SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
--------------------------
For Quarter Ended March 31, 1997
Commission File Number 0-18711
ACTRADE INTERNATIONAL, LTD.
(Exact name of Registrant 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, Suite 422, New York, N.Y. 10001
(Address of principal executive offices)
Issuer's telephone number, including area code: (212) 563-1036
-----------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the 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 April 28, 1997 there were
outstanding 6,330,681 shares of Common Stock, par value $.0001.
<PAGE>
INDEX
Part I. Financial information
Item 1. Consolidated financial statements:
Balance sheets as of March 31, 1997 and June 30, 1996 F-2
Condensed consolidated statement of operations for the
nine and three months ended March 31, 1997 and 1996 F-3
Condensed consolidated statement of
shareholders' equity F-4
Condensed consolidated statements of cash flows for the
nine months ended March 31, 1997 and 1996 F-5
Notes to consolidated financial statements F-6 - F-9
Item 2. Management's discussion and analysis of
financial condition 1 - 5
Part II. Other information
Exhibits and reports on Form 8-K 5
Signatures 6
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997 AND JUNE 30, 1996
(Unaudited)
ASSETS
March 31, June 30,
1997 1996
Current assets:
Cash, including time deposits at June 30, 1996 $ 328,934 $1,924,805
Accounts receivable, less allowance for
doubtful accounts of $25,000 5,395,586 3,361,821
Trade acceptance draft receivable, bank 5,400,590 2,578,015
Accounts receivable, other 6,381 77,164
Prepaid expenses 45,304 24,815
Interest receivable 3,162
----------- ----------
Total current assets 11,176,795 7,969,782
----------- ----------
Property and equipment:
Furniture and fixtures 250,800 161,829
Leasehold improvements 126,177 113,902
----------- ----------
376,977 275,731
Less accumulated depreciation 200,204 172,026
----------- ----------
176,773 103,705
----------- ----------
Other asset, security deposits 15,984 15,034
----------- ----------
$11,369,552 $8,088,521
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash advance from bank $ 625,924 $1,178,551
Accounts payable 1,707,476 1,872,880
Consumer deposits 55,954
Accrued expenses 11,868 11,041
Due to affiliates 3,126 3,126
Income taxes payable 8,462 21,302
----------- ----------
Total current liabilities 2,356,856 3,142,854
----------- ----------
Commitments
Deferred rent liability 48,414 55,960
----------- ----------
Shareholders' equity:
Common stock, $.0001 par value;
authorized 100,000,000 shares, issued and
outstanding 6,330,681 at March 31, 1997
and 5,683,181 at June 30, 1996 633 568
Common stock purchase warrants 987,500
Additional paid in capital 5,058,372 3,107,137
Retained earnings 2,917,777 1,782,002
----------- ----------
8,964,282 4,889,707
----------- ----------
$11,369,552 $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 NINE AND THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31, March 31,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---- ---- ---- ----
Net sales $29,456,296 $17,075,672 $12,997,729 $5,883,602
Cost of sales 26,846,681 15,603,492 11,985,943 5,374,863
----------- ----------- ---------- ----------
Gross profit 2,609,615 1,472,180 1,011,786 508,739
Selling, general and
administrative expenses 1,436,053 934,756 532,694 334,504
----------- ----------- ---------- ----------
Income from operations 1,173,562 537,424 479,092 174,235
----------- ----------- ---------- ----------
Other income (charges):
Interest income 15,957 87,184 76 28,802
Interest expense ( 34,839) ( 102,152) ( 3,277) ( 38,224)
----------- ----------- ---------- ----------
( 18,882) ( 14,968) ( 3,201) ( 9,422)
----------- ----------- ---------- ----------
Income before income
taxes 1,154,680 522,456 475,891 164,813
Income tax expense
(benefit) 18,905 18,130 ( 27,830) 551
----------- ----------- ---------- ----------
Net income $ 1,135,775 $ 504,326 $ 503,721 $ 164,262
=========== =========== ========== ==========
Earnings per common share:
Primary $ 0.18 $ 0.09 $ 0.08$ 0.03
=========== =========== ============= =======
Fully diluted $ 0.18 $ 0.09 $ 0.08$ 0.03
=========== =========== ============= =======
Weighted average common
shares outstanding
Primary 6,216,547 5,330,681 6,635,125 5,330,681
=========== =========== ========== ==========
Fully diluted 6,216,547 5,347,429 6,635,125 5,398,043
=========== =========== ========== ==========
</TABLE>
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 MARCH 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
$.0001 Par Value Common Stock Paid in Retained
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Amount Warrants Amount Capital Earnings Total
------ ------ -------- ------ ------- -------- -----
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
Issuance of common shares
on exercise of stock
purchase warrants 400,000 900,000 900,000
Net income for the nine
months ended March 31, 1997 1,135,775 1,135,775
--------- ---- -------- -------- ---------- ---------- ----------
Balance at December 31, 1996 6,330,681 $633 $450,000 $987,500 $5,058,372 $2,917,777 $8,964,282
========= ==== ======== ======== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
1997 1996
---- ----
Operating activities:
Net income $1,135,775 $ 504,326
Adjustments to reconcile net income
to cash provided from operating
activities:
Depreciation 28,178 17,558
Changes in other operating assets and liabilities:
Accounts receivable ( 4,856,340) ( 1,653,555)
Accounts receivable, other 70,783
Prepaid expenses ( 20,489) 7,980
Interest receivable 3,162 ( 21,326)
Accounts payable ( 165,404) 844,522
Accrued expenses 827 ( 8,016)
Income taxes payable ( 12,840) 14,041
Customer deposits ( 55,954)
Security deposits ( 950)
Deferred rent ( 7,546) ( 5,427)
Deferred taxes 13,439
Changes in other assets and liabilities:
Increase in amounts due affiliates 290,654
---------- -------
Net cash used in operating activities ( 3,880,798) 4,196
---------- ----------
Investing activities:
Purchase of equipment ( 101,246) ( 17,167)
---------- ----------
Net cash used in investing activities ( 101,246) ( 17,167)
---------- ----------
Financing activities:
Proceeds from issuance of common stock 2,938,800
Proceeds from issuance of common stock
purchase warrants 125
Increase in cash advances from bank 159,116
Payment of long-term debt ( 135,000)
Decrease in cash advances, bank ( 552,627)
---------- -------------
Net cash provided from (used in)
financing activities 2,386,173 24,241
---------- ----------
Net increase (decrease) in cash ( 1,595,871) 11,270
Cash, beginning of period 1,924,805 1,769,049
---------- ----------
Cash, end of period $ 328,934 $1,780,319
========== ==========
Supplemental disclosures from cash flow information:
Cash paid during the year for:
Interest $ 15,957 $ 103,042
========== ==========
Income taxes $ 39,361 $ 700
========== ==========
See notes to condensed consolidated financial
statements.
F-5
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1997
(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, Inc. 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
NINE MONTHS ENDED MARCH 31, 1997
(Unaudited)
4. Related party transactions:
During each of the three years ended March 31, 1997, 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.
Inlieu 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 yea
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:
March 31, 1998 $ 82,758
March 31, 1999 $ 71,674
March 31, 2000 $ 68,657
--------
$223,089
Lease expense amounted to $65,516 and $54,499 for the nine months ended
March 31, 1997 and 1996 respectively.
F-7
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1997
(Unaudited)
6. Income taxes:
The components of income tax expense are:
Nine months Nine months
Ended Ended
March 31 March 31
1997 1996
Income taxes currently payable:
Federal $ 7,750 $ 11,410
State 8,462 5,100
-------- --------
16,212 16,510
-------- --------
Deferred tax expense arising from:
Excess of Financial accounting
depreciation over tax ( 2,165) ( 330)
Excess of tax deductible rent over rent
expense for financial accounting purposes 7,800
Other ( 2,942) 1,950
-------- --------
2,693 1,620
-------- --------
Total income tax expense $ 18,905 $ 18,130
======== ========
Deferred income tax provisions resulting from differences between accounting
for finanical statement purposes and accounting for tax purposes 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:
Nine months Nine months
Ended Ended
March 31 March 31
1997 1996
---- ----
Computed tax at the expected
statutory rate $442,952 $203,758
Surtax exemption ( 16,750) ( 17,483)
State income taxes 8,462 27,085
Foreign income ( 418,452) ( 193,464)
Tax benefit from utilization of net
operating loss carryover ( 3,386)
Other ( 2,693) 1,620
-------- --------
Income tax expense $ 18,905 $ 18,130
======== ========
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
$3,049,692 at March 31, 1997 and $1,765,525 at March 31, 1996.
F-8
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1997
(Unaudited)
6. Income taxes (continued):
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.
7. 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
Portuguese De Atlantico (Bank). The total TAD amounts due from the banks
were $5,400,590 at March 31, 1997. 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, 1997 the advances on the overdraft account
amounted to $625,924. 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.
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
were to 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. As of March 31, 1997, the remaining warrants
were cancelled due to non-performance of service contracts as explained
below.
9. Reconciliation of shares used in computation of earnings per share:
1997 1996
---- ----
Primary weighted average of shares
actually outstanding 6,216,547 5,330,681
Common stock purchase warrants 16,748
--------- ---------
Fully diluted weighted average common
shares outstanding 6,216,547 5,347,429
========= =========
10. Pending litigation:
The Company is currently engaged in litigation against a former
consultant retained to assist in introducing the Company to the
brokerage community and with it's investor relations. The consultant
was paid a cash retainer and was to receive common stock purchase
warrants for services rendered. The consultant, to the detriment of the
Company, terminated services on behalf of Actrade. As a result of the
termination, Actrade has refused to honor the warrants.
F-9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
I. Results of Operations
During the first nine months of fiscal 1997, ended March 31, 1997, the Company
had combined gross revenues of $29,456,296, as compared to $17,075,672 for the
first nine months of fiscal 1996, an increase of over $12,380,000 or 72.5% above
the same period in fiscal 1996. Equally important, total cost of revenues from
operations during this period continued to decrease to $26,846,681,
approximately 91.1% of gross revenues, as compared to cost of goods sold for the
same period in fiscal 1996 of $15,603,492, or 91.4% of gross revenues, and down
from more than 91.7% at June 30, 1996, the end of fiscal 1996. This resulted in
gross profits from operations of $2,609,615 for the nine month period ended
March 31, 1997, an increase of $1,137,434 (or approximately 77%) from the first
nine months of fiscal 1996, with income from operations of $1,173,562 for this
period, as compared to $537,424 for the same period last year. After interest
income and expenses and provisions for income taxes, the Company experienced net
earnings of $1,135,775, as compared to $504,326 for the first nine months of
fiscal 1996 (an increase of over 125%), or $0.18 per share as compared to $0.09
per share for the same period last year.
With respect to the three months ended March 31, 1997, gross revenues reached
$12,997,729 (up almost 121% from the third quarter of fiscal 1996); gross profit
climbed to $1,011,786 (an increase of almost 99% from the third quarter of
fiscal 1996); income from operations totaled $479,092 (up almost 175% from the
same period in fiscal 1996); and net earnings after interest income and expenses
and allowances for income taxes reached $503,721 (an increase of almost 205%
from fiscal 1996), or $0.08 per share for the quarter ended March 31, 1997 (as
compared to $0.03 for the third quarter of fiscal 1996. Management believes that
operating results during the first nine months of fiscal 1997 indicate a
leveling off of the increased costs associated with the TAD Program which is
expected to rise during the final quarter of fiscal 1997 due to a renewal of the
Company's expansion of personnel and office space incurred at the end of the
third quarter primarily in connection with the Company's TAD Program.
Although management continues to estimate total gross revenues for fiscal 1997
will approach $40 Million, due to the continued uncertainty of the cost which
will be incurred as Actrade Capital, Inc. ("Capital") continues to expand its
TAD Program, 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
Capital's TAD Program, discussed separately below (see "III. Impact of Trade
Acceptance Draft Program and the Operations of Capital"), and (ii) the continued
growth within Actrade's existing product lines, in particular with the
operations of 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.
During the nine months ended March 31, 1997, the Company's operating income
expressed as a percentage of gross revenues decreased slightly to 3.98% from
4.2% at the end of fiscal 1996. However, this ratio remained substantially
improved from the 2.95% level at the end of the first nine months of fiscal
1996. The slight decrease from fiscal year-end is due principally from the
resumed expansion activities by Capital, the full brunt of which are not
expected to be felt until the final quarter of fiscal 1997. Management believes
that, apart from the impact of current expenditures by Capital, this ratio will
continue to remain stable during the balance of fiscal 1997 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 1997, Allstate's total sales have aggregated only $16,571, which continue
to account for only 1/20 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
$11,369,552, compared with $8,088,521 at June 30, 1996, the end of fiscal 1996
(an increase of $3,281,030 or 40.6%), with total liabilities of $2,405,270,
compared with $3,198,814 at June 30, 1996 (a decrease of $793,544 or 24.4%). Of
the Company's assets at March 31, 1997, $328,934 was in the form of cash and
cash equivalent (compared to $1,924,805 at June 30, 1996), $5,395,586 represents
accounts receivable, excluding TADs, (compared to $3,361,821 at June 30, 1996)
and $6,474,447 in Trade Acceptance Drafts receivable (compared to $2,578,015 at
June 30, 1996).
The Company's accounts payable are all current.
It is important to note that, following the successful completion of a private
placement of its securities wherein the Company raised over $3 Million (see
discussion in the Company's Annual Report on Form 10-K for the year ended June
30, 1996), the Company utilized a portion of the cash proceeds received to
reduce its liabilities, which have been reduced by 24.4% from the end of fiscal
1996, and to pay down its bank credit lines and utilize the Company's available
cash in connection with Capital's TAD Program. This is evidenced by the
reduction of the Company's liability to its bank in connection with cash
advanced for the purchase of TADs ($625,924 at March 31, 1997 compared to
$1,214,014 at March 31, 1996) and $1,073,857 representing "TADs in safe" (i.e.
TADs purchased by Capital which have not been financed with Capital's bank).
This also accounts for the decrease in cash on hand at March 31, 1997, a
reduction of $1,595,871 from the end of fiscal 1996. Both the substantial
increase in accounts receivable, including "Due from banks - TADs" and "TADs in
safe," and the decrease in accounts payable, all as discussed above, were, in
management's opinion, caused principally by normal variations in Actrade's
business, the substantial increase in sales by both Capital and Actrade S.A.,
and the application of the proceeds from the Company's recent private placement
of its securities, and not due to any trend which is expected to have a
continuing effect upon operations in the future.
At March 31, 1997 the Company had Retained Earnings of $2,917,777 with total
Stockholder's Equity of $8,964,282, compared with $1,782,002 and $4,889,707,
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, 1997 the Company had property, less accumulated depreciation, of
$176,773, (compared to $103,705 at June 30, 1996) and security 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 March 31, 1997 the
Company continued to show $48,414 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
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 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 have been collected.
III. Impact of the Trade Acceptance Draft Program and the Operations of
Capital.
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.
During fiscal 1996, Capital generated gross revenues of $7,993,932, almost 116%
higher than fiscal 1995, with direct general and administrative expenses of
$274,265, a decrease of over 16% from fiscal 1995 (as adjusted to include the
1995 year-end allocation). For the fiscal year ended June 30, 1996, Capital
operations reflected a gross profit of $526,386, with net pre-tax income of
$106,377, an increase of more than 1,387% from fiscal 1995.
Capital's operating revenues during the first nine months of fiscal 1997 totaled
$14,066,755, or approximately 47.8% of the Company's total revenues during this
period, as compared to total revenues of $5,770,196, or approximately 33.8% of
total revenues, during the first nine months of fiscal 1996. Perhaps most
importantly however, Capital's gross revenues during this period were more than
144% higher than the same period last fiscal year.
During this period, Capital also had interest income of $15,957, interest
expenses of $34,594, while incurring direct selling, general and administrative
expenses of $605,440, administration fees (representing a percentage of indirect
overhead costs) of $120,000, which resulted in net operating income before taxes
of $89,531, with net income of $81,474 after an allowance for taxes of $8,057.
It must be noted that the administration fee allocated during this quarter
represents fees accrued during the entire nine month period since the end of
fiscal 1996 and are non-recurring allocations.
IV. Trends Affecting Liquidity, Capital Resources and 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 in
recent years of the US dollar as compared to other major foreign currencies.
This formed the basis of the Company's operating philosophy since 1989 and, in
management's opinion, continues to favor growth over the foreseeable future.
Combined with recent changes in world political structures, management believes
the demand for American products will continue to increase at least in the
foreseeable future.
Economic conditions in the United States over the past decade 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 this trend was accelerated by the renewed demand for American products
following the Persian Gulf War and the improved buying power of foreign
currencies during the past decade, clearly benefited the Company and were major
factors in its growth over the past four years. This trend is now being affected
by a number of other factors which could adversely affect future growth rates
for the Company's present operations.
As the US economy continues to improve and the dollar strengthens significantly
with respect to other currencies, which has been the case during the past
several months, foreign buying power for American products has decreased while
foreign buyers looking for comparable, but less expensive, products from other
sources has been on the rise. With the collapse of traditional political and
ideological barriers over the past few years, the demand for products from all
parts of the world has increased perceptibly with many developing and third
world nations now looking for a wide range of consumer 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.), which at present are unable to pay
for their purchases in US dollars or the equivalent.
Management believes that for the foreseeable future the greatest demand for all
kinds of foreign products (including those from industrialized nations including
the US) will continue to come from these new developing and third world
countries. As a result of the elimination of old political and ideological
barriers, many other factors now have an effect upon the markets for US products
overseas including, among others, lower foreign labor costs and, probably most
important, the availability of (or lack of) trade financing. In management's
opinion, the real "key" to success in international trading has, at least at
present, become the ability to provide trade financing in addition to
competitive pricing for products.
To meet this changing market demand, the Company initiated an expansion of the
international trading operations of Actrade S.A., which was originally formed to
compliment current operations by providing foreign sources for products to meet
foreign demand. Due to the financial strength of the Company, Actrade S.A. has
been in a position to fill the financing void created by the dramatic increase
in worldwide demand, thereby allowing it to capture a larger share of the
current market demand.
The effects of this trend are evident in the Company's operating results during
the current period. Sales of US products overseas (represented by the activities
of Actrade International Corp.) decreased to $4,936,755 from $5,786,213 during
the same period in fiscal 1996, while sales by Actrade S.A. rose dramatically
from $5,507,530 during the first nine months of fiscal 1996 to $10,436,453
during the current period. Apart from proving management's assumption that as
sales of US products decrease, sales of foreign products will increase, these
results also point out another important factor, to wit, that worldwide demand
for all types of products is increasing. However, management can not predict
whether the extraordinary rise in sales revenues experienced by Actrade S.A.
will continue. At present, while product demand is high and the availability of
trade financing is low, Actrade S.A. enjoys a favorable position in the market.
As these factors stabilize and as trade financing becomes more readily
available, it is likely that this advantage will decrease.
Although it is impossible to predict the extent to which this trend may affect
the competitiveness of American products overseas over the coming months or
years, it is likely that any significant decline in buying power of foreign
currencies will have an adverse impact upon Actrade's present sales of US
products overseas. 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, particularly through its Actrade S.A. division, will gain the
flexibility needed to meet changing product demands over the coming years.
A review of the Company's Statement of Operations shows that the cost of goods
sold, as a percentage of total sales, has increased from approximately 83% in
fiscal 1990 to approximately 91.1% for the first nine months of fiscal 1997.
This increase has been the result of three principal factors. First, as
recessionary factors influenced economic conditions both in the United States
and other major industrial nations worldwide, there was a significant increase
in competition for a shrinking market. This resulted in the need to reduce
profit margins in order to remain competitive in the world markets. Second, as
discussed above, as the Company's operations have expanded the nature and mix of
the products sold by the Company it has also changed from smaller, less
expensive products to larger or more expensive products, such as the commercial
and industrial air conditioning and refrigeration equipment which made up a
significant proportion of the Company's total sales since fiscal 1992. With such
higher priced products, the profit margins are typically less. Finally, the
sales by Actrade S.A. have typically consisted of larger orders primarily for
computer systems and related equipment from foreign sources, which typically are
based upon lower profit margins. In combination, these factors resulted in a
higher percentage cost of sales for the Company, particularly as sales by
Actrade S.A. continue to account for a greater percentage of the Company's
overall revenues from its international trading operations.
Management knows of no other trends reasonably expected to have a material
impact upon the Company's operations or liquidity in the foreseeable future.
VI Inflation.
During the past few years inflation in the United States has been relatively
stable which, coupled with the relative strength of foreign currencies discussed
above, has had a beneficial effect upon the Company's operations in that the
products it offers have been competitively priced in relation to comparable
foreign made products. In management's opinion, this is expected to continue for
the foreseeable future. However, should the American economy again experience
double digit inflation rates, as was the case in the past, the impact upon
prices for American goods could adversely affect the Company's ability to
effectively compete in its overseas markets.
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: April 29, 1997
ACTRADE INTERNATIONAL, LTD.
BY:__/s/Amos Aharoni_________
Amos Aharoni,
Chief Executive Officer
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