SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
----------------------------------
For Quarter Ended December 31, 1995
Commission File Number 0-18711
ACTRADE INTERNATIONAL, LTD.
(formerly Acquisition Capability, Inc.)
(Exact name of Registrant as specified in its Charter)
Delaware 13-3437739
(State or other Jurisdiction (I.R.S.
Employer Ident-
of incorporation or organization) ification
Number)
7 Penn Plaza, Suite 422, New York, N.Y. 10001
(Address of principal executive offices) (Zip Code)
Same
(Former Address) (Zip Code)
(212) 563-1036
(Registrant's telephone number, including
area code)
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 and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes_X__ No____
Indicate the number of Shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date. As of February 1, 1996 there
were outstanding 5,330,681 shares of Common Stock, par value $.0001.
<PAGE>
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements
Balance Sheets as of December 31, 1995 (UNAUDITED) . . . . . . .. . F-2
Consolidated Statements of Operations for the
Six and Three Months Ended December 31, 1995 And 1994 . . . . .. . .F-3
Consolidated Statements of Cash Flows For
Three Months Ended December 31, 1995 And 1994. . . . . . . . . .. . F-4
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . . . ..F-5-9
Item 2. Management's Discussion and
Analysis of Financial Condition . . . . . . . . . . . . . . ..F-10-14
Part II. Other Information
Exhibits and reports on Form 8-K. . . . . . . . . . . . . . . .. . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 16
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(Unaudited)
ASSETS
Current assets:
Cash, including time deposits of $1,750,000 $1,874,115
Accounts receivable, less allowance for
doubtful accounts of $62,500 3,414,626
Trade acceptance draft receivable, bank (Note 8) 2,314,231
Loans receivable from affiliates 2,500
Prepaid expenses 39,911
Interest receivable 85,898
Total current assets 7,731,281
Property and equipment:
Furniture and fixtures 143,927
Leasehold improvements 110,902
Less accumulated depreciation 158,897
95,932
Other asset, security deposit 15,034
7,842,247
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 4) 59,881
Cash advance from bank (Note 8) 1,470,625
Accounts payable 2,783,447
Accrued interest 439
Payroll taxes payable 35,093
Accrued expenses 4,508
Advances from affiliates 3,400
Income taxes payable (Note 7) 18,681
Total current liabilities 4,376,074
Commitments (Note 6)
Deferred rent liability (Note 6) 60,284
Shareholders' equity:
Common stock, $.0001 par value; authorized
100,000,000 shares, issued and outstanding
5,330,681 shares 533
Additional paid in capital 2,041,873
Retained earnings 1,363,483
3,405,889
$7,842,247
F-2
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX AND THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
Six months Three months
Ended Ended
December 31, December 31,
1995 1994 1995 1994
Net sales $11,192,070 $7,835,200 $5,710,294 $3,978,110
Cost of sales 10,228,629 6,956,547 5,189,983 3,551,547
Gross profit 963,441 878,653 520,311 426,563
Selling, general and
administrative expenses 600,252 549,858 313,400 258,388
Income from operations 363,189 328,795 206,911 168,175
Other income (charges):
Interest income 58,382 39,206 29,284 34,206
Interest of expense ( 63,928) ( 17,905) ( 39,119) ( 9,761)
( 5,546) 21,301 ( 9,835) 24,445
Income before income
taxes 357,643 350,096 197,076 192,620
Income taxes 18,681 50,515 1,910 42,275
Net income $ 338,962 $ 299,581 $ 195,166 $ 150,345
Earnings per common
share $ 0.06 $ 0.06 $ 0.04 $ 0.03
Weighted average common
shares outstanding 5,330,681 5,282,032 5,330,681 5,330,681
F-3
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX AND THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
1995 1994
Cash flows from operating activities:
Net income $ 338,962 $ 299,581
Adjustments to reconcile net income
to cash provided from operating activities:
Depreciation 11,487 10,921
Decrease in deferred tax asset 897
Changes in operating assets and liabilities:
Increase in accounts receivable ( 1,660,030) ( 2,674,859)
Increase in prepaid expenses ( 10,917) ( 5,588)
Increase in interest receivable ( 58,335) ( 38,926)
Increase in accounts payable 1,018,461 1,910,287
Decrease in accrued expenses ( 5,341) ( 62)
Increase in payroll taxes payable 25,880 4,811
Increase in income taxes payable 17,981 49,815
Decrease in deferred rent ( 3,618) ( 2,264)
Decrease in deferred taxes 13,439 7,316
Net cash used in operating activities ( 312,031) ( 438,071)
Investing activities, use of cash, purchase
of property and equipment ( 14,352) ( 11,132)
Financing activities:
Source of cash:
Proceed from issuance of common stock 567,574
Increase in cash advances from bank 415,727 422,610
Decrease in loans receivable, affiliates 105,984 18,485
Use of cash:
Decrease in current portion f long-term debt ( 90,000) ( 90,000)
Decrease in due from affiliates ( 262)
Net cash provided from financing activities 431,449 918,669
Net increase in cash 105,066 469,466
Cash, beginning of period 1,769,049 13,11,569
Cash, end of period $1,874,115 $1,781,035
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 25,109 $ 17,967
Income taxes $ 0 $ 0
F-4
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1995
(Unaudited)
1. The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. The results of operations for the six months ended is not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report for the year ended
June 30, 1994, included in its Annual Report filed on Form 10-KSB. All reference
to Actrade in these footnotes, relate to Actrade International, Inc., the
Company's wholly owned subsidiary. Actrade International, Ltd., "The Company,"
is referred to as ACI.
2. Organization of the Company: The Company, formerly Acquisition
Capability, Inc., was incorporated in the State of Delaware on April 3, 1987. On
September 2, 1988, the Company acquired 100% of the issued and outstanding
shares of Allstate Travel Corp., a New York corporation incorporated on August
13, 1985 and Actrade International, Corp., a New York corporation incorporated
on July 18, 1985. Allstate operates as a travel agency. Actrade represents
various U. S. manufacturers and distributors by buying and exporting their
products overseas. Amworld Commerce, Inc., a wholly owned subsidiary of Actrade
International, Ltd., was incorporated in Delaware in May of 1991. Amworld offers
alternatives to existing accounts receivable financing to both domestic and
foreign companies. Standard Corporation, a wholly owned foreign corporation and
subsidiary of Actrade International, Corp., was incorporated in Antigua and
Bermuda on February 12, 1988 and was acquired in January 1990. On December 22,
1991, Standard Corporation changed its corporate name to Actrade South America.
American Cooling, Inc., a wholly owned subsidiary of Actrade International, Ltd.
was incorporated in Delaware in 1992 and was inactive. American Care Industries,
was incorporated in 1993 and was inactive. American Care Industries, Inc. is a
wholly owned subsidiary of Actrade International, Ltd. Amworld Credit, Inc. was
incorporated in and was inactive at December 1995. The Company sells
predominantly in the foreign market through its wholly owned foreign subsidiary,
Actrade South America. There is no guarantee that the foreign market will
continue to develop since the possibility of foreign and domestic government
intervention, economic conditions world wide and any other unforeseen situations
may occur. F-5
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1995
(Unaudited)
3. Principles of consolidation:
The consolidated financial statements of Actrade International, Ltd. and
subsidiaries include the accounts of all significant wholly owned
subsidiaries, after elimination of all significant intercompany
transactions and accounts. The accounts of Allstate Travel Corp.,
Actrade South America, a foreign corporation, Amworld Commerce, Inc. and
American Cooling, Inc. are included as the subsidiaries of Actrade
International, Ltd.
4. Notes payable, bank:
Rate
Note payable, Banca
Nazionale Del Lavoro (a) LIBOR + 1% $59,881
(a) On August 30, 1993, a final loan restructuring agreement was signed with the
bank. Under the terms of the agreement, a $50,000 principal payment was made at
the signing with another $50,000 payment due on both August 31, 1993 and
September 30, 1993. On October 31, 1993, and on the last day of each month
thereafter, the Company will make payments of $15,000 plus interest until the
loan and interest is repaid in full. Based on this restructuring agreement, the
total future annual note payments are as follows:
April 30, 1996 $59,881
The note is collateralized by accounts receivable.
5. Related party transactions:
During each of the three years ended December 31, 1995, the Company and its
subsidiaries have advanced and received funds to and from related parties. Such
receivable and payables are non-interest bearing and are due on demand.
The Company has entered into several employment agreements with its officers and
shareholders.
F-6
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1995
(Unaudited)
6. Leases:
From March 1, 1989 to February 28, 1990, the Company and its subsidiaries
used office facilities under a non-cancelable operating sublease of which
commenced March 1, 1989 and was to expire February 28, 1992. The related
sublease agreement provided for monthly rentals of $4,000 and gave a
subsidiary of the Company the option to renew, for an additional three
years (to February 28, 1995), at the same monthly rental.
In February 1990, the Company agreed with the lessor and sublessor of its
facilities to discontinue its sublease. In the year ended June 30, 1991 the
Company received $12,750 in settlement of the lease. The amount was
recorded as a reduction in selling, general and administrative expenses. In
February 1990, the Company executed a lease agreement with a related
corporation who was the lessor of the facility from an unrelated third
party. The lease in August 1991 was assigned to the Company from the
related party. The Company simultaneously assigned said lease to Actrade in
accordance with the terms of the lease. The agreement provides for monthly
rentals of $4,200 (commencing June 1, 1991) and annual increases of 4.5%
and expires February 28, 2000.
In lieu of rent for the first fifteen (15) months, the Company incurred
costs totaling approximately $87,000 for leasehold improvements. The
leasehold improvements and the total rent concessions are being amortized
using the straight line method over the entire term of the lease. The
resulting unpaid rent over the abatement period is included in deferred
rent liability.
In December 1991, Actrade entered into a non-cancelable 36 month operating
lease to house its Florida office. The lease provides for monthly payments
of $653 plus cost of living increases annually, capped @ 5% per annum. The
lease was renewed on December 24, 1994 for a three year period under the
above terms.
Future minimum lease payments required under non-cancelable operating leases
by fiscal year are as follows:
December 31, 1996 $60,328
December 31, 1997 $63,043
December 31, 1998 $69,359
December 31, 1999 $72,471
December 31, 1999-2002 $95,602
Lease expense amounted to $37,780 and $36,372 for the six months ended
December 31, 1995 and 1994 respectively.
F-7
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1995
(Unaudited)
7. Income taxes:
The components of income tax expense are:
Six months Six months
Ended Ended
December 31, December 31,
1995 1994
Income taxes currently payable:
Federal $12,828 $42,143
State 4,773 8,642
17,601 50,785
Deferred tax expense arising from:
Excess of Financial accounting
depreciation over tax ( 220) ( 1,020)
Charges to allowance for doubtful accounts
over tax write offs for bad debts
Excess of rent expense for financial
accounting over tax deductible rent 1,300 750
1,080 ( 270)
Total income tax expense $18,681 $50,515
Deferred income tax provisions resulting from differences between accounting
for financial statement purposes and accounting for tax purposes are
reflected above.
Areconciliation of income tax expense at the statutory rate to income tax
expenses at the Company's effective rate is as follows:
Six months Six months
Ended Ended
December 31, December 31,
1995 1994
Computed tax at the expected
statutory rate $137,620 $119,032
Surtax exemption ( 15,863) ( 16,750)
State income taxes, net of federal
tax benefit 18,304 8,642
Foreign income ( 119,074) ( 60,139)
Tax benefit from utilization of net
operating loss carryover ( 3,386)
Other 1,080 ( 270)
Income tax expense $ 18,681 $ 50,515
F-8
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1995
(Unaudited)
7. Income taxes (continued):
The effective statutory rate for 1995 was 39% for federal tax purposes.
The Company has made adjustments to eliminate the tax provisions for foreign
earnings since said earnings are undistributed and will be permanently
invested. The cumulative amounts of foreign undistributed earnings are
$1,683,200 at December 31, 1995 and $1,047,856 at December 31, 1994.
The Company has adopted SFAS 109 for the fiscal year beginning July 1, 1993.
SFAS 109 changes accounting for income taxes from the deferred method,
required by APB-11 to the asset/liability method, commonly referred to as
the liability method. The deferred method places primary emphasis on the
matching of revenues and expenses. The liability method places primary
emphasis on the valuation of current and deferred tax assets and
liabilities. The significance of the impact that SFAS 109 will have on the
financial statements is expected to be immaterial and will have no impact
on any other significant matters of the Company. The effect of initially
adopting SFAS 109 will be reported as the cumulative effect of a change in
accounting principle in accordance with APB-20.
The Company has available a net operating loss carry forward of
approximately $60,000 against future earnings through the fiscal year
ending June 30, 2009.
8. Trade Acceptance Drafts receivable, bank:
As of December 31, 1995, Amworld Commerce, Inc., a wholly owned subsidiary
of Actrade International, Ltd., had sold and assigned all outstanding Trade
Acceptance Drafts (TAD's) to Banco Portugues De Atlantico (Bank). The total
TAD amounts due from the banks were $2,314,231 at December 31, 1995. The
bank purchases the TAD's at the face value and advances these amounts to
Amworld Commerce, Inc. The bank purchases the TAD's without recourse. To
the extent any TAD is in excess of $3,000, payment is insured by Capital
Factors, Inc. The bank will purchase each TAD by advancing to Amworld
Commerce, Inc. 75% of the face amount of each TAD assigned and delivered by
overdraft on the Amworld Commerce, Inc. account. At December 31, 1995, the
advances on the overdraft account amounted to $1,470,625. As each TAD is
collected, the face amount will be credited to the Amworld account to
reduce the advanced overdraft. Interest is payable at 1% over prime per
annum on the outstanding advances, which shall be charged on the 1st day of
each month. In addition the bank charges a $10 per daily deposit to service
the account. Amworld Commerce, Inc. has granted a security interest in all
TAD's purchased by the bank and all accounts represented by the TAD's
together with all guaranties and collateral, and all proceeds of all the
above.
F-9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
I. Results of Operations
During the first six months of fiscal 1996, ended December 31, 1995, the Company
had combined gross revenues of $11,192,070, as compared to $7,835,200 for the
first six months of fiscal 1995. Despite an increase of over $3,350,000 in gross
revenues (over 42% above fiscal 1995), total cost of revenues from operations
during this period increased dramatically to $10,228,629, or approximately 91.3%
of gross revenues, as compared to cost of goods sold for the same period in
fiscal 1995 of $6,956,547, or 88.8% of gross revenues. Although slightly
improved from the first quarter of fiscal 1996 when cost of revenues reached a
high of 92% of gross revenues, this resulted in gross profits from operations of
$963,441 for the first the current period, an increase of $84,788 (or
approximately 9.6%) from the first half of fiscal 1995, with net incomes from
operations of $363,189 for this period, as compared to $328,795 for the same
period last year. After interest income and expenses and provisions for income
taxes, the Company experienced net earnings of $338,962, as compared to $299,581
for the first half of fiscal 1995 (an increase of over 13%), or $0.06 per share.
With respect to the three months ended December 31, 1995, gross revenues reached
$5,710,294 (up over 43.5% from the second quarter of fiscal 1995); gross profits
climbed to $520,311 (an increase of just under 22% from the second quarter of
fiscal 1995); net income from operations totaled $206,911 (up over 23% from the
same period in fiscal 1995); and net earnings after interest income and expenses
and allowances for income taxes reached $195,166 (an increase of over 29.8% from
fiscal 1995), or $0.04 per share for the quarter ended December 31, 1995. Most
importantly, however, the results for this three month period shows that the
cost of revenues dipped below 91% (having reached 90.9% for the three months)
for the first time since the Company introduced on a commercial basis its TAD
Program (see
FINANCIAL SERVICES DIVISION" below). Management believes that this indicates a
leveling off of the increased costs associated with the TAD Program which should
continue at least for the balance of fiscal 1996.
There were two basic reasons for the higher cost of revenues and modest
increases experienced in net operating profits during the past several quarters:
1. The first reason relates to Amworld Commerce, Inc. ("Amworld"). Amworld's
gross margins are lower than for the export division, typically in the range
of 7 - 8%. Consequently, as Amworld accounts for an increasing percentage of
the Company's overall revenues, the Company's overall margins will decrease.
During this period Amworld generated $3,598,931 in gross revenues, over 32%
of the Company's total revenues.
2. The second reason relates to the nature of the sales made during this
period by Actrade S.A. which continues to be a significant, although
decreasing, segment of the Company's revenues. As in the past, during this
period Actrade S.A. derived most of its gross revenues from a few very large
sales of computer systems to Europe, which sales typically are made at
profit margins of approximately 5%. Since Actrade S.A. represented over 33%
of the Company's total revenues during this period, this contributed
significantly to the higher overall cost of goods sold for the Company. As
in the past, management is unable to predict whether or not these relatively
low profit margins will persist with respect to revenues from Actrade S.A.
during the balance of fiscal 1996.
Although management continues to estimate total gross revenues for fiscal 1996
will exceed $20 Million, due to the continued uncertainty of the cost which will
be incurred as Amworld continues to expand, no estimate of operating results can
be made at this time.
The increase in gross revenues during this period continues to be due primarily
to the expansion of Actrade's operations through (I) the continued growth of its
Financial Services Division, discussed separately below (see "III. Financial
Services Division"), and (ii) the continued growth within Actrade's existing
product lines, including Actrade S.A. As was the case during fiscal 1995, the
increase in revenues during this period resulted from increased product sales
rather than from price increases for the Company's products and operating
revenues derived from Amworld.
As a result of the foregoing factors, the Company's net operating income
expressed as a percentage of gross revenues decreased from 3.8% at the end of
the first half of fiscal 1995 to slightly over 3.0% at the end of the first half
of fiscal 1996. Although lower than last year, this ratio is up from 2.6% at the
end of the first quarter of fiscal 1996 and considerably higher than the 2.5%
reached at the end of fiscal 1995. Compared to 1995 fiscal year end, therefore,
net operating income expressed as a percentage of gross revenues continue to
showed an increase. Although management believes that this ratio may remain
stable during fiscal 1996, management believes the results of operations show
the success of the Company's expansion program and of its cost cutting measures.
Allstate had, and continues to have, extremely limited operations, a situation
expected to continue for the foreseeable future. During the first half of fiscal
1996, Allstate's total sales have aggregated only $9,841, which continue to
account for less than 1/10 of 1% of the Company's total revenues for this
period.
II. Discussion of Financial Condition
On a consolidated basis, at December 31, 1995 the Company had total assets of
$7,842,247 (compared with $5,987,746 at June 30, 1995, the end of fiscal 1995)
with total liabilities of $4,436,358 (compared with $3,057,530 at June 30,
1995). Of the Company's assets at December 31, 1995, $1,874,115 was in the form
of cash and cash equivalent (compared to $1,769,049 at June 30, 1995),
$3,414,626 represents accounts receivable, excluding TADs, (compared to
$2,560,827 at June 30, 1995) and $2,314,231 in Trade Acceptance Drafts
receivable (with a corresponding liability of $1,470,625 representing cash
advanced from Amworld's bank). The increase in cash on hand at December 31, 1995
was principally due to routine fluctuations in cash on hand from the Company's
operations. The increase of $853,799 in accounts receivables outstanding at
December 31, 1995, as well as the increase in accounts payable ($2,783,447 at
December 31, 1995 compared to $1,764,986 at June 30, 1995) was principally due
to the increased revenues generated by Amworld and the normal effects of
increased sales by Actrade and Actrade S.A. Despite the substantial increase in
both trade accounts receivable and payable, management believes that this was
caused principally by normal variations in Actrade's business and not due to any
trend which is expected to have a continuing effect upon operations in the
future.
At December 31, 1995 the Company had Retained Earnings of $1,363,483 with total
Stockholder's Equity of $3,405,889, compared with $1,024,628 and $3,067,034,
respectively, at June 30, 1995. The principal source of funds for the Company's
operations are revenues earned by its operating subsidiaries.
At December 31, 1995 the Company had property, less accumulated depreciation, of
$95,932, (compared to $93,174 at June 30, 1995) and deferred taxes and deposits
of $15,034, compared to $28,473 at the end of fiscal 1995. In connection with
the Company's relocation during fiscal 1990, it received an 18 month rent
abatement. In conformity with accounting procedures, the value of this abatement
is amortized over the life of the lease. Consequently, at September 30, 1995 the
Company continued to show $60,284 in deferred rent liability.
Based upon available cash on hand, and expected revenues from operations,
management is of the opinion that it will have adequate available funds to meet
its capital expenditures for the balance of fiscal 1996. Thereafter, future
capital expenditures will be decided based upon operating results and net
revenues from operations. The Company's principal expansion activities involve
marketing Amworld's accounts receivable financing program, which activities
involve no significant capital expenditures.
With respect to the Company's working capital needs, management believes that
operating revenues from its subsidiaries will continue to reflect a profit on a
consolidated basis during the balance of fiscal 1996 and management expects
revenues will be adequate to meet the Company's operating cash needs. The
Company plans to draw working capital from cash on hand and operating revenues
which are expected to be adequate to meet the Company's requirements for the
foreseeable future.
As of the date of this Report, all of the Company's total accounts receivable at
June 30, 1995, in the amount of $2,560,827 have been collected.
III. Impact of Financial Service Division.
During fiscal 1994, the first full year of operations for the TAD Program,
although still in its development stage, Amworld generated gross revenues of
$927,757 (as compared to $247,809 during fiscal 1993) resulting in a net loss
from operations for Amworld of $50,390. Although showing a modest loss,
Amworld's operating results for fiscal 1994 exceeded management's expectations.
During fiscal 1995, management implemented an aggressive new marketing plan for
the TAD Program, principally in response to the perceived need to educate
potential participants in the TAD Program about how trade acceptances work and
how they could benefit from the TAD Program.
As a result, during fiscal 1995, Amworld generated total gross revenues of
$3,703,493, almost 300% higher than fiscal 1994, which resulted in a net
operating profit for fiscal 1995 of $7,153 - however, had management not elected
to make a year-end allocation of indirect general and administrative over-head
costs in the amount of $208,000, net operating profits for Amworld would have
been approximately $215,153.
Amworld's operating revenues during the first half of fiscal 1996 totaled
$3,598,931, or approximately 32.2% of the Company's total revenues during this
period, as compared to total revenues of $1,509,065, or approximately 19.2% of
total revenues, during the first half of fiscal 1995. Perhaps most importantly
however, Amworld's gross revenues during this period were more than 138% higher
than the same period last fiscal year, and over 97% of the total revenues earned
by Amworld during all of fiscal 1995.
During this period, Amworld also had interest income of $25,159, interest
expenses of $59,698 and incurred selling, general and administrative expenses of
$156,981 which resulted in net operating income before taxes of $77,080.
IV. Trends Affecting Operations
Over the years management has observed a substantial increase in demand for
American made products. In management's opinion, this is due to a renewed
confidence in the quality of American products and the relative weakness of the
US dollar as compared to other major foreign currencies. This has formed the
basis of the Company's operating philosophy since 1989 and, in management's
opinion, continue's to favor continued growth over the foreseeable future.
Combined with the recent changes in world political structures, particularly in
Eastern Europe, management believes that world demand for American products will
continue to increase at least over the foreseeable future.
Economic conditions in the United States have caused many American manufacturers
to seek new markets for their products and, in particular, to turn to foreign
markets to boost domestic sales. Management believes that this trend, coupled
with renewed demand for American products and improved buying power of foreign
currencies, has been beneficial to the Company and has been a major factor in
its growth over the past three years. This trend, although expected to continue
for the foreseeable future, is now being affected by a number of other factors
which could adversely affect future growth rates for the Company's present
operations.
Recently, management has observed that, with the collapse of traditional
political and ideological barriers, the demand for products from all parts of
the world has increased perceptibly with many developing and third world nations
now looking for products from many different countries. This has been
particularly true of countries with "soft" currencies (i.e. currencies not
readily exchangeable into established currencies such as British pounds, US
dollars, etc.), such as the emerging countries of Eastern Europe, which at
present are unable to pay for their purchases in US dollars. Management believes
that the greatest demand for all kinds of foreign products (including those from
the US and other industrial nations) will be seen from these newly developing
third world countries over the next few years. To meet this changing market
demand, the Company initiated an expansion of Actrade's operations through the
establishment of Actrade S.A., which is intended to compliment current
operations by providing foreign sources for products.
Over the long term, as the US economy continues to improve and the dollar
strengthens with respect to other currencies, foreign buying power for American
products may decrease causing foreign buyers to look for comparable, but less
expensive, products from other sources. Although it is impossible to predict at
this time the extent to which this trend may affect the competitiveness of
American products overseas, it is likely that any significant decline in buying
power of foreign currencies will have an adverse impact upon the Company's
present operations. Although no assurances can be given, management believes
that by utilizing its foreign network both to promote new sales of American
products and as a source of comparable, less expensive foreign made products,
the Company will gain the flexibility needed to meet changing product demands
over the coming years.
Management knows of no other trends reasonably expected to have a material
impact upon the Company's operations or liquidity in the foreseeable future.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
None during this period.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 2, 1996
ACTRADE INTERNATIONAL, LTD.
/s/Amos Aharoni
BY:__________________________
Amos Aharoni,
Chief Executive Officer
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