SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 2000 Commission File No. 0-20406
EZCONY INTERAMERICA, INC.
-------------------------
(Exact Name of Registrant as Specified in Its Charter)
British Virgin Islands Not Applicable
- ---------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Craigmuir Chambers, P.O. Box 71,
Road Town, Tortola British Virgin Islands
- ---------------------------------------- -----------------------------------
(Address of Principal Executive Offices) (Country)
Registrant's telephone number, including area code:
(507) 441-6566 (Panama)
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES __X__ NO _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
At Oct 1, 2000 there were outstanding:
4,188,780 common shares, no par value
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q/A
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
September 30, 2000 and December 31, 1999
Condensed Consolidated Statements of Operations and Accumulated 4
Deficit Three Months Ended September 30, 2000 and 1999
Condensed Consolidated Statement of Comprehensive Income 5
Three Months Ended September 30, 2000 and 1999
Condensed Consolidated Statement of Comprehensive Income 5
Nine Months Ended September 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999 6
Condensed Consolidated Statements of Operations and Accumulated
Deficit for Nine Months Ended September 30, 2000 and 1999 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 5. Other Information
11
Item 6. Exhibits and Reports on Form 8-K
12
Signatures 12
2
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS September 30, December 31,
2000 1999
------------ ------------
Current assets:
Cash and cash equivalents $ 45,073 $ 660,644
Trade accounts receivable, net 16,856,979 14,656,363
Due from directors, officers and employees, net 498,230 369,015
Inventories 2,746,144 2,374,284
Marketable Securities 611,976 0
Prepaid expenses and other current assets 740,828 1,215,748
Restricted cash 2,956,905 4,283,039
------------ ------------
Total current assets $ 24,456,135 $ 23,559,093
Property and equipment, net 4,010,995 4,146,435
Other assets 216,765 468,461
------------ ------------
Total assets $ 28,683,895 $ 28,173,989
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 451,365 $ 612,399
Notes and acceptances payable 7,790,723 13,454,687
Accounts payable 12,878,628 7,986,150
Accrued expenses and other current liabilities 225,846 92,100
------------ ------------
Total current liabilities 21,346,562 22,145,336
Long-term debt 3,744,907 2,255,692
------------ ------------
Total liabilities $ 25,091,469 $ 24,401,028
------------ ------------
Shareholders' equity:
Common stock, no par value; 15,000,000 share authorized; 12,954,723 12,954,723
4,510,000 shares and 4,188,780 shares issued and
4,510,000 shares outstanding at September 30, 2000 and
December 31, 1999
Accumulated deficit (8,907,899) (9,181,762)
Less: Treasury Stock at cost (454,398) 0
Accumulated Other Comprehensive Income:
Unrealized gains on Securities available for sales 0 0
------------ ------------
Total shareholders' equity 3,592,426 3,772,961
------------ ------------
Total liabilities and shareholders' equity $ 28,683,895 $ 28,173,989
============ ============
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
3
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
Three Months Ended
September 30,
------------------------------
2000 1999
------------ ------------
Net sales $ 16,372,828 $ 15,756,239
Cost of sales 14,894,778 14,584,859
------------ ------------
Gross profit 1,478,050 1,171,380
Selling, general and administrative expenses 969,942 871,551
------------ ------------
Operating income 508,108 299,829
------------ ------------
Other income (expenses):
Interest income 65,389 86,576
Interest expense (460,926) (421,726)
Other (94,924) 143,731
------------ ------------
Total Other Income (Expenses) (490,461) (191,419)
------------ ------------
Net Income 17,647 108,410
------------ ------------
Accumulated deficit, beginning of period (8,925,546) (9,489,894)
Accumulated deficit, end of period (8,907,899) (9,381,484)
============ ============
Income per common share -
Net Income $ 0.004 $ 0.02
============ ============
Weighted average number of common shares
outstanding - basic 4,188,780 4,510,000
============ ============
Income per share - dilutive:
Net Income $ 0.004 $ 0.002
============ ============
Weighted average number of common shares
outstanding - dilutive 4,364,858 4,510,000
============ ============
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
4
EZCONY INTERAMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30
2000 1999
-------- --------
Net Income $ 17,647 $108,410
Other Comprehensive Income:
Unrealized holding gains arising during the period 0 0
Less: reclassification adjustments to
gains included in net income 0 0
-------- --------
Total Comprehensive Income $ 17,647 $108,410
======== ========
NINE MONTHS ENDED SEPTEMBER 30
2000 1999
-------- --------
Net Income $273,863 $309,037
Other Comprehensive Income:
Unrealized holding gains arising during the period
Less: reclassification adjustments for gains
included in net income 0 0
-------- --------
Total Comprehensive Income $273,863 $309,037
======== ========
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
5
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September,
----------------------------
2000 1999
----------- -----------
Cash flows from operating activities:
Net profit $ 273,863 $ 309,037
Reconciliation of net loss to net cash used in operating
activities-
Depreciation and amortization 162,971 160,892
Provision for doubtful accounts 496,289 489,283
(Gain) on Sale of Equipment 0 (10,750)
Changes in operating assets and liabilities:
(Increase) in trade accounts receivable (2,696,905) (352,189)
(Increase) Decrease in inventories (371,860) 557,024
Decrease in Trading securities 218,705 0
Decrease (Increase) in prepaid expenses and other assets 474,920 (591,051)
(Increase ) Decrease in other assets (287,845) 15,277
Increase (decrease) in accounts payable 4,892,478 4,613,650
Increase (decrease) in accrued expenses and other
current liabilities 133,746 (544,007)
----------- -----------
Net cash provided by operating activities 3,296,362 4,647,166
----------- -----------
Cash flows from investing activities:
Decrease in restricted cash, net 1,326,134 331,281
Purchase of securities available for sale (291,140) 0
Purchases of property and equipment (27,531) (76,304)
Proceeds from sale of equipment 0 25,780
Increase in due from directors, officers and employees, Net (129,215) (129,970)
----------- -----------
Net cash provided by investing activities 878,248 150,787
----------- -----------
Cash flows from financing activities:
(Repayment of) proceeds from notes and acceptances payable (5,663,964) (5,442,782)
Repayment of long-term debt 1,328,181 (200,669)
Purchase of Treasury Stock (454,398) 0
----------- -----------
Net cash used in financing activities (4,790,181) (5,643,451)
----------- -----------
Net decrease in cash and cash equivalents (615,571) (845,498)
Cash and cash equivalents at beginning of period 660,644 1,253,073
----------- -----------
Cash and cash equivalents at end of period $ 45,073 $ 407,575
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 460,927 $ 1,292,140
=========== ===========
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
6
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
NINE MONTHS ENDED SEPTEMBER 30
2000 1999
------------ ------------
Net Sales $ 49,489,261 $ 48,866,954
Cost of Sales 45,355,354 44,989,358
------------ ------------
Gross Profit $ 4,133,907 $ 3,877,596
Selling, General and Administrative
Expenses 2,687,692 2,744,537
------------ ------------
Operating Income 1,446,215 1,133,059
------------ ------------
Other Income (Expenses)
Interest Income 253,576 250,840
Interest (Expense) (1,269,295) (1,292,140)
Other (156,633) 217,278
------------ ------------
Total Other Income (Expenses) $ (1,172,352) $ (824,022)
------------ ------------
Net Income $ 273,863 $ 309,037
Accumulated deficit,
beginning of period (9,181,762) (9,690,521)
------------ ------------
Accumulated deficit,
end of period $ (8,907,899) $ (9,381,484)
============ ============
Income per common share - basic:
Net Income $ 0.06 $ 0.07
============ ============
Weighted average number of
common share outstanding - basic 4,295,853 4,510,000
------------ ------------
Income per share - dilutive:
Net Income $ 0.06 $ 0.07
============ ============
Weighted average numer of
common shares outstanding - dilutive 4,443,380 4,510,000
============ ============
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
7
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
In management's opinion, the accompanying unaudited condensed consolidated
financial statements of Ezcony Interamerica Inc. and subsidiaries (the
"Company") contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the Company's financial position and
the results of its operations. The results of operations or cash flows for the
nine months ended September 30, 2000 are not necessarily indicative of the
results of operations or cash flows which may be reported for the remainder of
2000.
The accompanying unaudited interim condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for the reporting on Form 10-Q. Pursuant to such rules and
regulations, certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The condensed financial
statements should be read in conjunction with the Consolidated Financial
Statements and the Notes to Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
The accounting policies followed for interim financial reporting are the same as
those disclosed in Note 2 of the Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
(2) EARNING PER SHARE - COMMON STOCK
Basic earning or loss per common share is computed by dividing income or loss
available to common shareholders by the weighted average number of common shares
outstanding. Diluted earnings or loss per common share included the diluting
effect of stock options and warrants. For the three and nine month periods ended
September 30, 2000 and 1999, options and warrants totaling 695,030 and 725,030
were not included in the computation because their exercise price was greater
than the average market price of the shares.
(3) EXAMINATION OF NEW OR DIFFERENT TYPES OF BUSINESS
The Company is exploring opportunities in additional and different businesses
including technology and Internet related business. Management is of the opinion
that the shareholders might be better served if the Company were able to
successfully transition into a business with greater growth potential than its
current business. Management believes that there will be continued pressure on
margins and the ability to achieve profitable operations in its current line of
business. Management has sought the guidance from investment bankers and has
involved counsel in its review of potential opportunities. The Company's efforts
in these new ventures are in the planning stages.
(4) INCOME TAXES
Effective January 1, 1997, all income derived from export operations of
companies operating in the Colon Free Zone are tax exempt. Therefore, the
Company did not record any provision for income taxes for its operations in
Panama.
(5) SUBSEQUENT EVENT
The Company announced on October 24, 2000 that its proposed transaction with
G.L. Ware (USA) will not proceed. The Company and G.L. Ware (Israel), the parent
of G.L. Ware (USA), have agreed that due to changes in market conditions and
other factors affecting G.L. Ware (USA), the transaction as contemplated by the
parties, whereby G.L. Ware (USA) would acquire control of the Company, will not
proceed as planned. The senior management of the Company and its principal
shareholders are continuing discussions with G.L. Ware (USA) regarding potential
transactions that could result in a change in control of the Company.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein should be read in conjunction with the Consolidated
Financial Statements, the related Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net Sales
Net sales increased 4.0% to $16.4 million for the three months ended September
30, 2000 from $15.7 million for the same period in 1999. The increase is
primarily attributable to stronger sales in the Company's existing markets and
aggressive sales management. The Company has also reduced its product lines to
eliminate slow selling brand names.
Gross Profit
Gross profit increased 26% from $1.2 for the three months ended September 30,
1999 to $1.5 million for the same period in 2000. The Company's gross profit
margin increased to 9.0% in the three month period ended September 30, 2000
compared to 7.4% in the comparable 1999 period. The increase is primarily
attributable to selective sales of merchandise with sales orders restricted to
7.5% minimum margins, the effect of increased clothing sales which have higher
margins, the rejection of orders coming at lower margins and highly competitive
sales price market.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $969,942 for the three
months ended September 30, 2000 compared to $871,551 for the same period in
1999.
The increase in selling, general and administrative expenses is primarily
attributable to additional traveling and commission expenses related to the new
clothing business activity.
Interest
Interest income decreased to $65,389 for the three months ended September 30,
2000 compared to $86,576 for the same period in 1999 due to lower average daily
balances of restricted cash in time deposits.
Interest expense increased to $460,926 for the three months ended September 30,
2000 compared to $421,726 for the same period in 1999 as a result of end of
month overdrafts.
Profit from Continuing Operations
Profit from continuing operations was $17,647 ($0.004 per share) for the three
months ended September 30, 2000 compared to profit from continuing operations of
$108,410 ($0.02 per share) for the three months ended September 30, 1999. The
change was primarily due to an increase of bank interest and operating expenses.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
NET SALES
Total net sales amounted to $49.5 million for the nine months ended September
30, 2000, compared to $48.9 million for the same period in 1999. The increase is
primarily attributable to the increased sales in the Company's existing markets.
9
GROSS PROFIT
Gross profit increased to $4.1 million for the nine months ended September 30,
2000, compared to $3.8 million for the same period in 1999. The Company's gross
profit margin increased to 8.4% in the nine months period ended September 30,
2000 compared to 7.9% in the comparable 1999 period. This is primarily
attributable to the highly competitive sales price market, accepting orders
restricted to 7.5% minimum margins and the effect of increased clothing sales
which have higher margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative expenses decreased 2% to $2.69 million for
the nine months ended September 30, 2000, compared to $2.75 million for the same
period in 1999. This decrease is primarily attributable to the continuity in the
severe austerity program to reduce overhead.
INTEREST
Interest Income increased to $253,576 for the nine months ended September 30,
2000, compared to $250,840 for the same period in 1999 due to additional
interest being charged on overdue accounts receivable.
Interest expense decreased to $1,269,295 for the nine months ended September 30,
2000 compared to $1,292,140 for the same period in 1999 as a result of a
programmed reduction of bank credit facilities to conform to the reduced sales
volume.
PROFIT FROM CONTINUING OPERATIONS
Profit from continuing operations was $273,863 ( $0.06 per share) for the nine
months ended September 30, 2000, compared to $309,037 (0.07 per share) for the
nine months ended September 30, 1999. The change was primarily due to the
decrease of other expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically, and will continue to, finance its operations
through short-term bank borrowings, trade credit and, to a lesser extent,
internally generated funds.
The Company generated $3,296,362 in cash from operating activities in the nine
months ended September 30, 2000. This was primarily due to a $2.7 million
increase in trade accounts receivable and a $4.9 million increase in accounts
payable.
Cash provided in investing activities was $872,248 for the nine months ended
September 30, 2000 which is primarily attributable to a decrease in restricted
cash balances of $1.3 million.
Cash used by financing activities was $4.8 million in the nine months ended
September 30, 2000 principally due to repayment of bank notes and acceptances
payable of $5.7million, and repayment of long-term debt of $1.3 million and
purchase of Treasury Stock of $454,398.
Management believes that the Company's ability to repay its indebtedness must be
achieved primarily through funds generated from its operations. As the Company
expanded sales in existing markets such sales were primarily made on a credit
basis as compared to a cash basis. Future political and economic changes in the
Latin American countries in which the Company sells, such as the imposition or
lifting of exchange controls, may affect the Company's ability to collect its
accounts receivable.
From time to time, the Company experiences temporary liquidity problems that are
typically related to the Company's extension of credit to its customers. The
Company has taken measures to decrease the number of days to collect on its
accounts receivable by not shipping merchandise to certain customers that have
significant past due balances and increasing the collection efforts of the
Company's credit and collection department and sales force.
At September 30, 2000, the Company had available with five banks an aggregate of
$19 million in bank facilities of which $18.9 million was utilized. From time to
time, the Company is overdue with various bank lenders for periods of a few days
for amounts the Company does not consider to be significant in light of the size
of its borrowing. All of the Company's lines of credit and credit facilities
from its various lenders are "on demand".
10
The Company continues to have good relationships with its principal suppliers,
Sony and Pioneer. At September 30, 2000 , the Company's credit facility with
Sony was $3.4 million of which $2.3 million was due and collateralized by $2.4
million in stand-by letters of credit. The Company's credit facility with
Pioneer was $1.5 million at September 30, 2000 of which 1.8 million was due and
partially collateralized by $800,000 million in stand-by letters of credit.
Overall credit facilities from suppliers was $10 million at September 30, 2000,
of which 10.8 were used at the end of the period.
For a variety of political and economic reasons, the import of nonessential
items such as consumer electronics has been restricted or prohibited from time
to time by many Latin American countries through exchange controls, import
quotas and restrictions, tariffs and other means. Accordingly, changes in the
trade policies of Latin American countries affect both the market for the
Company's products as well as the Company's ability to sell its products. The
ability of the Company to sustain continued sales growth is greatly dependent on
the continuing favorable economic and political climate of the Latin American
countries that it is currently operating in, the Company's ability to maintain
or increase the profit margins on its sales within the competitive market that
it operates in, availability of payment methods to its customers, and, to a
lesser extent, product availability.
COUNTRY RISK
The Company does a substantial amount of business in Latin America. There are
significant "country risks" which arise in connection with this business,
including those associated with the receipt of payment for goods sold. Colombia,
which represents a significant market for the Company, is a country for which
the United States Government has taken a particular interest in monitoring the
flow of funds. Although the Company believes that payments received currently
comply with all applicable United States Government regulations and laws, there
can be no assurance that forms of payment will not be challenged by the United
States Government, or that business done in Colombia by the Company will not be
materially affected by this government scrutiny.
SEASONALITY
The Company's operations have historically been seasonal, with generally higher
sales in the third and fourth fiscal quarters. Typically, higher third and
fourth quarter sales result from increased sales in anticipation of the
Christmas holiday season. In addition, sales may also vary by fiscal quarter as
a result of the availability of merchandise for sale. Therefore, the results of
any interim period are not necessarily indicative of the results that might be
expected during a full fiscal year.
FORWARD LOOKING STATEMENTS
From time to time, the Company publishes "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, including
certain statements in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations," of this Form 10-Q, which relate to such
matters as anticipated financial performance, business prospects, technological
developments, new products and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. Such factors
include, among others: (i) the successful retrenchment of the Company's
operations in Panama; (ii) the general availability of credit from its principal
suppliers and banks to the Company to finance its inventory, specifically, the
continued cooperation of its major suppliers and its banks to provide credit and
their forbearance from time to time as well as the successful consolidation of
the Company's borrowings; (iii) the discontinuation of certain non-profit
aspects of its business, e.g. certain products and customers; (iv) the Company's
ability to maintain or increase the profit margins on its sales within the
highly competitive markets in which it operates; (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.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company announced on October 24, 2000 that its proposed transaction with
G.L. Ware (USA) will not proceed. The Company and G.L. Ware (Israel), the parent
of G.L. Ware (USA), have agreed that due to changes in market
11
conditions and other factors affecting G.L. Ware (USA), the transaction as
contemplated by the parties, whereby G.L. Ware (USA) would acquire control of
the Company, will not proceed as planned. The senior management of the Company
and its principal shareholders are continuing discussions with G.L. Ware (USA)
regarding potential transactions that could result in a change in control of the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EZCONY INTERAMERICA INC.
Date: November 15, 2000 BY: /s/ EZRA COHEN
--------------------------
Ezra Cohen, President and
Chief Executive Officer
Date: November 15, 2000 BY: /s/ CARLOS N. GALVEZ
----------------------
Carlos N. Galvez
Chief Financial Officer
12
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
EX 27 FINANCIAL DATA SCHEDULE