SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended December 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 January 17, 1997
Common Stock, par value $0.0001
per share 6,330,681
<PAGE>
INDEX
Part I. Financial information
Item 1. Consolidated condensed financial statements:
Balance sheet as of December 31, 1996 and June
30, 1996 F-2
Statement of operations for six and three
months ended December 31, 1996 and 1995 F-3
Statement of changes in shareholders' equity F-4
Statement of cash flows for the six months
ended December 31, 1996 and 1995 F-5
Notes to consolidated condensed financial statements F-6- F-10
Item 2. Management's discussion and analysis of financial
condition F-11 - F-15
Part II. Other information
Signatures
F-1
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND JUNE 30, 1996
(Unaudited)
ASSETS
December 31, June 30,
1996 1996
---- ----
Current assets:
Cash, including time deposits at June 30, 1996 $ 528,559 $1,924,805
Accounts receivable, less allowance for
doubtful accounts of $25,000 6,337,196 3,361,821
Trade acceptance draft receivable, bank
(Note 7) 2,814,330 2,578,015
Accounts receivable, other 17,379 77,164
Prepaid expenses 35,053 24,815
Interest receivable 443 3,162
---------- ----------
Total current assets 9,732,960 7,969,782
---------- ----------
Property and equipment:
Furniture and fixtures 206,325 161,829
Leasehold improvements 122,177 113,902
---------- ----------
328,502 275,731
Less accumulated depreciation 187,654 172,026
---------- ----------
140,848 103,705
---------- ----------
Other asset, security deposits 15,984 15,034
---------- ----------
$9,889,792 $8,088,521
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash advance from bank (Note 7) $ 675,705 $1,178,551
Accounts payable 1,546,414 1,872,880
Consumer deposits 55,954
Accrued expenses 6,322 11,041
Due to affiliates 3,126 3,126
Income taxes payable (Note 6) 46,735 21,302
---------- ----------
Total current liabilities 2,278,302 3,142,854
---------- ----------
Commitments (Note 5)
Deferred rent liability (Note 5) 50,929 55,960
---------- ----------
Shareholders' equity:
Common stock, $.0001 par value;
authorized 100,000,000 shares, issued and
outstanding 6,330,681 at December 31, 1996
and 5,683,181 at June 30, 1996 633 568
Common stock purchase warrants (Note 8) 87,500
Additional paid in capital 5,058,372 3,107,137
Retained earnings 2,414,056 1,782,002
---------- ----------
7,560,561 4,889,707
---------- ----------
$9,889,792 $8,088,521
========== ==========
See notes to condensed consolidated financial statements.
F-2
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX AND THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
Six Months Ended Three Months Ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
Net sales $16,458,567 $11,192,070 $8,880,533 $5,710,294
Cost of sales 14,860,738 10,228,629 7,956,924 5,189,983
----------- ----------- ---------- ----------
Gross profit 1,597,829 963,441 923,609 520,311
Selling, general and
administrative expenses 903,359 600,252 517,997 313,400
----------- ----------- ---------- ----------
Income from operations 694,470 363,189 405,612 206,911
----------- ----------- ---------- ----------
Other income (charges):
Interest income 15,881 58,382 5,382 29,284
Interest expense ( 31,562) ( 63,928) ( 6,050) ( 39,119)
----------- ----------- ---------- ----------
( 15,681) ( 5,546) ( 668) ( 9,835)
----------- ----------- ---------- ----------
Income before income
taxes 678,789 357,643 404,944 197,076
Income tax expense
(Note 6) 46,735 18,681 32,765 1,910
----------- ----------- ---------- ----------
Net income $ 632,054 $ 338,962 $ 372,179 $ 195,166
=========== =========== ========== ==========
Earnings per common share:
Primary $ 0.11 $ 0.06 $ 0.06$ 0.04
=========== =========== ========== ==========
Fully diluted $ 0.10 $ 0.06 $ 0.06 $ 0.04
=========== =========== ========== ==========
Weighted average common
shares outstanding
(Note 9):
Primary 5,985,337 5,330,681 6,330,153 5,330,681
=========== =========== ========== ==========
Fully diluted 6,120,337 5,330,681 6,465,153 5,330,681
=========== =========== ========== ==========
See notes to condensed consolidated financial statements.
F-3
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JULY 1, 1994 TO DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
$.0001 Par Value Common Stock Paid in Retained
Shares Amount Warrants Amount Capital Earnings Total
--------- ------ -------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 5,006,354 $ 501 $1,474,331 $ 616,835 $2,091,667
Exercise of warrants 324,327 32 567,542 567,574
Net income for the year
ended June 30, 1995 407,793 407,793
--------- ---- ------ ------- ---------- ---------- ----------
Balance at June 30, 1995 5,330,681 533 2,041,873 1,024,628 3,067,034
Issuance of common stock 352,500 35 1,065,264 1,065,299
Net income for the year
ended June 30, 1996 757,374 757,374
--------- ---- ------ ------- ---------- ---------- ----------
Balance at June 30, 1996 5,683,181 568 3,107,137 1,782,002 4,889,707
Issuance of common stock 647,500 65 1,951,235 1,951,300
Exercise of common stock
purchase warrants 50,000 $87,500 87,500
Net income for the six
months ended December 31,
1996 632,054 632,054
--------- ---- ------ ------- ---------- ---------- ----------
Balance at December 31, 6,330,681 $633 50,000 $87,500 $5,058,372 $2,414,056 $7,560,561
1996 ========= ==== ====== ======= ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
1996 1995
---- ----
Cash flow from operating activities:
Net income $ 632,054 $ 338,962
Adjustments to reconcile net income
to cash provided from operating
activities:
Depreciation 11,487
Changes in operating assets and liabilities:
Increase in accounts receivable ( 3,211,690) ( 1,660,030)
Decrease in accounts receivable, other 59,785
Increase in prepaid expenses ( 10,238) ( 10,917)
Increase (decrease) in interest receivable 2,719 ( 58,335)
Increase (decrease) in accounts payable ( 310,838) 1,018,461
Decrease in accrued expenses ( 4,719) ( 5,341)
Increase in payroll taxes payable 25,880
Increase in income taxes payable 25,433 17,981
Decrease in customer deposits ( 55,954)
Increase in security deposits ( 950)
Increase in deferred rent ( 5,031) ( 3,618)
Decrease in deferred taxes 13,439
---------- ----------
Net cash used in operating activities ( 2,879,429) ( 312,031)
---------- ----------
Investing activities:
Use of cash:
Purchase of property and equipment ( 52,771) ( 14,352)
---------- ----------
Net cash used in investing activities ( 52,771) ( 14,352)
---------- ----------
Financing activities:
Sources of cash:
Proceeds from issuance of common stock 2,038,800
Increase in cash advances from bank 415,727
Decrease in loans receivable, affiliates 105,722
Use of cash:
Decrease in long-term debt ( 90,000)
Decrease in cash advances, bank ( 502,846)
---------- ----------
Net cash provided from financing activities 1,535,954 431,449
---------- ----------
Net increase (decrease) in cash ( 1,396,246) 105,066
Cash, beginning of period 1,924,805 1,769,049
---------- ----------
Cash, end of period $ 528,559 $1,874,115
========== ==========
Supplemental disclosures from cash flow information:
Cash paid during the year for:
Interest $ 37,251 $ 25,109
========== ==========
Income taxes $ 15,973 $ 700
========== ==========
See notes to condensed consolidated financial statements.
F-5
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 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-Q. 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, 1996, 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., 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 September 1994.
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,
Actrade Capital, Inc. and American Cooling, Inc. are included as the
subsidiaries of Actrade International, Ltd.
F-6
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996
(Unaudited)
4. Related party transactions:
During each of the three years ended December 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.
The Company has entered into several employment agreements with its
officers and shareholders.
5. 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.
In August 1996, Actrade entered into a 12 month lease expiring August 31,
1997 with an Illinois office suite. Both parties have the option to terminate
the lease with 30 days written notice to either party on November 30, 1996. The
lease provides for monthly payments of $1,100 on the first day of each month.
Future minimum lease payments required under non-cancelable operating
leases by fiscal year are as follows:
December 31, 1997 $83,979
December 31, 1998 $70,902
December 31, 1999 $74,095
December 31, 2000 $12,483
Lease expense amounted to $41,713 and $37,780 for the six months ended
December 31, 1996 and 1995 respectively.
F-7
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996
(Unaudited)
6. Income taxes:
The components of income tax expense are:
Six months Six months
Ended Ended
December 31 December 31
1996 1995
---- ----
Income taxes currently payable:
Federal $ 33,134 $ 12,828
State 17,006 4,773
-------- --------
50,140 17,601
-------- --------
Deferred tax expense arising from:
Excess of Financial accounting
depreciation over tax ( 1,443) ( 220)
Excess of tax deductible rent over rent
expense for financial accounting purposes( 1,962) 1,300
-------- --------
( 3,405) 1,080
-------- --------
Total income tax expense $ 46,735 $ 18,681
======== ========
Deferred income tax provisions resulting from differences between accounting
for financial statement purposes and accounting for tax purposes are
reflected above.
A reconciliation 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
1996 1995
---- ----
Computed tax at the expected
statutory rate $259,351 $137,620
Surtax exemption ( 16,750) ( 15,863)
State income taxes, net of federal
tax benefit 17,006 18,304
Foreign income ( 209,467) ( 119,074)
Tax benefit from utilization of net
operating loss carryover ( 3,386)
Other ( 3,405) 1,080
-------- --------
Income tax expense $ 46,735 $ 18,681
======== ========
F-8
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996
(Unaudited)
6. Income taxes (continued):
The effective statutory rate for 1996 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
$2,495,444 at December 31, 1996 and $1,683,200 at December 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.
7. Trade Acceptance Drafts receivable, bank:
As of December 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 $2,814,330 at
December 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 December 31, 1996 the advances on the overdraft account amounted to
$675,705. 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
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996
(Unaudited)
8. Outstanding warrants to purchase common stock:
At December 31, 1996, the Company had outstanding warrants to purchase
135,000 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
December 31, 1996, 135,000 shares of common stock were reserved for that
purpose.
In December of 1996, 50,000 warrants were exercised with proceeds of
$87,500 to the Company. The common shares were issued in 1997.
9. Reconciliation of shares used in computation of earnings per share:
1996 1995
---- ----
Primary weighted average of shares
actually outstanding 5,985,337 5,330,681
Common stock purchase warrants 135,000
-------
Fully diluted weighted average common
shares outstanding 6,120,337 5,330,681
========= =========
F-10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
I. Results of Operations
During the first three months of fiscal 1997, ended September 30, 1996, the
Company has combined gross revenues of $7,578,034, as compared to $5,481,776 for
the first three months of fiscal 1996. During this period, cost of revenues
totaled $6,903,814 (approximately 91% of total revenues), as compared to
$5,038,646 (921% of total revenues). This represented a slight decrease in cost
of revenues when expressed as a percentage of total revenues, reversing the
trend experienced during fiscal 1995 and early 1996, when cost of revenues for
the 1996 first quarter rose from 88.3% of total revenues during the first
quarter of fiscal 1995. This resulted in gross profits from operations of
$674,220 for the first quarter of fiscal 1997, an increase of almost $231,090
(or approximately 52% higher than the first quarter of fiscal 1996). with income
from operations of $288,858 for this period, as compared to $156,278 for the
same period last year, an increase of approximately 84.8% over last year.
As discussed in the Company's 10-KSB for the year ended December 31, 1996, there
were two basic reasons for the escalating higher cost of goods, particularly
when expressed as a percentage of total revenues. Essentially the nature of the
profit margins typical for the operation of both Actrade S.A. and Actrade
Capital, Inc. ("Capital") have been significantly lower than those experienced
by the Company's other operating divisions. Consequently, management believes
that escalation in cost of revenues experienced throughout fiscal 1995 and early
1996 was due to the changing "mix" in the Company's revenues resulting from the
higher percentage of total revenues represented by Actrade S.S. and Capital.
During the first three months of fiscal 1997, in combination, Actrade S.A. and
Capital represented $5,566,459 of the Company's total revenues for the period,
or over 73%. Although, in management's opinion, this percentage may continue to
show a further modest increase as Capital accelerates its marketing initiative
(see discussion below), management believes that the prior trend of accelerating
costs of revenues has now stabilized and should not be a significant factor in
the future.
As in the past, management is unable to predict whether or not the relatively
low profit margins will persist with respect to revenues from Actrade S.A.
during the balance of fiscal 1997.
As a result of management's decision to substantially accelerate marketing
activities by Capital during fiscal 1997, management does not believe that the
comparison of the first quarter of fiscal 1997 to fiscal 1996 is indicative of
the results to be expected for all of fiscal 1997. based upon the first quarter
of fiscal 1997, and management's expected results from its newly introduced
marketing incentive for Capital, no estimate of operating results can be made at
this time, although management believes that the Company will, on a consolidated
basis, continue reflect net operating profits above the levels experienced
during fiscal 1996.
F-11
<PAGE>
The increase in gross revenues during this period (over 38% above the first
three months of fiscal 1996) was primarily due to the expansion of Actrade's
operations through (I) the continued growth of Capital, discussed separately
below (see "III Actrade Capital, Inc. And The Trade Acceptance Draft Program"),
and (ii) the continued growth within Actrade's existing product lines, including
Actrade S.A. As was the case during fiscal 1996, 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
Capital.
As a result of foregoing factors, the Company's net operating income expressed
as a percentage of gross revenues increased from 2.6% at the end of the first
quarter of fiscal 1996 to 3.4% at the end of the first quarter of fiscal 1997.
For the reasons discussed above, management believes that this ratio will remain
stable during fiscal 1997. Further, management believes the results of
operations for the first quarter of fiscal 1997 show the continued success of
the Company's expansion program and its cost cutting measures.
After interest income of $10,499 and interest expense of $25,512 during this
period (compared to $29,098 and $24,809 respectively during the first quarter of
fiscal 1996), and all allowance for income tax expense, the Company realized a
net profit for the period of $259,875 as compared to $143,796 for the same
period last year, an increase of approximately 80.7%. Management attributes this
substantial increase principally to the higher revenues from Capital (see
"Actrade Capital, Inc. And The Trade Acceptance Draft Program") below.
During the first quarter of fiscal 1997, Allstate had, and continues to have,
extremely limited operations, a situation expected to continue for the
foreseeable future. During the first three months of fiscal 1997, Allstate's
total sales have aggregated only $4,253, 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 September 30, 1996 the Company had total assets of
$8,980,608 (compared with $8,088,521 at June 30, 1996, the end of fiscal 1996)
with total liabilities of $2,223,021 (compared with $3,198,814 at June 30,
1996). Of the Company's assets at September 30, 1996, $1,920,876 was in the form
of cash and cash equivalents (compared to $1,924,805 at June 30, 1996),
$3,886,019 represents accounts receivable (compared to $3,361,821 at June 30,
1996), and $2,884,817 was in the form of trade acceptance drafts receivable,
bank (compared to $2,578,015 at June 30, 1996). The very slight decrease in cash
on hand at September 30, 1996 was principally due to routine fluctuations in
cash on hand from the Company's operations.. The increase of $520,565 in
accounts receivables outstanding at September 30, 1996, as well as the decrease
in accounts payable ($1,580,983 at September 30, 1996 compared to $1,872,880 at
June 30, 1996) was principally due to the normal effects of increased sales by
Actrade S.A., coupled with the Company's election to pay down its outstanding
payables with a portion of the funds received from the Company's recently
completed private placement of its securities. Similarly, the substantial
decrease in cash advanced from bank, which represents the Company's advance
payment from the sale of the trade acceptance drafts to its bank under its
credit agreements, ($547,615 at September 30, 1996 compared to $1,178,551 at
June 30, 1996) also represents the election by the Company not to draw against
its available credit lines with its bank but, rather, to utilize a portion of
the funds raised in its recently completed private placement.
F-12
<PAGE>
The Company's accounts payable are all current.
At September 30, 1996 the Company had Retained Earnings of $2,041,877 with total
Shareholders' Equity of $6,757,587, compared with $1,782,002 and $4,889,707,
respectively, at June 30, 1996. The principal source of funds for the Company's
operations are revenues earned by the Company's operating subsidiaries. However,
during the first quarter of fiscal 1997, the Company completed a further portion
of its recently completed private placement of its securities and received an
additional $1,658,250, gross proceeds, which also accounts, in part, for the
substantial increase in Stockholders' Equity.
At September 30, 1996 the Company had property and equipment, less accumulated
depreciation, of $104,864 (compared to $103,705 at June 30, 1996) and deferred
taxes and deposits of $13,970, compared to $21,302 at the end of fiscal 1996. 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, 1996 the Company continued to show $53,444 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 1997. Thereafter, future
capital expenditures will be decided based upon operating results and net
revenues from operations. At present, the Company's principal expansion
activities involve the net revenues from operations. At present, the Company's
principal expansion activities involve the marketing of Capital's TAD Program,
which activities involve no significant capital expenditures.
Management continues to investigate new product lines for addition to its
existing product offerings through its international trade division.
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 1997 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, of the Company's total accounts receivable at
June 30, 1996, in the amount of $3,361,821 approximately 95% have been collected
and, of the balance, approximately $168,000 is secured by commercial documentary
drafts.
F-13
<PAGE>
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 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.
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 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 Capital would have
been approximately $215,153.
Capital's operating revenues during the first quarter of fiscal 1997 totaled
$3,046,421, or approximately 40% of the Company's total revenues during this
period as compared to total revenues of $1,522,564, or approximately 27.8% of
total revenues, during the first quarter of fiscal 1996. Revenues for the first
quarter of fiscal 1997 represented an increase of approximately 100% over the
same period last year. During this period, Capital also had interest income of
$10,499, incurred selling, general and administrative expenses of $158,986 and
interest expense of $25,479, which resulted in net operating income before taxes
of $22,620.
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 quality of American products and the relative weakness of 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 product 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 continued
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.
F-14
<PAGE>
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
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 by providing foreign
sources for products.
Over the long-term, as the US economy continued 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 report
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 1997, ended December 31, 1996, the Company
had combined gross revenues of $16,458,587, as compared to $11,192,070 for the
first six months of fiscal 1995, which represented an increase of over
$5,260,000 in gross revenues (almost 47%) above the same period in fiscal 1996.
During the current period, the Company reported gross profits from operations of
$1,597,829, an increase of $634,388 (or approximately 66%) from the first half
of fiscal 1996, with incomes from operations of $694,470 for this period, as
compared to $363,189 for the same period last year. After interest income and
expenses and provisions for income taxes, the Company experienced net earnings
of $632,054, as compared to $338,962 for the first half of fiscal 1996 (an
increase of over 86%), or $0.10 per share for the six months ended December 31,
1996 as compared to $0.06 for the same period last year.
Total cost of revenues from operations during the first half of fiscal 1996
reached $14,860,738, an increase of slightly more than $4,630,000 from the first
half of fiscal 1996. Although cost of revenues continued at the higher levels
experienced during fiscal 1996, cost of revenues continued to level off, a
process begun during the first quarter of fiscal 1997, and when expressed as a
percentage of total revenues dropped to 90.3%, as compared to approximately
91.3% for the first six months of fiscal 1996, and slightly lower than the 91%
reported for the first quarter of fiscal 1997.
As previously reported, the basic reasons for the higher costs of revenues
experienced during fiscal 1996 relate to the changing "mix" of the Company's
revenues resulting from the higher percentage of total revenues represented by
Actrade S.A. and Actrade Capital, inc. ("Capital"), and the fact that the profit
margins typical for the operations of both Actrade S.A. and Capital have been,
and are expected to continue to be, significantly lower than those experienced
by the Company's other operating division. However, in management's opinion,
although this ratio may continue to show modest future fluctuations as Capital
accelerates its marketing initiative for the TAD Program, the prior trend of
accelerating costs of revenues has now stabilized and should not be a
significant factor in the future.
With respect to the three months ended December 31, 1996, gross revenues reached
$8,880,533 (up over 55.5% from the second quarter of fiscal 1996); gross profits
climbed to $923,609 (an increase of just over 77.5% from the second quarter of
fiscal 1996); income from operations totaled $405,612 (up over 96% from the same
period in fiscal 1996); and net earnings after interest income and expenses and
allowances for income taxes reached $372,179 (an increase of over 90.6% from
fiscal 1996), or $0.06 per share for the quarter ended December 31, 1996 as
compared to $0.04 per share for the second quarter of fiscal 1996. Most
importantly, however, the results for this three month period shows that the
cost of revenues dipped to 89.6% for the three months ended December 31, 1996.
As discussed above, 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 1997.
As previously reported, due to management's decision to substantially accelerate
marketing activities by Capital during the current fiscal year, no estimates of
operating results can be made at this time. However, management believes that
the Company will, on a consolidated basis, continue to reflect revenues and
operating profits for the balance of fiscal 1997 at levels above those reflected
for the first six months.
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
Capital's TAD Program, discussed separately below (see "III. Actrade Capital
Inc. And The Trade Acceptance Draft Program"), and (ii) the continued growth
within Actrade's existing product lines, including Actrade S.A. As was the case
during fiscal 1996, 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 Capital.
<PAGE>
As a result of the foregoing factors, the Company's operating income expressed
as a percentage of gross revenues continued its rise and reached 4.2% at the end
of the first half of fiscal 1997, compared to slightly over 3.0% at the end of
the first half of fiscal 1996. For the reasons discussed above, management does
not expect this ratio to decrease during the balance of fiscal 1997. Further,
management believes that the result of operations during the first half of
fiscal 1997 clearly demonstrates the continued success of the Company's
expansion program and 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
1997, Allstate's total sales have aggregated only $7,937, which continue to
account for less than 1/20 of 1% of the Company's total revenues for this
period.
II. Discussion of Financial Condition
On a consolidated basis, at December 31, 1996 the Company had total assets of
$9,889,792 (compared with $8,088,521 at June 30, 1996, the end of fiscal 1996)
with total liabilities of $2,329,231 (compared with $3,198,814 at June 30,
1996). Of the Company's assets at December 31, 1996, $ 528,559 was in the form
of cash and cash equivalent (compared to $1,924,805 at June 30, 1996),
$6,337,196 represents accounts receivable, excluding TADs, (compared to
$3,361,821 at June 30, 1996) and $2,814,330 in Trade Acceptance Drafts
receivable (with a corresponding liability of $675,705 representing cash
advanced from Capital's bank, which represents the Company's advance payment
from the sale of trade acceptance drafts to its bank under its credit
agreements). The decrease in cash on hand, accounts payable and cash advance
from bank at December 31, 1996 was principally due to utilization of available
cash on hand in connection with Capital's TAD Program and to reduce, and/or not
to further utilize, the Company's available credit lines and related payables,
as reflected in the significantly lower liabilities at December 31, 1996. The
increase of $2,975,375 in accounts receivables outstanding at December 31, 1996
was principally due to the increased revenues generated by Actrade and the
effects of increased sales by Actrade S.A. As previously reported, the funds
utilized by the Company during this period for the purposes discussed above were
primarily derived from the Company's recently concluded private placement of its
common stock.
The Company's accounts payable are all current.
At December 31, 1996 the Company had Retained Earnings of $2,414,056 with total
Stockholder's Equity of $7,560,561, compared with $1,782,002 and $4,889,707,
respectively, at June 30, 1996. The principal source of funds for the Company's
operations are revenues earned by its operating subsidiaries. However, during
the first quarter of fiscal 1997 the Company completed a further portion of its
recently completed private placement of its securities and received additional
gross proceeds of $1,658,250. In addition, in December 1996 the Company also
received $87,500 from a consultant to the Company who elected to exercise
certain outstanding warrants to purchase 50,000 shares of the Company's common
stock. These items contributed significantly to the increase in Stockholders'
Equity at December 31, 1996.
At December 31, 1996 the Company had property, less accumulated depreciation, of
$140,848, (compared to $103,705 at June 30, 1996) and other assets and deposits
of $15,984, compared to $15,034 at the end of fiscal 1996. 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 December 31, 1996 the
Company continued to show $50,929 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 1997. Thereafter, future
capital expenditures will be decided based upon operating results and net
revenues from operations. The Company's principal expansion activities involve
marketing Capital's accounts receivable financing program, which activities are
expected to involve significant capital expenditures.
<PAGE>
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 1997 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, 1996, in the amount of $3,361,821, approximately 99% have been
collected and of the balance approximately $35,000 is secured by commercial
documentary drafts.
III. Actrade Capital Inc. And The Trade Acceptance Draft Program.
During fiscal 1994, the first full year of operations for the TAD Program,
although still in its development stage, Capital 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.
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 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 Capital would have
been approximately $215,153.
Capital's operating revenues during the first half of fiscal 1997 totaled
$7,312,871, or approximately 44.4% of the Company's total revenues during this
period, as compared to total revenues of $3,598,931, or approximately 32.2% of
the Company's total revenues during the first half of fiscal 1996 and
$1,509,065, or approximately 19.2% of total revenues, during the first half of
fiscal 1995. Perhaps most importantly however, Capital's gross revenues during
this period were more than 103% higher than the same period in fiscal 1996. In
addition, confirming management's expectations, revenues during the three months
ended December 31, 1996 were $4,266,450, an increase of approximately 40% over
gross revenues reported for the first three months of fiscal 1997.
During this period, Capital also had interest income of $15,881, interest
expenses of $31,322 and incurred selling, general and administrative expenses of
$340,021 which resulted in operating income from operations, before taxes, of
$118,922, as compared to $77,080 for the first six months of fiscal 1996 (an
increase of over 54%). After a provision for income taxes of $12,417, Capital
had net income from operations of $91,064 for the six months ended December 31,
1996
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.
<PAGE>
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: January 22, 1997
ACTRADE INTERNATIONAL, LTD.
BY:_/s/Amos Aharoni________________
Amos Aharoni,
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 528,559
<SECURITIES> 0
<RECEIVABLES> 9,151,526
<ALLOWANCES> 25,000
<INVENTORY> 0
<CURRENT-ASSETS> 9,732,960
<PP&E> 328,502
<DEPRECIATION> 122,177
<TOTAL-ASSETS> 9,889,792
<CURRENT-LIABILITIES> 2,278,302
<BONDS> 0
0
0
<COMMON> 88,133
<OTHER-SE> 5,058,372
<TOTAL-LIABILITY-AND-EQUITY> 9,889,792
<SALES> 16,458,567
<TOTAL-REVENUES> 16,458,567
<CGS> 14,860,738
<TOTAL-COSTS> 903,359
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,681
<INCOME-PRETAX> 678,789
<INCOME-TAX> 46,735
<INCOME-CONTINUING> 632,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 632,054
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.10
</TABLE>
