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 SEPTEMBER 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 (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) 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 November 1, 1997 there were outstanding:
4,510,000 common shares, no par value
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1997 and December 31, 1996..............................................................3
Condensed Consolidated Statements of Operations and Accumulated Deficit
Three Months Ended September 30, 1997 and 1996........................................................4
Condensed Consolidated Statements of Operations and Accumulated Deficit
Nine Months Ended September 30, 1997 and 1996.........................................................5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996.........................................................6
Notes to Condensed Consolidated Financial Statements....................................................7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ...............9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ....................................................................14
Signatures...................................................................................................15
2
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED) (A)
ASSETS SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------- -----------------
Current assets:
Cash $ 2,172,591 $ 311,419
Trade accounts receivable, net 31,249,372 18,194,043
Due from directors, officers and employees, net 491,211 119,038
Inventories 10,920,038 9,926,498
Prepaid expenses and other current assets 2,147,153 1,099,069
Restricted cash 8,584,319 6,082,924
----------------- ----------------
Total current assets 55,564,684 35,732,991
Property, plant and equipment, net 1,993,389 1,276,563
Other assets 654,300 532,298
----------------- ----------------
Total assets $ 58,212,373 $ 37,541,852
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 68,049 $ 61,604
Notes and acceptances payable 24,652,373 11,703,686
Accounts payable 23,921,088 14,802,647
Accrued expenses and other liabilities 1,198,808 677,536
Net current liabilities of discounted operations 1,998,836 101,857
----------------- ----------------
Total current liabilities 51,839,154 27,347,330
Long-term debt 397,868 457,902
----------------- ----------------
Total liabilities 52,237,022 27,805,232
----------------- ----------------
Shareholders' equity:
Common stock, no par value; 15,000,000 shares authorized;
issued and outstanding 4,510,000 shares in 1997 and
4,500,000 shares in 1996 12,954,723 12,941,910
Accumulated deficit (6,979,372) (3,205,290)
----------------- ----------------
Total shareholders' equity 5,975,351 9,736,620
----------------- ----------------
Total Liabilities and shareholders' equity $ 58,212,373 $ 37,541,852
================= ================
(A) Derived from the audited consolidated financial statements as of December 31, 1996.
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 SEPTEMBER 30, 1997 AND 1996
(Unaudited)
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
---------------- ----------------
Net sales $ 49,607,025 $ 32,290,092
Cost of sales 46,457,876 29,820,165
-------------- --------------
Gross profit 3,149,149 2,469,927
Selling, general and administrative expenses 2,769,272 1,646,847
-------------- --------------
Operating income 379,877 823,080
-------------- --------------
Other income (expense):
Interest income 124,976 92,407
Interest expense (595,950) (366,902)
Other income 46,229 66,883
-------------- --------------
(424,745) (207,612)
-------------- --------------
Income (loss) from continuing operations become income taxes (44,868) 615,468
Provision for income taxes -- 29,430
-------------- --------------
Income (loss) from continuing operations (44,868) 586,038
-------------- --------------
Loss from discontinued operations, net of income taxes of $0 -- (182,644)
-------------- --------------
Net income (loss) (44,868) 403,394
Accumulated deficit, beginning of period (6,934,504) (4,068,282)
-------------- --------------
Accumulated deficit, end of period $ (6,979,372) $ (3,664,888)
============== ==============
Income (loss) per share:
Continuing operations $ (0.01) $ 0.13
Discontinued operations -- (0.04)
-------------- ---------------
$ (0.01) $ 0.09
============== ===============
Weighted average number of common shares outstanding 4,504,456 4,500,000
============== ===============
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
4
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
---------------- ----------------
Net sales $ 110,185,419 $ 74,965,190
Cost of sales 103,046,669 69,530,000
--------------- ---------------
Gross profit 7,138,750 5,435,190
Selling, general and administrative expenses 6,608,938 3,993,961
--------------- ---------------
Operating income 529,812 1,441,229
---------------- ---------------
Other income (expense):
Interest income 320,411 242,838
Interest expense (1,484,762) (818,846)
Other income 139,181 283,514
--------------- ---------------
(1,025,170) (292,494)
--------------- ---------------
Income (loss) from continuing operations before income taxes (495,358) 1,148,735
Provision for income taxes -- 128,420
--------------- ---------------
Income (loss) from continuing operations (495,358) 1,020,315
--------------- ---------------
Loss from discontinued operations, net of income taxes of $0 (733,938) (402,259)
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) (402,259)
--------------- ---------------
Net income (loss) (3,774,082) 618,056
Accumulated deficit, beginning of period (3,205,290) (4,282,944)
--------------- ---------------
Accumulated deficit, end of period $ (6,979,372) $ (3,664,888)
=============== ===============
Income (loss) per share:
Continuing operations $ (0.11) $ 0.23
Discontinued operations (0.73) (0.09)
--------------- ----------------
$ (0.84) $ 0.14
================ ================
Weighted average number of common shares outstanding $ 4,501,485 $ 4,500,000
================ ================
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
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
--------------- --------------
Cash flows from operating activities:
Net income (loss) $ (3,774,082) $ 618,056
Reconciliation of net income (loss) to net cash used in
Operating activities -
Depreciation and amortization 146,526 136,728
Provision for doubtful accounts 1,358,874 587,492
Provision for inventory write-down -- 56,996
Loss (gain) on sale of property, plant and equipment 5,198 (1,028)
Loss on disposal of discontinued operations 2,544,786 --
Changes in operating assets and liabilities:
Increase in trade accounts receivable (14,414,203) (4,178,778)
Increase in due from directors,
officers and employees, net (372,173) (22,512)
Increase in inventories (993,540) (2,739,294)
Increase in prepaid expenses and
other current assets (1,048,084) (376,815)
Decrease (increase) in other assets (122,002) 61,140
Increase in accounts payable 9,118,441 1,762,668
Increase in accrued expenses and other liabilities 521,272 279,482
Net changes in discontinued operations (647,807) (135,037)
-------------- --------------
Net cash used in operating activities (7,676,794) (3,950,902)
-------------- --------------
Cash flows from investing activities:
Increase in restricted cash, net (2,501,395) (1,026,698)
Purchase of property, plant and equipment (871,445) (114,715)
Proceeds from sale of property, plant and equipment 2,895 23,450
Deposit to purchase building -- (116,000)
-------------- --------------
Net cash used in investing activities (3,369,945) (1,233,963)
-------------- --------------
Cash flows from financing activities:
Borrowings of notes and acceptances payable, net 12,948,687 3,666,330
Repayment of long-term debt (53,589) (40,320)
Issuance of common stock 12,813 --
-------------- --------------
Net cash provided by financing activities 12,907,911 3,626,010
-------------- --------------
Net increase (decrease) in cash 1,861,172 (1,558,855)
Cash at beginning of period 311,419 2,135,333
-------------- --------------
Cash at end of period $ 2,172,591 $ 576,478
============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,426,932 $ 965,709
============== ==============
Cash paid during the period for taxes $ -- $ 162,149
============== ==============
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
6
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 1997 and 1996, and the results of its operations for the
nine and three months ended September 30, 1997 and 1996. The results of
operations and cash flows for the nine months ended September 30, 1997 and the
results of operations for the three months ended September 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.
Certain amounts included in the prior comparable period's condensed
consolidated financial statements have been reclassified to conform with the
current period's presentation.
(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. The decision to
discontinue the subsidiary was based in part, upon continuing significant
capital requirements and the lack of sufficient sales volumes. The Company
anticipates that the business will be 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 September 30, 1997, consist primarily of accounts
payable, 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. The estimated loss on the disposal was recorded
in the three month
7
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(Unaudited) (Continued)
period ended June 30, 1997 due to the plan being approved prior to the filing of
the Company's Form 10-Q for the period ended June 30, 1997.
Discontinued operations include management's best estimates of the
amounts expected to be realized on the 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 from those assumed in arriving at the loss on disposal of the
discontinued operations.
Sales for the nine months ended September 30, 1997 and 1996 were
$1,116,142 and $2,331,755, respectively, and for the three months ended
September 30, 1997 and 1996 were $272,452 and $587,705, respectively. The loss
from discontinued operations for the three month period ended September 30, 1997
was $297,000.
(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 shares 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 nine and three months ended September 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 for its operations in
Panama.
The Company did not record a provision for income taxes for its
operations in the United States of America due to the taxable loss recognized
for the period.
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, 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. The decision to discontinue the subsidiary was based
in part, upon continuing significant capital requirements and the lack of
sufficient sales volumes. Accordingly, New World Interactive is reported as a
discontinued operation in the accompanying condensed consolidated financial
statements.
Discontinued operations include management's best estimates of the
amounts expected to be realized on the 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 from those assumed in arriving at the loss on disposal of the
discontinued operations. The estimated disposition costs and settlement of
existing obligations of New World Interactive will continue to have an affect on
the liquidity of the Company until its final liquidation.
The financial information given below for the nine months and three
months ended September 30, 1997, and 1996 refer to the continuing operations of
the Company and exclude the operations of New World Interactive.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1996
NET SALES
Net sales increased 54% to $49.6 million for the three months ended
September 30, 1997 from $32.3 million for the same period in 1996. The increase
is primarily attributable to the increased sales in the Company's existing
markets. The Company has also expanded its product lines to include new
brand names.
Decreased sales to Brazil ($1.2 million decrease) and various other
markets were more than offset by increased sales to Colombia ($5.0 million
increase), Ecuador ($2.9 million increase), Venezuela ($3.1
9
million increase), Paraguay ($5.3 million increase) and Peru ($3.1 million
increase).
GROSS PROFIT
Gross profit increased 27% to $3.1 million for the three months ended
September 30, 1997 from $2.5 million for the same period in 1996.
The Company's gross profit margin decreased to 6.3% in the three month
period ended September 30, 1997 compared to 7.6% in the comparable 1996 period
due to lower average selling prices resulting from increased competition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $2.8 million
for the three months ended September 30, 1997 compared to $1.6 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)
provision for doubtful accounts of approximately $507,000 for a former customer,
(ii) additional provision for disputed amounts arising in the normal course of
business of $100,000, and (iii) increases in salaries and commissions due to
higher sales volumes.
INTEREST
Interest income increased to $125,000 for the three months ended
September 30, 1997 compared to $92,000 for the same period in 1996 due to higher
average daily balances of restricted cash.
Interest expense increased to $596,000 for the three months ended
September 30, 1997 compared to $367,000 for the same period in 1996 as a result
of additional borrowings.
INCOME (LOSS) FROM CONTINUING OPERATIONS
Loss from continuing operations was $45,000 ($.01 per share) for the
three months ended September 30, 1997 compared to income from continuing
operations of $586,000 ($.13 per share) for the three months ended September 30,
1996. The change was primarily due to the decrease in gross profit margins
because of competition and the increase in selling, general and administrative
expenses, as described above.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
NET SALES
Net sales increased 47% to $110.2 million for the nine months ended
September 30, 1997 from $75.0 million for the same period in 1996. The increase
is primarily attributable to the increased sales in the Company's existing
markets. The Company has also expanded its product lines to include new
brand names.
10
Decreased sales to Turkey ($1.1 million decrease) were more than offset
by increased sales to Colombia ($12.6 million increase), United States of
America ($5.3 million increase), Paraguay ($6.9 million increase), Peru ($4.1
million increase), Venezuela ($3.7 million increase) and various other markets.
GROSS PROFIT
Gross profit increased 31% to $7.1 million for the nine months ended
September 30, 1997 from $5.4 million for the same period in 1996.
The Company's gross profit margin decreased to 6.5% in the nine months
ended September 30, 1997 from 7.3% in the comparable 1996 period due to lower
average selling prices resulting from increased competition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $6.6 million
for the nine months ended September 30, 1997 versus $4.0 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)
provisions for doubtful accounts aggregating approximately $813,000 for three
former customers,(ii) provisions for disputed amounts arising in the normal
course of business and other losses totaling approximately $373,000 and (iii)
certain other charges consisting 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.
INTEREST
Interest income increased from $243,000 for the nine months ended
September 30, 1996 to $320,000 for the same period in 1997 due to higher average
daily balances of restricted cash.
Interest expense increased to $1.5 million for the nine months ended
September 30, 1997 from $819,000 for the same period in 1996, as a result of
additional borrowings.
OTHER INCOME
Other income decreased to $139,000 for the nine months ended September
30, 1997 from $284,000 for the same period in 1996. This decrease is primarily
attributable to the $108,000 settlement of a claim filed against the Company's
insurance carrier that was recorded in the 1996 period.
INCOME (LOSS) FROM CONTINUING OPERATIONS
Loss from continuing operations was $495,000 ($.11 per share) for the
nine months ended September 30, 1997 compared to income from continuing
operations of $1,020,000 ($.23 per share) for the nine months ended September
30, 1996. The change was primarily due to the decrease in gross profit margins
because of competition and the increase in selling, general and administrative
expenses, as described above.
11
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 $7.7 million in cash for operating activities in the
nine months ended September 30, 1997. This utilization was primarily due to
increases of $14.4 million in accounts receivable, $1.0 million in prepaid
expenses and other current assets and $994,000 in inventory which was offset in
part by $9.1 million in increased accounts payable.
Cash used in investing activities was $3.4 million in the nine months
ended September 30, 1997 primarily attributable to an increase in restricted
cash balances required to secure additional borrowings of $2.5 million and
capital expenditures of $871,000 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 year end.
Cash provided by financing activities was $12.9 million in the nine
months ended September 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. As the
Company expanded sales in existing markets such sales were primarily made on a
credit basis as compared to cash basis. Therefore, the number of days sales in
accounts receivable increased to 77 days at September 30, 1997 from 62 days at
September 30, 1996 which has adversely affected liquidity. 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 has since December 31, 1996 increased its bank credit lines
from $21.3 million to $37.3 million in an effort to finance increased sales
volumes. 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.
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 risk. There can be no assurances that the Company will be
able to finance its trade accounts receivables.
The Company believes it has and will continue to have a good
relationship with its two principal suppliers, Sony and Pioneer. At September
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 September 30, 1996. From time to time, Sony and Pioneer
have allowed the Company to increase its credit line above its stated credit.
As of September 30, 1997, the Company had outstanding on its credit
facilities with its major suppliers approximately $20.0 million. Management
believes, that through collections from normal operations and utilization of
bank lines, the Company will maintain all accounts current and be able to
12
support ongoing operations. The Company utilizes bank lines to extend the number
of days credit granted by its suppliers.
At September 30, 1997, the Company had available with eleven banks an
aggregate of $37.3 million in bank facilities of which $36.1 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 "on demand".
For a variety of political and economic reasons, the import 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. 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 and to a lesser
extent product availability.
FORWARD LOOKING STATEMENTS
From time to time, the Company publishes forward-looking statements,
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 ability of the Company to sell or
otherwise liquidate the operations of its subsidiary, New Word Interactive; (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) positive economic developments in those foreign countries in
which the Company conducts a material amount of business, including Colombia,
Paraguay, Ecuador and Venezuela.
13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 27 Financial Data Schedule
99 Review Report of Coopers & Lybrand
L.L.P. on Third Quarter Financial
Statements
(b) No Form 8-K was filed during the quarter ended September
30, 1997.
14
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 13, 1997 BY: /S/ EZRA COHEN
---------------------------
Ezra Cohen, President and
Chief Executive Officer
Date: November 13, 1997 BY: /S/ ANA M. MENENDEZ
---------------------------
Ana M. Menendez,
Chief Financial Officer
15
EXHIBIT INDEX
EXHIBIT
NUMBER` DESCRIPTION
- -------- -----------
27 Financial Data Schedule
99 Review Report of Coopers & Lybrand L.L.P. on Third
Quarter Financial Statements.