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 MARCH 31, 2000 COMMISSION FILE NO. 0-20406
EZCONY INTERAMERICA INC.
------------------------------------------------------
(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
- ---------------------------------------- --------------------------------
(Address of Principal Executive Offices) (Country)
Registrant's telephone number, including area code:
(507) 441-6566 (Panama)
--------------------------------------------------
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 _____ NO __X__
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
At May 1, 2000
there were outstanding:
4,510,000 common shares, no par value
<PAGE>
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999....................................................... 3
Condensed Consolidated Statements of Operations and Accumulated Deficit
Three Months Ended March 31, 2000 and 1999................................................. 4
Condensed Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 2000 and 1999................................................. 5
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999................................................. 6
Notes to Condensed Consolidated Financial Statements....................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................................ 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................................................... 11
Signatures.......................................................................................... 12
</TABLE>
2
<PAGE>
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
------------------------------
2000 1999
------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 69,064 $ 660,644
Trade accounts receivable, net 16,873,267 14,656,363
Due from directors, officers and employees, net 508,827 369,015
Inventories 3,388,314 2,374,284
Marketable Securities 1,019,978 --
Prepaid expenses and other current assets 1,148,946 1,215,748
Restricted cash 4,304,200 4,283,039
------------ ------------
Total current assets 27,312,556 23,559,093
Property and equipment, net 4,101,697 4,146,435
Other assets 272,275 468,461
------------ ------------
Total assets $ 31,686,528 $ 28,173,989
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 612,399 $ 612,399
Notes and acceptances payable 12,218,441 13,454,687
Accounts payable 12,558,929 7,986,150
Accrued expenses and other current liabilities 132,701 92,100
------------ ------------
Total current liabilities 25,522,470 22,145,336
Long-term debt 2,143,730 2,255,692
------------ ------------
Total liabilities 27,666,200 24,401,028
------------ ------------
Shareholders' equity:
Common stock, no par value; 15,000,000 shares authorized; 12,954,723 12,954,723
4,510,000 shares issued and outstanding
Accumulated deficit (8,934,395) (9,181,762)
Accumulated other comprehensive income:
Unrealized gain on securities available for sale -- --
------------ ------------
Total shareholders' equity 4,020,328 3,772,96
------------ ------------
Total liabilities and shareholders' equity $ 31,686,528 $ 28,173,989
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
3
<PAGE>
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
------------------------------
<S> <C> <C>
Net sales $ 18,686,314 $ 15,711,922
Cost of sales 17,302,008 14,393,721
------------ ------------
Gross profit 1,384,306 1,318,201
Selling, general and administrative expenses 820,474 935,540
------------ ------------
Operating income 563,832 382,661
------------ ------------
Other income (expenses):
Interest income 50,727 97,515
Interest expense (395,539) (458,837)
Other 28,347 55,888
------------ ------------
Total other Income (Expenses) (316,465) (305,434)
------------ ------------
Income from continuing operations 247,367 77,227
Loss from discontinued operations, net of income taxes of $0 -- --
------------ ------------
Net Income or (Loss) 247,367 77,227
Accumulated deficit, beginning of period (9,181,762) (9,690,521)
------------ ------------
Accumulated deficit, end of period $ (8,934,395) $ (9,613,294)
============ ============
Income per common share - basic:
Income (loss) from continued operations $ 0.05 $ 0.02
Loss from discontinued operations -- --
------------ ------------
Net Income (Loss) $ 0.05 $ 0.02
============ ============
Weighted average number of common shares
outstanding - basic 4,510,000 4,510,000
============ ============
Income per common share - dilutive:
Income (loss) from continued operations $ 0.05 $ 0.02
Loss from discontinued operations -- --
------------ ------------
Net Income (Loss) $ 0.05 $ 0.02
============ ============
Weighted average number of common shares
outstanding - dilutive 4,556,452 4,510,000
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
4
<PAGE>
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net Income $247,367 $ 77,227
Other Comprehensive Income:
Unrealized Holding Gains Arising During the Period -- --
Less:
Reclassification Adjustments for Gains Included in Net Income -- --
----------- -----------
Total Other Comprehensive Income -- --
----------- -----------
Total Comprehensive Income $247,367 $ 77,227
=========== ===========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
5
<PAGE>
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net profit $ 247,367 $ 77,227
Reconciliation of net income to net cash provided by operating activities-
Depreciation and amortization 53,853 54,446
Provision for doubtful accounts 187,021 157,180
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable (2,403,925) 3,706,682
Increase in due from directors, officers and employees, net (139,812) (16,320)
Increase in inventories (1,014,030) (1,697,140)
Decrease (Increase) in prepaid expenses and other assets 66,802 (286,577)
Increase in trading securities, net (761,511) --
Decrease (Increase )in other assets 196,186 17,276
Increase (decrease) in accounts payable 4,572,779 2,463,507
Increase (decrease) in accrued expenses and other current liabilities 40,601 (219,214)
----------- -----------
Net cash used in operating activities 1,045,331 4,257,067
=========== ===========
Cash flows from investing activities:
Increase in restricted cash, net (21,161) (6,300)
Purchases of services available for sale (258,427) --
Purchases of property and equipment (9,115) (42,338)
----------- -----------
Net cash used in investing activities (288,703) (48,638)
----------- -----------
Cash flows from financing activities:
(Repayment of) proceeds from notes and acceptances payable (1,236,246) (4,529,486)
Repayment of long-term debt (111,962) (55,077)
----------- -----------
Net cash used in financing activities (1,348,208) (4,584,563)
----------- -----------
Net increase (decrease) in cash and cash equivalents (591,580) (376,134)
Cash and cash equivalents at beginning of period 660,644 1,253,073
----------- -----------
Cash and cash equivalents at end of period $ 69,064 $ 876,939
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 395,539 $ 458,837
=========== ===========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
6
<PAGE>
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 results of operations or cash flows for the
three months ended March 31, 2000 are not necessarily indicative of the results
of operations or cash flows which may be reported for the remainder of 2000.
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 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, 1999.
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, 1999.
(2) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect 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) EARNINGS PER COMMON STOCK
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 months ended March 31, 2000
and 1999, the effect of 795,030 and 725,030 stock options and warrants,
respectively, were not included in the computation because their exercise price
was greater than the average market price of the common shares.
(4) EXAMINATION OF NEW OR DIFFERENT TYPES OF BUSINESS
The Company is exploring opportunities in additional and different businesses
including technology and Internet related business. Management is of the opinion
that the shareholders might be better served if the Company were able to
successfully transition into a business with greater growth potential than its
current business. Management believes that there will be continued pressure on
margins and the ability to achieve profitable operations in its current line of
business. Management has sought the guidance from investment bankers and has
involved counsel in its review of potential opportunities. The Company's efforts
in these new ventures are in the planning stages and no information regarding
these activities has been made public.
(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.
7
<PAGE>
(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
claim at issue and intends to vigorously defend against this lawsuit and
believes that there is no merit to the claim asserted against it.
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, 1999, 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 three months ended March 31, 2000
and 1999 refers to the continuing operations of the Company.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NET SALES
Net sales increased 19% to $18.7 million for the three months ended March 31,
2000 from $15.7 million for the same period in 1999. The increase is primarily
attributable to the increase in sales in the Company's existing markets and
aggressive sales management. The Company has also reduced its product lines to
eliminate slow selling brand names.
GROSS PROFIT
Gross profit increased 5% to $1.384 for the three months ended March 31, 2000
from $1.318 million for the same period in 1999.
The Company's gross profit margin decreased to 7.4% in the three month period
ended March 31, 2000 compared to 8.4% in the comparable 1999 period. This
decrease is primarily attributable to selective sales of merchandise and the
rejection of orders coming at lower margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to $820,474 for the three
months ended March 31, 2000 compared to $935,540 for the same period in 1999.
The decrease in selling, general and administrative expenses is primarily
attributable to the following: (i) decrease in salaries and commissions (ii)
closing of sales offices (iii) implementation of an austerity program to reduce
operating expenses and (iv) benefits of the implementation of the restructuring
program.
INTEREST
Interest income decreased to $50,727 for the three months ended March 31, 2000
compared to $97,515 for the same period in 1999 due to lower average daily
balances of restricted cash in time deposits.
8
<PAGE>
Interest expense decreased to $395,539 for the three months ended March 31, 2000
compared to $458,837 for the same period in 1999 as a result of a programmed
reduction of bank credit facilities to conform to the reduced sales volume.
INCOME (LOSS) FROM CONTINUING OPERATIONS
Profit from continuing operations was $247,367 ($0.05 per share) for the three
months ended March 31, 2000 compared to profit from continuing operations of
$77,227 ($0.02 per share) for the three months ended March 31, 1999. The change
was primarily due to an increase in sales, a decrease in selling, general and
administrative expenses and interest expense, as described above.
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 $1,045,331 in cash from operating activities in the three
months ended March 31, 2000. This was primarily due to a $4.7 million increase
in accounts payable, which was offset by $2.4 million increase in trade accounts
receivable, and a $1.0 million increase in inventory.
Cash used in investing activities was $288,703 for the three months ended March
31, 2000 which is attributable to an increase in restricted cash balances of
$21,161, capital expenditures of $9,115, and purchases of securities available
for sale of $258,427.
Cash used by financing activities was $1.3 million in the three months ended
March 31, 2000 principally due to repayment of bank notes and acceptances
payable.
Management believes that the Company's ability to repay its indebtedness must be
achieved primarily through funds generated from its operations. As the Company
expanded sales in existing markets such sales were primarily made on a credit
basis as compared to cash basis. Future political and economic changes in the
Latin American countries in which the Company sells, such as the imposition or
lifting of exchange controls, may affect the Company's ability to collect its
accounts receivable.
From time to time, the Company experiences temporary liquidity problems that are
typically related to the Company's extension of credit to its customers.
Beginning in 1999, the Company has taken measures to decrease the number of days
to collect on its accounts receivable by not shipping merchandise to certain
customers that have significant past due balances and increasing the collection
efforts of the Company's credit and collection department and sales force.
At March 31, 2000, the Company had available with five banks an aggregate of $20
million in bank facilities of which $19.7 million was utilized. From time to
time, the Company is overdue with various bank lenders for periods of a few days
for amounts the Company does not consider to be significant in light of the size
of its borrowing. All of the Company's lines of credit and credit facilities
from its various lenders are "on demand."
The Company continues to have good relationships with its principal suppliers,
Sony and Pioneer. At March 31, 2000, the Company's credit facility with Sony was
$4.8 million , which was partially collateralized by $2.6 million in stand-by
letters of credit. The Company's credit facility with Pioneer at March 31, 1999,
was $4 million which was partially collateralized by $800,000 in stand-by
letters of credit.
For a variety of political and economic reasons, the import of nonessential
items such as consumer electronics has been restricted or prohibited from time
to time 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 on
the continuing favorable economic and political climate of the Latin American
countries that it is currently operating in, the Company's ability to maintain
or increase the profit margins on its sales within the competitive market that
it operates in, availability of payment methods to its customers, and, to a
lesser extent, product availability.
9
<PAGE>
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.
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 successful retrenchment of the Company's
operations in Panama; (ii) the general availability of credit from its principal
suppliers and banks to the Company to finance its inventory, specifically, the
continued cooperation of its major suppliers and its banks to provide credit and
their forbearance from time to time as well as the successful consolidation of
the Company's borrowings; (iii) the discontinuation of certain non-profit
aspects of its business, e.g. certain products and customers; (iv) the Company's
ability to maintain or increase the profit margins on its sales within the
highly competitive markets in which it operates in; (v) economic developments in
those foreign countries in which the Company conducts a material amount of
business, including Colombia, Paraguay, Ecuador and Venezuela. as well as those
markets which are the source of competition, e.g. Asia.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
11
<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: May 15, 2000 BY: /s/ EZRA COHEN
-------------------------
Ezra Cohen, President and
Chief Executive Officer
Date: May 15, 2000 BY: /s/ CARLOS N. GALVEZ
-------------------------
Carlos N. Galvez
Chief Financial Officer
12
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
27.0 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 69,064
<SECURITIES> 1,019,978
<RECEIVABLES> 22,104,092
<ALLOWANCES> 5,230,825
<INVENTORY> 3,388,314
<CURRENT-ASSETS> 27,312,556
<PP&E> 5,303,899
<DEPRECIATION> 1,202,202
<TOTAL-ASSETS> 31,686,528
<CURRENT-LIABILITIES> 25,522,470
<BONDS> 0
0
0
<COMMON> 12,954,723
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 31,686,528
<SALES> 18,686,314
<TOTAL-REVENUES> 18,765,388
<CGS> 17,302,008
<TOTAL-COSTS> 17,302,008
<OTHER-EXPENSES> 820,474
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 395,539
<INCOME-PRETAX> 247,367
<INCOME-TAX> 0
<INCOME-CONTINUING> 247,367
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 247,367
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
