SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K 405
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE
REQUIRED] FOR THE TRANSITION PERIOD FROM
__________________ TO ______________________
COMMISSION FILE NUMBER: 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 Identification No.)
incorporation or organization)
Craigmiur Chambers NONE
P.O. Box 71 (Zip Code)
Road Town, Tortola, British Virgin Islands
(Address of principal executive offices)
Registrant's telephone number, including area code: (507) 441-6566
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, no par value
--------------------------
(Title of Class)
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 such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of March 29, 2000 was approximately $124,260 based on the $.18
closing sale price for the Common Stock quoted on OTC Bulletin Board on such
date. For purposes of this computation, all executive officers and directors of
the registrant have been deemed to be affiliates. Such determination should not
be deemed to be an admission that such directors and officers are, in fact,
affiliates of the registrant. The number of shares of Common Stock of the
registrant outstanding as of March 29, 2000 was 4,510,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated by reference into the
parts indicated: The registrant's definitive Proxy Statement to be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the fiscal year covered by this report - Part III.
<PAGE>
EZCONY INTERAMERICA INC.
TABLE OF CONTENTS
Page
PART I
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 5
ITEM 3. LEGAL PROCEEDINGS 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK EQUITY AND
RELATED STOCKHOLDER MATTERS 6
ITEM 6. SELECTED FINANCIAL DATA 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 12
ITEM 11. EXECUTIVE COMPENSATION 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K. 13
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Ezcony Interamerica Inc. ("Ezcony" or the "Company") is a leading distributor to
Latin America of major brand name consumer electronics, including but not
limited to, Sony, Pioneer, AIWA, Samsung, Sharp, Daewoo, Brother and Philips.
See "Major Brand Name Products."
The Company's consumer electronics products are sold principally to other
wholesalers and distributors as well as directly to retail chains. The Company
believes that it is one of the largest independent distributors of Sony, AIWA
and Pioneer products to Latin America.
MARKET OVERVIEW
Since the Company began operations in 1982, the principal Latin American markets
for its products have varied significantly. The largest Latin American markets
for the Company's products in 1999 were Venezuela, Colombia, Mexico and
Paraguay.
The following table illustrates, for the periods presented, the changes in the
principal Latin American markets for the Company's products by sales volume (in
thousands) and percentage of total net sales from continuing operations. A
portion of the Company's sales were made through distributors and exporters
located in the United States, however, this means of distribution has been
substantially eliminated as of the end of fiscal 1999.
<TABLE>
<CAPTION>
1999 1998 1997
AMOUNT % AMOUNT % AMOUNT %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Venezuela $15,612 25 18,120 17 12,099 8
Colombia 12,559 20 29,000 27 52,996 33
Mexico 5,276 8 4,461 4 4,743 3
Paraguay 3,570 6 15,728 14 28,486 18
Ecuador 422 1 8,015 7 12,401 8
Caribbean 5,535 9 0 0 0 0
All Other 19,141 31 33,405 31 48,098 30
------- --- ------- --- ------- ---
Total $62,115 100 108,930 100 158,823 100
======= === ======= === ======= ===
</TABLE>
For a variety of political and economic reasons, the importation of
non-essential 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. 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. Future
political and economic changes in particular Latin American countries, including
changes in exchange rates, import duties or quotas, imposition or lifting of
exchange controls and other import restrictions, are likely to result in changes
in the importance to the Company of particular countries.
<PAGE>
As described above, the Company does a substantial amount of business in Latin
America and it believes it is in compliance with all applicable governmental
regulations. 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 in which the United States Government has taken a particular interest
in monitoring the flow of funds, especially those involving "structured
payments," e.g., payment practices using a repetitive high volume of cash or
financial instruments in "round" amounts.
The Company experienced a loss as a result of a forfeiture dispute that arose
with the United States Government over certain structured payments received in
mid 1999; the resolution of this matter was "recognized" for financial purposes,
in fiscal 1999. The Company has discontinued accepting this form of payment in
connection with its Colombian receivables. The Company does not believe that
this change in payment policy will materially or adversely affect its business;
however, there can be no assurance that other similar forms of payment will not
be challenged by the United States Government, or that the business done in
Colombia by the Company will not be materially affected by this governmental
scrutiny.
The Company believes that the consumer electronics markets in Latin America
differ from similar markets in the United States. First, the Company believes
that in Latin America independent regional distributors are usually the
principal means of distribution of consumer electronics, unlike in the United
States where direct sales by manufacturers are more typical. Although most major
consumer electronics manufacturers have single-country distributors, operating
subsidiaries or joint ventures in the major Latin American countries,
independent regional distributors such as Ezcony still represent the predominant
channel for consumer electronic sales in Latin America. The Company expects that
over a period of time this means of distribution may well evolve into a system
more like that in the United States. Second, the Company believes that
state-of-the-art technology, while an important factor in marketing consumer
electronics in the United States, is less important in Latin America where
consumers generally are willing to purchase less advanced products for longer
periods of time. Finally, Latin American markets for consumer electronics
generally are less developed than in the United States. For example, products
such as televisions and radios have reached relatively low consumer penetration
levels in Latin America compared to that of the United States.
MAJOR BRAND NAME PRODUCTS
Ezcony distributes a wide range of major brand name consumer electronics,
including televisions, video cassette recorders, cellular products, automobile
audio equipment, personal portable stereos, home audio equipment, camcorders and
appliances. In 1999, sales of Sony, Pioneer, Samsung, Daewoo and AIWA products
accounted for approximately 38%, 16%, 13% ,14% and 16%, respectively, of the
Company's total net sales.
Ezcony purchases most of its major brand name consumer electronics directly from
manufacturers. As is customary with independent distributors of consumer
electronics in Latin America, Ezcony has no written distributorship agreement or
arrangement with the manufacturer. The Company has a continuing relationship
with Sony for over 16 years. The Company has not experienced difficulty in
obtaining a satisfactory supply of marketable consumer electronics from Sony,
Pioneer, Samsung, and AIWA without having written distributorship or other
agreements. From time to time, the Company has purchased major brand name
consumer electronics from other sources, including other wholesalers and
distributors. The Company has also executed a distribution agreement with
Rockford Corporation of Arizona, U.S., to serve as the exclusive
2
<PAGE>
and sole distributor of the products manufactured by Rockford within the Latin
American market, except Puerto Rico and Venezuela. The distribution agreement,
which became effective in 2000, will significantly enhance our sales in the
assigned territories.
Most of the purchases of Sony and Pioneer products, are supplied from inventory
of these manufacturers located at their respective warehouses in the Colon
Panama Free Zone. This method of supply allows the Company to limit the amount
of inventory that it must keep on hand which in turn lowers the related
inventory holding costs and reduces the lead time on the placement of orders for
products. Sony, Pioneer, Daewoo and Samsung extend the Company credit for its
purchases; during 1999 AIWA assigned a $1 million credit line guaranteed by a 1
to 1 Stand-by L/C. On December 31, 1999, the Company's trade accounts payable to
Sony, Pioneer, Samsung, Daewoo and AIWA were approximately $3.9 million, $1.2
million , $237,190, $ 1.7 million and $623,341 respectively.
Sales of Sony products accounted for approximately 38%, 31% and 33% of the
Company's major brand name product sales in 1999, 1998, and 1997, respectively.
Sales of Pioneer products accounted for approximately 16%, 30% and 34% of the
Company's major brand name products sales in 1999, 1998, and 1997, respectively.
Sales of Samsung products represented 13% , 17% and 9% of the Company's major
brand name products sales in 1999, 1998 and 1997 and was not part of the
Company's major brand name products in 1996. Sales of AIWA products accounted
for approximately 16%, 11%, and 12% of the Company's major brand name product
sales in 1999, 1998 and 1997, respectively.
DISCONTINUED OPERATIONS
In the third quarter of 1998, the Company decided to restructure its operations
by closing the facility in the United States and transferring the operations to
the Colon Panama Free Zone facilities. The Company recorded restructuring
charges totaling $250,759 to recognize severance and benefits for employees to
be terminated ($45,000), lease obligations ranging from a minimum of $20,800 to
a maximum of $137,259, legal fees ($17,500) and a provision for asset impairment
($51,000). Benefits of this restructuring were achieved by decreasing the
overhead in the Company's general administrative and sales departments by
approximately 49% from 1998, attributable to: (i) decrease of salaries and
commissions, (ii) closing of sales offices, (iii) implementation of a severe
austerity program to reduce operating expenses, and (iv) implementation of a
integrated operations program to increase gross profit margins.
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 then 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.
3
<PAGE>
SALES AND DISTRIBUTION
Ezcony sells its products primarily to wholesalers and distributors for re-sale
in Latin America. In addition, the Company sells directly to several Latin
American retail chains. Ezcony has a direct sales staff, which regularly calls
on and visits customers and prospective customers and assists the Company in
evaluating market conditions and customers' creditworthiness in their assigned
market areas.
In certain countries sales are made to a small number of customers, while in
other countries (such as Colombia) sales are made to approximately 150
customers. The Company's customers included distributors and exporters located
in the United States, most of whom re-export the Company's products directly to
Latin America; however, this aspect of the Company's distribution has been
significantly curtailed. During the last three fiscal years, no customers
accounted for more than 10% of the Company's total net sales.
The Company maintains warehouse facilities in Panama. During 1998 the Company
also leased a warehouse in Miami, Florida, and used on an "as needed" basis a
customs-bonded warehouse also in Miami; the Company ceased using these U.S.
facilities in the last quarter of 1998. Operating from a customs-bonded
warehouse in the Colon Free Zone allows the Company to import, store and export
products without incurring customs duties unless the products are sold locally.
See "Properties", below.
Generally, sales are recorded upon delivery of merchandise to the shipper. The
Company at times sells inventory while still on board vessels inbound from the
Far East. In these instances, inbound freight containers are transloaded in port
or at public warehouses for shipment to the Company's customers to minimize
warehousing and handling costs. Since products are normally shipped to its
customers shortly after receiving an order, the Company historically has not
maintained a significant backlog of orders relative to its sales.
CUSTOMER CREDIT
The majority of sales by the Company are made on open account terms, with
payment due within 30 to 60 days after receipt of goods by the customers. All
other sales are made on the basis of payment on or in advance of delivery of
merchandise to the shipper or upon receipt of a letter of credit. Certain sales
made by the Company are collected in cash and other negotiable instruments. The
Company requires payment in U. S. dollars for all of its sales. The Company
establishes credit limits for its customers based on its knowledge of the
customer, the customer's payment history with available trade references, market
conditions and other factors. The Company performs its own analysis of the
creditworthiness of its customers, as the credit reporting systems in Latin
America do not have an extensive base. In addition to the risks customarily
associated with extending credit, the Company has experienced losses from
uncollectible receivables due to the difficulty of pursuing judicial remedies in
most Latin American countries.
COMPETITION
The Company competes in the sale of consumer electronics with numerous
wholesalers and distributors, some of which have greater financial and other
resources than the Company. The Company believes that the most important
competitive factors in the sale of consumer electronics in Latin America are
extension of
4
<PAGE>
customer credit, price, quality and variety of merchandise and the ability to
obtain sufficient quantities of merchandise for immediate delivery.
EMPLOYEES
At December 31, 1999, the Company had 50 full-time employees, all in Panama. As
of that date, there were no employees in the United States. None of the
Company's employees are represented by a labor union and the Company has not
experienced any material work stoppages. The Company considers its relations
with its employees to be good.
GEOGRAPHICAL SEGMENT INFORMATION
See Notes to the Company's Consolidated Financial Statements, Part II, Item 8,
for geographical segment information regarding sales, assets and operating
income for 1999, 1998 and 1997.
ITEM 2. PROPERTIES
In October 1997, the Company transferred its warehousing operations from two
leased warehouses to a 106,000 square foot warehouse in the Colon Free Zone. In
January 1998, the Company took occupancy of its new 16,140 square feet office
and showroom in the Colon Free Zone, which was completed at a cost of
approximately $1,235,000. The Company believes that the new warehouse and office
and showroom were needed to support the current operations and future growth;
these facilities are leased from "La Zona Libre De Colon" a governmental agency
which owns the land of the Colon Free Zone. The leases of the real property
underlying the warehouse and the office and showroom land expire on July 31,
2014 and October 31, 2016, respectively, and require annual payments of $12,952
and $6,811, respectively. The leases can be renewed for a 20-year renewal term,
at the option of the Company at the rental rate and terms which are in effect
for the Colon Free Zone at the time of renewal.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation. The Company
believes that presently pending actions will not have a material adverse impact
on its financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended
December 31, 1999.
5
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock trades on "OTC Bulletin Board" under the symbol
"EZCOF". The following table sets forth the high and low sales prices for the
Common Stock for each quarter during the last two fiscal years as reported by
the "OTC Bulletin Board".
1998 1999
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter $ 2.19 $ 1.06 $ 0.19 $ 0.06
Second Quarter 1.06 0.63 0.12 0.04
Third Quarter 0.75 0.25 0.14 0.10
Fourth Quarter 0.31 0.13 0.12 0.10
The Company is not in compliance with the new market value of public float
requirement pursuant to NASD Marketplace Rule 4450 (a) (2), which became
effective February 23, 1998. Because of this deficiency, effective August 6,
1998, the Company's common stock was no longer included in the Nasdaq SmallCap
Market, and thereafter the Company's Common Stock began trading on the "OTC
Bulletin Board" market.
There were 73 shareholders of record of the Company's Common Stock on March 28,
2000.
The Company presently has no plans to pay any dividends on its Common Stock and
has never paid any dividends. All earnings will be retained for the foreseeable
future to support operations and to finance the growth and development of the
Company's business. The payment of future cash dividends, if any, will be at the
discretion of the Board of Directors of the Company and will depend upon, among
other things, future earnings, capital requirements, the Company's financial
condition and on such other factors deemed relevant by the Board of Directors.
The Company is not currently subject to any law or regulation of the British
Virgin Islands which would restrict or affect the remittance of dividends or
other payments to any holders of its Common Stock or which require tax
withholding from any United States holders of its Common Stock. There is no
reciprocal tax treaty between the British Virgin Islands and the United States
regarding withholding.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for each of the years in the five-year period ended
December 31, 1999 are derived from the Company's Consolidated Financial
Statements which have been prepared in accordance with generally accepted
accounting principles in the United States and have been audited by the
Company's independent accountants. The selected financial data should be read in
conjunction with the Company's Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Part II Item 7 of this Form 10-K405/A.
6
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------
1995(1) 1996(1) 1997 1998 1999
--------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales - continuing operations $ 77,529 $ 108,746 $ 158,823 $ 108,930 $ 62,114
Operating income (loss) from
Continuing operations (370) 2,596 929 (810) 1,473
Income (loss) from continuing operations 104 1,930 (933) (2,944) 509
Income (loss) from discontinued operations (385) (852) (2,609) -- --
Net income (loss) (281) 1,078 (3,541) (2,944) 509
PER COMMON SHARE:
Income (loss) from continuing operations $ 0.02 $ 0.43 $ (0.21) (0.65) $ 0.11
Income (loss) from discontinued operations (0.08) (0.19) (0.58) -- --
--------- --------- --------- --------- ---------
Net income (loss) $ (0.06) $ 0.24 $ (0.79) $ (0.65) $ 0.11
========= ========= ========= ========= =========
Weighted average number of
Common shares outstanding 4,500 4,500 4,504 4,510 4,510
========= ========= ========= ========= =========
<CAPTION>
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 7,414 $ 8,386 $ 3,444 $ 1,609 $ 1,414
Total assets 29,336 37,542 56,929 32,631 28,173
Short-term debt 7,728 11,765 29,057 19,524 13,924
Long-term debt 519 458 1,717 2,732 2,397
Shareholders' equity $ 8,659 9,737 6,208 3,264 3,773
<FN>
(1) Amounts have been restated to reflect the discontinued operations of New World Interactive.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 and the Related Notes to Consolidated Financial Statements.
The financial information in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" refers to the continuing operations of the
Company.
7
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
NET SALES. Net sales decreased 43% to $62 million in 1999 from $109 million in
1998. The decrease is primarily attributable to the decreased sales in the
Company's existing markets, as well as the winding up of business in the United
States of America. The Company has also reduced its product lines to eliminate
low selling brand names. Decreased sales to Columbia ($16.4 million decrease),
Paraguay ($12 million decrease), Ecuador ($7.5 million decrease) and various
other markets have largely attributed to the overall decrease in net sales.
During 1999, sales of Sony products decreased to $23.7 million or 38% of net
sales as compared to 1998 sales of $33.7 million or 31% of net sales. Pioneer
sales were $10.1 million in 1999 or 16% of net sales compared to $32.3 million
or 30% of net sales in 1998. Samsung represented a new brand name product line
for the Company in 1997 and contributed $8.2 million in net sales in 1999 (13.2%
of net sales) as compared to $18 million in net sales in 1998 (16.5% of net
sales).
GROSS PROFIT. Gross profit decreased 32% to $4.8 million in 1999 from $7.1
million in 1998. The Company's gross profit margin increased to 7.8% in 1999
from 6.5% in 1998. The increase is primarily attributable to selective sales of
merchandise with better than historic margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $3.4 million in 1999 versus $7.9 million in
1998. The reduction was principally attributable to (i) decrease in salaries and
commissions, (ii) the implementation of a severe austerity program to reduce
operating expenses to a minimum, and (iii) benefits of the implementation of a
restructuring program.
INTEREST. Interest income decreased from $495,540 in 1998 to $326,460 in 1999
due to lower average daily balances of restricted cash.
Interest expense decreased from $2.9 million in 1998 to $1.7 million in 1999
from borrowings which were a result of decreased sales.
OTHER INCOME. Other income increased to $421,889 in 1999 from $276,268 in 1998.
This increase is primarily attributable to the additional rental income derived
from partially leasing the warehouse and the yearly increase of rental income
from property leased to third parties.
INCOME (LOSS) FROM CONTINUING OPERATIONS. Income from continuing operations was
$508,759 ($.11 per share) in 1999 compared to a loss from continuing operations
of $2.9 million ($.65 per share) in 1998. The change was primarily due to the
decrease in the selling, general and administrative expenses along with the
increase in other income (expense).
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operation through short-term bank
borrowings, trade credit and, to a lesser extent, internally generated funds.
The Company has decreased its bank borrowings during 1999 due to the decreased
sales resulting from deterioration in the economic environment of the foreign
countries in which its sells goods.
The Company generated approximately $5.2 million in cash from operating
activities in 1999. This was primarily due to a decrease in trade accounts
receivables of $4.1 million primarily as a result of reduced sales on credit and
an increase in accounts payable of 1.5 million, offset by an increase in accrued
expenses of $927,499.
Cash provided for investing activities was approximately $154,659 in 1999
primarily attributable to a net decrease in restricted cash.
Cash used for financing activities was approximately $6 million in 1999
principally due to the repayment of notes and acceptances due banks and long
term debt.
The Company receives open account credit from the majority of its principal
suppliers in amounts determined by such manufacturers from time to time and are
due on terms which range from 30 days to 90 days after receipt of inventory.
The Company continues to have good relationships with its principal suppliers,
Sony and Pioneer. At December 31, 1999, the Company's credit facility with Sony
was $4.8 million which was partially collateralized by $1.9 million in stand-by
letters of credit. The Company's credit facility with Pioneer at December 31,
1999, was $4 million which was partially collateralized by $1.7 million in
stand-by letters of credit. From time to time both Sony and Pioneer have allowed
the Company to exceed its credit line above its stated amount. At December 31,
1999, the Company's trade payable to Sony and Pioneer was approximately $3.9
million and $1.2 million, respectively.
At December 31, 1999, the Company had outstanding $13.5 million in notes and
acceptances principally maturing at varying dates through 2000 at varying
interest rates based on LIBOR, IBOR and prime rate ranging from 9.14% to 9.75%.
The Company's short-term borrowings are partially collateralized by
approximately $4.3 million of time deposits owned by the Company. None of the
Company's lenders is under any obligation to continue to provide credit to the
Company under currently existing terms.
Management believes that the Company's ability to repay its indebtedness must be
achieved primarily through funds generated from its operations. The Company
intends to consolidate its borrowings in an effort to obtain lower interest
rates and reduce inventory carrying costs by factoring its trade accounts
receivables which would also limit the Company's exposures to credit, political
and transfer risks. There can be no
9
<PAGE>
assurances that the Company will be able to consolidate its borrowings or
finance its trade accounts receivables.
At December 31, 1999, the Company's working capital decreased to $1.4 million
from $1.6 million at December 31, 1998, primarily due to maintaining lower
inventories.
At December 31, 1999, the Company had available with 5 banks an aggregate of $20
million in bank facilities of which $19.7 million and $18.7 million
respectively, 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 borrowings. All of the
Company's lines of credit and credit facilities from its various lenders are "on
demand."
For a variety of political and economic reasons, the importation 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 it
operates in, availability of payment methods to our customers, and, to a lesser
extent, product availability.
SEASONALITY
The Company's operations have historically been seasonal with generally higher
sales in the third and fourth fiscal quarters. Higher third and fourth quarter
sales result from increased sales to retail chains and in anticipation of the
Christmas holiday season. 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.
FOREIGN EXCHANGE FLUCTUATIONS
Although fluctuations in foreign exchange rates could affect the Company's cost
of inventory, such fluctuations have not been material to the Company's results
of operations since the Company makes all its purchases in U.S. dollars.
Unforeseen fluctuations in foreign exchange rates could result in the Company's
customers being unable to meet their obligations since the Company requires
payment in U.S. dollars for all of its sales.
ASSET MANAGEMENT
In 1999, the Company's inventory turnover from continuing operations was 25
times compared to 17 times for the year ended December 31, 1998. The generally
high rate of inventory turnover benefits the Company
10
<PAGE>
by allowing it maximize its sales within its limitations in supplier and bank
credit. The Company generally does not maintain significant inventory of its
products. At December 31, 1999 inventories were $2.4 million compared to $2.2
million at December 31, 1998, an 8.4% decrease.
At December 31, 1999, trade accounts receivable were $14.7 million compared to
$19.3 million at December 31, 1998, a decrease of 24.4 %. At December 31, 1999,
the number of days of sales from continuing operations in accounts receivable
was 99 days compared to 85 days at December 31, 1998. This increase was
principally due to political and economic changes that affected the timing of
collections. 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.
The Company grants credit to its customers after considering various factors,
including reputation, location, available financial information and the number
of years in business. No formal credit reporting is available for Latin American
companies. The Company closely monitors credit sales by monitoring each
customer's payment history and other relevant information.
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-K, 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; (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.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
EZCONY INTERAMERICA, INC. AND
SUBSIDIARIES
ROAD TOWN, TORTOLA
BRITISH VIRGIN ISLANDS
12
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ezcony Interamerica, Inc. and Subsidiaries
British Virgin Islands
We have audited the consolidated balance sheets of Ezcony Interamerica, Inc. and
Subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of operations, shareholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The consolidated statements of operations,
shareholders' equity and cash flows of Ezcony Interamerica, Inc. and
Subsidiaries for the year ended December 31, 1997, were audited by other
auditors whose report dated March 30, 1998, expressed an unqualified opinion on
those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1999 and 1998 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ezcony
Interamerica, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
McClain & Company, L.C.
February 21, 2000
Miami, Florida
13
<PAGE>
<TABLE>
<CAPTION>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(STATED IN U.S. DOLLARS)
ASSETS
DECEMBER 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 660,644 $ 1,253,073
Trade accounts receivables, net 14,656,363 19,268,099
Due from directors, officers and employees, net 369,015 347,044
Inventories 2,374,284 2,218,369
Prepaid expenses and other current assets 1,215,748 664,429
Restricted cash 4,283,039 4,491,914
------------ ------------
Total current assets 23,559,093 28,242,928
PROPERTY AND EQUIPMENT, NET 4,146,435 4,295,643
OTHER ASSETS 468,461 92,281
------------ ------------
Total assets $ 28,173,989 $ 32,630,852
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and acceptances payable $ 13,454,687 $ 19,079,097
Current portion of long-term debt 612,399 444,701
Accounts payable 7,986,150 6,453,328
Accrued expenses and other current liabilities 92,100 657,138
------------ ------------
Total current liabilities 22,145,336 26,634,264
LONG-TERM DEBT 2,255,692 2,732,386
------------ ------------
Total liabilities 24,401,028 29,366,650
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES 16 AND 17)
SHAREHOLDERS' EQUITY:
Common stock, no par value, 15,000,000 shares
authorized; 4,510,000 shares issued and out-
standing in 1999 and 1998 12,954,723 12,954,723
Accumulated deficit (9,181,762) (9,690,521)
------------ ------------
Total shareholders' equity 3,772,961 3,264,202
------------ ------------
Total liabilities and shareholders' equity $ 28,173,989 $ 32,630,852
============ ============
</TABLE>
See independent auditors' report and the accompanying notes to consolidated
financial statements, which are an integral part of these statements.
14
<PAGE>
<TABLE>
<CAPTION>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(STATED IN U.S. DOLLARS)
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES $ 62,114,794 $ 108,930,340 $ 158,822,628
COST OF SALES 57,279,674 101,836,237 147,921,363
------------- ------------- -------------
Gross profit 4,835,120 7,094,103 10,901,265
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,361,310 7,904,052 9,971,888
------------- ------------- -------------
Operating income (loss) 1,473,810 (809,949) 929,377
OTHER INCOME (EXPENSES)
Interest income 326,460 495,540 454,102
Interest expense (1,713,400) (2,905,694) (2,235,660)
Litigation expense -- -- (255,000)
Other 421,889 276,268 174,509
------------- ------------- -------------
Income (loss) from continuing operations
before income taxes 508,759 (2,943,835) (932,672)
PROVISION FOR INCOME TAXES -- -- --
------------- ------------- -------------
Income (loss) from continuing
operations 508,759 (2,943,835) (932,672)
------------- ------------- -------------
DISCONTINUED OPERATIONS
Loss from discontinued operations, net of
income taxes -- -- (733,938)
Loss on disposal, including $687,106 for
operating losses during the phase out
period, net of income taxes -- -- (1,874,786)
------------- ------------- -------------
Loss from discontinued operations -- -- (2,608,724)
------------- ------------- -------------
Net income (loss) $ 508,759 $ (2,943,835) $ (3,541,396)
============= ============= =============
EARNINGS PER COMMON SHARE-BASIC
AND ASSUMING DILUTION
Income (loss) from continuing operations $ .11 $ (0.65) $ (0.21)
Loss from discontinued operations -- -- (0.58)
------------- ------------- -------------
Net income (loss) $ .11 $ (0.65) $ (0.79)
============= ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING-BASIC 4,510,000 4,510,000 4,503,644
DILUTIVE EFFECT OF STOCK OPTIONS
AND WARRANTS -- -- --
------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING-ASSUMING
DILUTION 4,510,000 4,510,000 4,503,644
============= ============= =============
</TABLE>
See independent auditors' report and the accompanying notes to consolidated
financial statements, which are an integral part of these statements.
15
<PAGE>
<TABLE>
<CAPTION>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(STATED IN U.S. DOLLARS)
Number of
Shares Total
Issued and Common (Accumulated Shareholders'
Outstanding Stock Deficit) Equity
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1997 4,500,000 $12,941,910 $(3,205,290) $ 9,736,620
Stock options exercised 10,000 12,813 -- 12,813
Net loss -- -- (3,541,396) (3,541,396)
----------- ----------- ----------- -----------
BALANCE, December 31, 1997 4,510,000 12,954,723 (6,746,686) 6,208,037
Net loss -- -- (2,943,835) (2,943,835)
----------- ----------- ----------- -----------
BALANCE, December 31, 1998 4,510,000 12,954,723 (9,690,521) 3,264,202
Net income -- -- 508,759 508,759
----------- ----------- ----------- -----------
BALANCE, December 31, 1999 4,510,000 $12,954,723 $(9,181,762) $ 3,772,961
=========== =========== =========== ===========
</TABLE>
See independent auditors' report and the accompanying notes to consolidated
financial statements, which are an integral part of these statements.
16
<PAGE>
<TABLE>
<CAPTION>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN U.S. DOLLARS)
YEARS ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 508,759 $ (2,943,835) $ (3,541,396)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 214,644 262,709 262,390
Provision for doubtful accounts 623,980 3,326,551 2,646,509
Bad debt recoveries (181,000) -- --
Loss on abandonment -- 50,886 --
Provision for inventory write-down -- -- 12,189
(Gain) loss on sale of fixed assets, net (11,220) -- 1,830
Loss on disposal of discontinued
operations -- -- 1,874,786
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts
receivable 4,168,756 8,915,695 (15,962,811)
Decrease in due from affiliates, net -- -- 9,686
Increase in due from directors, officers
and employees, net (21,971) (167,882) (69,810)
(Increase) decrease in inventories (155,915) 6,958,583 737,357
(Increase) decrease in prepaid
expenses and other assets (927,499) 757,543 (332,886)
Increase (decrease) in accounts payable 1,532,822 (11,799,378) 3,450,059
(Decrease) increase in accrued expenses
and other current liabilities (565,038) (1,044,233) 1,016,007
Net changes in discontinued operations -- -- (1,976,643)
------------ ------------ ------------
Net cash provided by (used in)
operating activities 5,186,318 4,316,639 (11,872,733)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in restricted cash 208,876 4,342,405 (2,751,395)
Purchases of property and equipment (80,467) (176,534) (1,487,904)
Proceeds from sale of property and equipment 26,250 -- 17,543
------------ ------------ ------------
Net cash provided by (used in)
investing activities 154,659 4,165,871 (4,221,756)
------------ ------------ ------------
</TABLE>
See independent auditors' report and the accompanying notes to consolidated
financial statements, which are an integral part of these statements.
17
<PAGE>
<TABLE>
<CAPTION>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(STATED IN U.S. DOLLARS)
YEARS ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment of) proceeds from notes and
acceptances payable, net $ (5,624,409) $ (9,755,513) $ 17,138,752
Proceeds from long-term borrowings -- 1,450,000 500,000
Repayment of long-term debt (308,997) (204,811) (587,608)
Issuance of common stock -- 12,813
------------ ------------ ------------
Net cash (used in) provided by
financing activities (5,933,406) (8,510,324) 17,063,957
------------ ------------ ------------
Net (decrease) increase in cash
and cash equivalents (592,429) (27,814) 969,468
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 1,253,073 1,280,887 311,419
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 660,644 $ 1,253,073 $ 1,280,887
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for interest $ 1,910,058 $ 2,425,377 $ 2,435,047
============ ============ ============
Cash paid during the year for taxes $ -- $ -- $ --
============ ============ ============
NON-CASH INVESTING ACTIVITIES:
Long-term debt acquired in purchase
of warehouse $ -- $ -- $ 1,500,000
============ ============ ============
</TABLE>
See independent auditors' report and the accompanying notes to consolidated
financial statements, which are an integral part of these statements.
18
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 1 - ORGANIZATION
Ezcony Interamerica, Inc. and Subsidiaries ("the Company") was
incorporated in the British Virgin Islands on November 29, 1990.
The Company is a wholesale distributor to Latin American markets
of a wide range of brand name consumer electronic products,
including televisions, videocassette recorders, home and
automobile audio equipment, cellular products and appliances.
The Company's products are distributed to a variety of
customers, including wholesalers and distributors who resell to
retail markets.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Ezcony Interamerica, Inc. and its wholly owned Subsidiaries. All
intercompany transactions and balances have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
Cash equivalents include all highly liquid investments with
maturities of three months or less when acquired.
INVESTMENT SECURITIES
Securities identified by management under one of the following
three classifications will be carried at either amortized cost
or fair value, with fair values determined primarily from
closing market prices.
SECURITIES HELD TO MATURITY
Bonds, notes, and debentures for which the Company has the
positive intent and ability to hold to maturity are reported
at cost and adjusted for amortization of premium and
accretion of discounts that are recognized in interest
income using methods approximating the interest method over
the period to maturity.
TRADING SECURITIES
Bonds, notes, debentures, and certain equity securities
which the Company intends to sell in the near term are
reported at fair value with unrealized gains and losses
included in earnings. Premiums and discounts are recognized
in interest income using a method approximating the interest
method over the period to maturity.
See independent auditors' report.
19
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT SECURITIES (CONTINUED)
SECURITIES AVAILABLE FOR SALE
Bonds, notes, debentures, and certain equity securities not
classified as trading securities nor as held to maturity
securities are classified as securities available for sale.
Unrealized gains and losses are reported as a net amount in
other comprehensive income. Premiums and discounts are
recognized in interest income using a method approximating
the interest method over the period to maturity.
In the case that investment securities are sold, gains and
losses are computed under the specific identification method.
INVENTORIES
Inventories are stated at the lower of cost or market, using the
first-in, first-out method. Inventories in transit are stated at
cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation on equipment is
computed using the straight-line method over the estimated lives
of these assets, which range from 7 years to 20 years.
Depreciation on property is computed using the straight-line
method over a period of 40 years. Amortization of leasehold
improvements is computed using the straight- line method over
the shorter of the lease term (including renewal periods) or the
estimated useful life of the related asset. Repairs and
maintenance are charged to expense as incurred while
expenditures for major renewals and betterments are capitalized.
LONG-LIVED ASSETS
The Company evaluates its long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of any asset to future net
cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the
assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
INCOME TAXES
The Company utilizes the asset and liability method of
accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on the difference
between the financial statements and tax bases of assets and
liabilities using tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance is
established when it is more likely than not that some or all of
the deferred tax assets will not be realized.
See independent auditors' report.
20
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company does not file a consolidated tax return in the
United States. The Company's United States Subsidiaries file an
income tax return for both state and federal taxes. The
Company's Panamanian subsidiary, which operates in the Colon
Free Zone, Republic of Panama, enjoys special tax rates granted
by the Panamanian tax authorities. Effective January 1, 1997,
all income derived from export operations of companies operating
in the Colon Free Zone are tax exempt.
EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Standards
("SFAS") No. 128, EARNINGS PER SHARE issued by the Financial
Accounting Standards Board ("FASB"). SFAS No. 128 requires the
presentation of basic earnings per common share and diluted
earnings per common share. Basic earnings per common share are
computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding.
Diluted earnings per common share include the diluting effect of
stock options and warrants. The adoption of SFAS No. 128 did not
have a material effect on the Company's historically disclosed
earnings per share.
REVENUE RECOGNITION
The Company recognizes revenue when products are shipped to
customers.
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, liabilities and disclosure of contingent 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. 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 estimates.
NEW ACCOUNTING STANDARDS
Effective for the year ended December 31, 1998, the Company
adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, which requires a new basis
of determining reportable business segments. This approach
(contrasted with the prior requirement which utilized a specific
classification system for determining segments) designates the
Company's internal organizational structure, as used by
management for making operating decisions, as the basis for
determining business segments. On this basis, the Company has
one reportable segment:
Wholesale distributor of consumer electronic products.
See independent auditors' report.
21
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS (CONTINUED)
During 1998, the Company adopted SFAS No. 130, reporting
comprehensive income. It requires disclosure of non-owner
changes in stockholders' equity and is defined as net income,
plus direct adjustments to stockholders' equity.
In 1998, the FASB issued SFAS No. 133 ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This statement establishes
accounting and reporting standards that require every derivative
instrument be recorded in the balance sheet as either an asset
or liability at its fair value. SFAS 133 must be adopted for the
Company's year 2000 financial statements. The Company
anticipates that the adoption of SFAS 133 will have no effect on
the Company's financial condition or results of operations as
the Company does not presently have any derivative or
hedging-type investment as defined by SFAS 133.
The adoption of SFAS Nos. 131, 130 and 133, will have no effect
on the Company's reported net income.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following assumptions were used to estimate the fair value
of each class of financial instruments for which it is practical
to estimate that value:
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
The carrying amounts of cash, cash equivalents, and
restricted cash approximate their fair value.
DUE FROM DIRECTORS, OFFICERS AND EMPLOYEES, NET
The carrying amounts of due from directors, officers and
employees approximate their fair value.
NOTES PAYABLE, ACCEPTANCES PAYABLE, AND LONG-TERM DEBT
The fair values of the notes payable, acceptances payable,
and long-term debt are estimated based upon current rates
offered to the Company for debt of the same remaining
maturities. Carrying amounts of notes payable, acceptances
payable and long-term debt are reasonable estimates of their
fair values.
RECLASSIFICATIONS
Certain amounts included in the prior years' consolidated
financial statements have been reclassified to conform with the
current year's presentation.
See independent auditors' report.
22
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 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 reorganization program designed to focus the Company's
resources on its core business, the distribution of consumer
electronics. New World Interactive was engaged in the production
and distribution of Spanish and Portuguese CD-ROM software. The
decision to discontinue the subsidiary was based in part upon
continuing significant working capital requirements and the
Company's inability to obtain separate additional capital
through bank financing, public or private placement debt, or a
combination of these for the subsidiary, and the lack of
sufficient sales volumes.
Due to the significant contractual obligations existing at the
time of approval of the plan to discontinue the subsidiary and
due to the nature and conduct of the business, New World
Interactive's creditors were advised that New World Interactive
was experiencing significant cash flow problems and a
deteriorating financial condition and that management had
decided to stop the production of any "new" titles and continue
with the production of titles already contracted for. The
Company anticipated that upon completion of these titles, and
with its existing inventory on completed titles, sufficient sale
volumes would materialize as a result of the Christmas holiday
season, and generate sufficient cash flows allowing New World
Interactive to repay its obligations and avoid having to pay to
creditors a pro rata share of New World Interactive's assets.
New World Interactive closed its production facility on October
31, 1997, and ceased operations on December 31, 1997. Subsequent
to December 31, 1997, New World Interactive is in the process of
self- liquidating its remaining assets (consisting primarily of
trade receivables of approximately $92,000 and inventory of
approximately $66,000) on a pro rata basis to its remaining
creditors. New World Interactive surrendered all contract rights
it may have had in any software to its remaining creditors and
returned all existing inventory. These rights and inventory were
given to the creditors without prejudice to any remaining debt
or any claim that the creditors may have against New World
Interactive. It is management's intentions that any claims that
creditors may have against New World Interactive will not be
defended or responded to by New World Interactive as there are
no other remaining assets to distribute. The Company believes
that the ultimate completion of the liquidation of New World
Interactive, including any potential litigation, will not have a
further material adverse impact on the financial condition and
results of operations of the Company.
See independent auditors' report.
23
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 3 - DISCONTINUED OPERATIONS (CONTINUED)
Net liabilities of the discontinued operation at December 31,
1997, consist primarily of accounts payable and accrued expenses
(including severance to a key officer and employees) offset by
accounts receivable and inventory. The inventory is recorded at
liquidation value and not at a potential selling price as
surrendered to its creditors. At December 31, 1997, the loss on
the disposal of New World Interactive totaled $1,874,786, which
includes a loss of $687,106 for operating losses during the
phase out period, and is reflected as loss on disposal in the
accompanying Consolidated Statements of Operations.
Selected results of the discontinued operations were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- ------------
<S> <C> <C> <C>
Net sales $ - $ - $ 1,909,405
============== ============== ============
Gross profit $ - $ - $ 214,881
============== ============== ============
Selling, general and admin-
istrative expenses $ - $ - $ 930,564
============== ============== ============
Net loss $ - $ - $(2,608,724)
============== ============== ============
</TABLE>
In the third quarter of 1998, the Company decided to restructure
its operations by closing the facility in the United States and
transferring the operations to the Colon Free Zone, Panama
facilities.
NOTE 4 - INVESTMENT SECURITIES
Investment securities have been classified in the consolidated
balance sheet according to management's intent. At December 31,
1999, the Company did not have investment securities classified
as available for sale or held to maturity. At December 31, 1998,
the Company did not have investment securities.
At December 31, 1999, included in prepaid expenses and other
current assets, are trading securities totaling approximately
$278,000. Net realized holding gains on trading securities of
approximately $76,000 were included in earnings during the year
ended December 31, 1999, as a component of other income.
See independent auditors' report.
24
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 5 - RESTRICTED CASH
At December 31, 1999 and 1998, certificates of deposit were
pledged by the Company with various banks to guarantee the
credit lines. The certificates of deposit were placed in various
banks in the following locations:
1999 1998
---------- ----------
United States $1,401,498 $1,378,003
Panama 2,881,541 3,113,911
---------- ----------
$4,283,039 $4,491,914
========== ==========
The certificates of deposit at December 31, 1999 and 1998 have
annual interest rates ranging from 4.5% to 5.8% and 5.2% to
6.6%, respectively.
NOTE 6 - INVENTORIES
At December 31, 1999 and 1998, inventories consisted primarily
of consumer electronic products at the following locations:
1999 1998
----------- -----------
Colon Panama Free Zone warehouse $ 2,404,722 $ 2,273,084
In transit 5,772 --
----------- -----------
2,410,494 2,273,084
Reserve for obsolescence (36,210) (54,715)
----------- -----------
$ 2,374,284 $ 2,218,369
=========== ===========
NOTE 7 - PROPERTY AND EQUIPMENT
At December 31, 1999 and 1998, property and equipment consists
of the following:
1999 1998
----------- -----------
Buildings $ 3,955,808 $ 3,950,408
Furniture and office equipment 829,763 1,014,103
Transportation equipment 305,072 319,863
Machinery and equipment 204,140 237,195
----------- -----------
5,294,783 5,521,569
Less accumulated depreciation (1,148,348) (1,225,926)
----------- -----------
$ 4,146,435 $ 4,295,643
=========== ===========
See independent auditors' report.
25
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 8 - CONCENTRATION OF CREDIT RISK
The Company's sales were made to customers located in, or for
distribution in, the following countries:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Colombia $ 12,558,788 $ 29,000,026 $ 52,995,593
Paraguay 3,569,665 15,727,964 28,486,493
United States 3,337,331 11,883,274 15,691,848
Ecuador 421,809 8,015,145 12,401,457
Venezuela 15,611,948 18,119,708 12,099,287
Mexico 5,276,397 4,461,177 4,742,561
Peru 54,098 812,023 4,458,382
Brazil 285,030 512,299 3,831,209
Caribbean region 5,534,911 -- --
All other countries (primarily in
Latin America and composed
of over 10 countries) 15,464,817 20,398,724 24,115,798
------------ ------------ ------------
$ 62,114,794 $108,930,340 $158,822,628
============ ============ ============
</TABLE>
A summary of accounts receivable by country of distribution is
as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Colombia $ 5,093,796 $ 7,520,378
Paraguay 2,626,384 3,919,770
Ecuador 365,709 2,430,869
Venezuela 4,718,132 4,514,485
Mexico 2,010,631 828,967
Caribbean region 2,237,823 --
Argentina 314,461 891,977
All other countries (primarily in Latin
America) 2,455,306 5,517,849
------------ ------------
19,822,242 25,624,295
Less allowance for doubtful accounts (5,165,879) (6,356,196)
------------ ------------
$ 14,656,363 $ 19,268,099
============ ============
</TABLE>
Certain sales made by the Company are collected in cash or other
negotiable instruments. During 1999, 1998, and 1997, the Company
had no major customers whose sales exceeded 10% of total net
sales.
At various times during the years ended December 31, 1999 and
1998, the Company maintained cash balances with financial
institutions in the United States in excess of the amount
insured by the Federal Deposit Insurance Corporation, $100,000.
See independent auditors' report.
26
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 9 - MAJOR SUPPLIERS
During the years ended December 31, 1999, 1998, and 1997, 38%,
31%, and 33%, respectively, of the Company's purchases consisted
of products purchased from Sony Corporation of Panama, S.A.
("Sony"). Amounts payable to Sony as of December 31, 1999 and
1998, were approximately $3,882,000 and $3,758,000,
respectively. Beginning in 1995, the Company significantly
increased its purchases from Pioneer International Latin
America, S.A. ("Pioneer"). Pioneer purchases represented 16%,
30%, and 34% of total purchases for the year ended December 31,
1999, 1998 and 1997, respectively. Amounts payable to Pioneer as
of December 31, 1999 and 1998 were approximately $1,167,000 and
$1,575,000, respectively.
The Company does not have a written agreement with either Sony
or Pioneer to act as a distributor in any particular country.
Sony and Pioneer could, at any time, stop or limit sales to the
Company or prohibit the Company from distributing its products
in any one or more countries. The Company is extended credit
terms from year-to-year.
NOTE 10 - GEOGRAPHICAL SEGMENT INFORMATION
Sales originating from Panama, the United States and British
Virgin Islands for the years ended December 31, 1999, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Panama $ 62,114,794 $ 90,391,151 $139,471,528
United States -- 18,439,249 19,220,055
British Virgin Islands -- 99,940 131,045
------------ ------------ ------------
$ 62,114,794 $108,930,340 $158,822,628
============ ============ ============
</TABLE>
Identifiable assets by geographical area are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Panama $26,772,491 $30,714,394
United States 1,401,498 1,783,858
British Virgin Islands -- 132,600
----------- -----------
$28,173,989 $32,630,852
=========== ===========
</TABLE>
See independent auditors' report.
27
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 10 - GEOGRAPHICAL SEGMENT INFORMATION (CONTINUED)
Operating income (loss) from continuing operations by
geographical area is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Panama $ 1,473,810 $ 699,225 $ 2,615,913
United States -- (557,112) (802,393)
British Virgin Islands -- (952,062) (884,143)
----------- ----------- -----------
$ 1,473,810 $ (809,949) $ 929,377
=========== =========== ===========
</TABLE>
Income (loss) from continuing operations before income taxes by
geographical area is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Panama $ 508,759 $(1,247,559) $ 788,760
United States -- (756,503) (845,755)
British Virgin Islands -- (939,773) (875,677)
----------- ----------- -----------
$ 508,759 $(2,943,835) $ (932,672)
=========== =========== ===========
</TABLE>
NOTE 11 - NOTES AND ACCEPTANCES PAYABLE
Acceptances payable to banks and borrowings available under
several lines of credit aggregate approximately $19,000,000 at
December 31, 1999 and $28,000,000 at December 31, 1998. These
borrowings bear interest between 9.14% to 9.75% and mature at
varying dates through 2000. They are collateralized by
certificates of deposit of $4,283,039 and $4,491,914 at December
31, 1999 and 1998, respectively, trade accounts receivables,
inventories and guaranteed by certain of the Company's
shareholders.
The weighted average interest rates as of December 31, 1999 and
1998 were 9.45% and 9.35%, respectively.
See independent auditors' report.
28
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 12 - LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Note payable, bearing interest at 10%, payable in monthly
installments of principal and interest in the amount of
$12,681, expiring in May 2001, collateralized by a first
mortgage on the rental building. $ 202,525 $ 327,032
Note payable, bearing interest at prime plus 2%
(10.5% at December 31, 1999), payable in monthly
installments of principal and interest in the amount of
$21,090, with the unpaid balance due in December 2002,
collateralized by a first mortgage on the warehouse. 1,301,876 1,400,055
Note payable, bearing interest at prime plus 2%,
(10.5% at December 31, 1999) payable in monthly principal
installments of $17,262, expiring in June 2004,
collateralized by a first mortgage on building. 1,363,690 1,450,000
---------- ----------
2,868,091 3,177,087
Less current portion 612,399 444,701
---------- ----------
$2,255,692 $2,732,386
========== ==========
</TABLE>
Maturities of long-term debt as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C> <C>
2000 $ 612,399
2001 510,573
2002 1,002,860
2003 207,144
2004 535,115
----------
$2,868,091
==========
</TABLE>
See independent auditors' report.
29
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 13 - INCOME TAXES
The provision for income taxes includes the following
components:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
United States - Federal $ -- $ -- $ --
Panama -- -- --
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
</TABLE>
The provision for income taxes differed from the amounts
computed by applying the U.S. Federal income tax rate of 34% in
1999, 1998 and 1997 to income (loss) before income tax expense
as a result of the following:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" United States
tax (benefit) expense $ 118,896 $ 118,896 $(317,108)
Effect of foreign operations -- -- 29,552
Valuation allowance change (118,896) (118,896) 286,282
Other, net -- -- 1,274
--------- --------- ---------
Provision for income taxes $ -- $ -- $ --
========= ========= =========
</TABLE>
At December 31, 1999, the Company's U.S. subsidiaries had net
operating loss carryforwards for U.S. tax purposes of
approximately $2,845,000, expiring in various years through
2012. A full valuation allowance has been recorded by the
Company since management believes that the Company will not be
subject to taxation in the future.
The Company's Panamanian subsidiary operates in the Colon Free
Zone, Republic of Panama, and sells to customers abroad. Prior
to January 1, 1997, companies operating in the Colon Free Zone
derived local tax benefits from their foreign sales. These
companies enjoyed a special tax rate of 8.5%, as compared to a
statutory rate of up to 34%, on profits derived from sales of
merchandise re-exported from the Colon Free Zone to countries
other than Panama. In addition, profits derived from sales not
shipped through Panama (offshore sales) are exempt from
Panamanian taxes. Effective January 1,1997, all income derived
form export operation of companies operating in the Colon Free
Zone are 100% tax exempt.
See independent auditors' report.
30
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 14 - STOCK OPTION PLAN AND OTHER
The Company's 1992 stock option plan ("the Plan"), adopted by
the Board of Directors and the shareholders of the Company on
April 21, 1992, is intended to improve the Company's financial
performance by providing long-term incentives to the Company's
directors, officers and key employees and to aid in the
recruitment of additional qualified and competent employees. The
Plan is administered by a committee comprised of outside
directors ("the Committee").
On June 28, 1996, the shareholders approved the Board of
Directors' amendment to the Plan to increase the number of
shares available for grant from 450,000 shares to 900,000
shares.
Under the Plan, 900,000 shares of common shares have been
reserved for issuance upon exercise of options. The Plan
provides for the granting of both "incentive stock options" and
non-statutory stock options. Options can be granted under the
Plan on such terms and at such prices as determined by the
Committee, except that the per share exercise price of incentive
stock options will not be less than the fair market value of the
common shares on the date of grant. Each option will be
exercisable after the period or periods specified in the option
agreement, but no option will be exercisable within six months
after the date of grant or after the expiration of 10 years from
the date of grant. Options granted under the Plan are not
transferable other than by will or by the laws of descent and
distribution. The Plan authorizes the Company to make loans to
optionee's to enable them to exercise their options and
authorizes optionee's to exercise their stock options by payment
with common shares, in each case at the discretion of the
Committee.
During 1999, the Company entered into an agreement with an
unrelated party who is to provide financial advisory services
(Advisor). In relation to this agreement, the Company issued a
warrant to the Advisor to purchase 100,000 common shares
exercisable at a price of 10 cents per share, and 100,000 common
shares exercisable at a price of 40 cents per share. Depending
upon achieving certain goals within the agreement, these options
can expire in November 2000 or in November 2004.
See independent auditors' report.
31
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 14 - STOCK OPTION PLAN AND OTHER (CONTINUED)
The following table presents additional information concerning
the activity in the stock option plan:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE OF
NUMBER EXERCISE
OF OPTIONS PRICE
-------- --------
<S> <C> <C>
Balance at December 31, 1996 825,660 $2.01
Options granted 25,000 $2.55
Options exercised (10,000) $1.28
Options terminated (135,630) $2.03
--------
Balance at December 31, 1997 705,030 $2.04
Options granted 20,000 $0.22
--------
Balance at December 31, 1998 725,030 $1.98
--------
Options granted 200,000 $ .25
Options exercised - $ --
Options terminated (10,000) $4.13
--------
Balance at December 31, 1999 915,030 $1.58
========
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Weighted average fair value of
options granted during the
year $0.01 $0.15 $1.82
==== ==== ====
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE VESTED AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE RANGE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
-------------- ----------- -------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
$0.10 - $0.40 220,000 1.13 $0.25 220,000 $0.25
$1.25 - $1.88 277,530 5.76 $1.77 277,530 $1.77
$1.94 - $2.56 371,500 6.08 $1.98 371,500 $1.98
$3.50 - $4.13 46,000 4.30 $3.63 46,000 $3.63
------- -------
915,030 $1.58 915,030
======= =======
</TABLE>
See independent auditors' report.
32
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 14 - STOCK OPTION PLAN AND OTHER (CONTINUED)
As of December 31, 1996, the Company adopted the disclosure
provisions of SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. Accordingly, the Company is required to disclose
proforma net income and earnings per share as if compensation
expense relative to the fair value of the options granted had
been included in earnings. The fair value of each option grant
was estimated using the Black-Scholes option-pricing model with
the following weighted average assumptions used for grants in
1999, 1998, and 1997; expected life of 1 year in 1999, 5 years
in 1998, 6 years in 1997; volatility factors of 80% for 1999,
1998 and 1997; risk-free interest rates of 6.2% in 1999, 5.2%
for 1998, and 6.1% for 1997 and no dividend payments. Had
compensation cost for the Company's option plan been determined
and recorded consistent with SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the
proforma amounts as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997
------------ ----------------- -------------
<S> <C> <C> <C>
Net income (loss)
as reported $ 508,759 $ (2,943,835) $ (3,541,396)
============ ================= =============
Proforma $ 445,427 $ (3,032,888) $ (3,864,939)
============ ================= =============
Earnings per share-basic
and assuming dilution
as reported $ .11 $ (.65) $ (.79)
============ ================= =============
Proforma $ .10 $ (.67) $ (.86)
============ ================= =============
</TABLE>
The 1999, 1998, and 1997 proforma effect on net income (loss) is
not necessarily indicative of the effect in future years because
it does not take into consideration proforma compensation
expense related to grants made prior to 1996.
NOTE 15 - EARNINGS PER SHARE
Basic earnings or loss per 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 year ended 1999, options and warrants to
purchase 915,030 shares of common stock at prices ranging from
$0.10-$3.88 per share were outstanding but not included in the
computation of diluted earnings per share because the exercise
price was greater than the average market price of the common
shares. For the years ended 1998 and 1997, the effect of stock
options and warrants were not included in the computation
because such inclusion would have been antidilutive.
See independent auditors' report.
33
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 16 - COMMITMENTS AND CONTINGENCIES
The Company has entered into various operating lease agreements.
The following is a schedule of future rental payments as of
December 31, 1999 for operating leases having initial
noncancelable lease terms in excess of one year.
YEAR ENDING
DECEMBER 31,
-----------
2000 $ 19,763
2001 19,763
2002 19,763
2003 19,763
2004 19,763
Thereafter 204,720
-------
$303,535
========
As a result of restructuring its operations during 1998, the
Company bought out its existing lease contract for an office
facility, warehouse and equipment located in the United States
for approximately $155,000.
Rent expense was $22,550, $112,372, and $233,181 for the years
ended December 31, 1999, 1998, and 1997, respectively.
The Company leases its building in Panama City, Panama. Rental
income included in other income in the accompanying Consolidated
Statements of Operations was $59,843, $223,110 and $174,509 in
1999, 1998, and 1997, respectively. During 1999, the lease was
cancelled due to the inability of the tenant to make the monthly
payments.
At December 31, 1999, the Company had standby letters of credit
in the amount of $4,100,000, collateralizing the trade accounts
of various vendors, primarily Sony, Pioneer, and AIWA.
See independent auditors' report.
34
<PAGE>
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
NOTE 17 - LEGAL MATTERS
In 1998 and 1999, the Company was notified of a forfeiture
action against certain funds deposited by the Company. The
action requested the forfeiture of the seized funds to the
United States Government. The Company believes there is no basis
for the seizure or forfeiture. Nonetheless, to avoid the expense
and disruption of litigation and also the use of the seized
funds for an extended period of time, the Company reached an
agreement to settle the forfeiture civil action against these
funds. Terms of the agreement require the return of all funds
seized less $255,000. The Company has recorded the settlement
amount as litigation expense in the accompanying Consolidated
Statement of Operations, and as accrued expense and other
current liabilities in the accompanying Consolidated Balance
Sheet as the seized funds related to 1997 sales.
The Company is also engaged in ordinary litigation incidental to
its business. The Company does not believe that such ordinary
routine litigation will have a material adverse effect on its
consolidated financial position or results of operations.
NOTE 18 - RELATED PARTY TRANSACTIONS
On March 31, 1999, the Company entered into an arbitration
settlement with David Djemal and Daniel Homsany, two former
directors, officers, and shareholders of the Company. In return
for their resignations as officers and directors of the Company
and the surrender of all of their equity interests in the
Company, the Company paid each individual $200,000 (these
deposits are included in other assets at December 31, 1999) plus
$12,000 per individual representing accrued and unpaid salaries,
and the Company canceled debts owed by the individuals to the
Company in the aggregate of $52,000. Along with their
resignations, both individuals deposited their Company common
stock into an escrow account where it would be held until the
Company removed both individuals from a number of personal
guarantees that they had entered into for the Company. There
remains one outstanding personal guaranty in their names which
is due to be released on April 30, 2000 at which time the
Company common stock will be released from the escrow account
and returned to the Company.
NOTE 19 - SELECTED QUARTERLY DATA FOR 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
----------- ------------ ----------- ----------- -----------
CALENDAR YEAR 1999
<S> <C> <C> <C> <C> <C>
Revenues $15,711,922 $ 17,398,793 $15,756,239 $13,247,840 $62,114,794
Operating income
(loss) $ 382,661 $ 450,659 $ 229,829 $ 410,661 $ 1,473,810
Net income (loss) $ 77,227 $ 123,400 $ 108,410 $ 199,722 $ 508,759
Earnings per share
Basic $ .02 $ .03 $ .02 $ .04 $ .11
=========== ============ =========== ============ ===========
Weighted average
shares and
assuming
dilutions 4,510,000 4,510,000 4,510,000 4,510,000 4,510,000
=========== =========== =========== ============ ===========
</TABLE>
See independent auditors' report.
35
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Company was formally advised in writing on December 2, 1998, that its
independent certified public accountants were withdrawing from their engagement
to audit the Company's financial statements. The accountants' report on the
Company's financial statements for the previous two years did not contain any
adverse opinion, or disclaimer of opinion, nor were any such reports modified as
to uncertainty, audit scope or accounting principles. Further, there have been
no disagreements with the former accountants on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which disagreement, if not resolved to the satisfaction of the
accountants, would have caused the accountants to make reference to the subject
matter of the disagreement(s) in connection with their report(s) thereon during
the Company's two most recent fiscal years and the subsequent interim period
through December 2, 1998 (the date of the former accountant's resignation). A
copy of the accountants' resignation letter appears as an exhibit hereto.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information with respect to directors and executive officers of the Company
is incorporated by reference to the Company's Proxy Statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is incorporated by reference
to the Company's Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item is incorporated by reference
to the Company's Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 31, 1999, the Company entered into an arbitration settlement with David
Djemal and Daniel Homsany, two former directors, officers, and shareholders of
the Company. In return for their resignations as officers and directors of the
Company and the surrender of all of their equity interests in the Company, the
Company paid each individual $200,000, plus $12,000 per individual representing
accrued and unpaid salaries, and the Company canceled debts owed by the
individuals to the Company in the aggregate of $52,000. Along with their
resignations, both individuals deposited their Company common stock into an
escrow account where it would be held until the Company removed both individuals
from a number of personal guarantees that they had entered into for the Company.
There remains one outstanding personal
36
<PAGE>
guaranty in their names which is due to be released on April 30, 2000 at which
time the Company common stock will be released from the escrow account and
returned to the Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) FINANCIAL STATEMENTS
Financial statements of the Company are set forth in Part II, Item 8.
(2) FINANCIAL STATEMENTS SCHEDULE
Schedule II - Valuation and Qualifying accounts for the year ended December 31,
1999, 1998 and 1997, will be filed by amendment.
(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION METHOD OF FILING
<S> <C> <C>
3 (a) Amended and Restated Memorandum of Association and Articles of
Association of the Registrant (2)
3 (b) Amendment to Amended and Restated Memorandum of Association and
Articles of Association (3)
4 (a) Form of Warrant Agreement (1)
4 (b) Amendment to Warrant Agreement (5)
4 (c) Second Amendment to Warrant Agreement (6)
10.1 Amended and Restated Stock Option Plan (6)
10.2 Retirement Agreement dated February 26, 1996 with Moises Ezra Cohen (5)
10.3 "Poliza de Credito" from "Banco Exterior" dated January 27, 1992 (accompanying
English summary) (1)
10.4 "Poliza de Credito" from "Banco Exterior" dated September 4, 1991 (with
accompanying English summary) (1)
10.5 Confidentiality and Non-Competition Agreement of Enrique P. Lacs (1)
10.6 "Permiso de Operacion 179" (with accompanying English summary) (1)
10.7 Lease from Ezcony Trading Corporation to Hooters and Dreams, S.A. dated
37
<PAGE>
March 18, 1994 (with accompanying English summary) (4)
10.8 Hamilton Bank Security Agreement made by Ezcony Trading Corporation (5)
10.9 Loan Contract (Line of Credit) with Banco de Iberoamerica (with English
summary) (5)
10.10 Addendum dated May 12, 1997 to the Distribution Agreement for Motorola
Cellular Products dated June 17, 1996 by and between King David Com.
Exportacao e Importacao Ltda. and Ezcony Interamerica Inc. (7)
10.11 Termination Agreement dated June 18, 1997 and Confidentiality and
Noncompetition Agreement by and between Ezcony Interamerica Inc. and
Subsidiaries and Ezra Homsany (7)
10.12 "Poliza de Credito" from "Banco Exterior" dated July 8, 1997 (with
accompanying English summary) (8)
10.13 "Poliza de Credito" from "The Chase Manhattan Bank" dated June 4, 1997
(with accompanying English summary) (8)
10.14 "Poliza de Credito" from "Banco Confederado De America Latina, S.A."
dated June 18, 1997 (with accompanying English summary) (8)
10.15 "Poliza de Credito" from "Banco Panamericano, S.A." dated June 17, 1997
(with accompanying English summary) (8)
10.16 Loan Contract (Line of Credit) with Banco de Iberoamerica (with
accompanying English summary) (8)
10.17 "Contrato de Compraventa De Acciones" dated September 2, 1997 (with
accompanying English summary) (8)
10.18 Contract for purchase of building from COFRISA dated July 28, 1997 (with
accompanying English summary) (8)
10.19 Credit Facility with Hamilton Bank dated December 31, 1998 (8)
10.20 Rockford Corporation Distribution Agreement dated Jan. 26, 2000 (attached)
10.21 J.W Genesis Capital Market, Inc. Agreement dated Nov. 17, 1999 (attached)
16 Accountant's letter (9)
22 List of subsidiaries (5)
23 Consent of McClain & Company, L.C. (attached)
27.1 Financial Data Schedule (attached)
99 Accountant's resignation letter (11)
<FN>
(1) Incorporated by reference to Ezcony's Form F-1 dated May 21, 1992 (No. 33-48061)
(2) Incorporated by reference to Ezcony's Amendment No. 1 dated July 9, 1992 to Ezcony's Form F-1
38
<PAGE>
(3) Incorporated by reference to Ezcony's Form 10-Q for the quarterly period ended June 30, 1993
(4) Incorporated by reference to Ezcony's Form 10-K for the year ended December 31, 1994
(5) Incorporated by reference to Ezcony's Form 10-K for the year ended December 31, 1995
(6) Incorporated by reference to Ezcony's Form 10-K for the year ended December 31, 1996
(7) Incorporated by reference to Ezcony's Form 10-Q for the quarterly period ended June 30, 1997
(8) Incorporated by reference to Ezcony's Form 10-K405/A as filed with the Securities and Exchange
Commission on April 15, 1998
(9) Incorporated by reference to Ezcony's Form 8-K/A as filed with the Securities and Exchange
Commission on December 18, 1998
(10) To be filed by amendment
(11) Incorporated by reference to Ezcony's Form 8-K as filed with the Securities and Exchange
Commission on December 7, 1998
Incorporated by reference to Ezcony's Form 10K405 Annual Report filed with SEC on March 31, 1999.
Incorporated by reference to Ezcony's Form NT10K Notification of Late Filing filed April 1, 1999.
Incorporated by reference to Ezcony's Form 10-K405A Amended Annual Report filed April 28, 1999.
Incorporated by reference to Ezcony's Form 10-Q, Notification of Late Filing filed May 18, 1999.
Incorporated by reference to Ezcony's Form 10-K405/A, Amended Annual Report filed May 20, 1999.
Incorporated by reference to Ezcony's Form DEF 14A Proxy Statement, filed May 24, 1999.
Incorporated by reference to Ezcony's Form 10-Q Quarterly report filed May 24, 1999.
Incorporated by reference to Ezcony's Form 10-Q Quarterly report filed Nov. 15, 1999.
</FN>
</TABLE>
(b) Reports on Form 8-K
The following reports on Form 8-K were filed in the last quarter of
the period covered by this report:
(1) Form 8-K dated December 2, 1998, as filed with the
Securities and Exchange Commission on December 7, 1998
39
<PAGE>
(2) Form 8-K/A dated December 18, 1998, as filed with the
Securities & Exchange Commission on December 21, 1998.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: APRIL 24, 2000 BY: /s/ EZRA COHEN
----------------------------- ---------------
Ezra Cohen
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ EZRA COHEN Director, Chairman of the Board, March 31, 2000
- ------------------------------------ President and Chief Executive Officer
Ezra Cohen
/S/ CARLOS N. GALVEZ Chief Financial Officer March 31, 2000
- ------------------------------------ (Principal Financial and Accounting Officer)
Carlos N. Galvez
/S/ MOISES EZRA COHEN Director March 31, 2000
- ------------------------------------
Moises Ezra Cohen
/S/ EZRA HOMSANY GATENO Director March 31, 2000
- -----------------------
Ezra Homsany Gateno
/S/ ENRIQUE LACS Director March 31 ,2000
- ----------------------------------------
Enrique Lacs
/S/ LEONARD J. SOKOLOW Director March 31, 2000
- ----------------------------------------
Leonard J. Sokolow
</TABLE>
41
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.20 Rockford Corporation Distribution Agreement dated Jan. 26, 2000
10.21 J.W Genesis Capital Market, Inc. Agreement dated Nov. 17, 1999
23 Consent of McClain & Company, L.C.
EXHIBIT 10.20
DISTRIBUTION AGREEMENT
This agreement is entered into this 26 January 2000 by and between
Rockford Corporation with headquarters at 546 South Rockford Drive, Tempe,
Arizona 85281, U.S.A. (hereinafter "Rockford"), and Ezcony Trading Corporation,
an importer, located in the Colon Free Trade Zone, Panama (hereinafter
"Distributor"). Both parties agree as follows:
1. Rockford hereby appoints the Distributor as its sole distributor for the
products manufactured by Rockford and its Rockford Fosgate product lines
(hereinafter "Products"), only within the following sales territory; Brazil,
Paraguay, Argentina, Chile, Peru, Bolivia, Uruguay, Colombia, Ecuador, Surinam,
Panama, Costa Rica, Nicaragua, Honduras, El Salvador, Guatemala, Belize, Guyana,
all of the Caribbean, including Dominican Republic, Jamaica, Haiti, St. Martin,
and Mexico (hereinafter "Territory"); and Rockford hereby agrees not to appoint,
or permit sales by, any other distributors or dealers of the Products in the
Territory. The distributor agrees not to sell the Products to any other
distributors, dealers or consumers for the purpose of selling the products
outside the Territory. Distributor may not sell the Products outside the
Territory or by using the Internet or other electronic media. This would be
considered transshipping and would be grounds for immediate termination.
Distributor will be permitted to advertise that they are the authorized
distributor of Rockford products on the Internet but may not take orders or
make sales directly via the Internet. Further, Distributor may advertise that
he is the authorized distributor for the above mentioned territory in American
Airlines' and COPA Airlines' in-flight magazines and must include the disclaimer
"subject to authorized distribution territory."
All advertisements must be pre-approved by Rockford. Distributor agrees that no
advertisements will contain pricing and or be directed toward the end user.
Distributor acknowledges that these restrictions are reasonable in light of
Distributor's warranty obligations within the Territory and lack of
authorization to provide warranty service outside the Territory.
2. Direct orders or inquires for the Products received by Rockford from third
parties within the Territory will be conveyed at the earliest possible moment to
the distributor, who will be left the discretion to decide if they desire a
shipment from Rockford to the third party, or whether they wish to transact such
business by selling from their stock. At no time will Rockford ship directly to
a third party without a written request from the Distributor. In either case of
such a sale, the responsibility for warranty repair of the Products remains the
Distributor's throughout the life of the Product sold by Distributor.
3. In consideration of this exclusive appointment by Rockford to sell the
Products in the Territory, the Distributor, during the continuance of this
Agreement, hereby agrees not to import, handle or sell goods which are identical
or similar to the Products, either directly or indirectly, if such other
products would or might compete or interfere with the sale of the Products by
the Distributor pursuant to the terms of this Agreement, except any such
identical or similar goods that are handled and brought to Rockford's attention
before this Agreement is signed. Rockford acknowledges that at the time of
signing of this agreement, Distributor currently imports, handles and/or sells
Aiwa, Pioneer and Sony mobile electronics products.
4. The distributor agrees to purchase the Products from Rockford in a volume of
USD Four Million Six Hundred Thousand (US$4,600,000.00) in the calendar year
2000 beginning at the execution date of this agreement. Future purchase goals
will be set on an annual basis. Unless
Exhibit 10.20 - Page 1
<PAGE>
negotiated, only those products purchased that do not exceed a net discount of
thirty percent (30%) (including rebates) will count towards purchase goals.
Due to the transition from previous distributors to Ezcony Trading Corp., not
all authorized sales territories listed in this agreement will be open to
distributor for soliciting of sales until April 1, 2000 or such date that the
prior distributor's final termination date. Therefore, a separate goal of
US$350,000 will be established for the first calendar quarter for the year 2000
(January, February & March).
5. The Distributor hereby agrees to serve Rockford during the continuance of
this Agreement diligently and faithfully and to use its best endeavors to extend
and promote the sale of the Products in the Territory, and to submit sales
reports on market conditions at regular intervals, at least semi-annually. The
warranty repair of the Products will be the responsibility of the Distributor
throughout the life of all Products sold by Distributor.
6. Rockford hereby agrees to provide the Distributor with an adequate supply of
publicity and technical literature on the Products; and the distributor agrees
to carry out his local advertising and sales promotion efforts at his own cost.
7. All the purchases by the Distributor from Rockford shall be conducted through
a formal written purchase order or written inquiry form with all the necessary
information furnished thereon. The currency used in purchasing shall be US
Dollars only; and the prices shall be the same as established by Rockford's then
effective export price lists. Terms of payment for all purchases shall be 75
days from invoice date. The distributor agrees to pay Rockford accordingly.
8. This Agreement shall be effective as of 26 January, 2000 and will continue
without termination through December 31, 2000 and shall be automatically renewed
upon expiration for additional one year periods, unless and until a new
Agreement is signed by both Parties or either Party gives 30 days written notice
of termination. Such termination shall create no liability for direct,
consequential, or other damages.
9. Rockford and the Distributor are acting as independent contracting parties in
entering into this Agreement, and neither shall act as the agent or
representative of the other nor have the power to bind the other in any way in
dealing with third parties.
10. All of Rockford and Hafler trade names, trademarks, logotypes and trade
dress or styles shall at all times be and remain the sole property of Rockford.
Rockford grants to Distributor a non- exclusive, nontransferable, terminable
license to use the marks associated with the Products, as listed on Exhibit A
(the "Licensed Marks") during the term of this Agreement and solely in
connection with its sale of the Products in the Territory. Rockford reserves all
rights not expressly granted to Distributor in this Agreement. This Agreement
does not grant to Distributor any rights in trademarks, service marks, logos or
other designs other than Licensed Marks. Upon termination of this Agreement by
either party, the Distributor shall immediately cease all use of the Licensed
Marks.
To assure that the production, appearance, and quality of each of the Licensed
Marks are consistent with Rockford's reputation for high quality, and with the
goodwill associated with its reputation and the Licensed Marks, and to insure
the preservation of the Licensed Marks and Rockford's rights in them,
Distributor will: (1) use the Licensed Marks only in connection with the
promotion and sale of the Products and only in the forms that Rockford approves
in writing, without any changes or modifications; (2) comply with all other
instructions issued by Rockford, in its sole discretion, to maintain the quality
of the Licensed Marks; (3) use appropriate legends, markings, and notices as
Exhibit 10.20 - Page 2
<PAGE>
Rockford directs to give notice to the consuming public of Rockford's right,
title, and interest in the Licensed Marks; (4) not use markings, legends, or
notices on or in association with the Licensed Marks unless Rockford approves in
writing; and (5) not register any of Rockford and Hafler trade names as Internet
domains.
Distributor acknowledges that any violation of this section will result in
irreparable harm to Rockford and will give Rockford the right immediately to
terminate this Agreement and the license to use the Licensed Marks.
Distributor acknowledges that Rockford is the owner of the Licensed Marks, of
all other Rockford and Hafler trade names, trademarks, logotypes and trade dress
or styles, and of the goodwill associated with all such marks. Distributor's use
of the Licensed Marks will inure to the benefit of Rockford. Distributor will
not, at any time, acquire any rights in the Licensed Marks by virtue of its use
of the Licensed Marks.
Distributor will not use all or part of any Rockford trade name or trade mark,
or any Licensed Mark, as part of its corporate name. Distributor also will not
register or otherwise use any Internet domain name that uses all or part of any
Rockford tradename or trade mark, or any Licensed Mark, or that might lead
Internet users to believe that a site is associated with Rockford.
Nothing in this Agreement transfers to Distributor any right, title, or interest
in and to the Licensed Marks, or any other Rockford and Hafler trade names,
trademarks, logotypes and trade dress or styles, other than as specifically
granted in this Agreement. Distributor acknowledges that this license terminates
upon termination of this Agreement.
11. Should any dispute arise between Rockford and the distributor as to the
interpretation or application of this Agreement, it shall be subject to the laws
then in force in the State of Arizona, United States of America, where the
Agreement originated. Disputes will be resolved by arbitration in Maricopa
County, Arizona, U.S.A., under the then current Rules for Commercial Arbitration
of the American Arbitration Association. The decisions of the arbitrators are
final and may be enforced in any court with jurisdiction over the parties.
12. Rockford Corporation shall export all Products (commodities, technology or
software) in accordance with Export Administration Regulations of the Bureau of
Export Administration, United States Department of Commerce. Distributor shall
not participate in any re-export or release of Products contrary to U.S. law.
This shall not affect compliance with Distributor's local laws and regulations.
IN WITNESS WHEREOF, Rockford and the distributor have by persons duly
authorized, executed this Agreement at Tempe, Arizona on the aforesaid 26
January, 2000.
Signed by: /s/ Enrique Lacs
----------------
Print Name: Enrique Lacs
Title: V.P. Operations
Exhibit 10.20 - Page 3
<PAGE>
ADDENDUM TO DISTRIBUTION AGREEMENT
This shall serve as an addendum to the Distribution Agreement between Rockford
Corporation and Ezcony Trading Corporation. The parties hereby agree to the
following additional terms and conditions and these shall form an integral part
of the Distribution Agreement.
TERRITORY: The Territory specifically excludes Puerto Rico and Venezuela.
TERMS OF DELIVERY: Delivery terms shall be Ex Works Grand Rapids, Michigan or
Gilbert, Arizona USA (as defined in the latest version of I.C.C. Incoterms).
Rockford shall pay inland freight to either Laredo, Texas or Miami, Florida.
PRICING: Rockford shall provide Ezcony with an 18% export discount from its then
effective export price list except on source units and CD Changers which will
receive a 14% export discount.
REBATE: An additional 7% Volume Rebate will be paid by Rockford to Ezcony in
the form of a credit memo upon Ezcony achieving the following purchase goals
from Rockford:
January- March 31, 2000 USD 350,000.00
April 1 - June 30, 2000 USD 750,000.00
July 1- Sept. 30, 2000 USD 1,500,000.00
October- Dec. 31, 2000 USD 2,000,000.00
January- March 31, 2000 USD TBD
For Distributor:
By: /s/ Enrique Lacs
----------------
Title: V.P. Operations
Exhibit 10.20 - Page 4
EXHIBIT 10.21
November 17, 1999
Private & Confidential
- ----------------------
Mr. Ezra Cohen
President and C.E.O.
Ezcony Interamerica Inc.
Units Four and Five
7620 NW 25th Street
Miami, Florida 33122
Ladies/Gentlemen:
We are writing this letter to confirm our agreement ("Agreement") that
JWGenesis Capital Markets, Inc. ("JWGenesis") is exclusively authorized to
represent Ezcony Interamerica Inc. and its affiliates and related entities
(collectively, the "Company") and the undersigned majority shareholders and to
assist the Company as its exclusive financial advisor in connection with the
possible acquisition of Intcomex Computer Distributor, BrightStar Corp., CHS
America, CellPoint Corporation and their affiliates and related entities (the
"Targets") or any of the Targets' assets, business or equity, debt or other
securities. This authorization covers such an acquisition by means of any
merger, consolidation, recapitalization, joint venture, business combination,
exchange offer or purchase or sale of securities or assets. Also covered by this
authorization is any other transaction involving the Company or its shareholders
resulting in a change of control of the Targets or its assets, securities or
business. For the purposes of this Agreement, any of the foregoing shall
constitute a "Transaction."
This Agreement shall become effective upon the execution hereof by the
Company and JWGenesis, and the term of this Agreement and the exclusive
appointment provided for herein (the "Term") shall end on the first anniversary
of the date of such execution by the Company. The Company agrees to use
reasonable efforts to effect a Transaction acceptable to it during the term.
I. PERFORMANCE OF SERVICES
-----------------------
Under this Agreement, JWGenesis will work with the Company and use
reasonable efforts to attempt to consummate a satisfactory Transaction, subject
to a final review by JWGenesis and the Company which concludes that the
Transaction being considered is financially feasible, including the following
services as appropriate and as reasonably requested by the Company:
1. Provide corporate finance professionals as reasonably required to assist in
this engagement.
2. Advise and assist the Company in determining the number of shares and other
consideration to offer to the Targets.
3. Discuss and evaluate with the Company Transaction strategies and advise
and make applicable presentations on how to structure and implement a
Transaction designed to further the Company's stated objectives.
4. In consultation with the Company and legal, accounting and/or tax
advisors, advise the Company on appropriate negotiating strategies and, to
the extent deemed appropriate, assist and/or direct negotiations leading
to a conclusion of the proposed Transaction.
5. Review the capital structure of the Company and, if an applicable
financing engagement agreement is desired and executed by both the Company
and JWGenesis, assist in financing a Transaction.
Exhibit 10.21 - Page 1
<PAGE>
II. COMPENSATION OF SERVICES
A. In partial payment for its services hereunder, JWGenesis shall receive from
the Company a nonrefundable $20,000 performance fee, payable in cash upon the
execution hereof. In addition, the Company shall issue to JWGenesis upon the
execution hereof warrants to purchase 200,000 shares of common stock of the
Company, one-half at 50.10 per share and one-half at $0.40 per share. The
warrants shall expire five years from the date of issuance, or one year from the
date of issuance if no Transaction has been consummated, and the terms and
conditions governing such issue of the warrants shall be in accordance with
Appendix B hereto annexed.
B. If any Transaction is consummated during the Term or within eighteen months
after the end of the Term with the Targets or with another party or parties (the
"Other Targets") introduced to the Company by JWGenesis or contacted at the
Company's request by JWGenesis during the Term, the Company shall pay JWGenesis
in cash (except with respect to the proviso at the end of the paragraph below)
at the closing of each such Transaction, a transaction fee ("Transaction Fee")
equal to the sum of one and one-half percent (1.5%) of the aggregate
consideration of a Transaction (the "Aggregate Consideration"). Aggregate
Consideration is defined and computed as follows:
1. The total sale proceeds and other consideration paid or received by (i) the
Targets or Other Targets, (ii) participants in the Target's or Other
Targets' phantom or other equity plans, (iii) recipients of a share of the
Transaction proceeds or similar incentive arrangements and/or (iv) holders
of the Target's or Other Targets' stock, options, warrants and convertible
securities ((i), (ii), (iii) and (iv) collectively being defined as the
"Stakeholders") upon the consummation of any Transaction (including
payments made in installments, paid into escrow and/or deferred),
inclusive of cash, debt and equity securities, notes, property,
shareholder payables and indebtedness assumed or retired, agreements not
to compete, consulting agreements and unusual employment contracts, plus
the total value of any interest-bearing liabilities and long-term
liabilities assumed or retired, the net value of any current assets not
purchased in an assets Transaction, the aggregate amount of any dividends
(except regular dividends paid in conformity with past practice) or other
distributions paid by the Target or Other Targets to the Stakeholders
after the date hereof and the imputed value of any stock retained by the
Stakeholders in a sale, recapitalization, leveraged buyout or similar
transaction; provided that if Aggregate Consideration includes equity
securities of the Company, then the portion of the Transaction Fee
attributable to such equity security payments shall be made to JWGenesis
in kind and shall have at least the registration rights contained in the
applicable section of Appendix B annexed hereto.
2. If a portion of such consideration includes contingent payments, Aggregate
Consideration shall also include the value of such payments; provided that
if the Company and JWGenesis cannot in good faith agree on such value, then
the portion of the Transaction Fee attributable to such contingent payments
shall be paid to JWGenesis as such payments are paid to the Stakeholders.
If the Aggregate Consideration for the Transaction consists in whole or in
part of securities or other property, for the purposes of calculating the
amount of Aggregate Consideration, the value of such securities or other
property will be the value thereof on the day preceding the consummation of
the Transaction as the Company and JWGenesis agree, provided, however, that
in the case of securities for which there is a public trading market, the
value will be determined by the average last sales prices for such
securities for the last twenty trading days prior to such consummation.
In the case of debt securities for which there is no public trading market,
the value thereof shall be the principal amount thereof. If
Exhibit 10.21 - Page 2
<PAGE>
there is no public trading market for securities or other property other
than debt securities paid or payable as part of Aggregate Consideration
and the parties are unable to agree on their value, then each of JWGenesis
and the Company will select an investment banking firm respected in the
merger and acquisition field to determine a value and the midpoint between
the two values established by the two independent experts will be the fair
market value for the purposes hereof.
C. If the Company and/or its shareholders enter into a letter of intent or
other agreement with respect to a Transaction, and due to a breach by failure of
condition under the control of or act or omission to act by the Company or its
shareholders no Transaction is consummated by the earlier to occur of the dates
set forth in clauses (i) or (ii) of this paragraph C whereby JWGenesis is paid a
Transaction Fee by the Company, then the Company shall pay JWGenesis an
additional performance fee (the "Buyer's Remorse Fee") of $200,000 at the
earlier of (i) eighteen months after the Term of this Agreement or (ii) when the
Company has ceased using reasonable efforts to consummate a Transaction.
D. The Company agrees to reimburse JWGenesis for all reasonable out-of-pocket
expenses incurred in carrying out the terms of this Agreement, including
telephone, travel, facsimile, courier and computer time charges, attorneys' fees
and disbursements and sales, use and similar taxes. Such reimbursable expenses
shall not exceed $25,000 without the Company's approval, provided, however, that
such limitation shall not apply to Appendix A. These out-of-pocket expenses will
be payable from time to time upon invoicing by JWGenesis at any time after the
commencement of this Agreement.
E. JWGenesis shall have the right of first refusal during the Term and, if a
Transaction is consummated, within eighteen months after the Term to act as
exclusive placement agent or co- managing underwriter, as the case may be, for
any private or public financing by the Company, including any financing for a
Transaction.
F. The provisions of this Section II shall survive the termination and
expiration of this Agreement.
III. INDEMNIFICATION
---------------
The Company and JWGenesis hereby agree to the terms and conditions of the
Indemnification Agreement attached hereto as Appendix A with the same force and
effect and as if the terms and conditions were set forth at length herein.
IV. COORDINATION OF EFFORTS AND EXCLUSIVITY
---------------------------------------
In order to coordinate the efforts of both JWGenesis and the Company, and
to maximize the possibility of completing a satisfactory Transaction during the
term of this Agreement, JWGenesis shall have the exclusive authority as
financial advisor to conduct negotiations with the Targets and Other Targets on
behalf of the Company and its shareholders.
V. DISCLOSURE
----------
Any financial or other advice, descriptive memoranda or other
documentation rendered by JWGenesis pursuant to this Agreement may not be
disclosed publicly or to any third party in any manner without the prior written
approval of JWGenesis. The Company may not make any public reference to
JWGenesis or use JWGenesis' name in any annual report, press release or other
report, release or other document of the Company without JWGenesis' prior
written consent, except that the Company may, without JWGenesis' further
consent, disclose this Agreement (but not
Exhibit 10.21 - Page 3
<PAGE>
information provided to the Company by JWGenesis) in the Company's filings with
the Securities and Exchange Commission, if the Company has been advised by its
counsel that such disclosure is required by law, or, in the opinion of counsel
to the Company, may otherwise be required by law. All non-public information
provided by the Company to JWGenesis will be considered as confidential
information and shall be maintained as such by JWGenesis, except as required by
law or as required to enable JWGenesis to perform its services pursuant to this
Agreement, until the same becomes known to third parties or the public without
release thereof by JWGenesis. The provisions of this paragraph shall survive the
termination and expiration of this Agreement.
The Company agrees to provide to JWGenesis, among other things, all
reasonable information requested or required by JWGenesis or the Targets,
including, but not limited to, information concerning historical and projected
financial results and possible and known litigious, environmental and other
contingent liabilities of the Company. The Company also agrees to make available
to JWGenesis such representatives of the Company, including, among others,
directors, officers, employees, outside counsel and independent certified public
accountants, as JWGenesis may reasonably request. The Company will promptly
advise JWGenesis of any material changes in its business, finances or
shareholdings. The Company represents that all information made available to
JWGenesis by the Company, including, without limiting the generality of the
foregoing, any descriptive memorandum or other information materials prepared by
or approved by the Company, will be complete and correct in all material
respects and will not contain any untrue statements of a material fact or omit
to state a material fact necessary in order to make the statements therein not
misleading in light of the circumstances under which such statements are made.
In rendering its services hereunder, JWGenesis will be using and relying
primarily on such information without independent verification thereof or
independent appraisal of any of the Company's assets or those of the Targets or
Other Targets. JWGenesis does not assume responsibility for the accuracy or
completeness of the information to which reference is made above.
The Company authorizes JWGenesis to make public notice in the form
of a "tombstone," at JWGenesis' expense, of any Transaction concluded under
this Agreement.
VI. OBLIGATIONS OF JWGENESIS SOLELY TO THE COMPANY
----------------------------------------------
The services herein provided are to be rendered solely to the Board of
Directors of the Company. They are not being rendered by JWGenesis as a
fiduciary of the shareholders of the Company and JWGenesis shall not have any
liability or obligation with respect to its services hereunder to such
shareholders or any other person, firm or corporation.
VII. ENTIRE AGREEMENT, GOVERNING LAWS AND JURISDICTION, ETC.
-------------------------------------------------------
This Agreement sets forth the entire understanding of the parties relating
to the subject matter hereof and supersedes and cancels any prior
communications, understandings and agreements between the parties. This
Agreement cannot be terminated or changed, nor can any of its provisions be
waived, except by written agreement signed by all parties hereto. This Agreement
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company, the undersigned shareholders and
JWGenesis.
This Agreement shall be governed by and construed to be in accordance with
the laws of the State of New York applicable to contracts made and to be
performed solely in such state by citizens thereof. Any dispute arising out of
this Agreement shall be adjudicated in the courts of the State of New York or in
the federal courts sitting in the Southern District of New York, and the Company
and JWGenesis each hereby agrees that service of process upon it by registered
or certified mail at
Exhibit 10.21 - Page 4
<PAGE>
its address set forth above shall be deemed adequate and lawful. The parties
hereto shall deliver notices to each other by personal delivery or by registered
or certified mail (return receipt requested) at the addresses set forth above.
VIII. ACCEPTANCE
----------
Please confirm that the foregoing is in accordance with your understanding
by signing upon behalf of the Company and returning an executed copy of this
Agreement, together with a wire funds transfer or check for $20,000 drawn in
favor of "JWGenesis Capital Markets, Inc." whereupon after execution by
JWGenesis it shall become a binding agreement among the Company, JWGenesis and
the Company's majority shareholders. A telecopy of a signed original of this
Agreement shall be sufficient to bind the parties whose signatures appear
hereon.
Very truly yours,
JWGENESIS CAPITAL MARKETS, INC.
By:
---------------------------------------------
Jeffrey H. Lehman, Director of Corporate Finance
ACCEPTED AND AGREED TO:
EZCONY INTERAMERICA INC. AND ITS
AFFILIATES AND RELATED ENTITIES
By:
----------------------------
Ezra Cohen, President and C.E.O.
Date:
--------------------------
MAJORITY SHAREHOLDERS (as represented as such by the undersigned)
- -------------------------------
Ezra Cohen
- -------------------------------
Moises Ezra Cohen
- -------------------------------
Moises Homsany
- -------------------------------
Ezra Homsany Gateno
Exhibit 10.21 - Page 5
<PAGE>
APPENDIX A
INDEMNIFICATION AGREEMENT
Appendix A to the letter engagement agreement (the "Agreement") dated
November 11, 1999 by and among Ezcony Interamerica Inc. and its affiliates and
related entities (collectively, the "Company"), JWGenesis Capital Markets, Inc.
("JWGenesis") and the Company's majority shareholders.
The Company agrees to indemnify and hold JWGenesis and its current and
future affiliates, control persons, directors, officers, employees and agents
(each an "Indemnified Person") harmless from and against all losses, claims,
damages, liabilities, costs or expenses, including those resulting from any
threatened or pending investigation, action, proceeding or dispute whether or
not JWGenesis or any such other Indemnified Person is a party to such
investigation, action, proceeding or dispute, arising out of JWGenesis' entering
into or performing services under this Agreement or arising out of any matter
referred to in this Agreement. This indemnity shall also include JWGenesis'
and/or any such other Indemnified Person's reasonable attorneys' and
accountants' fees and out-of-pocket expenses incurred in, and the cost of
JWGenesis personnel whose time is spent in connection with such investigations,
actions, proceedings or disputes which fees, expenses and costs shall be
periodically reimbursed to JWGenesis and/or to any such other Indemnified Person
by the Company as they are incurred; provided, however, that the indemnity
herein set forth shall not apply where a court of competent jurisdiction has
made a final determination that JWGenesis acted in a grossly negligent manner or
engaged in willful misconduct in the performance of its services hereunder which
gave rise to the loss, claim, damage, liability, cost or expense sought to be
recovered hereunder (but pending any such final determination the
indemnification and reimbursement provisions hereinabove set forth shall apply
and the Company shall perform its obligations hereunder to reimburse JWGenesis
and/or each such other Indemnified Person periodically for its, his or their
fees, expenses and costs as they are incurred). The Company also agrees that
neither JWGenesis nor any other Indemnified Person shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Company
for or in connection with any act or omission to act by JWGenesis as a result of
its engagement under this Agreement except for any such liability for losses,
claims, damages, liabilities or expenses incurred by the Company that is found
in a final determination by a court of competent jurisdiction to have resulted
from JWGenesis' gross negligence or willful misconduct.
If for any reason, the foregoing indemnification is unavailable to
JWGenesis or any such other Indemnified Person or insufficient to hold it
harmless, then the Company shall contribute to the amount paid or payable by
JWGenesis or any such other Indemnified Person as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the Company and its shareholders on the one hand
and JWGenesis or any such other Indemnified Person on the other hand, but also
the relative fault of the Company and JWGenesis or any such other Indemnified
Person, as well as any relevant equitable considerations; provided that in no
event will the aggregate contribution by JWGenesis and any such other
Indemnified Person hereunder exceed the amount of fees actually received by
JWGenesis pursuant to this Agreement. The reimbursement, indemnity and
contribution obligations of the company hereinabove set forth shall be in
addition to any liability which the Company may otherwise have and these
obligations and the other provisions hereinabove set forth shall be binding upon
and inure
A - Page 1
<PAGE>
to the benefit of any successors, assigns, heirs and personal representatives of
the Company, JWGenesis and any other Indemnified Person.
The terms and conditions hereinabove set forth in this Appendix A shall
survive the termination and expiration of this Agreement and shall continue
indefinitely thereafter.
EZCONY INTRAMERICA INC. AND ITS JWGENESIS CAPITAL MARKETS, INC.
AFFILIATES AND RELATED ENTITIES
By: By:
-------------------------------- ----------------------------------------
Ezra Cohen, President and C.E.O. Jeffrey H. Lehman, Director of Corporate
Finance
A - Page 2
<PAGE>
APPENDIX B
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
200,000 Shares No. 1
FOR VALUE RECEIVED, Ezcony Interamerica Inc. (the "Company"), a British
Virgin Islands corporation, hereby certifies that JWGenesis CapitalMarkets, Inc.
("JWGenesis") or its permitted assigns are entitled to purchase from the
Company, at any time or from time to time prior to 5:00 P.M., New York City time
then current, on November 17, 2004 (or if no Transaction (as defined in the
agreement among JWGenesis, the Company and the Company's majority shareholders
dated November 11, 1999) has been consummated then on November 11, 2000) (the
"Expiration Date"). 200,000 fully paid and non-assessable shares of the common
stock, no par value, of the Company, one-half at the aggregate purchase price of
$10,000 (computed on the basis of $0.10 per share) and one-half at the aggregate
purchase price of $40,000 (computed on the basis of $0.40 per share).
(Hereinafter, (i) said common stock, together with any other equity securities
which may be issued by the Company with respect thereto or in substitution
therefor, is referred to as the "Common Stock," (ii) the shares of the Common
Stock purchasable hereunder are referred to as the "Warrant Shares," (iii) the
aggregate purchase price payable hereunder for the Warrant Shares is referred to
as the "Aggregate Warrant Price," (iv) the price payable hereunder for each of
the shares of the Warrant Shares is referred to as the "Per Share Warrant Price"
and (v) this warrant and all warrants hereafter issued in exchange or
substitution for this warrant are referred to as "Warrants.") The Aggregate
Warrant Price is not subject to adjustment. The Per Share Warrant Price is
subject to adjustment as hereinafter provided; in the event of any such
adjustment, the number of Warrant Shares shall be adjusted such that it equals a
number determined by dividing the Aggregate Warrant Price by the Per Share
Warrant Price in effect immediately after such adjustment.
1. Exercise of Warrant.
(a) This Warrant may be exercised in whole at any time or in part from time to
time prior to 5:00 P.M., New York City time then current, on the
Expiration Date, by the holder of this Warrant (the "Holder") by the
surrender of this Warrant (with the subscription form at the end hereof
duly executed) at the address set forth in Subsection 10(a) hereof,
together with proper payment of the aggregate Warrant Price, or the
proportionate part thereof if this Warrant is exercised in part. Payment
for the Warrant Shares shall be made by check, payable to the order of the
Company. If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock, and the Holder
is entitled to receive a new Warrant covering the number of Warrant Shares
in respect of which this Warrant has not been exercised and setting forth
the proportionate part of the Aggregate Warrant Price applicable to such
Warrant Shares. Upon such exercise and surrender of this Warrant, the
Company will (i) issue a certificate or certificates in the name of the
Holder for the largest number of whole shares of the Common Stock to which
the Holder shall be entitled and, if this Warrant is exercised in whole,
in lieu of any fractional share of the Common Stock to which the Holder
shall be entitled, pay cash equal to the fair value of such fractional
share (determined in such reasonable manner as the Board of Directors of
the Company shall determine), and (ii) deliver the other securities and
properties receivable upon the exercise
B - Page 1
<PAGE>
of this Warrant, or the proportionate part thereof if this Warrant is
exercised in part, pursuant to the provisions of this Warrant.
(b) In lieu of exercising this Warrant in the manner set forth in paragraph
1(a) above, this Warrant may be exercised in whole at any time or in part
from time to time prior to the Expiration Date by surrender of the Warrant
without payment of any other consideration, commission or remuneration,
together with the cashless exercise subscription form at the end hereof,
duly executed. The number of shares to be issued in exchange for the
Warrant shall be the product of (x) the excess of the Market price (as
hereinafter defined) of the Common Stock on the date of surrender of the
Warrant and the exercise subscription form over the Per Share Warrant
Price and (y) the number of shares subject to issuance upon exercise of
the Warrant, divided by the Market Price of the Common Stock on such date.
Upon such exercise and surrender of this Warrant, the Company will (i)
issue a certificate or certificates in the name of the Holder for the
largest number of whole shares of the Common Stock to which the Holder
shall be entitled and, in lieu of any fractional share of the Common Stock
to which the Holder shall be entitled, pay cash equal to the fair value of
such fractional share (determined in such reasonable manner as the Board
of Directors of the Company shall determine), and (ii) deliver the other
securities and properties receivable upon the exercise of this Warrant,
pursuant to the provisions of this Warrant.
2. Reservation of Warrant Shares.
-----------------------------
The Company agrees that, prior to the expiration of this Warrant, the
Company will at all times have authorized and in reserve, and will keep
available, solely for issuance or delivery upon the exercise of this Warrant,
such number of shares of the Common Stock and such amount of other securities
and properties as from time to time shall be deliverable to the Holder upon the
exercise of this Warrant, free and clear of all restrictions on sale or transfer
(except such as may be imposed under applicable federal and state securities
laws) and free and clear of all preemptive rights and all other rights to
purchase securities of the Company.
3. Protection Against Dilution.
---------------------------
(a) If, at any time or from time to time after the date of this Warrant, the
Company shall distribute to the holders of its outstanding Common Stock;
(i) securities, other than shares of Common Stock, or (ii) property, other
than cash out of earned surplus, without payment therefor, then, and in
each such case, the Holder, upon the exercise of this Warrant, shall be
entitled to receive the securities and property which the Holder would
hold on the date of such exercise if, on the date of this Warrant, the
Holder had been the holder of record of the number of shares of the
Common Stock subscribed for upon such exercise and, during the period
from the date of this Warrant to and including the date of such exercise,
had retained such shares and the securities and properties receivable by
the Holder during such period. Notice of each such distribution shall be
forthwith mailed to the Holder.
(b) If, at any time or from time to time after the date of this Warrant, the
Company shall (i) pay a dividend or make a distribution on its capital
stock in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares or (iv)
issue by reclassification of its Common Stock any shares of capital stock
of the Company, the Per Share Warrant Price and Warrant Shares in effect
immediately prior to such action shall be adjusted so that the Holder of
any Warrant thereafter exercised shall be entitled to receive the number
of shares of Common Stock or other capital stock of the Company which
B - Page 2
<PAGE>
he would have owned or been entitled to receive at the Aggregate Warrant
Price he would have paid or have been entitled to pay immediately
following the happening of any of the events described above had such
Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this (b) shall become effective immediately after the record
date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made
pursuant to this (b), the holder of any Warrant thereafter surrendered for
exercise shall become entitled to receive shares of two or more classes of
capital stock or shares of Common Stock and other capital stock of the
Company, the Board of Directors (whose reasonable determination shall be
conclusive and shall be described in a written notice to the Holder of any
Warrant promptly after such adjustment) shall determine the allocation of
the adjusted Per Share Warrant Price between or among shares of such
classes or capital stock or shares of Common Stock and other capital
stock.
(c) Except as provided in 3(e), in case the Company shall hereafter issue or
sell any shares of Common Stock for a consideration per share less than
the Average Per Share Warrant Price in effect immediately prior to such
issuance or sale, the Average Per Share Warrant Price shall be adjusted
as of the date of such issuance or sale so that the same shall equal the
price determined by dividing (i) the sum of (A) the number of shares of
Common Stock outstanding immediately prior to such issuance or sale
multiplied by the Average Per Share Warrant Price plus (B) the
consideration received by the Company upon such issuance or sale by (ii)
the total number of shares of Common Stock outstanding after such issuance
or sale. The term "Average Per Share Warrant Price" means the aggregate
exercise price for all unexercised Warrant Shares divided by the number of
unexercised Warrant Shares. If an adjustment to the Average Per Share
Warrant Price is to be made pursuant to this Subsection 3(c) or Subsection
3(d) below, then the aggregate price adjustment shall be applied evenly to
the exercise price on a per share basis over all unexercised Warrant
Shares.
(d) Except as provided in 3(e), in case the Company shall hereafter issue or
sell any rights, options, warrants or securities convertible into Common
Stock entitling the holders thereof to purchase the Common Stock or to
convert such securities into Common Stock at a price per share
(determined by dividing (i) the total amount, if any, received or
receivable by the Company in consideration of the issuance or sale of such
rights, options, warrants or convertible securities plus the total
consideration, if any, payable to the Company upon exercise or conversion
thereof (the "Total Consideration") by (ii) the number of additional
shares of Common Stock issuable upon exercise or conversion of such
securities) less than the then Average Per Share Warrant Price in effect
on the date of such issuance or sale, the Average Per Share Warrant Price
shall be adjusted as of the date of such issuance or sale so that the same
shall equal the price determined by dividing (i) the sum of (A) the number
of shares of Common Stock outstanding on the date of such issuance or sale
multiplied by the Average Per Share Warrant Price plus (B) the Total
Consideration by (ii) the number of shares of Common Stock outstanding on
the date of such issuance or sale plus the maximum number of additional
shares of Common Stock issuable upon exercise or conversion of such
securities.
(e) No adjustment in the Per Share Warrant Price shall be required in the case
of (i) the issuance of Common Stock upon the exercise of options which may
be granted in the ordinary course of business under the Company's official
employee stock option plan as in effect on the date hereof or (ii) the
issuance of shares pursuant to the exercise of this Warrant.
B - Page 3
<PAGE>
(f) In case of any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
entity of the assets or other property of the Company as an entirety
or substantially as an entirety, or in the case of any statutory exchange
of securities with another entity (including any exchange effected in
connection with a merger of any other corporation with the Company), the
Holder of this Warrant shall have the right thereafter to convert such
Warrant into the kind and amount of securities, cash or other property
which he would have owned or have been entitled to receive immediately
after such consolidation, merger, statutory exchange, sale or conveyance
had this Warrant been exercised immediately prior to the effective date
of such consolidation, merger, statutory exchange, sale or conveyance and
in any such case, if necessary, appropriate adjustments shall be made in
the application of the provisions set forth in this Section 3 with respect
to the rights and interests thereafter of the Holder of this Warrant to
the end that the provisions set forth in this Section 3 shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in
relation to any shares of stock or other securities or property thereafter
deliverable on the exercise of this Warrant. The above provisions of this
3(f) shall similarly apply to successive consolidations, mergers,
statutory exchanges, sales or conveyances. Notice of any such
consolidation, merger, statutory exchange, sale or conveyance, and of
said provisions so proposed to be made, shall be mailed to the Holder not
less than twenty (20) days prior to such event. A sale of all or
substantially all of the assets of the Company for a consideration
consisting primarily of securities shall be deemed a consolidation or
merger for the foregoing purposes.
(g) Whenever the Per Share Warrant Price is adjusted as provided in this
Section 3 and upon any modification of the rights of the Holder of this
Warrant in accordance with this Section 3, the Company shall, at its own
expense, within ten (10) days of such adjustment or modification, deliver
to the holder of this Warrant a certificate of the principal financial
officer of the Company setting forth the Per Share Warrant Price and the
number of Warrant Shares after such adjustment or the effect of such
modification, a brief statement of the facts requiring such adjustment or
modification and the manner of computing the same. In addition, within
thirty (30) days of the end of the Company's fiscal year next following
any such adjustment or modification, the Company shall, at its own
expense, deliver to the Holder of this Warrant a certificate of a firm of
independent public accountants of recognized standing reasonably selected
by the Board of Directors (which may be the regular auditors of the
Company) setting froth the same information as required by such principal
financial officer certificate.
(h) If the Board of Directors of the Company shall declare any dividend or
other distribution in cash with respect to the Common Stock, the Company
shall mail notice thereof to the Holder not less than twenty (20) days
prior to the record date fixed for determining shareholders entitled to
participate in such dividend or other distribution.
4. Fully Paid Stock; Taxes.
-----------------------
The Company agrees that the shares of the Common Stock represented by each
and every certificate for Warrant Shares delivered on the exercise of this
Warrant in accordance with the terms hereof shall, at the time of such delivery,
be validly issued and outstanding, fully paid and non- assessable and not
subject to preemptive rights or other contractual rights to purchase securities
of the Company and the Company will take all such actions as may be necessary to
assure that the par
B - Page 4
<PAGE>
value or stated value, if any, per share of the Common Stock is at all times
equal to or less than the then Per Share Warrant Price. The Company further
covenants and agrees that it will pay, when due and payable, any and all federal
and state stamp, original issue or similar taxes which may be payable in respect
of the issue of any Warrant Share or certificate therefor.
5. Registration Under Securities Act of 1933.
------------------------------------------
(a) The Company agrees that if, at any time and from time to time during the
period ending on the Expiration Date, the Holder and/or the holders of any
other Warrants and/or Warrant Shares who or which shall hold not less than
50% of the Warrants and/or Warrant Shares issued by the Company pursuant
to this Section 5, request that the Company file a registration statement
under the Securities Act of 1933 (the "Act") covering all or any of the
Warrant Shares (provided however the registration statement covers not
less than 50% of all Warrant Shares issued by the Company pursuant to this
Section 5), the Company will (i) promptly notify the Holder and all other
registered holders, if any, of other Warrants and/or Warrant Shares that
such registration statement will be filed and that the Warrant Shares
which are then held, and/or which may be acquired upon the exercise of
Warrants, by the Holder and such holders will be included in such
registration statement at the Holder's and such holders' request, (ii)
cause such registration statement to cover all Warrant Shares which it
has been so requested to include, (iii) use its best efforts to cause such
registration statement to become effective as soon as practicable and to
remain effective and current and (iv) take all other action necessary
under any federal or state law or regulation of any governmental authority
to permit all Warrant Shares which it has been so requested to include in
such registration statement to be sold or otherwise disposed of and will
maintain such compliance with each such federal and state law and
regulation of any governmental authority for the period necessary for the
Holder and such holders to effect the proposed sale or other disposition.
(b) The Company agrees that if, at any time and from time to time, the Board
of Directors of the Company shall authorize the filing of a registration
statement (any such registration statement being sometimes hereinafter
called a "Subsequent Registration Statement") under the Act (otherwise
than pursuant to 5(a) hereof) in connection with the proposed offer of any
of its securities by it or any of its shareholders, the Company will (i)
promptly notify the Holder and all other registered holders, if any, of
other Warrants and/or Warrant Shares that such Subsequent Registration
Statement will be filed and that the Warrant Shares which are then held,
and/or which may be acquired upon the exercise of the Warrants, by the
Holder and such holders will be included in such Subsequent Registration
Statement at the Holder's and such holders request, (ii) cause such
Subsequent Registration Statement to cover all Warrant Shares which it has
been so requested to include, (iii) cause such Subsequent Registration
Statement to become effective as soon as practicable and to remain
effective and current and (iv) take all other action necessary under any
federal or state law or regulation of any governmental authority to permit
all Warrant Shares which it has been so requested to include in such
Subsequent Registration Statement to be sold or otherwise disposed of and
will maintain such compliance with each such federal and state law and
regulation of any governmental authority for the period necessary for the
Holder and such holders to effect the proposed sale or other disposition.
(c) Whenever the Company is required pursuant to the provisions of this
Section 5 to include Warrant Shares in a Subsequent Registration Statement
or in a registration statement
B - Page 5
<PAGE>
pursuant to 5(a) hereof, the Company shall (i) furnish each holder of any
such Warrant Shares and each underwriter of such Warrant Shares with such
copies of the prospectus, including the preliminary prospectus, conforming
to the Act (and such other documents as each such holder or each such
underwriter may reasonably request) in order to facilitate the sale or
distribution of the Warrant Shares, (ii) use its best efforts to register
or qualify such Warrant Shares under the blue sky laws (to the extent
applicable) of such jurisdiction or jurisdictions as the holders of any
such Warrant Shares and each underwriter of Warrant Shares being sold by
such holders shall reasonably request and (iii) take such other actions as
may be reasonably necessary or advisable to enable such holders and such
underwriters to consummate the sale or distribution in such jurisdiction
or jurisdictions in which such holders shall have reasonably requested
that the Warrant Shares be sold.
(d) The Company shall pay all expenses incurred in connection with any
registration or other action pursuant to the provisions of this Section 5,
including the attorneys' fees and expenses of the holder(s) of the Warrant
Shares covered by such registration incurred in connection with such
registration or other action, other than underwriting discounts and
applicable transfer taxes relating to the Warrant Shares.
(e) The "Market Price" of Common Stock shall mean the price of a share of
Common Stock on the relevant date, determined on the basis of the last
reported sale price of the Common Stock as reported on the NASDAQ National
Market System ("NASDAQ") or, if there is no such reported sale on the day
in question, on the basis of the average of the closing bid and asked
quotations as so reported or, if the Common Stock is not listed on NASDAQ,
the last reported sale price of the Common Stock on such other national
securities exchange upon which the Common Stock is listed or, if the
Common Stock is not listed on any national securities exchange, on the
basis of the average of the closing bid and asked quotations on the day
in question in the over-the-counter market as reported by the National
Association of Securities Dealers' Automated Quotations System or, if not
so quoted, as reported by National Quotation Bureau, Incorporated or any
similar organization or, if not so reported, by a qualified, independent
third party appraiser jointly selected by the holders of the Warrants and
the Company whose cost shall be borne by the Company.
6. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each selling holder of
Warrant Shares and each person who controls any such selling holder within
the meaning of Section 15 of the Act, and each and all of them, from and
against any and all losses, claims, damages, liabilities or actions, joint
or several, to which any selling holder of Warrant Shares or they or any
of them may become subject under the Act or otherwise and to reimburse the
persons indemnified as above for any legal or other expenses (including
the cost of, and for the personnel time spent in connection with, any
investigation, testimony and preparation) incurred by them in connection
with any litigation or threatened litigation, whether or not resulting in
any liability, but only insofar as such losses, claims, damages,
liabilities or actions arise out of or are based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement pursuant to which Warrant Shares were registered
under the Act (hereinafter called "Registration Statement"), any
preliminary prospectus, the final prospectus or any amendment or
supplement thereto (or in any application or document filed in connection
therewith) or document executed by the Company based upon written
information furnished by or on behalf of the Company filed
B - Page 6
<PAGE>
in any jurisdiction in order to register or qualify the Warrant Shares
under the securities laws thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or (ii) the employment by the
Company of any device, scheme or artifice to defraud, or the engaging by
the Company in any act, practice or course of business which operates or
would operate as a fraud or deceit, or any conspiracy with respect
thereto, in which the Company shall participate, in connection with the
issuance and sale of any of the Warrant Shares; provided, however, that
(i) the indemnity agreement contained in this (a) shall not extend to any
selling holder of Warrant Shares in respect of any such losses, claims,
damages, liabilities or actions arising out of, or based upon, any such
untrue statement or alleged untrue statement, or any such omission or
alleged omission, if such statement or omission was based upon and made in
conformity with information furnished in writing to the Company by a
selling holder of Warrant Shares specifically for use in connection with
the preparation of such Registration Statement, any final prospectus, any
preliminary prospectus or any such amendment or supplement thereto. The
Company agrees to pay any legal and other expenses for which it is liable
under this (a) from time to time within thirty (30) days after its receipt
of a bill therefor.
(b) Each selling holder of Warrant Shares, severally and not jointly, will
indemnify and hold harmless the Company, its directors, its officers who
shall have signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Act to the
same extent as the foregoing indemnity from the Company, but in each
case to the extent, and only to the extent, that any statement in or
omission from or alleged omission from such Registration Statement, any
final prospectus, any preliminary prospectus or any amendment or
supplement thereto was made in reliance upon information furnished in
writing to the Company by such selling holder specifically for use in
connection with the preparation of the Registration Statement, any final
prospectus or the preliminary prospectus or any such amendment or
supplement thereto; provided, however, that the total obligation of any
holder of Warrant Shares to indemnify any and all such indemnified parties
under the provisions of this (b) shall be limited to the product of the
number of Warrant Shares being sold by the selling holder and the excess
of the Market Price of the Common Stock on the date of the sale to the
public of these Warrant Shares over the Per Share Warrant Price. Each
selling holder of Warrant Shares agrees to pay any legal and other
expenses for which it is liable under this (b) from time to time within
thirty (30) days after receipt of a bill therefor.
(c) If any action is brought against a person entitled to indemnification
pursuant to the foregoing 6(a) or (b) (an "indemnified party") in respect
of which indemnity may be sought against a person granting indemnification
(an "indemnifying party") pursuant to such 6(a) or (b), such indemnified
party shall promptly notify such indemnifying party in writing of the
commencement thereof; but the omission to so notify the indemnifying party
of any such action shall not release the indemnifying party from any
liability it may have to such indemnified party in accordance with (a) or
(b) of this Section 6. In case any such action is brought against an
indemnified party and it notifies an indemnifying party of the
commencement thereof, the indemnifying party against which a claim is to
be made will be entitled to participate therein at its own expense and,
to the extent that it may wish, to assume at its own expense the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that (i) if the defendants in any such action include
both the indemnified party and the indemnifying party and the indemnified
party shall have
B - Page 7
<PAGE>
reasonably concluded based upon advice of counsel that there may be legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party,
the indemnified party shall have the right to select separate counsel to
assume such legal defenses and otherwise to participate in the defense of
such action on behalf of such indemnified party or parties and (ii) in any
event, the indemnified party shall be entitled to have counsel chosen by
such indemnified party participate in, but not conduct, the defense at the
expense of the indemnifying party. Upon receipt of notice from the
indemnifying party to such indemnified party of its election to so assume
the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified
party under this Section 6 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
unless (1) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with
provisos (i) or (ii) to the preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses
of more than one separate counsel), (ii) the indemnifying party shall not
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expenses of the
indemnifying party. An indemnifying party shall not be liable for any
settlement of any action or proceeding effected by an indemnified party,
without he indemnifying party's written consent, which consent shall not
be unreasonably withheld.
(d) In order to provide for an equitable contribution in circumstances in
which the indemnity agreement provided for in (a) of this Section 6 is
unavailable to a selling holder of Warrant Shares in accordance with its
terms, the Company and the selling holder of Warrant Shares shall
contribute to the aggregate losses, claims, damages and liabilities of
the nature contemplated by said indemnity agreement incurred by the
Company and the selling holder of Warrant Shares, in such proportions as
is appropriate to reflect the relative benefits received by the Company
and the selling holder of Warrant Shares from any offering of the Warrant
Shares; provided, however, that if such allocation is not permitted by
applicable law or if the indemnified party failed to give the notice
required under (c) of this Section 6, then the relative fault of the
Company and the selling holder of Warrant Shares in connection with the
statements or omissions which resulted in such losses, claims, damages and
liabilities and other relevant equitable considerations will be considered
together with such relative benefits and provided, however, that the
limitations in the proviso in (b) of this Section 6 shall apply in all
cases.
(e) The respective indemnity and contribution agreements by the Company and
the selling holder of Warrant Shares in (a), (b), (c) and (d) of this
Section 6 shall remain operative and in full force and effect regardless
of (i) any investigation made by any selling holder of Warrant Shares or
by or on behalf of any person who controls such selling holder or by the
Company or any controlling person of the Company or any director or any
officer of the Company, (ii) payment for any of the Warrant Shares or
(iii) any termination of this Agreement, and shall survive the delivery of
the Warrant Shares, and any heir or successor of the Company, or of any
selling holder of Warrant Shares, or of any person who controls the
Company or any selling holder of Warrant Shares, as the case may be, shall
be entitled to the benefit of such respective indemnity and contribution
agreements. The respective indemnity and contribution agreements by the
Company and the selling holder of Warrant
B - Page 8
<PAGE>
Shares contained in (a), (b), (c) and (d) of this Section 6 shall be in
addition to any liability which the Company and the selling holder of
Warrant Shares may otherwise have.
7. Limited Transferability.
-----------------------
(a) This Warrant is not transferable or assignable by the Holder except in
whole or in part (i) to JWGenesis or any successor firm or corporation of
JWGenesis, (ii) to any of the principals, shareholders, directors,
officers or employees of JWGenesis or of any such successor firm or (iii)
in the case of an individual, pursuant to such individual's last will and
testament or the laws of descent and distribution and is so transferable
only upon the books of the Company which it shall cause to be maintained
for the purpose. The Company may treat the registered holder of this
Warrant as he or it appears on the Company's books at any time as the
Holder for all purposes. The Company shall permit any holder of a Warrant
or his duly authorized attorney, upon written request during ordinary
business hours, to inspect and copy or make extracts from its books
showing the registered holders of Warrants. All Warrants will be dated
the same date as this Warrant.
(b) By acceptance hereof, the Holder represents and warrants that this Warrant
is being acquired, and all Warrant Shares to be purchased upon the
exercise of this Warrant will be acquired, by the Holder solely for the
account of such Holder and not with a view to the fractionalization and
distribution thereof and will not be sold or transferred except in
accordance with the applicable provisions of the Act and the rules and
regulations of the Securities and Exchange Commission promulgated
thereunder, and the Holder agrees that neither this Warrant nor any of
the Warrant Shares may be sold or transferred except under cover of a
Registration Statement under the Act which is effective and current with
respect to such Warrant Shares or pursuant to an opinion, in form and
substance reasonably acceptable to the Company's counsel, that
registration under the Act is not required in connection with such sale
or transfer. Any Warrant Shares issued upon exercise of this Warrant
shall bear the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 and are restricted
securities within the meaning thereof. Such securities may not be
sold or transferred except pursuant to a registration statement under
such Act which is effective and current with respect to such
securities or pursuant to an opinion of counsel reasonably
satisfactory to the issuer of such securities that such sale or
transfer is exempt from the registration requirements of such Act."
8. Loss, etc. of Warrant.
---------------------
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and of indemnity reasonably
satisfactory to the Company, if lost, stolen or destroyed, and upon surrender
and cancellation of this Warrant, if mutilated, and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder a new Warrant of like date, tenor and denomination.
9. Warrant Holder Not Shareholders.
--------------------------------
Except as otherwise provided herein, this Warrant does not confer upon the
Holder any right to vote or to consent to or receive notice as a shareholder of
the Company, as such in respect of any matters whatsoever, or any other rights
or liabilities as a shareholder, prior to the exercise hereof.
B - Page 9
<PAGE>
10. Communication.
-------------
No notice or other communication under this Warrant shall be effective
unless, but any notice or other communication shall be effective and shall be
deemed to have been given if, the same is in writing and is mailed by
first-class mail, postage prepaid, addressed to:
(a) the Company at Units Four and Five, 7620 NW 25 Street, Miami,
Florida 33122, Attention: Ezra Cohen or such other address as the
Company has designated in writing to the Holder; or
(b) the Holder at 599 Lexington Avenue, 27th Floor, New York, NY 10022,
Attention: Jeffrey H. Lehman or such other address as the Holder has
designated in writing to the Company.
11. Headings.
--------
The headings of this Warrant have been inserted as a matter of convenience
and shall not affect the construction hereof.
12. Applicable Law.
--------------
This Warrant shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to the principles of
conflicts of law thereof.
IN WITNESS WHEREOF, Ezcony Interamerica Inc. has caused this Warrant to be
signed by its Chairman of the Board and its corporate seal to be hereunto
affixed and attested by its Secretary on this ____ day of November 1999.
ATTEST:
By: By: Ezra Cohen, Chairman
--------------------------------- -----------------------------------
B - Page 10
[GRAPHIC OMITTED]
CERTIFIED PUBLIC ACCOUNTANTS
200 South Biscayne Boulevard, Suite 1700 /bullet/ Miami,
Florida 33131-2310 /bullet/ Telephone 305 371 2731 /bullet/
Fax 305 377 8686
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation of our audit of the consolidated financial
statements of Ezcony Interamerica, Inc. and Subsidiaries as of December 31,
1999, which report is included in this Annual Report on Form 10-K 405.
/s/ McClain & Company, L.C.
McClain and Company, L.C.
Miami, Florida
April 26, 2000
Members American Institute of Certified Public Accountants and Florida Institute
of Certified Public Accountants
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,943,683
<SECURITIES> 278,625
<RECEIVABLES> 19,822,242
<ALLOWANCES> (5,165,879)
<INVENTORY> 2,374,284
<CURRENT-ASSETS> 23,559,093
<PP&E> 5,294,783
<DEPRECIATION> (1,148,348)
<TOTAL-ASSETS> 28,173,989
<CURRENT-LIABILITIES> 22,145,336
<BONDS> 0
0
0
<COMMON> 12,954,723
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 28,173,989
<SALES> 62,114,794
<TOTAL-REVENUES> 62,863,143
<CGS> 57,729,674
<TOTAL-COSTS> 57,729,674
<OTHER-EXPENSES> 3,361,310
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,713,400
<INCOME-PRETAX> 508,759
<INCOME-TAX> 0
<INCOME-CONTINUING> 508,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 508,759
<EPS-BASIC> .11
<EPS-DILUTED> .11
</TABLE>
