company's operating income was $224,212 for the three months ended June 30, 1996 compared with operating income of $349,212 for the comparable period of the prior year. The decline in operating income for the three month period ended June 30, 1996 compared with the comparable prior year period is primarily due to increased operating costs principally associated with Quest's expansion into the Austin market. Although the expansion into the Austin market has contributed to the record sales level achieved for the quarter, the sales levels expected from such expansion have not as yet been attained due 9 to the pause in the semiconductor industry, which management believes to be temporary. Quest's operating cost structure, which will support a higher level of sales, is being evaluated by management to determine the need for any appropriate adjustments. For the six month period ended June 30, 1996, operating income was $441,599 compared with operating income of $84,615 for the comparable prior year period. The improvements over the six month period ended June 30, 1996 compared to the comparable prior year period are primarily due to the operating income achieved by Quest of $648,968. Quest's operating income of $334,279 and $648,968 for the three month and six month periods ended June 30, 1996 represent 12% of its revenues, a relationship which is slightly less than the historical performance of the business primarily due to increased operating costs relative to sales, which costs are principally associated with the opening of the Austin branch. Interest expense for the three month and six month periods ended June 30, 1996 amounted to $80,093 and $159,253, respectively, which principally reflects the cost of borrowings associated with the acquisition and operation of the fasteners and electronic hardware distribution business. For the comparable periods of the prior year, the Company's results include interest expense of $72,808 and $57,976, respectively. The provision for income taxes for the three month and six month periods ended June 30, 1996 principally reflects state income tax provisions for states in which Quest does business. The provision for income taxes also includes a minimal provision for federal income taxes for the federal alternative minimum tax. The Company is not expected to have a regular federal income tax liability for 1996, as a result of the availability of net operating loss income tax carryforwards of approximately $13.1 million as of December 31, 1995, expiring in the years 2000 through 2009. Net income for the three months ended June 30, 1996 amounted to $125,422 compared with net income of $249,964 for the comparable period of the prior year. This decline reflects the start-up costs and investment associated with Quest's expansion into Austin, Texas. Net income for the six months ended June 30, 1996 amounted to $242,696 compared with net income of $199 for the comparable period of the prior year. This improvement reflects the operating income of Quest (partially reduced by interest expense and income taxes) and the reduction in operating losses of the ADR business. Liquidity and Capital Resources As of June 30, 1996, the Company had $289,575 in cash and short-term investments, compared to $39,358 as of December 31, 1995. As of June 30, 1996, the Company had working capital of $3,346,530, compared with working capital of $2,983,668 as of December 31, 1995. 10 For the six months ended June 30, 1996, the net cash provided by the Company's operating activities amounted to $102,799, principally reflecting a decrease in inventory and other receivables, as well as the profits of Quest. Corporate expenses and the operations of the Company's ADR business continued to use cash, although at a reduced rate compared with prior years. As previously discussed, the Company is continuing to evaluate its alternatives with respect to the future operations of the ADR business and there can be no assurance that the Company will continue its ADR operations. For the six months ended June 30, 1996, the net cash used in the Company's investing activities amounted to $47,582 for the acquisition of fixed ssets, primarily computer and warehouse equipment to support the continued growth of Quest's fastener distribution business. The Company does not have significant commitments for capital expenditures as of June 30, 1996 and no significant commitments are anticipated for the remainder of 1996 and the first half of 1997. For the six months ended June 30, 1996, the net cash provided by the Company's financing activities amounted to $195,000, which consists of advances drawn on its revolving credit facility of $470,000 less $275,000 of principal repaid on the term debt. At June 30, 1996, $1,417,500 was borrowed and outstanding under the revolving facility. The remaining amount of the $1,500,000 revolving facility, or $82,500, was fully available at June 30, 1996 for future working capital needs. Amounts outstanding under the revolving facility bear interest at a rate equal to: (i) 1.5% above the lender's prime rate should Quest's tangible net worth be less than or equal to $1,750,000; or (ii) 1.0% above the lender's prime rate should Quest's tangible net worth be in excess of $1,750,000. As of June 26, 1996, the interest rate on the amount outstanding under the revolving facility was 9.75%. In order to secure the obligations of Quest under the revolving facility and the related term loan facility under the loan and security agreement with the lender, the Company entered into a stock pledge agreement with the lender whereby the Company pledged to the lender the shares of capital stock of Quest which the Company held at the date of such agreement and any shares of Quest in which the Company may thereafter acquire an interest. In addition, Quest granted a security interest in substantially all of its assets to the lender and a major shareholder of the Company guaranteed the obligations of Quest under the loan agreement. The Company intends to identify and evaluate potential merger and acquisition candidates engaged in lines of business complementary to the fasteners and electronic hardware distribution business of Quest. While certain of such potential acquisition opportunities are at various stages of consideration and evaluation, none is at any definitive stage at this time. Management believes that its working capital, funds available under its credit agreement, and funds generated from operations will be sufficient to meets its obligations through 1996, exclusive of any cash requirements which may come about as a result of other business acquisitions. 11 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Not applicable. Item 2. CHANGES IN SECURITIES Not applicable. Item 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. Item 5. OTHER INFORMATION Not applicable. Item 6. EXHIBITS AND REPORTS ON FORM 8-K Not applicable. 12 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. QUESTRON TECHNOLOGY, INC. (1) Principal Executive Officer: Date: August 13, 1996 /s/ Dominc A. Polimeni ---------------- ------------------------- Dominic A. Polimeni Chief Executive Officer (2) Principal Financial and Accounting Officer: Date: August 13, 1996 /s/ Milton M. Adler ---------------- ------------------------- Milton M. Adler Treasurer 13 EX-27 2 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME FOR THE 6 MONTHS ENDED JUNE 30, 1996 AND THE CONSOLIDATED BALANCE SHEET FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 U.S. 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 289,575 0 1,397,113 72,773 3,413,009 5,153,409 421,048 102,107 12,607,477 1,806,879 0 0 0 1,547 8,419,051 12,607,477 5,615,223 5,707,136 3,366,936 5,136,588 128,949 28,975 159,253 282,346 39,650 242,696 0 0 0 242,696 .02 .02
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