SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED JUNE 30, 1997 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 (IRS Employer
incorporation or organization) Identification No.)
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) AND (305) 599-1352 (U.S.A.)
- ---------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
At August 1, 1997 there were outstanding:
4,510,000 common shares, no par value
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED) (A)
ASSETS JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
Current assets:
Cash $ 204,121 $ 311,419
Trade accounts receivable, net 23,545,140 18,194,043
Due from directors, officers and employees, net 375,138 119,038
Inventories 11,772,488 9,926,498
Prepaid expenses and other current assets 1,219,863 1,099,069
Restricted cash 7,440,963 6,082,924
------------ ------------
Total current assets 44,557,713 35,732,991
Property, plant and equipment, net 1,716,030 1,276,563
Other assets 644,917 532,298
------------ ------------
Total assets 46,918,660 37,541,852
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 66,047 61,604
Notes and acceptances payable 21,901,551 11,703,686
Accounts payable 15,491,671 14,802,647
Accrued expenses and other liabilities 891,638 677,536
Net current liabilities of discontinued operations 2,134,771 101,857
------------ ------------
Total current liabilities 40,485,678 27,347,330
Long-term debt 425,576 457,902
------------ ------------
Total liabilities 40,911,254 27,805,232
------------ ------------
Shareholders' equity:
Common stock, no par value; 15,000,000 shares authorized;
4,500,000 issued and outstanding 12,941,910 12,941,910
Accumulated deficit (6,934,504) (3,205,290)
------------ ------------
Total shareholders' equity 6,007,406 9,736,620
------------ ------------
Total liabilities and shareholders' equity $ 46,918,660 $ 37,541,852
============ ============
<FN>
(A) Derived from the audited consolidated financial statements as of December
31, 1996.
</FN>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE CONSOLIDATED BALANCE SHEETS.
2
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
JUNE 30, JUNE 30,
1997 1996
------------ ------------
Net sales $ 60,578,394 $ 42,512,037
Cost of sales 56,588,793 39,411,774
------------ ------------
Gross profit 3,989,601 3,100,263
Selling, general and administrative expenses 3,839,666 2,482,114
------------ ------------
Operating income 149,935 618,149
------------ ------------
Other income (expense):
Interest income 195,435 150,431
Interest expense (888,812) (451,944)
Other income 92,952 216,631
------------ ------------
(600,425) (84,882)
------------ ------------
Income (loss) from continuing operations before income taxes (450,490) 533,267
Provision for income taxes -- 98,990
------------ ------------
Income (loss) from continuing operations (450,490) 434,277
------------ ------------
Loss from discontinued operations, net of income taxes of $0 (733,938) (219,615)
Loss on disposal, including provision of $1,375,092 for
operating losses during phase-out period, net of income
taxes of $0 (2,544,786) -
------------ -------------
(3,278,724) (219,615)
------------ -------------
Net income (loss) (3,729,214) 214,662
Accumulated deficit, beginning of period (3,205,290) (4,282,944)
------------ ------------
Accumulated deficit, end of period $ (6,934,504) $ (4,068,282)
============ ============
Income (loss) per share:
Continuing operations $ (0.10) $ 0.10
Discontinued operations (0.73) (0.05)
------------ ------------
$ (0.83) $ 0.05
============ ============
Weighted average number of common shares outstanding 4,500,000 4,500,000
============ ============
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
3
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
JUNE 30, JUNE 30,
1997 1996
------------ ------------
Net sales $ 33,718,184 $ 23,828,843
Cost of sales 31,643,389 22,191,519
------------ ------------
Gross profit 2,074,795 1,637,324
Selling, general and administrative expenses 2,336,604 1,298,445
------------ ------------
Operating income (loss) (261,809) 338,879
------------ ------------
Other income (expense):
Interest income 73,066 75,217
Interest expense (456,172) (244,809)
Other income 50,935 182,783
------------ ------------
(332,171) 13,191
------------ ------------
Income (loss) from continuing operations before income taxes (593,980) 352,070
Provision for income taxes -- 43,113
------------ ------------
Income (loss) from continuing operations (593,980) 308,957
------------ ------------
Loss from discontinued operations, net of income taxes of $0 (525,078) (133,111)
Loss on disposal, including provision of $1,375,092 for
operating losses during phase-out period, net of income
taxes of $0 (2,544,786) -
------------ -------------
(3,069,864) (133,111)
------------ -------------
Net income (loss) (3,663,844) 175,846
Accumulated deficit, beginning of period (3,270,660) (4,244,128)
------------ ------------
Accumulated deficit, end of period $ (6,934,504) $ (4,068,282)
============ ============
Income (loss) per share:
Continuing operations $ (0.13) $ 0.07
Discontinued operations (0.68) (0.03)
------------ ------------
$ (0.81) $ 0.04
============ ============
Weighted average number of common shares outstanding 4,500,000 4,500,000
============ ============
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
4
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
JUNE 30, JUNE 30,
1997 1996
------------ -----------
Cash flows from operating activities:
Net income (loss) $ (3,729,214) $ 214,662
Reconciliation of net income (loss) to net cash used in
Operating activities -
Depreciation and amortization 100,919 92,066
Provision for doubtful accounts 560,904 327,176
Provision for inventory write-down -- 56,996
Gain on sale of property, plant and equipment -- (1,028)
Provision for loss from discontinued operations 2,544,786 --
Changes in operating assets and liabilities:
Increase in trade accounts receivable (5,912,001) (1,856,929)
Increase in due from directors, officers and employees, net (256,100) (34,011)
Increase in inventories (1,845,990) (3,606,694)
Decrease (increase) in prepaid expenses and other current assets (120,794) 79,279
Decrease (increase) in other assets (112,619) 52,409
Increase in accounts payable 689,024 1,788,635
Increase in accrued expenses and other liabilities 214,102 67,238
Decrease in income taxes payable -- (74,895)
Net changes in discontinued operations (511,872) (36,799)
------------ -----------
Net cash used in operating activities (8,378,855) (2,931,895)
------------- ------------
Cash flows from investing activities:
Increase in restricted cash, net (1,358,039) (1,005,675)
Purchase of property, plant and equipment (540,386) (69,271)
Proceeds from sale of property, plant and equipment -- 23,450
Deposit to purchase building -- (72,500)
------------ -----------
Net cash used in investing activities (1,898,425) (1,123,996)
------------ -----------
Cash flows from financing activities:
Borrowings of notes and acceptance payables, net 10,197,865 2,744,208
Repayment of long-term debt (27,883) (26,575)
------------ -----------
Net cash provided by financing activities 10,169,982 2,717,633
------------ -----------
Net decrease in cash (107,298) (1,338,258)
Cash at beginning of period 311,419 2,135,333
------------ -----------
Cash at end of period $ 204,121 $ 797,075
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 1,090,048 $ 614,786
============ ===========
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
5
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(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 financial position of the Company
as of June 30, 1997 and 1996, and the results of its operations for the six and
three months ended June 30, 1997 and 1996. The results of operations and cash
flows for the six months ended June 30, 1997 and the results of operations for
the three months ended June 30, 1997 are not necessarily indicative of the
results of operations or cash flows which may be reported for the remainder of
1997.
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, 1996.
The accounting policies followed for interim financial reporting are the
same as those disclosed in Note 1 of the Notes to Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
(2) DISCONTINUED OPERATIONS
On August 5, 1997, the Company's Board of Directors approved a plan to sell or
liquidate its non-core business subsidiary, New World Interactive, Inc. ("New
World Interactive") as part of an overall restructuring program designed to
focus the Company's resources on its core business, the distribution of consumer
electronics. New World Interactive is engaged in the production and distribution
of Spanish and Portuguese CD-ROM software. Significant needed capital
requirements and sales not materialising contributed to the decision to
discontinue the subsidiary. The
Company anticipates that the business will be sold or liquidated by December 31,
1997. Accordingly, New World Interactive is reported as a discontinued operation
in the accompanying condensed consolidated financial statements. Net liabilities
of the discontinued operation at June 30, 1997, consist primarily of accounts
payables, accrued expenses and estimated loss on disposal which is offset by
accounts receivable and inventory. The estimated loss on the disposal of New
World Interactive is $2,544,786, consisting of an estimated loss on disposal of
the business of $1,169,694 and a provision of $1,375,092 for anticipated
operating losses until disposal.
Discontinued operations include management's best estimates of the amounts
expected to be realized on the sale or liquidation of New World Interactive's
assets. Significant contractual obligations exist that must be negotiated due to
the nature and conduct of the business and there can be no assurances as to the
outcome of these negotiations. While the estimates are based on current
negotiations, the amounts the Company will ultimately realize could differ
materially in the near term from amounts assumed in arriving at the loss on
disposal of the discontinued operations.
Sales for the six months ended June 30, 1997 and 1996 were $843,690 and
$1,744,050, respectively, and for the three months ended June 30, 1997 were
$331,125 and $926,263, respectively.
(3) NET INCOME (LOSS) PER COMMON SHARE
Earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of common and dilutive common equivalent shares
outstanding for each period. Common stock equivalents include the dilutive
effect of all outstanding stock options and warrants using the treasury stock
method. The outstanding warrants and options to purchase common share
were anti-dilutive or not materially dilutive during the periods presented.
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share", requires the disclosure of "basic" and "diluted" earnings per share
for periods ending after December 15, 1997. The computation under SFAS No. 128
differs from the computation of primary and fully diluted earnings per share
under Accounting Principles Board ("APB") Opinion No. 15 primarily in the manner
which potential common stock (that is, securities such as options, warrants,
convertible securities, or contingent stock agreements) is treated. Basic
earnings per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding for the period. In the computation
of diluted earnings per share, the weighted average number of common shares
outstanding is adjusted for the effect of all dilutive
potential common stock.
Basic and diluted earnings per share computed in accordance with SFAS No.
128 for the six and three months ended June 30, 1997 and 1996 does not differ
from the primary earnings per share reported in the accompanying condensed
consolidated statements of operations and accumulated deficit.
(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.
(5) SUBSEQUENT EVENT
On April 25, 1997, the Company awarded to an outside consultant 250,000
stock warrants at an exercise price of $2.00 in connection with the execution of
a consulting agreement. Subsequent to June 30, 1997, the 250,000 stock warrants
were canceled in connection with the termination of the consulting agreement.
(6) NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130. "Reporting
Comprehensive Income". SFAS 130 establishes standards for reporting and display
of comprehensive income. The purpose of reporting comprehensive income is to
present a measure of all changes in equity that result from recognized
transactions and other economic events of the period other than transactions
with owners in their capacity as owners. SFAS 130 requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet. SFAS 130 is effective for the fiscal years
beginning after December 15, 1997, with earlier application permitted. The
Company has not yet determined the impact of the implementation of SFAS 130.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information". SFAS 131 specifies revised guidelines
for determining an entity's operating segments and the type and level of
financial information to be disclosed. Once operating segments have been
determined, SFAS 131 provides for a two-tier test for determining those
operating segments that would need to be disclosed for external reporting
purposes. In addition to providing the required disclosures for reportable
segments, SFAS 131 also requires disclosure of certain "second level"
information by geographic area and for products/services. SFAS 131 also makes a
number of changes to existing disclosure requirements. SFAS 131 is effective for
fiscal years beginning after December 15, 1997, with earlier application
encouraged. The Company has not yet determined the impact of the implementation
of SFAS 131.
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, 1996 and the Condensed Consolidated Financial
Statements and the related Notes to Condensed Consolidated Financial Statements
included in Item 1 of this quarterly report on Form 10-Q.
DISCONTINUED OPERATIONS
On August 5, 1997, the Company's Board of Directors approved a plan to sell
or liquidate its non-core business subsidiary, New World Interactive, as part of
an overall restructuring program designed to focus the Company's resources on
its core business, the distribution of consumer electronics. New World
Interactive is engaged in the production and distribution of Spanish and
Portuguese CD-ROM software. Significant needed capital requirements and sales
not materialising contributed to the decision to discontinue the subsidiary. The
financial information given below for the six months and three months ended June
30, 1997 and 1996 refer to the continuing operations of the Company and exclude
the operations of New World Interactive.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996.
NET SALES
Net sales increased 42% to $60.6 million for the six months ended June 30,
1997 from $42.5 million for the same period in 1996. The Company is continuing
its efforts to increase sales in its various markets by expanding its product
lines to include new brand names and by entering into new markets.
Decreased sales to Turkey ($1.2 million) and Ecuador ($1.1 million) were
more than offset by increased sales to Colombia ($7.7 million), United States of
America ($5.5 million), Paraguay ($1.7 million), Argentina ($1.3 million) and
increased sales in various other markets.
GROSS PROFIT
Gross profit increased 29% to $4.0 million for the six months ended June
30, 1997 from $3.1 million for the same period in 1996.
The Company's gross profit margin decreased to 6.6% in the six months
ended June 30, 1997 from 7.3% in the comparable 1996 period due to lower average
selling prices resulting from increased competition and the new product lines
which carry a lower margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses increased to $3.8 million
for the six months ended June 30, 1997 versus $2.5 million for the same period
in 1996.
Selling, general, and administrative expenses were in large part affected
by charges incurred by the Company within this period as follows: (i) reserves
for disputed amounts arising in the normal course of business and other losses
totaling approximately $273,000, (ii) certain charges aggregating approximately
$228,000 consisting primarily of (a) costs associated with hiring of sales and
other personnel (b) opening a new sales office, (c) severance costs of a key
executive and (d) consultant fees for assisting in implementing a strategic plan
for the Company, and (iii) the result of additional provisions for doubtful
accounts aggregating approximately $306,000 from two former customers.
INTEREST
Interest income increased from $150,000 for the six months ended June 30,
1996 to $195,000 for the same period in 1997 due to higher average daily
balances of restricted cash.
Interest expense increased to $889,000 for the six months ended June 30,
1997 from $452,000 for the same period in 1996, as a result of additional
borrowings.
OTHER INCOME
Other income decreased to $93,000 for the six months ended June 30, 1997
from $217,000 for the same period in 1996. This
decrease is primarily attributable to the $108,000 settlement of a suit filed
against the Company's insurance carrier that was recorded in the 1996 period.
INCOME (LOSS) FROM CONTINUING OPERATIONS
Loss from continuing operations was $450,000 ($.10 per share) in the six
months ended June 30, 1997 compared to income from continuing operations of
$434,000 ($.10 per share) in the six months ended June 30, 1996. The change was
primarily due to the increase in selling, general and administrative expenses.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 1996.
Net sales increased 42% to $33.7 million for the three months ended June
30, 1997 from $23.8 million for the same period in 1996. The Company is
continuing its efforts to increase sales in its various markets by expanding its
product lines to include new brand names and by entering into new markets.
Decreased sales to Ecuador ($1.5 million), Mexico ($1.4 million) and
Turkey ($450,000) were more than offset by increased sales to Colombia ($5.1
million), United States of America ($4.6 million), Argentina ($900,000),
Paraguay ($769,000), Peru ($719,000) and increased sales in various other
markets.
GROSS PROFIT
Gross profit increased 27% to $2.1 million for the three months ended June
30, 1997 from $1.6 million for the same period in 1996.
The Company's gross profit margin decreased to 6.2% in the three
month period ended June 30, 1997 compared to 6.9% in the comparable 1996 period
due to lower average selling prices resulting from increased competition and the
new product lines which carry a lower margin.
SELLING, GENERAL, ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses increased to $2.3 million
for the three months ended June 30, 1997 compared to $1.3 million for the same
period in 1996.
Selling, general, and administrative expenses were in large
part affected by charges incurred by the Company within this period as follows:
(i) reserves for disputed amounts arising in the normal course
of business and other losses totaling approximately $273,000, (ii) certain
charges aggregating approximately $110,000 consisting primarily of (a) costs
associated with hiring of sales and other personnel (b) opening a new sales
office, (c) severance costs of a key executive and (d) consultant fees for
assisting in implementing a strategic plan for the Company, and (iii) the result
of additional provisions for doubtful accounts aggregating approximately
$306,000 from two former customers.
INTEREST
Interest income remained relatively stable at $73,000 for the three months
ended June 30, 1997 compared to $75,000 for the same period in 1996.
Interest expense increased to $456,000 for the three months ended June 30,
1997 compared to $245,000 for the same period in 1996 as a result of additional
borrowings.
OTHER INCOME
Other income decreased to $51,000 for the three months ended June 30, 1997
compared to $183,000 for the three months ended June 30, 1996. This decrease is
primarily attributable to the $108,000 settlement of a suit filed against the
Company's insurance carrier that was recorded in the 1996 period.
INCOME (LOSS) FROM CONTINUING OPERATIONS
Loss from continuing operations was $594,000 ($0.13 per share) in the
three months ended June 30, 1997 compared to income from continuing operations
of $309,000 ($0.07 per share) in the three months ended June 30, 1996. The
change was primarily due to the increase in selling, general and administrative
expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through short term
bank borrowings, trade credit and, to a lesser extent, internally generated
funds.
The Company used $8.4 million in cash for operating activities in the six
months ended June 30, 1997. This utilization was primarily due to $5.9 million
in increased accounts receivable and $1.8 million for increased inventory which
was offset in part by $689,000 in increased accounts payable.
Cash used in investing activities was $1.9 million in the six months ended
June 30, 1997 primarily attributable to an increase in restricted cash balances
required to secure additional borrowings of $1.4 million and capital
expenditures approximating $500,000 made in conjunction with the relocation of
the Company's warehouse and offices to a new facility located in Colon, Panama
which is expected to be completed by September 1997.
Cash provided by financing activities was $10.2 million in the six months
ended June 30,1997 principally due to obtaining additional bank borrowings.
Management believes that the Company's ability to repay its indebtedness
must be achieved primarily through funds generated from its operations and by
consolidating its current credit facilities with one or two primary lenders. As
the Company expanded sales in existing markets such sales were primarily made on
a credit basis as compared to cash basis. The number of days sales in accounts
receivable was 70 days at June 30, 1997 compared to 63.6 days at June 30, 1996
which has also adversely affected liquidity.
The Company has since December 31, 1996 increased its bank credit lines
from $21.3 million to $37.4 million in an effort to increase sales volumes as
access to additional products is limited. The increase in lines of credit for
the Company's operations will also enable the Company to better balance its cash
needs against collection of receivables. The Company believes that current
available credit facilities are sufficient to meet its short-term sales
objectives, however, to support continued long-term sales growth it must
increase its borrowing capacity.
During the remainder of 1997, the Company intends to consolidate its
borrowings in an effort to obtain lower interest rates and reduce inventory
carrying costs factoring its trade accounts receivables which would also limit
the Company's exposures to credit, political and transfer risk. There can be no
assurances that the Company will be able to finance its trade accounts
receivables.
The Company continues to have a good relationship with its two principal
suppliers, Sony and Pioneer. At June 30, 1997, the Company's credit facility
with Sony was $11 million and $8 million with Pioneer compared to $8
million for Sony and $4.5 million for Pioneer at December 31, 1996 and $6
million for Sony and $4.5 million for Pioneer at June 30, 1996. From time to
time Sony and Pioneer have allowed the Company to increase its credit line above
its stated credit.
As of June 30, 1997, the Company had outstanding on its
credit facilities with its major suppliers approximately $12.0 million with no
past due balances. Management believes, that through collections from normal
operations and utilization of bank lines, the Company will maintain all accounts
current and be able to support ongoing operations. Historically, the Company in
part utilizes bank lines to extend the number of days credit granted by
suppliers.
At June 30, 1997, the Company had with eleven banks an aggregate of $37.4
million in bank facilities of which $33.1 million was utilized. From time to
time, the Company is overdue with various of its bank lenders for periods of a
few days for amounts the Company does not consider to be significant in light of
the size of its borrowings. No restructured borrowings currently exist. All of
the Company's lines of credit and credit facilities from its various lenders are
callable on demand as construed under the laws of Panama and the United States,
as applicable.
FORWARD LOOKING STATEMENTS
From time to time, the Company publishes forward-looking statements,
including certain statements in the Management's Discussion and Analysis 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 ability of the Company to sell or
otherwise liquidate the operations of its New World Interactive subsidiary; (ii)
expansion of the Company's "core" business into new geographic markets and
within its current markets; (iii) 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; (iv) the expansion of
available credit through the successful consolidation of the Company's
borrowings; (v) the lack of adverse economic development in those foreign
countries in which the Company conducts a material amount of business, including
Colombia, Paraguay and Argentina.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 21, 1997, the Company held its annual shareholders meeting. Each
of the seven directors seeking re-election and a new Director were elected as
follows:
NAME FOR AGAINST
- ---- --- -------
Ezra Cohen 2,861,606 -0-
Moises Ezra Cohen 2,861,606 -0-
David Djemal 2,861,606 -0-
Michael G. Dowling 2,861,606 -0-
Ezra Homsany Gateno 2,861,606 -0-
Daniel Homsany 2,861,606 -0-
Leonard J. Sokolow 2,861,606 -0-
Enrique P. Lacs (New Director) 1,823,110 -0-
No director had more than 7,630 votes withheld for his election. There were no
abstentions or broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 10.1 International License, Distribution and Localization
Agreement dated February 28, 1997 by and between Accolade,
Inc. and New World Interactive, Inc.
10.2 Credit Financing Agreement with Hamilton Bancorp Inc. dated
May 7, 1997
10.3 Consulting Agreement with Ocean Reef Management, Inc. dated
April 25, 1997
10.4 Cancellation of Consulting Agreement with Ocean Reef
Management, Inc. dated July 7, 1997
10.5 Mutual General Release between the company and Ocean Reef
Management, Inc., dated August 13, 1997
10.6 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.
10.7 Termination Agreement dated April 24, 1997 between Ezcony
Interamerica Inc. and its subsidiaries and John A. Galea
10.8 Termination Agreement dated June 18, 1997 and
Confidentiality and Non-Competition Agreement by and
between Ezcony Interamerica Inc. and subsidiaries and
Ezra Homsany
27 Financial Data Schedule
99 Review Report of Coopers & Lybrand L.L.P. on Second Quarter
Financial Statements
(b) No Form 8-K was filed during the quarter ended June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EZCONY INTERAMERICA INC.
Date: August 14, 1997 By: /s/ EZRA COHEN
-------------------------
Ezra Cohen, President and
Chief Executive Officer
Date: August 14, 1997 By: /s/ ANA M. MENENDEZ
-------------------------
Ana M. Menendez,
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
10.1 International License, Distribution and Localization Agreement
dated February 28, 1997 by and between Accolade, Inc. and
New World Interactive, Inc.
10.2 Credit Financing Agreement with Hamilton Bancorp Inc. dated
May 7, 1997
10.3 Consulting Agreement with Ocean Reef Management, Inc. dated
April 25, 1997
10.4 Cancellation of Consulting Agreement with Ocean Reef Management, Inc.
dated July 7, 1997
10.5 Mutual General Release between the company and Ocean Reef Management,
Inc., dated August 13, 1997
10.6 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.
10.7 Termination Agreement dated April 24, 1997 between Ezcony Interamerica
Inc. and its subsidiaries and John A. Galea
10.8 Termination Agreement dated June 18, 1997 and Confidentiality and
Non-Competition Agreement by and between Ezcony Interamerica Inc. and
subsidiaries and Ezra Homsany
27 Financial Data Schedule (For SEC Use Only)
99 Review Report of Coopers & Lybrand L.L.P. on Second Quarter
Financial Statements