SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1939
For the transition period from to
Commission File Number: 0-18711
ACTRADE INTERNATIONAL, LTD.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3437739
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7 Penn Plaza, New York, NY 10001
(Address of principal executive offices)
Issuer's telephone number, including area code: (212) 563-1036
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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.
Class Outstanding at March 31, 1996
Common Stock, par value $0.002
per share 5,330,681
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INDEX
Part I. Financial information
Item 1. Consolidated condensed financial statements:
Balance sheet as of March 31, 1996 F-2
Consolidated statement of operations for nine and three
months ended March 31, 1996 and 1995 F-3
Consolidated statement of cash flows for nine months
ended March 31, 1996 and 1995 F-4
Notes to consolidated condensed financial statements F-5-10
Item 2. Management's discussion and analysis of financial condition
Part II. Other information
Signatures
F-1
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ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(Unaudited)
ASSETS
Current assets:
Cash, including time deposits of $1,750,000 $1,780,319
Accounts receivable, less allowance for
doubtful accounts of $25,000 3,457,212
Trade acceptance draft receivable, bank (Note 8) 2,265,170
Due from affiliates (Note 10) 187,330
Prepaid expenses 21,014
Interest receivable 48,889
Total current assets 7,759,934
Property and equipment:
Furniture and fixtures 146,849
Leasehold improvements 110,902
257,751
Less accumulated depreciation ( 165,119)
92,632
Other asset, security deposit 15,034
$7,867,600
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 4) $ 14,881
Cash advance from bank (Note 8) 1,214,014
Accounts payable 2,609,508
Accrued interest 99
Payroll taxes payable 11,386
Due to affiliates (Note 10) 373,162
Income taxes payable (Note 7) 14,741
Total current liabilities 4,237,791
Commitments (Note 6)
Deferred rent liability (Note 6) 58,475
Shareholders' equity:
Common stock, $.0001 par value; authorized
100,000,000 shares, issued and outstanding
5,330,681 shares 533
Additional paid in capital 2,041,987
Retained earnings 1,528,814
3,571,334
$7,867,600
F-2
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ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE AND THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
Nine months Three months
Ended Ended
March 31, March 31,
1996 1995 1996 1995
Net sales $17,075,672 $11,584,561 $5,883,602 $3,749,361
Cost of sales 15,603,492 10,434,780 5,374,863 3,478,233
Gross profit 1,472,180 1,149,781 508,739 271,128
Selling, general and
administrative expenses 934,756 817,681 334,504 267,823
Income from operations 537,424 332,100 174,235 3,305
Other income (charges):
Interest income 87,184 58,343 28,802 19,137
Interest of expense ( 102,152)( 32,539) ( 38,224) ( 14,634)
( 14,968) 25,804 ( 9,422) 4,503
Income before income
taxes 522,456 357,904 164,813 7,808
Income taxes expense
(benefit) 18,130 15,410 551 ( 35,105)
Net income $ 504,326 $ 342,494 $ 165,364 $ 42,913
Earnings per common
share:
Primary $ 0.09 $ 0.06 $ 0.03 $ 0.01
Fully diluted $ 0.09 $ 0.06 $ 0.03 $ 0.01
Weighted average common
shares outstanding
(Note 10):
Primary 5,330,681 5,295,005 5,330,681 5,330,681
Fully diluted 5,347,429 5,295,005 5,398,043 5,330,681
F-3
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ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE AND THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
Cash flows from operating activities:
Net income $ 504,326 $ 342,494
Adjustments to reconcile net income
to cash provided from operating activities:
Depreciation 17,558 16,381
Decrease in deferred tax asset 897
Changes in operating assets and liabilities:
Increase in accounts receivable ( 1,653,555) ( 2,518,518)
Decrease (increase) in prepaid expenses 7,980 ( 7,621)
Increase in interest receivable ( 21,326) ( 57,676)
Increase in accounts payable 844,522 1,550,210
Decrease in accrued expenses ( 10,189) ( 252)
Increase in payroll taxes payable 2,173 26,364
Increase in income taxes payable 14,041 13,574
Decrease in deferred rent ( 5,427) ( 3,396)
Decrease in deferred taxes 13,439 7,316
Changes in other assets and liabilities:
Increase (decrease) in amounts due
to/from affiliates 290,654 19,809
Net cash used in operating activities 4,196 ( 610,418)
Net Cash used in investing activities,
purchase of property and equipment ( 17,167) ( 11,105)
Financing activities:
Source of cash:
Proceed from issuance of common stock 567,574
Proceed from issuance of common stock
warrants 125
Increase in cash advances from bank 159,116 638,862
Use of cash:
Decrease in long-term debt ( 135,000) ( 135,000)
Net cash provided from financing activities 24,241 1,071,436
Net increase in cash 11,270 449,913
Cash, beginning of period 1,769,049 1,311,569
Cash, end of period $1,780,319 $1,761,482
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 103,042 $ 32,794
Income taxes $ 700 $ 0
F-4
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ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1996
(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 nine 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, 1995, 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. Actrade Capital, Inc., formerly 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 1994 and was inactive at
March 1996.
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.
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.
F-5
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ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1996
(Unaudited)
4. Notes payable, bank:
Rate
Note payable, Banca
Nazionale Del Lavoro (a) LIBOR + 1% $14,881
(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 $14,881
The note is collateralized by accounts receivable.
5. Related party transactions:
During the period ended March 31, 1996, 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.
These balances consist of the following:
Due from affiliates:
NTS Corp. $ 2,500
Henessey Corp. 65,182
Executive 900 Corp. 119,648
$187,330
Due to affiliates:
NTS Corp. $ 3,126
Fort Corp. 370,000
$373,126
The Company has entered into several employment agreements with its officers
and shareholders.
F-6
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ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1996
(Unaudited)
6. Leases:
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:
March 31, 1997 $73,200
March 31, 1998 $76,795
March 31, 1999 $80,313
March 31, 2000 $83,970
Lease expense amounted to $54,449 and $47,970 for the nine months ended
March 31, 1996 and 1995 respectively.
F-7
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1996
(Unaudited)
7. Income taxes:
The components of income tax expense are:
Nine months Nine months
Ended Ended
March 31, March 31,
1996 1995
Income taxes currently payable:
Federal $11,410 $ 7,296
State 5,100 8,519
16,510 15,815
Deferred tax expense arising from:
Excess of Financial accounting
depreciation over tax ( 330) ( 1,530)
Charges to allowance for doubtful accounts
over tax write offs for bad debts
Excess of rent expense for financial
accounting over tax deductible rent 1,950 1,125
1,620 ( 405)
Total income tax expense $18,130 $15,410
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:
Nine months Nine months
Ended Ended
March 31, March 31,
1996 1995
Computed tax at the expected
statutory rate $203,758 $118,929
Surtax exemption ( 17,483) ( 9,244)
State income taxes, net of federal
tax benefit 27,085 8,519
Foreign income ( 193,464) ( 102,389)
Tax benefit from utilization of net
operating loss carryover ( 3,386)
Other 1,620 ( 405)
Income tax expense $ 18,130 $ 15,410
F-8
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ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1996
(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
$1,765,525 at March 31, 1996 and $1,172,120 at March 31, 1995.
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.
8. Trade Acceptance Drafts receivable, bank:
As of March 31, 1996, Actrade Capital, Inc., formerly 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 $2,265,170 at March 31, 1996. The bank purchases the TAD's at the face
value and advances these amounts to Actrade Capital, Inc. The bank
purchases the TAD's without recourse and Actrade Capital, 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 the above. The bank will purchase each TAD by advancing to
Actrade Capital, Inc. 75% of the face amount of each TAD assigned and
delivered by overdraft on the Actrade Capital, Inc. account. At March 31,
1996 the advances on the overdraft account amounted to $1,214,014. As each
TAD is collateralized, the face amount will be credited to the Actrade
account to reduce the advanced overdraft. Interest is payable at 1% over
prime per annum on the outstanding advances, which will be charged on the
first day of each month.
F-9
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ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1996
(Unaudited)
9. Outstanding warrants to purchase common stock:
At March 31, 1996, the Company had outstanding warrants to purchase 105,000
shares of the Company's common stock at prices ranging from $1.75 to $2.25
per share. The warrants became exercisable in 1996 and expire in 2001. At
March 31, 1996, 105,000 shares of common stock were reserved for that
purpose.
10. Reconciliation of shares used in computation of earnings per share:
1996 1995
Primary weighted average of shares
actually outstanding 5,330,681 5,295,005
Common stock purchase warrants 16,748
Fully diluted weighted average common
shares outstanding 5,347,429 5,295,005
F-10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1. Results of Operations
During the first nine months of fiscal 1996, ended March 31, 1996, the Company
had combined gross revenues of $17,075,672, as compared to $11,584,561 for the
first nine months of fiscal 1995. Despite an increase of over $5,490,000 in
gross revenues (over 47% above the same period in fiscal 1995), total cost of
revenues from operations during this period continued their dramatic increase to
$15,603.492, approximately 91.4% of gross revenues, as compared to cost of goods
sold for the same period in fiscal 1995 of $10,434.780 or 90.1% of gross
revenues. Although slightly improved from the first quarter of fiscal 1996 when
cost of revenues reached an all time high of 92% of gross revenues, this
resulted in gross profits from operations of $1,472,180 for the nine month
period, an increase of $322,399 (or approximately 28%) from the first nine
months of fiscal 1996, with net incomes from operations of $537,424 for this
period, as compared to $332,100 for the same period last year. After interest
income and expenses and provisions for income taxes, the Company experienced net
earnings of $504,326 as compared to $342,494 for the first nine months of fiscal
1995 (an increase of over 47%), or $0.09 per share as compared to $0.06 per
share for the same period last year.
With respect to the three months ended March 31, 1996, gross revenues reached
$5,883,602 (up almost 57% from the third quarter of fiscal 1995); gross profits
climbed to $508,739 (an increase of over 87% from the third quarter of fiscal
1995); net income from operations totaled $174,235 (up over 5,171% from the same
period in fiscal 1995); and net earnings after interest income and expenses and
allowances for income taxes reached $165,364 (an increase of over 285% from
fiscal 1995), or $0.03 per share for the quarter ended March 31, 1996. However,
despite the substantial increase in revenues and profits during this quarter,
the results for this three month period shows that the cost of revenues as a
percentage of gross revenues resumed its upward trend, reaching 91.4% (compared
with 90.9% during the second quarter of fiscal 1996), a circumstance which
management believes is directly attributable to the continued high cost
associated with the promotion, on a commercial basis, of its TAD Program (see
"FINANCIAL SERVICES DIVISION" below). Management continues to believe that
operating results during fiscal 1996 indicate a leveling off of the increased
costs associated with the TAD Program and do not expect that this ration will
show any further significant increase 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 Actrade Capital, Inc. - formerly Amworld
Commerce, Inc. -("Capital"). Capital's gross margins are lower than for
the export division, typically in the range of 7 - 8%. Consequently, as
Capital accounts for an increasing percentage of the Company's overall
revenues, the Company's overall margins will decrease. During the first
nine months of fiscal 1996, Capital generated $5,770,195 in gross
revenues, approximately 33.8% of the Company's total revenues.
10
<PAGE>
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 Capital 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.
However, as further evidence of management's belief that the impact of the
higher costs associated with the introduction of the TAD Program, the Company's
net operating income expressed as a percentage of gross revenues remained
virtually unchanged from the 2.957% level at the end of the first nine months of
fiscal 1995 to 2.953% at the end of the first nine months of fiscal 1996.
Further, this ration continues to improve from the prior low of 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 show an
increase. Management believes that this ratio will continue to remain stable
during the balance of fiscal 1996 and that 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 nine months of
fiscal 1996. Allstate's total sales have aggregated only $11.728, 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 March 31, 1996 the Company had total assets of
$7,867,600 (compared with $5,987,746 at June 30, 1995, the end of fiscal 1995)
with total liabilities of $4,237,791 (compared with $3,057,530 at June 30,
1995). Of the Company's assets at March 31, 1996, $1,780,319 was in the form of
cash and cash equivalent (compared to $1,769,049 at June 30, 1995), $3,457,212
represents accounts receivable, excluding TADs, (compared to $2,560,827 at June
30, 1995) and $2,265,170 in Trade Acceptance Drafts receivable (with a
11
<PAGE>
corresponding liability of $1,214,014 representing cash advanced from Capital's
bank). The slight increase in cash on hand at March 31, 1996 was principally due
to routine fluctuations in cash on hand from the Company's operations. The
increase of $896,385 in accounts receivables outstanding at March, 1996, as well
as the increase in accounts payable ($2,609,508 at March 31, 1996 compared to
$1,764,986 at June 30, 1995) was principally due to the increased revenues
generated by Capital 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 March 31, 1996 the Company had Retained Earnings of $1,528,814 with total
Stockholder's Equity of $3,517,334, 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 March 31, 1996 the Company had property, less accumulated depreciation, of
$92,632, (compared to $93,174 at June 30, 1995) and security 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 March 31, 1996 the
Company continued to show $58,475 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, Capital (formerly Amworld Commerce,
Inc.) generated gross revenues of $927,757 (as compared to $247,809 during
fiscal 1993) resulting in a net loss from operations for Capital of $50,390.
Although showing a modest loss, Capital's operating results for fiscal 1994
exceeded management's expectations.
12
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, Capital generated total gross revenues of
$3,703,493, almost 300% higher than fiscal 1994, which resulted in a new
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 Capital would have
been approximately $215,153.
Capital's operating revenues during the first nine months of fiscal 1996 totaled
$5,770,196, or approximately 33.8% of the Company's total revenues during this
period, as compared to total revenues of $2,378,697, or approximately 20% of
total revenues, during the first nine months of fiscal 1995. Perhaps most
importantly however, capital's gross revenues during this period were more than
142% higher than the same period last fiscal year.
During this period, Capital also had interest income of $37,530, interest
expenses of $97,162 and incurred selling, general and administrative expenses of
$195,421 which resulted in net operating income before taxes of $101,891.
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, continues 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
13
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 the 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.
14
<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: April 25, 1996
ACTRADE INTERNATIONAL, LTD.
By:
Amos Aharoni,
Chief Executive Officer
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