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
For Quarterly Period Ended June 30, 1998 Commission File No. 0-20406
EZCONY INTERAMERICA INC.
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(Exact Name of Registrant as Specified in Its Charter)
BRITISH VIRGIN ISLANDS NOT APPLICABLE
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
CRAIGMUIR CHAMBERS, P.O. BOX 71,
ROAD TOWN, TORTOLA BRITISH VIRGIN ISLANDS
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(Address of Principal Executive Offices) (Country)
Registrant's telephone number, including area code:
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(507) 441-6566 (PANAMA) AND (305) 599-1352 (U.S.A.)
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 reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
At August 1, 1998 there were outstanding:
4,510,000 common shares, no par value
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EZCONY INTERAMERICA INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
PAGE
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997................................ 3
Condensed Consolidated Statements of Operations
and Accumulated Deficit
Three Months Ended June 30, 1998 and 1997......................... 4
Condensed Consolidated Statements of Operations
and Accumulated Deficit
Six Months Ended June 30, 1998 and 1997........................... 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997........................... 6
Notes to Condensed Consolidated Financial Statements.............. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................ 14
Item 4. Submission of Matters to a Vote of Security Holders.............. 14
Item 5. Other Information................................................ 14
Item 6. Exhibits and Reports on Form 8-K.................................. 14
Signatures ............................................................... 15
2
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<TABLE>
<CAPTION>
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
JUNE 30, DECEMBER 31,
1998 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,431,926 $ 1,280,887
Trade accounts receivable, net 27,536,801 31,510,345
Due from directors, officers and employees, net 280,173 179,162
Inventories 11,746,932 9,176,952
Prepaid expenses and other current assets 964,591 1,465,637
Restricted cash 7,105,354 8,834,319
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Total current assets 49,065,777 52,447,302
Property and equipment, net 4,444,942 4,432,704
Other assets 160,822 48,616
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Total assets $53,671,541 $56,928,622
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 225,753 $ 214,537
Notes and acceptances payable 26,137,266 28,842,438
Accounts payable 18,993,602 18,252,706
Accrued expenses and other current liabilities 1,426,609 1,693,543
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Total current liabilities 46,783,230 49,003,224
Long-term debt 1,603,973 1,717,361
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Total liabilities 48,387,203 50,720,585
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Shareholders' equity:
Common stock, no par value; 15,000,000 shares
authorized; 4,510,000 shares issued
and outstanding 12,954,723 12,954,723
Accumulated deficit (7,670,385) (6,746,686)
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Total shareholders' equity 5,284,338 6,208,037
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Total liabilities and shareholders' equity $53,671,541 $56,928,622
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</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
3
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EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
THREE MONTHS ENDED JUNE 30,
----------------------------
1998 1997
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Net sales $37,334,463 $33,718,184
Cost of sales 35,298,919 31,643,389
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Gross profit 2,035,544 2,074,795
Selling, general and administrative expenses 1,995,158 2,336,604
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Operating income (loss) 40,386 (261,809)
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Other income (expenses):
Interest income 149,295 73,066
Interest expense (813,846) (456,172)
Other 67,256 50,935
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(597,295) (332,171)
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Loss from continuing operations (556,909) (593,980)
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Discontinued operations:
Loss from discontinued operations,
net of income taxes of $0 - (525,078)
Loss on disposal, net of income
taxes of $0 - (2,544,786)
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- (3,069,864)
----------- -----------
Net loss (556,909) (3,663,844)
Accumulated deficit, beginning of period (7,113,476) (3,270,660)
----------- -----------
Accumulated deficit, end of period $(7,670,385) $(6,934,504)
=========== ===========
Loss per common share - basic and
assuming dilution:
Loss from continuing operations $ (0.12) $ (0.13)
Loss from discontinued operations - (0.68)
----------- -----------
Net loss $ (0.12) $ (0.81)
=========== ===========
Weighted average number of common shares
outstanding - basic and assuming dilution 4,510,000 4,500,000
=========== ===========
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
4
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EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
SIX MONTHS ENDED JUNE 30,
----------------------------
1998 1997
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Net sales $65,732,984 $60,578,394
Cost of sales 61,651,514 56,588,793
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Gross profit 4,081,470 3,989,601
Selling, general and administrative expenses 3,879,913 3,839,666
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Operating income 201,557 149,935
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Other income (expenses):
Interest income 291,565 195,435
Interest expense (1,544,811) (888,812)
Other 127,990 92,952
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(1,125,256) (600,425)
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Loss from continuing operations (923,699) (450,490)
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Discontinued operations:
Loss from discontinued operations,
net of income taxes of $0 - (733,938)
Loss on disposal, net of income
taxes of $0 - (2,544,786)
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- (3,278,724)
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Net loss (923,699) (3,729,214)
Accumulated deficit, beginning of period (6,746,686) (3,205,290)
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Accumulated deficit, end of period $(7,670,385) $(6,934,504)
=========== ===========
Loss per common share - basic and
assuming dilution:
Loss from continuing operations $ (0.20) $ (0.10)
Loss from discontinued operations - (0.73)
----------- -----------
Net loss $ (0.20) $ (0.83)
=========== ===========
Weighted average number of common shares
outstanding - basic and assuming dilution 4,510,000 4,500,000
=========== ===========
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
5
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EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED JUNE 30,
----------------------------
1998 1997
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Cash flows from operating activities:
Net loss $ (923,699) $(3,729,214)
Reconciliation of net loss to net
cash provided by (used in)
operating activities-
Depreciation and amortization 145,049 100,919
Provision for doubtful accounts 611,043 560,904
Loss on sale of equipment 1,734 -
Loss on disposal of discontinued
operations - 2,544,786
Changes in operating assets and
liabilities:
Decrease (increase) in trade
accounts receivable 3,362,501 (5,912,001)
Increase in due from directors,
officers and employees, net (101,011) (256,100)
Increase in inventories (2,569,980) (1,845,990)
Decrease (increase) in prepaid
expenses and other current assets 501,046 (120,794)
Increase in other assets (112,206) (112,619)
Increase in accounts payable 740,896 689,024
Increase (decrease) in accrued
expenses and other
current liabilities (266,934) 214,102
Net changes in discontinued operations - (511,872)
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Net cash provided by (used in)
operating activities 1,388,439 (8,378,855)
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Cash flows from investing activities:
Decrease (increase) in restricted
cash, net 1,728,965 (1,358,039)
Purchases of equipment (165,771) (540,386)
Proceeds from sale of equipment 6,750 -
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Net cash provided by (used in)
investing activities 1,569,944 (1,898,425)
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Cash flows from financing activities:
Borrowings (repayments) of notes and
acceptances payable, net (2,705,172) 10,197,865
Repayment of long-term debt (102,172) (27,883)
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Net cash provided by (used in)
financing activities (2,807,344) 10,169,982
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Net increase (decrease) in cash and cash
equivalents 151,039 (107,298)
Cash and cash equivalents at beginning
of period 1,280,887 311,419
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Cash and cash equivalents at end of period $ 1,431,926 $ 204,121
=========== ===========
Supplemental disclosures of cash
flow information:
Cash paid during the period for interest $ 1,424,172 $ 1,090,048
=========== ===========
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
6
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EZCONY INTERAMERICA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
In management's opinion, the accompanying unaudited condensed consolidated
financial statements of Ezcony Interamerica Inc. and subsidiaries (the
"Company") contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the Company's financial position and
the results of its operations.
The accompanying unaudited interim condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for the reporting on Form 10-Q. Pursuant to such rules and
regulations, certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The condensed consolidated
financial statements should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial Statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
The accounting policies followed for interim financial reporting are the same as
those disclosed in Note 2 of the Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
(2) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses during the
reporting period. These estimates primarily relate to the determination of the
allowance for doubtful accounts. The Company's accounts receivable are
concentrated in Latin America where political and economic changes affect the
Company's ability and timing of collections. Additionally, the Company collects
certain receivables on a short-term installment basis. Although these estimates
are based on management's knowledge of current events and actions that it may
undertake in the future, actual results may ultimately differ from these
estimates.
(3) DISCONTINUED OPERATIONS
In August 1997, the Company's Board of Directors approved a plan to sell or
liquidate its non-core business subsidiary, New World Interactive, Inc. ("New
World Interactive"), as part of an overall restructuring program designed to
focus the Company's resources on its core business, the distribution of consumer
electronics. New World Interactive ceased operations on December 31, 1997. The
condensed consolidated statements of operations have been reclassified to report
separately the operating results of the discontinued operations in the prior
periods. Sales for the six months ended June 30, 1997 were $844,000.
(4) LOSS PER COMMON SHARE
Basic earnings or loss per common share is computed by dividing income or loss
available to common shareholders by the weighted average number of common shares
outstanding. Diluted earnings or loss per common share includes the diluting
effect of stock options and warrants. For the three and six months ended June
30, 1998 and 1997, the effect of stock options and warrants were not included in
the computation because such inclusion would have been antidilutive.
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(5) INCOME TAXES
Effective January 1, 1997, all income derived from export operations of
companies operating in the Colon Free Zone are tax exempt. Therefore, the
Company did not record any provision for income taxes for its operations in
Panama.
The Company did not record a benefit for income taxes for its operations in the
United States of America due to the full valuation that has been recorded on the
taxable loss recognized for the period.
(6) LEGAL MATTERS
A former vendor of New World Interactive has filed a civil lawsuit against the
Company and its now defunct subsidiary, New World Interactive, for breach of
contract on licensing agreements previously entered into between New World
Interactive and the former vendor. The lawsuit seeks damages of $90,750 plus
interest along with costs and attorney's fees.
New World Interactive has ceased all operations and does not intend to defend
this action. The Company does not believe that it has any liability for the
claims at issue and intends to vigorously defend against this lawsuit and
believes that there is no merit to the claim asserted against it.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein should be read in conjunction with the Consolidated
Financial Statements, the related Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, and the Condensed Consolidated Financial Statements and
the related Notes to Condensed Consolidated Financial Statements included in
Item 1. of this quarterly report on Form 10-Q.
The financial information given below for the six months and three months ended
June 30, 1998 and 1997 refers to the continuing operations of the Company and
excludes the operations of New World Interactive, which were discontinued in
1997.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 AND 1997
NET SALES
Net sales increased 10.7% to $37.3 million for the three months ended June 30,
1998 from $33.7 million for the same period in 1997. The increase is primarily
attributable to increased sales in the Company's existing markets and also
results from additional sales representatives hired for these markets in the
latter part of 1997 to expand new product lines.
Increased sales to Venezuela ($4.6 million increase), Mexico ($2.2 million
increase), Guatemala ($1.4 million increase) and the Dominican Republic ($1.1
million increase) were partially offset by decreased sales to Peru ($1.4 million
decrease), United States ($1.2 million decrease), Colombia ($0.9 million
decrease), Brazil ($0.8 million decrease) and various other markets.
GROSS PROFIT
Gross profit decreased 1.9% from $2.1 million for the three months ended June
30, 1997 to $2 million for the same period in 1998.
The Company's gross profit margin decreased to 5.5% in the three month period
ended June 30, 1998 compared to 6.2% in the comparable 1997 period. The decrease
is primarily attributable to excess merchandise in the markets in which the
Company operates, as described below in Liquidity and Capital Resources, which
caused a reduction in sales prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to $2 million for the
three months ended June 30, 1998 compared to $2.3 million for the same period in
1997.
The decrease in selling, general and administrative expenses is primarily
attributable to a reduction in professional fees and reserves recorded in 1997
for disputed amounts arising in the normal course of business and other losses
totaling $273,000 that did not recur in 1998.
INTEREST
Interest income increased to $149,000 for the three months ended June 30, 1998
compared to $73,000 for the same period in 1997 due to higher average daily
balances of restricted cash.
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Interest expense increased to $814,000 for the three months ended June 30, 1998
compared to $456,000 for the same period in 1997 as a result of additional
borrowings.
LOSS FROM CONTINUING OPERATIONS
The Company's loss from continuing operations during the second quarter of 1998
when compared to the same quarter in 1997 was "flat". Loss from continuing
operations was $557,000 ($0.12) for the three months ended June 30, 1998
compared to the loss from continuing operations of $594,000 ($0.13) for the
three months ended June 30, 1997. The change was primarily due to decreases in
selling, general and administrative expenses and increased interest income,
partially offset by increased interest expense, as described above.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NET SALES
Net sales increased 8.5% to $65.7 million for the six months ended June 30, 1998
from $60.6 million for the same period in 1997. The increase is primarily
attributable to increased sales in the Company's existing markets and also
results from additional sales representatives hired for these markets in the
latter part of 1997 to expand new product lines.
Increased sales to Venezuela ($8.2 million increase), the Dominican Republic
($2.4 million increase), Guatemala ($1.9 million increase) and Mexico ($1.2
million increase) were partially offset by decreased sales to Brazil ($2.7
million decrease), Peru ($1.6 million decrease), Paraguay ($1.4 million
decrease), Hong Kong ($1.1 million decrease) and various other markets.
GROSS PROFIT
Gross profit increased 2.3% to $4.1 million for the six months ended June 30,
1998 from $4.0 million for the same period in 1997.
The Company's gross profit margin decreased to 6.2% in the six months period
ended June 30, 1998 compared to 6.6% in the comparable 1997 period. The decrease
is primarily attributable to excess merchandise in the markets in which the
Company operates, as described below in Liquidity and Capital Resources, which
caused a reduction in sales prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $3.9 million for the
six months ended June 30, 1998 compared to $3.8 million for the same period in
1997.
The increase in selling, general and administrative expenses is primarily
attributable to increased salary and commission expenses, which are partially
offset by reserves that were recorded in 1997 for disputed amounts arising in
the normal course of business and other losses totaling $273,000 that did not
recur in 1998.
INTEREST
Interest income increased to $292,000 for the six months ended June 30, 1998
compared to $195,000 for the same period in 1997 due to higher average daily
balances of restricted cash.
Interest expense increased to $1.5 million for the six months ended June 30,
1998 compared to $0.9 million for the same period in 1997 as a result of
increased borrowings.
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LOSS FROM CONTINUING OPERATIONS
Loss from continuing operations was $924,000 ($0.20 per share) for the six
months ended June 30, 1998 compared to a loss from continuing operations of
$450,000 ($0.10 per share) for the six months ended June 30, 1997. The change
was primarily due to increased interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically, and will continue to finance its operations
through short-term bank borrowings, trade credit and, to a lesser extent,
internally generated funds.
The Company generated $1.4 million in cash from operating activities for the six
months ended June 30, 1998. This was primarily due to a decrease of $3.4 million
in accounts receivable, a decrease of $0.5 million in prepaid expenses and other
current assets and $0.7 million increase in accounts payable which was partially
offset by an increase of $2.6 million in inventory.
Cash provided by investing activities was $1.6 million for the six months ended
June 30, 1998 which is attributable to a decrease in restricted cash balances of
$1.7 million resulting from the decrease in bank credit lines, as described
below, offset by capital expenditures of $166,000.
Cash used in financing activities was $2.8 million for the six months ended June
30, 1998 principally due to repayments of borrowings resulting from the decrease
in bank credit lines, as described below.
Management continues to believe that the Company's ability to repay its
indebtedness must be achieved primarily through funds generated from its
operations. As the Company expands sales in existing markets, such sales are
primarily made on a credit basis. During 1998, the Company has experienced an
increased delay in collecting on its accounts receivable as compared to 1997
primarily due to a decline in the favorable economic and political climate in
the Latin American countries in which it does business, which has affected the
cash flows of its customers. Therefore, the number of day's sales in accounts
receivable increased to 76 days at June 30, 1998 from 70 days at June 30, 1997.
Future political and economic changes in the Latin American countries in which
the Company does business, such as the imposition or lifting of exchange
controls, may further affect the Company's ability to collect its accounts
receivable.
At June 30, 1998, the Company's working capital decreased to $2.3 million from
$3.4 million at December 31, 1997, primarily as a result of the net loss. The
Company is in the process of evaluating various action steps that may minimize
or prevent the continued deterioration of the Company's working capital and
minimize or prevent future losses. The Company's ability to reduce losses is
greatly dependent on various factors which include the following; (i) improving
gross profit margins while sustaining or increasing current sales volume; (ii)
reducing financing costs by reducing the number of days to collect on its
accounts receivable and increasing the turnover of inventory; and (iii) reducing
operating costs by streamlining its operations. There can be no assurances that
the actions steps to be taken will minimize or prevent future losses and prevent
or reduce the future deterioration of the Company's working capital.
During 1997, in anticipation of increased sales volumes, the Company increased
its bank credit lines. Although 1998 sales volumes have increased in the
comparable periods, a general decline in the favorable economic and political
climate in the Latin American countries in which the Company does business,
coupled with the Asian economic crisis which flooded the market with excess
merchandise, has adversely affected the anticipated sales volumes and gross
profit margins for the six months ended June 30, 1998. Since December 31, 1997,
the Company's aggregate bank credit lines have been reduced from $36.5 million
to $30.5 million because one of its lenders advised the Company that due to new
banking regulation enacted in Panama, the line of credit granted to the Company
had to be reduced from $8.0 million to $2.5 million. Based on the current
operating performance of the Company, the decrease in the line of credit will
not be replaced. Management does not believe that such decrease will have a
material effect on the operations of the Company but may affect short-term
liquidity needs. Additionally, the
11
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Company's primary lender, which provides the Company with a $15 million line of
credit, is in the process of renewing the line of credit. The primary lender is
currently allowing the Company to operate under the terms of the expired line of
credit. If the primary lender does not renew the line of credit or significantly
reduces the line of credit and the Company is unable to find other lines of
credit to replace it, the Company's operations may be adversely affected. The
Company believes that the current bank facilities are adequate to support the
projected sales of the Company in the short-term.
At June 30, 1998, the Company utilized $30.8 million of its bank credit
facilities. From time to time, the Company is overdue with various of its bank
lenders for periods of a few days for amounts the Company does not consider to
be significant when compared to the size of its borrowings. All of the Company's
lines of credit and credit facilities from its various lenders are "on demand".
Trade credit is an essential factor in the Company's ability to operate. The
Company believes it has and will continue to have a good relationship with its
two principal suppliers, Sony and Pioneer. At June 30, 1998, December 31, 1997
and June 30, 1997 the Company's credit facility with Pioneer was $8 million. At
June 30, 1998 and December 31, 1997, the Company's credit facility with Sony was
$8 million compared to $11 million at June 30, 1997. From time to time, Sony and
Pioneer have allowed the Company to exceed its credit line above its stated
amount.
At June 30, 1998, the Company had approximately $18.2 million outstanding on its
credit facilities with its principal suppliers. Management believes that,
through internally generated funds and utilization of bank lines, the Company
will maintain all accounts current and be able to support ongoing operations.
For a variety of political and economic reasons, the import of non-essential
items such as consumer electronics has from time to time been restricted or
prohibited by many Latin American countries through exchange controls, import
quotas and restrictions, tariffs and other means. Accordingly, changes in the
trade policies of Latin American countries affect both the market for the
Company's products as well as the Company's ability to sell its products. The
ability of the Company to sustain continued sales growth is greatly dependent
upon at least four factors: (i) the continuing favorable economic and political
climate of the Latin American countries in which it does business; (ii) its
ability to increase profit margins on sales within the highly competitive field
of consumer electronics which is currently being affected by the Asian economic
crisis resulting in the flood of excess merchandise in the geographic markets
that the Company operates in; (iii) its ability to provide adequate financing to
customers; and, to a lesser extent, (iv) product availability.
COUNTRY RISK
The Company does a substantial amount of business in Latin America. There are
significant "country risks" which arise in connection with this business,
including those associated with the receipt of payment for goods sold. Colombia,
which represents a significant market for the Company, is a country for which
the United States Government has taken a particular interest in monitoring the
flow of funds. Although the Company believes that payments received currently
comply with all applicable United States Government regulations and laws, there
can be no assurance that forms of payment will not be challenged by the United
States Government, or that business done in Colombia by the Company will not be
materially affected by this government scrutiny.
SEASONALITY
The Company's operations have historically been seasonal, with generally higher
sales in the third and fourth fiscal quarters. Typically, higher third and
fourth quarter sales result from increased sales in anticipation of the
Christmas holiday season. In addition, sales may also vary by fiscal quarter as
a result of the availability of merchandise for sale. Therefore, the results of
any interim period are not necessarily indicative of the results that might be
expected during a full fiscal year.
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YEAR 2000 COMPLIANCE
Many computer programs were written using two digits rather than four digits to
define the applicable year in the twentieth century. Such software may recognize
a date using "00" as the year 1900 rather than the year 2000. The Company is in
the process of defining, assessing and converting, or replacing, programs and
hardware systems to make them Year 2000 compatible. The Company's Year 2000
project is comprised of two components - business applications and equipment.
The business applications component consists of the Company's business computer
systems, as well as the computer systems of third-party suppliers or customers,
whose year 2000 problems could potentially impact the Company. Equipment
exposures consist of personal computers, system servers and telephone equipment
whose year 2000 problems could also impact the Company. The cost of the Year
2000 initiatives is not expected to be material to the Company's results of
operations, financial position or cash flows. Implementation is expected to be
completed before September 30, 1999.
FORWARD LOOKING STATEMENTS
From time to time, the Company publishes "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, including
certain statements in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations," of this Form 10-Q, which relate to such
matters as anticipated financial performance, business prospects, technological
developments, new products and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. Such factors
include, among others: (i) the general availability of credit from its principal
suppliers and banks to the Company, specifically, the continued cooperation of
its major suppliers and its banks to provide credit and their forbearance from
time to time; (ii) expansion of the Company's "core" business into new
geographic markets and within its current markets; (iii) the Company's ability
to increase the profit margins on its sales within the competitive market it
operates in; (iv) continued positive economic developments in those foreign
countries in which the Company conducts a material amount of business, including
Colombia, Venezuela, Paraguay and Ecuador.
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On May 4, 1998, Mindscape, Inc. filed a lawsuit in the Superior Court, State of
California, against New World Interactive, Inc. and Ezcony Interamerica Inc. for
breach of contract on licensing agreements previously entered into between New
World Interactive, Inc. and Mindscape, Inc. The lawsuit seeks damages of $90,750
plus interest along with costs and attorney's fees.
New World Interactive, Inc. has ceased all operations and does not intend to
defend this action. Ezcony Interamerica Inc. does not believe that it has any
liability for the claims at issue and intends to vigorously defend against this
lawsuit and believes that there is no merit to the claim asserted against it.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual shareholders' meeting on May 21, 1998. At such
meeting the shareholders:
(i) elected nine members to the Board of Directors as follows:
WITHHOLD
FOR AUTHORITY
Ezra Cohen 4,313,064 41,446
Moises Ezra Cohen 4,311,064 43,446
David Djemal 4,315,064 39,446
Michael G. Dowling 4,314,564 39,946
Ezra Homsany Gateno 4,315,064 39,446
Daniel Homsany 4,315,064 39,446
Enrique P. Lacs 4,315,064 39,446
Ana M. Menendez 4,328,064 26,446
Leonard J. Sokolow 4,314,564 39,946
(ii) ratified the reappointment of PricewaterhouseCoopers LLP as the Company's
independent public accountants (4,348,160 shares voted for, 3,500 shares voted
against and 3,350 shares abstained).
Item 5. OTHER INFORMATION
The Company's Common Stock was delisted from The Nasdaq Stock Market effective
at the close of business August 5, 1998 and began trading on the OTC Bulletin
Board. The Company was delisted because it was not in compliance with the market
value of public float and bid price listing requirements and a request for
continued listing pursuant to an exception to these requirements was denied. The
Company was unable to obtain inclusion into The Nasdaq SmallCap Market since the
Company did not meet its minimum market value of public float listing
requirement.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 27 Financial Data Schedule
(b) No Form 8-K was filed during the quarter ended June 30, 1998.
14
<PAGE>
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.
EZCONY INTERAMERICA INC.
Date: August 14, 1998 BY: /s/ EZRA COHEN
-------------------------
Ezra Cohen, President and
Chief Executive Officer
Date: August 14, 1998 BY: /s/ ANA M. MENENDEZ
-------------------------
Ana M. Menendez,
Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,431,926
<SECURITIES> 0
<RECEIVABLES> 32,020,780
<ALLOWANCES> 4,483,979
<INVENTORY> 11,746,932
<CURRENT-ASSETS> 49,065,777
<PP&E> 5,625,579
<DEPRECIATION> 1,180,637
<TOTAL-ASSETS> 53,671,541
<CURRENT-LIABILITIES> 46,783,230
<BONDS> 0
0
0
<COMMON> 12,954,723
<OTHER-SE> (7,670,385)
<TOTAL-LIABILITY-AND-EQUITY> 53,671,541
<SALES> 65,732,984
<TOTAL-REVENUES> 65,732,984
<CGS> 61,651,514
<TOTAL-COSTS> 61,651,514
<OTHER-EXPENSES> 3,879,913
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,544,811
<INCOME-PRETAX> (923,699)
<INCOME-TAX> 0
<INCOME-CONTINUING> (923,699)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (923,699)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
