SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1997
/__/ TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to __________
Commission File Number: 0-18711
ACTRADE INTERNATIONAL, LTD.
(Name Of Small Business Issuer In Its Charter)
Delaware 13-3437739
(State Or Other Jurisdiction
Of Incorporation or Organization) (IRS Employer Ident. No.)
7 Penn Plaza, Suite 422, New York, New York 10001
(Address Of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number:(212) 563-1036
Securities registered pursuant to Section 12 (b)of the Act:
Title of each class Name of Exchange on which registered
Securities registered pursuant to Section 12 (g) of the Act: Common -
7,470,681 Shares Outstanding as of the date of this Report (Title Of
Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or 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___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB /_X_/
State the issuer's revenues for its most recent fiscal year. $43,499,312
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked price of such stock, as of a specified date within the past 60
days. As of August 6, 1997, the value of such stock was: $86,029,576.
FORM 10-K
ACTRADE INTERNATIONAL LTD.
JUNE 30, 1997
PART I
ITEM 1. BUSINESS
General.
Actrade International, Ltd. ("Actrade" or the "Company") was incorporated
under the name "Acquisition Capability, Inc." in the state of Delaware on April
3, 1987. In 1989, the Company acquired Actrade International Corp.
("International") and Allstate Travel Corp. ("Allstate"), both New York
corporations, making both companies wholly owned subsidiaries. See, "BUSINESS
OPERATIONS - Actrade International Corp. and Allstate Travel Corp." below. In
1991, the Company acquired an inactive foreign corporation, Actrade S.A., as a
wholly owned subsidiary, to participate in foreign transactions which do not
involve American products. See, "BUSINESS OPERATIONS - Actrade S.A." below. In
fiscal 1993, the Company established Actrade Capital Inc. ("Capital") for the
purpose of offering to domestic companies innovative financial services.
BUSINESS OPERATIONS
Actrade Capital Inc.:
During fiscal 1993, Capital was formed to engage in the development and
commercialization of new trade-financing services for the domestic US market. In
mid-1993, Capital completed development of a new system to manage and finance
the accounts receivable of American companies through the use of Trade
Acceptance Drafts (the "TAD Program"). The TAD Program is designed to improve
the management of accounts receivable, improve cash flow and increase sales. It
allows Sellers to offer credit terms to their commercial customers through the
use of pre-authorized debit drafts ("TADs") that Capital purchases and, on their
due date, processes for payment.
Definition.
Essentially, a "TAD" is a draft which is prepared by the seller of goods or
services ("Sellers") and accepted by the buyer of the goods or services
("Buyers") by the Buyer signing and delivery of draft back to the Seller. This
acceptance of the draft confirms establishes that: (i) the goods or services
have been delivered by the Seller; (ii) the goods or services were checked and
accepted by the Buyer; (iii) it establishes a specific payment date and (iv) the
draft itself constitutes the payment instrument for the transaction according to
its terms. In addition, the TAD is negotiable so that the Seller may endorse it
and transfer it to another party. At its most basic level, a TAD can be viewed
as a negotiable promissory note which at its due date is collected like an
ordinary check.
<PAGE>
Three major steps are involved in the TAD Program:
Generating the TAD: By agreement between the Seller and Buyer, a Buyer "pays"
the Seller by signing and delivering a TAD or series of TADs, as they may agree.
Purchasing the TAD: Periodically, a Seller will endorse and offer its TADs for
sale to Capital who then evaluates the TADs and decides which TADs it will
purchase and upon what terms; these terms must then be accepted by the Seller.
Collecting the TADs: On the due date, either Capital or the bank to which they
have been sold collects the TADs directly from the Buyers bank account without
any further involvement of either the Seller or Buyer.
BENEFITS OF THE TAD PROGRAM.
There are three major benefits of the TAD Program. First, it serves as a means
for a Seller to finance his accounts receivable by substituting TADs for the
open receivable. In most cases, Sellers can obtain 75% of the face value of the
TADs sold to Capital within 48 hours (with the balance payable upon collection
of the TAD, less Capital's fees), thereby providing them critically needed cash
flow. Second, the use of TADs allows the Seller to give credit terms to his
Buyers which in most cases gives him a clear advantage over his competition and
serves as a sales tool. Finally, the TADs provide a collection mechanism by
allowing the TAD to be charged directly against the Buyer's checking account on
the due date.
- - Safety.
The TAD Program is designed with many safeguards to minimize the risk of
non-payment. In management's opinion, although no assurance can be given, the
following features of the TAD Program will reduce the risk of non-collection:
1. Diversification. By accepting TADs issued by a large number of customers, the
risk of loss is reduced. Each Seller typically deals with TAD's from many
unrelated companies. Therefore, the extent of Capital's exposure from nonpayment
by any company is limited.
2. Reserve Against Non-Payment. When Capital advances a portion of the purchase
price before the due date of the TAD, it will withhold a "reserve" from the
total aggregate amount of TADs purchased from each Seller to protect against the
non-payment of any TAD. The collection of every TAD purchased is
cross-collateralized by the full proceeds of all TADs collected for each Seller.
3. Guarantees and Insurance. Most TADs are unconditionally guaranteed by the
participant and, where appropriate, by the participant's individual principals.
Further, in many cases, Capital is able to secure collection of TADs it will
purchase through a business credit insurance policy it has secured through
American Credit Indemnity Company which became effective May 1, 1996. This
policy covers losses up to
<PAGE>
$3 Million.
Finally, when TADs are tendered for sale by a Seller, Capital reviews the total
relationship with the Seller and its customers, including past payment record
for TADs previously purchased, etc., before deciding whether or not to purchase
the TADs being presented.
Since the introduction of the TAD Program on a test basis in fiscal 1993,
Capital's growth has exceeded management's expectation. Gross revenues from the
TAD Program have increased from a modest $247,809 in fiscal 1993, to $927,757
during fiscal 1994 (the first full year of operations for the TAD Program);
$3,703,493 in fiscal 1995; $7,993,932 in fiscal 1996 and $21,668,573 during
fiscal 1997. See, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" below for an analysis of Capital's operations.
As of the date of this Report, management is not aware of any other financial
service program offered in the United States which utilizes trade acceptance
drafts. The Company has filed for patent protection on the processes involved in
the TAD Program, which application is currently pending under Number 08/506,539.
No assurances can be given that the Company may be able to secure patent
protection for this innovative program.
- - Expansion of US Target Market:
Management has discovered that the TAD Program is being utilized by some large
companies to manage certain "special situations" which do not fall within their
conventional credit terms. This has opened an entirely new market for the TAD
Program in the United States and management intends to more fully develop this
market segment during fiscal 1998. Capital plans to develop a new marketing and
promotional approach specifically designed to reach these large companies by
educating them as the various ways that using TADs can increase sales, lower
their current collection costs and reduce delinquent customer accounts.
From its experience with several national and multi-national companies, it has
become apparent that the common problem of aging receiveables plague even the
largest of companies in much the way as they do small companies. In addition,
these companies also consider the cost, both in dollars and personnel time, of
pursuing collection of past due accounts a serious problem. The TAD Program can
be utilized to address both of these concerns. First, it provides a means of
eliminating, or substantially decreasing the problem of aging receiveables with
respect to the accounts which utilize TADs as payment instruments. This fosters
more effective cash flow management and substantially decreases the amount of
aging receiveables on a company's books. Second, it eliminates the need to
divert in house personnel to pursue slow paying customers. By allowing the
seller to structure payments by its customers up to a six month period the TAD
Program allows for a more manageable payment schedule which, in many cases,
results in the avoidance of late or defaulted payments.
One factor which management believes makes the TAD Program appealing to large
companies is the fact that it can be utilized in conjunction with other forms of
financing and only for those accounts which have been slow paying, but
dependable, customers.
<PAGE>
- - Expansion Into International Markets.
Management has developed a new marketing program to expand the applicability of
the TAD Program to import/export activities and, ultimately, to the
international market. This expansion program has been designed in three phases
in order to allow management to evaluate, and if necessary to modify, its
expansion plans in an orderly and logical manner.
The first phase consists of marketing the TAD Program to foreign sellers of
products to the American market. By adapting the TAD Program to this business
segment, an American importer of foreign products can, with the cooperation of
their foreign suppliers, have access to trade financing not typically available
in the import market today. Management believes that this is the logical first
step in extending the TAD Program internationally. This application of the TAD
Program will serve to both help American importers by providing them with an
available financing tool and will serve to expand access to the US market for
foreign companies which would otherwise be reluctant to extend credit terms to
American buyers.
This phase was implemented by Capital during the third quarter of fiscal 1997
and, although it is still too early to make any firm conclusions, the TAD
Program has been well received by both foreign sellers and American buyers.
Based upon the results to date, management believes this market segment will
continue to grow in the same manner as Capital's other developing markets.
Perhaps most importantly, operating results to date have clearly shown that the
risks inherent in this first phase of Capital's expansion program are no greater
than for its existing operations in the US domestic market. This is true since
the TADs which Capital will purchase will be issued by US companies and be
payable by US banks.
The second phase of Capital's expansion program involves the introduction of the
TAD Program to the export market. This will allow American companies to offer
trade financing terms to their foreign buyers which, in management's opinion,
will significantly enhance the US suppliers' position in the export market.
However, in the export market the primary difference from Capital's perspective
will be that the TADs which Capital will purchase will be issued by foreign
companies and be drawn on foreign banks. To mitigate the potential risk
involved, Capital has developed a policy that will, in most cases, require
transactions financed by the use of TADs to be (i) insurable in a manner similar
to that currently used by Capital in the US; and (ii) be subject to the laws of
a jurisdiction which recognizes the concept of a holder in due course. Further,
where possible, Capital will seek to have the TADs denominated in US dollars.
To further protect against the risk of loss, Capital intends to have the parties
to the transaction contractually waive their right to claim any commercial
dispute in an action by Capital to collect the TADs it will purchase.
Additionally, if the foregoing safeguards proved insufficient to fully protect
Capital against a loss, in most cases, Capital would have recourse to the US
exporter.
<PAGE>
At present, management can make no estimate of when the second phase of
Capital's expansion program will be instituted although, if the results from
phase one continue to be positive, phase two may be implemented, at least on a
test basis, during the second half of fiscal 1998.
The third phase of Capital's expansion program is intended to develop the TAD
Program on a truly international level making it available to companies in any
country without any tie to the United States. Although this phase is still in
its early developmental stage, the Company is proceeding to develop the
necessary framework for commercial operations. To this end, management has
already begun the process of establishing a new foreign subsidiary specifically
to handle international TAD transactions. Additionally, preliminary discussions
have already begun with several major foreign banks concerning international
banking procedures and practices in order to establish working guidelines for
this new operation. In fact, a few international transactions utilizing TADs
have been undertaken by the Company in order to evaluate the procedures now
being established and to determine the acceptance of the TAD Program concept by
foreign companies. Additionally, management is currently evaluating the bank
collection systems in various foreign countries in order to establish an initial
venue for a "test" TAD Program. Although management cannot estimate when this
phase of its expansion program will achieve commercial scale operations, it is
confident that substantial progress will be made in finalizing an international
TAD Program during fiscal 1998.
Actrade International Corp. - General:
International is engaged in international trade and finance having, since July
1988, concentrated in the direct export of American products primarily to the
Middle East, South America, Europe (including Eastern Europe) and the Pacific
Rim.
International provides US companies foreign markets for their products through
its own network of buyers, wholesalers and distributors, coupled with an ability
to arrange required export services (including air or sea shipping, inland
freight arrangements, preparation of shipping documents, export licenses,
establishment of letters of credit, etc.) which offers a less expensive
alternative to "in-house" export operations.
As of the end of fiscal 1997, International's principal product groups included:
Industrial and Commercial Air Conditioning Equipment including package systems,
stand alone units and spare parts; and
Commercial and Industrial Machinery, Ancillary Equipment and Spare Parts,
including restaurant, commercial bakery and hotel equipment, commercial
refrigerators and freezers, display cases, ice cream freezers, laundry and
dry cleaning pressing equipment and automotive spare parts.
International also offers a wide range of additional consumer and commercial
products and, on request, will search out special order products for foreign
buyers. Management's goal has always been to offer a diverse range of American
products in order to provide overseas distributors with a single source for all
their customers' needs. Based upon its experience to date, management does not
anticipate any material seasonal variations in the sales of any of its principal
product lines.
<PAGE>
During fiscal 1997, ended June 30, 1997, out of Actrade's three principal
product groups, the Air Conditioning and Refrigeration Division accounted for
gross sales revenues of approximately $6,446,491, or approximately 14% of the
Company's total sales. During fiscal 1996, Air Conditioning and Refrigeration
sales totaled approximately $6,915,915, or 29% of total sales (as compared to
approximately $5,280,000, or 32.2% of total sales, during fiscal 1995). Although
this Division continues to represent a very significant component of the
Company's total revenues, the percentage of total revenues represented by it
dropped significantly during fiscal 1997 due to the increase in revenues by
Actrade S.A. (see discussion below) and the substantial expansion of commercial
operations by Capital.
During the past fiscal year, no other single product line or related group
accounted for more than 10% of the Company's total sales revenues.
- - Operations:
International maintains no inventory of products. Rather, it purchases products
for its own account only when it has confirmed orders from overseas buyers. In
this fashion, International (i) acts as a principal in the sale; (ii) does not
require warehouse or storage space for inventories; (iii) does not tie up
available capital in inventory; and (iv) assures US manufacturers acceptable
payment terms in the US thereby eliminating the problems of collecting foreign
receivables. Through International, American companies can effectively trade
with overseas buyers without the risks and delays associated with the
international market.
All of International's activities are transacted in US dollars to avoid the risk
of loss due to currency fluctuations and exchange rates. Further, as a re-seller
of products to foreign buyers, applicable foreign tariffs, taxes and local
import charges are the responsibility of the foreign buyer and not
International.
For numerous reasons, many American manufacturers are reluctant to offer credit
terms to foreign buyers. By acting as a direct re-seller of products, utilizing
its own credit facilities, International is in a position to offer generally
unavailable credit terms to foreign buyers. Due to its current cash position,
International continues to offer extended credit to its largest, most
credit-worthy customers.
During fiscal 1997 and 1996 no single customer represented 10% or more of the
Company's total sales. During fiscal 1995, two customer represented
approximately 27% of the Company's total sales. These customers were Efatar
Engineering Co., Ltd., an engineering company located in Hong Kong; and Karioka,
Ltd., a distribution company located in Israel. None of these customers are
affiliated with the Company nor any of its affiliates. Management does not
believe that the loss of any of these customers would have a materially adverse
affect upon the operations or revenues of International. See "MANAGE MENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Actrade S.A.
Unlike International, Actrade S.A. engages in all phases of international
trade except for the sale of American products. With gross revenues growing from
$908,000 in fiscal 1991 to $14,743,695 in fiscal
<PAGE>
1997, Actrade S. A. accounted for approximately 33% of the Company's total gross
revenues for fiscal 1997 and represented the second largest component of the
Company's overall operations (second only to the operations of Capital).
However, since sales by Actrade S.A. are usually special situations of typically
higher dollar amounts, as has been the case with the sale of computer equipment,
management is unable to predict the impact of it's activities in the future,
although it is expected that Actrade S.A. will continue to operate at least at
current levels in the future. Since fiscal 1993, Actrade S.A. has been
principally involved with the sale of computer systems primarily for
distribution to Eastern Europe. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" below.
Recently however, as the US economy continues to improve and the dollar
strengthens significantly with respect to other currencies, foreign buying power
for American products has decreased while foreign buyers looking for comparable,
but less expensive, products from foreign sources has been on the rise. This
increased demand has benefited the operations of Actrade S.A.
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, at least at
present, has 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. However, management can not predict whether the
extraordinary rise in sales revenues experienced by Actrade S.A. during fiscal
1997 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.
Allstate's Operations
Allstate has operated as a travel agency since 1987, and is duly licensed as a
ticketing agent with IATA (International Airlines Travel Agents Network). For
several years, the Company has concentrated its efforts in the international
trade markets of International and Actrade S.A. and in development of Capital's
TAD Program. Consequently, management has decided to terminate Allstate's
operations which are expected to be completely phased out during fiscal 1998.
During fiscal 1997, Allstate's total revenues consisted of $21,425, less than
1/100 of 1% of the Company's total revenues during fiscal 1997. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
<PAGE>
OF OPERATIONS" for a complete discussion of the Company's revenues and financial
condition.
Competition.
Despite its consistent growth in the past, International faces strong
competition from many other companies (many of which are larger and have greater
financial resources) in three primary areas. First, International competes with
export management companies for representation of US manufacturers. Secondly,
International competes with local (overseas) manufacturers of products similar
to those offered by it. Virtually all products offered by International have
competitive products manufactured by foreign companies overseas. Consequently,
International must depend upon the quality of the US products it represents and
the competitive pricing it can offer in order to effectively compete with local
manufacturers. Finally, International competes with US manufacturers engaged in
the direct export of their products. All of these factors will impact upon
International's export operations, revenues, profits and its ability to grow.
With respect to Capital's TAD Program, the Company faces strong competition from
many established financial institutions, including banks, insurance companies
and receivables financing (factoring) companies. Most of these companies are
larger and have greater financial resources. Further, Capital's TAD Program is
based upon the use of Trade Acceptance Drafts which, although a long-established
instrument in international trade, has been virtually unknown within the US
domestic market. Consequently, management faces the additional burden of
educating its target market as to the use of this financial instrument and
gaining adequate market acceptance of this concept to attract a sufficient
number of participating companies in order to make this Program commercially
viable. These factors will also impact upon Capital's operations as it initiates
its expansion program and moves into the international marketplace. In addition,
it is likely that at some point in its expansion program Capital will need to
adapt its TAD Program to operate with TADs denominated in various foreign
currencies. At that point, Capital will face the risk of loss from currency
fluctuations and will bear the additional costs associated with operating in
foreign countries. As of the date of this Report, management is not aware of any
other financial service program which utilizes trade acceptance drafts in a
manner similar to Capital.
ITEM 2. PROPERTIES.
The Company's principal corporate offices are located at 7 Penn Plaza, Suite
422, New York, NY 10001, where it occupies approximately 5,000 square feet of
office space. This lease expires February 28, 2000, and provides for monthly
rentals of $4,400, commencing June 1, 1991 with annual increases of 4.5%. During
fiscal 1997, the Company secured an additional 3,477 square feet of office space
within 7 Penn Plaza, although not contiguous to its original offices. This space
houses both executive and operating offices for the Company and its
subsidiaries.
As of December 1, 1991, the Company opened a regional sales office, pursuant to
an original three-year lease, which has since been renewed upon similar terms
and conditions, with an unaffiliated third party, at 6700 North Andrews Avenue,
Suite 101, Ft. Lauderdale, Florida, where it occupies approximately 979 square
feet of office space. This office is managed by Mr. Leon Schorr, Vice President.
<PAGE>
As of April 25, 1997, the Company opened a second Salt Lake City Regional Sales
Office at 5258 South Pinemont Drive, suite B140, Murray, UT 84123 where it
occupies approximately 800 square feet of space.
Actrade S.A. maintains a separate sales office at 14 Benyamin Ave., Nathanya,
Israel, where it leases approximately 600 square feet of office space from
Mercaz Haneyar Atara Marketing and Distribution Ltd. ("Mercaz"), an unaffiliated
third party, who also serves as a commission sales agent for Actrade S.A.. Under
this agreement, Mercaz also provides Actrade S.A. with all necessary office
furniture and equipment, telephone service, basic secretarial and clerical
services and an office manager to coordinate Actrade's office operations.
Actrade S.A. pays an annual fee of $6,000, which is payable at the end of each
year and is subject to downward adjustment based upon the commissions paid to
Mercaz during such year.
Until June 30, 1997, Actrade S.A. also maintained a sales office within the
offices of Resource International Marketing Ltd. at No. 7, 12/F, Elite
Industrial Centre, 883 Cheung Sha Wan Road, Kowloon, Hong Kong, which served as
a special consultant to the Company with respect to Actrade's marketing
activities in the Pacific Rim. This office was provided without additional
charge to Actrade S.A. as part of the services provided by Resource
International Marketing Ltd. The office was closed as of July 1, 1997.
The Company believes that it's present facilities will be adequate for its
purposes for the foreseeable future and does not anticipate the need for
additional office or operating facilities. However, as part of Capital's
expansion program, management plans to open additional regional sales and
marketing offices in connection with its TAD Program.
ITEM 3. LEGAL PROCEEDINGS.
The Company has no legal proceedings which are unusual in nature or not in the
normal course of its business or material in amount. The Company knows of no
litigation pending, threatened or contemplated, or unsatisfied judgments against
it. The Company knows of no legal action pending or threatened or judgments
entered against any officers or directors of the Company in their capacity as
such.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual meeting of the Shareholders of the Company was held on November 18,
1996 at which meeting the Shareholders voted upon the following matters:
Election of the current Board of Directors; and
Approval of Zeller Weiss & Kahn as the Company's Independent Public
Accountants for the 1995, 1996 and 1997 fiscal years.
<PAGE>
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The principal market on which the Company's securities are traded is the
over-the-counter market. Since November, 1996 the Company's securities have been
trading on the NASDAQ National Market System under the symbol "ACRT." The
following table sets forth for the periods indicated the range of high and low
bid quotations for the Company's Common Stock which were listed for the
Company's Common Stock as reported by NASDAQ in the Monthly Statistical Reports.
PERIOD HIGH LOW
---------------------------------------------------------------
Quarter ended September 30, 1994 $2.00 $1.625
Quarter ended December 31, 1994 $2.25 $1.875
Quarter ended March 31, 1995 $2.00 $1.625
Quarter ended June 30, 1995 $1.75 $1.25
Quarter ended September 30, 1995 $1.9375 $1.50
Quarter ended December 31, 1995 $2.00 $1.5625
Quarter ended March 31, 1996 $3.1875 $1.75
Quarter ended June 30, 1996 $5.75 $3.8175
Quarter ended September 30, 1996 $6.375 $2.75
Quarter ended December 31, 1996 $8.25 $5.25
Quarter ended March 31, 1997 $17.625 $7.50
Quarter ended June 30, 1997 $15.50 $10.75
On August 6, 1997 the reported closing bid price for the Company's Common Stock
was $16.875 per Share; there were 342 record holders of the Company's Shares;
and there were eighteen (18) market makers for the Company's securities.
The Company has not paid any cash dividends and there are presently no plans to
pay any such dividends in the foreseeable future. The declaration and payment of
dividends in the future will be determined by the Board of Directors in light of
conditions then existing, including earning, financial condition, capital
requirements and other factors. There are no contractual restrictions on the
Company's present or future ability to pay dividends. Further, there are no
restrictions on any of the Company's subsidiaries which would, in the future,
adversely affect the Company's ability to pay dividends to its shareholders.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
Summary Balance Sheet Data: _______________________________Year Ended June 30___________
------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets $19,364,462 $8,088,521 $5,987,746 $3,663,777 $2,608,566
Total Current Assets 19,108,415 7,969,782 5,894,571 3,538,629 2,473,372
Total Current Liabilities 3,127,180 3,198,814 2,856,926 1,353,122 715,068
Stockholders Equity 16,192,117 4,889,707 3,066,918 2,091,667 1,510,911
Retained Earning 3,703,231 1,782,002 1,024,628 616,835 362,585
Summary Earnings Data: _______________Year Ended June 30___________________
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Total Revenues $43,499,312 $23,837,985 $16,415,804 $12,125,468 $9,413,623
Cost of Sales 39,460,841 21,870,891 14,896,903 10,869,674 8,336,780
Selling, General & Administrative
Expenses 2,075,418 1,194,445 1,136,243 1,004,752 869,513
Interest Expense 44,729 150,113 56,991 25,520 39,638
Interest Income 28,684 97,858 78,738 33,981 39,559
Income Before Taxes and
Extraordinary Item 2,012,732 778,676 404,405 259,503 207,251
Loss on Sale of Fixed Assets - - - - 2,662
Income Tax (Benefit) 109,151 21,302 (3,388) 5,253 (9,235)
Net Income 1,903,581 757,374 407,793 254,250 213,824
Earnings per Share 0.28 0.14 0.08 0.06 0.05
- -------------------------------------------------------
The Company's fiscal year ends June 30 of each year.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
I. Results of Operations
During fiscal 1997, ended June 30, 1997, the Company had combined gross
revenues from operations of $43,499,312, as compared to $23,837,985 for fiscal
1996; $16,415,804 for fiscal 1995 and $12,125,468 for fiscal 1994. Total cost
of revenues during fiscal 1996 were $39,460,841, as compared to $21,870,891
for fiscal 1996; $14,896,903 in fiscal 1995 and $10,869,674 in fiscal 1994. As
a result, the Company realized gross profit from operations of $4,038,471
during fiscal 1997, as compared to $1,967,094 in fiscal 1996; $1,518,901 in
fiscal 1995 and $1,225,794 in fiscal 1994.
The increase in gross revenues during fiscal 1997, approximately 82% above
fiscal 1996, was primarily due to the expansion of the Company's operations
through (i) the increased sales by its subsidiary Actrade S.A. and (ii)
significantly increased revenues by Actrade Capital Inc. ("Capital") through
its TAD Program, discussed separately below (see "II. Revenues Segment
Information - Actrade Capital, Inc. And The Trade Acceptance Draft Program").
The increase in revenues in fiscal 1997 was the result of increased product
sales by Actrade S.A., rather than from price increases for the Company's
products, and substantially increased operating revenues derived from Capital.
After selling, general and administrative expenses, depreciation, interest
income and expenses, and provision for taxes, including an extraordinary
benefit from utilization of net operating loss carry forward, the Company
realized a net operating profit of $1,903,581, or $0.28 per share, as compared
to $757,374, or $0.14 per share, for fiscal 1996 and $407,793, or $0.08 per
share, in fiscal 1995. This represented an increase in net operating profits
for fiscal 1997 of approximately 154% above fiscal 1996.
During fiscal 1997, selling, general and administrative expenses showed a
significant increase to $2,075,418, as compared to $1,194,445 for fiscal 1996,
an increase of approximately 73%. However, when expressed as a percentage of
overall revenues, selling, general and administrative expenses represented
approximately 4.7% of total revenues for fiscal 1997 (compared to 5.0% in
fiscal 1996 and 6.9% in fiscal 1995). Additionally, approximately $993,197 of
this amount was due directly to Capital's expanded operations during fiscal
1997. Management projects the costs related to Capital's operations will
continue to escalate in fiscal 1998, particularly as it accelerates its
marketing efforts for the TAD Program (see "II. Revenues Segment Information
-Actrade Capital, Inc. And The Trade Acceptance Draft Program").
Historically, the Company's net operating income expressed as a percentage of
gross revenues increased from 1.21% during fiscal 1992 to a previous high of
2.41% at the end of the third quarter of fiscal 1993 (prior to the impact of
the costs associated with Capital's operations). As had been expected,
following the introduction of Capital's TAD Program, this ratio fell to its
all time low of 2.1% at the end of fiscal 1994; but began to recover
significantly in fiscal 1995 when it rose to 2.48% at the end of fiscal 1995
and 3.1% at the end of fiscal 1996. During fiscal 1997, due principally to
significantly increased revenues from Capital's TAD Program and Actrade S.A.,
this ratio continued its upward trend and, at
<PAGE>
the end of fiscal 1997, reached an all time high of 4.4%. Management believes
that this ratio may level off during fiscal 1998, due to the anticipated
balance between the cost of its accelerated marketing program and the expected
increased revenues from Capital's operations.
During fiscal 1989, Management decided to defer expansion of Allstate's
operations due primarily to the concentration of its personnel and resources
in the import/export business of Actrade. In light of management's continued
emphasis on the expansion of Actrade's export operations and the ongoing
expansion of Capital's TAD Program, management has elected to terminate
Allstate's operations and to phase out this aspect of its operations during
fiscal 1998. During fiscal 1997, Allstate's total sales aggregated only
$21,425 which represented only a very slight increase in gross revenues from
fiscal 1996, and accounted for less than 1/10 of 1% of the Company's total
revenues.
As of June 30, 1997, of the Company's total trade accounts receivable in the
amount of $4,095,630, approximately 45% have been collected as of the date of
this Report and, of the balance, approximately $1,800,000 are secured by
commercial documentary drafts; and approximately $200,000 are open account.
This does not include $6,477,424 in Trade Acceptance Drafts receivable which,
for the most part, have been sold to an independent financial institution and
which are insured - see Financial Statements, Note 12.
II. Revenue Segment Information.
Until fiscal 1993, the Company's revenues were comprised solely of export
sales by Actrade and revenues earned by Allstate's travel agency business.
During fiscal 1993 the Company, through Capital, realized the first revenues
from its newly introduced TAD Program. Since its introduction, Capital's
revenues have continued to increase to the point where it now constitutes the
single largest revenue segment for the Company. See discussion immediately
below.
Actrade Capital Inc. And The Trade Acceptance Draft Program.
Following a complete revision of the operating plan for Capital in late fiscal
1993, management developed new trade financing programs intended to be
marketed to domestic companies in the United States. Although a departure from
the Company's core business of international trade, management be lieved that
a strong demand for new, innovative trade financing methods exists among small
to medium sized American companies. In late fiscal 1993, Capital offered its
first financial program to assist companies in the management and collection
of small open accounts receivable - The TAD Program.
During fiscal 1994, the first full year of operations for this Program,
although still in its development stage, Capital generated gross revenues of
$927,757, as compared to $247,809 during fiscal 1993. During fiscal 1994 the
Company incurred general and administrative expenses directly attributable to
Capital's operations of $180,469 resulting in a loss from Capital's
operations, before interest income and expenses, of $76,649. After interest
income of $28,956, interest expense of $1,918 and provision for taxes of $779,
the net loss from operations for Capital during fiscal 1994 was $50,390.
Although showing a modest loss, Capital's operating results for fiscal 1994
exceeded management's expectations.
<PAGE>
During fiscal 1995, management decided to implement an aggressive new
marketing plan for the TAD Program, principally in response to the perceived
need to educate potential participants in the 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 in fiscal 1994. Direct general and
administrative expenses for Capital totaled $120,175 during fiscal 1995 and,
had management not elected to make a year-end allocation of indirect general
and administrative over-head costs, net income before taxes would have been
approximately $215,153. However, due the year-end allocation to Capital of a
share of the Company's indirect general and administrative costs in the amount
of $208,000, Capital reflected net pre-tax income of only $7,153.
During fiscal 1996, Capital generated gross revenues of $7,993,932, over 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 fiscal 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.
During fiscal 1997, ended June 30, 1997, Capital generated gross revenues of
$21,668,573, over 171% higher that fiscal 1996, with direct general and
administrative expenses of $993,197, an increase of 262% over fiscal 1996. The
dramatic increase in both gross revenues and general and administrative
expenses during fiscal 1997 were the direct result of management's aggressive
expansion of its marketing efforts for its TAD Program during fiscal 1997,
which included the opening of two Regional Sales and Marketing offices. For
fiscal 1997, Capital's operations reflected a gross of 1,366,322 (up more than
159% from fiscal 1996), with net pre-tax income of $224,669 (up more than 111%
over fiscal 1996).
Actrade International Corp. And Actrade S.A., Ltd.: The International Trade
Division.
During fiscal 1997, the Company's four principal overseas markets continued to
be (i) the Middle East, (ii) South America (iii) Europe (including Eastern
Europe) and (iv) the Pacific Rim. During fiscal 1997, the Company showed
increased revenues in all four of these primary markets. The most significant
increase occurred in the European area where sales increased almost 70% from
fiscal 1996 due principally to an increase in demand for computers in Eastern
Europe and the continued increased sales of Bard air-conditioning units for
the tele-communications industry in Europe. The Company also posted increases
of 33% in its South American market, over 22% in its Middle East market and
20% in the Far East. The most significant increase in any single market
occurred in the United States, due to the substantial increase in revenues
earned by Capital, where total US sales increased by approximately 169% over
fiscal 1996. The following table illustrates the Company's gross revenues by
market segment during the past four fiscal years:
<PAGE>
Market Segment Amount of Revenues for Fiscal Year
by Area 1997 1996 1995 1994
-------------- --------- ----------- ----------- -----------
Middle East $5,321,000 $4,350,000 $3,643,911 $3,683,269
South America $4,568,326 $3,424,000 $2,926,184 $1,529,580
Europe $9,005,109 $5,300,000 $2,652,436 $3,365,000
Far East $2,100,000 $1,750,000 $2,387,653 $1,490,000
United States $21,791,000 $8,112,000 $3,975,464 $1,232,485
All Others $ 713,877 $ 920,985 $ 830,156 $ 825,134
See "FINANCIAL STATEMENTS - Note 5 Foreign and Domestic Operations and
Export Sales."
Management plans to utilize current cash on hand in connection with its
international trading operations principally for (i) general working capital
reserves to meet any extraordinary or unexpected expenses; (ii) and to
collateralize interim financing, if required, in connection with Actrade's
export operations. Management has, in many cases, utilized assignments of
letters of credit from its overseas buyers in payment for products from
American manufacturers. Although this procedure has been acceptable to most
suppliers, with respect to new suppliers or for small purchase orders, this
assignment procedure may not be acceptable and the Company may be required to
utilize available cash. To date, it has not been necessary to use available
cash for this purpose and management does not foresee the need for such
financing in the future. See "BUSINESS OPERATIONS."
During fiscal 1997, ended June 30, 1997, sales by Actrade S.A. totaled
$14,743,695, or 33.9% of the Company's total gross revenues, as compared to
$7,689,000, or 32.3% of the Company's total gross revenues for fiscal 1996 and
$6,747,479, or 41.1% for fiscal 1995. The increase in gross revenues for
Actrade S.A. resulted primarily from the sale of computer systems and related
equipment, which repre sents the culmination of a long-term effort to open the
developing markets of Eastern Europe and the former Soviet Union. By opening
these markets over the past few years, Actrade S.A. has also solidified it's
efforts to develop reliable sources for computer systems and hardware.
However, because of the continued volatile economic and political changes in
the world, and particularly in Eastern Europe where Actrade S.A. made a
significant portion of its sales during fiscal 1997, it continues to be
impossible to accurately project revenues for Actrade S.A. during fiscal 1998.
However, although no assurances can be given, in management's opinion,
revenues are expected to continue at approximately the levels experienced
during fiscal 1997 and the operations of Actrade S.A. will continue to be an
important aspect of the Company's overall operations for the foreseeable
future.
The most significant factor which continues to impact the growth of Actrade
S.A. is the continued economic and political instability among the many new,
developing nations of the world. Although no assurances can be given,
management believes that, as many of these new and developing countries
stabilize their internal political and economic conditions, provided that
individual currencies can also be stabilized to permit participation in the
international markets, the demand for commercial and consumer products will
increase, a factor which is expected to benefit Actrade, S.A. in the future.
<PAGE>
Another factor which management believes will favor the continued growth of
Actrade S.A. has been the improved economic environment in the United States.
With the end of the economic recession, and as domestic sales of products
increase, management believes that many American manufacturers will
de-emphasize the export of their products and will no longer be willing to
make the price concessions necessary to be competitive in the international
marketplace. This situation will favor the growth of Actrade S.A. which deals
only with foreign made products which are typically less expensive than their
American equivalent, and trade financing among these developing countries.
III. Discussion of Financial Condition
On a consolidated basis, as of June 30, 1997 the Company had total assets of
$19,364,462 (compared with $8,088,521 at June 30, 1996 and $6,124,564 at June
30, 1995) with total current liabilities of $3,127,180 (compared with
$3,198,814 and $2,856,926 respectively for June 30, 1996 and 1995). Of the
Company's assets at June 30, 1997, cash accounted for $7,352,465, $4,095,630
represents trade accounts receivable, and $7,651,310 represented TADs
receivable (including $6,477,424 of TADs which have been sold to a bank). The
increase in the Company's assets at June 30, 1996 was principally due to the
increase in cash on hand (resulting in significant part from the Company's
recently completed private placement of its common stock), an increase in
trade acceptance drafts receivable-bank and trade accounts receivable.
The increase of approximately $308,000 in trade accounts receivable at June
30, 1997 was principally due to sales made by Actrade and Actrade S.A. during
the last quarter of fiscal 1997 which were shipped prior to the end of the
fiscal year with payment to be made after year-end. As previously indicated
(see "I. Result of Operations" above), of the Company's receivables at June
30, 1997, approximately 45% have been collected as of the date of this Report.
Despite the increase in trade accounts receivable, management believes that
this was caused principally by the increased volume of business by both
Actrade and Actrade S.A. and the normal variations in Company's business and
not due to any trend which is expected to have a continuing effect upon
operations in the future.
Since fiscal 1991, the Company has experienced a disproportionate growth rate
in its accounts receivable and accounts payable as a percentage of gross
revenues due to the nature of the sales made by its Air Conditioning and
Refrigeration Division and by Actrade S.A. Revenues from the Air Conditioning
and Refrigeration Division are primarily derived from the sale of large
commercial and industrial scale units, as opposed to individual home air
conditioning units. Consequently, the average invoice amount, as well as the
average per item cost, is considerably higher than many of the other products
sold by the Company resulting in higher cost of goods sold as well as higher
accounts receivable and payable. Similarly, the sales revenues generated by
Actrade S.A. are from the sale of less expensive foreign made products where
the typical gross margins are much lower than for similar American made
products. However, management does not anticipate any additional difficulty in
securing required trade financing, if required, as a result of these
transaction since virtually all of these sales are based upon the buyers
confirmed, irrevocable letters of credit.
<PAGE>
At June 30, 1997, the Company's total stockholders' equity increased to
$16,192,117, as compared to $4,889,707 at June 30, 1996 and $3,066,918 at June
30, 1995. The principal source of funds for the Company's operations are
revenues earned by its operating subsidiaries. On May 30, 1997, the Company
commenced a private placement of its common stock pursuant to Regulation D
promulgated under the Securities Act of 1933. As of June 30, 1997, the end of
the fiscal year, the Company had received gross proceeds from this private
placement of $6,850,000, virtually all of which has been designated by the
Company for the continued expansion of Capital's TAD Program. The Company
terminated this private placement effective the close of business on June 30,
1997 and currently has no additional financing plans for the balance of fiscal
1998.
During the fiscal year ending June 30, 1998, the Company projects no
significant additional capital expenditures in connection with any of the
Company's operations except in connection with the continued expansion of the
operations of Capital. Although no definitive plans currently exist,
management plans to establish a number of additional Regional Sales and
Marketing Offices in connection with the marketing o Capital's TAD Program.
However, no estimate can be made at this time of the cost of such expansion
since no new sites have yet been identified.
At June 30, 1997 the Company also had property, less accumulated depreciation,
of $238,305, (compared to $103,705 at June 30, 1996 and $93,174 at June 30,
1995) and security deposits and loans to employees of $17,742 and $9,010
respectively. In connection with the Company's relocation during fiscal 1990,
it received an 18 month rent abatement from its landlord. To conform with
applicable accounting procedures, the value of this abatement is being
amortized over the life of the lease. At June 30, 1997 the Company continued
to show $45,165 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 anticipated capital expenditures and cash needs for fiscal 1998.
Thereafter, future capital expenditures will be decided based upon operating
results and available revenues from operations. Apart from expenses associated
with the implementation of Capital's operations which cannot be estimated at
this time, management projects no significant additional capital expenditures
in connection with its operations during the next twelve months.
On a consolidated basis, management believes that operations from its
subsidiaries will continue to reflect a profit in fiscal 1998 and management
expects that 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.
The Company's outstanding loans payable to Banco Portugues do Atlantico
("BPA") in the amount of $1,019,392, represent advances against Capital's
credit line which is fully secured by the proceeds due from TADs which have
been sold to BPA but which have not yet been collected. This loan amount is
constantly changing based upon a number of factors including the total amount
of TADs sold to BPA and the extent to which Capital needs to utilize this
credit facility. As of the date of this Report, the Company has a total credit
facility of $4.5 Million, in the aggregate, with BPA.
<PAGE>
During June, 1997, Capital secured an additional credit facility, similar to
the one it has with BPA, from Summit Bank, New Jersey, in the amount of $3
Million. This facility will be available to finance the continued purchase of
TADs by Capital from its customers in much the same manner as the BPA
facility. Consequently, the payment of these outstanding loans is not expected
to have an impact upon the Company's liquidity.
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.
Over the past decade, 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 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 four 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.
However, 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.), 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 come from these new 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.
As the US economy continues to improve and the dollar strengthens with respect
to other currencies, foreign buying power for American products may decrease
with foreign buyers looking for comparable, but less expensive, products from
other sources. Although it is impossible to predict 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 Actrade'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
<PAGE>
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 90.7% for fiscal 1997 (which is slightly lower
than the 91.7% level reached in fiscal 1996). This increase is the result of
three principal factors. First, the recessionary factors which influenced
economic conditions both in the United States and other major industrial
nations worldwide over the past decade resulted in 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.
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 the 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, during fiscal 1997 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.) remained relatively stable at $7,065,619 while
sales by Actrade S.A. rose dramatically from $7,689,000 during fiscal 1996 to
$14,743,695 during fiscal 1997. 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 cannot 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.
<PAGE>
During fiscal 1997 management experienced relative uncertainty as to the
potential effect upon sales for Actrade's Air Conditioning and Refrigeration
Division of the recent change in control of Hong Kong, where a significant
portion of this Division's sales originate. However, based upon discussions had
with its major customers in the Hong Kong market, and the sales experience since
July 1, 1997, although no assurances can be given, management does not believe
that any materially adverse consequences will result from the recent changes in
Hong Kong.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements: Reference:
Independent Auditor's Report F-1
Balance Sheets F-2
Statement of Operations F-3
Statement of Stockholders' Equity F-4
Statements of Cash Flow F-5
Notes to Financial Statements F-6 - F-21
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) and (b) Identification of directors and executive officers.
The following identification of officers and directors, including biographies,
set forth the present officers and directors:
NAME AGE POSITIONS HELD
Henry N. Seror 60 President and Director of the Company and
each of its subsidiaries, except Capital
John Woerner 60 Vice President and Director of theCompany and
its subsidiaries
Leon Schorr 59 Vice President and Director of the Company and
its subsidiaries
Amos Aharoni 52 President of Actrade Capital, Inc., Chief Executive
Officer of the Company and each of its subsidiaries
and Director
Elizabeth Melnik 48 Secretary and Chief Financial
Officer of the Company and each of its
subsidiaries.
Robert Furstner 64 Director of the Company
Harry Friedman 70 Director of the Company
Michael Membrado 35 Executive Vice President of both Capital
and Actrade
Jacques W. Munro 31 Senior Vice President of Sales of Capital
Directors hold office until the next annual shareholders meeting or until their
death, resignation, retirement, removal, disqualification, or until a successor
has been elected and qualified. Vacancies in the Board are filled by majority
vote of the remaining Directors. Officers of the Company serve at the will of
the Board of Directors. There are no family relationships among the Officers,
and there are no arrangements or understandings pursuant to which they were
elected officers. All officers hold office for one year or until their
successors are elected and qualified, unless otherwise specified by the Board of
Directors; provided, however, that any officer is subject to removal with or
without cause, at any time, by a vote of the Board of Directors.
<PAGE>
Both Mr. Friedman and Mr. Furstner serve on the Company's Audit Committee.
Biographical Information for Officers and Directors:
HENRY N. SEROR has been President and a Director of the Company since September
1988, having served as President and a Director of All State and Actrade since
July 1988. Mr. Seror has been actively engaged in the export business for more
than twenty years having served from 1986 until July 1988 as Managing Director
of the New York office of Indamerica International, Inc., a privately held, New
York based export company. From 1972 until 1986 Mr. Seror was Vice President of
Drake America Corporation, also a privately held export company, where he served
as Automotive and Industrial Group President with principal responsibility for
export sales of automotive and industrial products to the Middle East and Far
East, including the establishment of initial operations in Korea and the
People's Republic of China. From 1968 until 1972, Mr. Seror served as Vice
President of American Steel Export Company, a privately held export company
specializing in foreign sales of US products. Mr. Seror graduated from New York
University receiving his Bachelor of Science degree in 1967.
JOHN WOERNER has been a Vice President of Actrade, a wholly owned subsidiary of
the Company, since September 1991. Effective January 15, 1992, Mr. Woerner was
appointed Vice President and a Director of the Company. From March 1987 until
joining Actrade, Mr. Woerner was employed as Marketing Manager with Ad Auriema,
Inc., a privately held import/export company headquartered in the New York
metropolitan area. From December 1984 until March 1987, Mr. Woerner served as a
General Manager of the Air Conditioning and Refrigeration Division for Connell
Export Company, also a privately held export company located in New Jersey. From
July 1978 until March 1987, he was a principal of Global Systems, Inc. a
privately held import/export company which he founded with Mr. Schorr, also an
officer of Actrade. From April 1965 through July 1978, Mr. Woerner served as
Vice President of Sillcox Air Conditioning & Refrigeration Corp., a privately
held corporation located in New York City. Mr. Woerner is a licensed
Professional Engineer in New York and New Jersey and is a member of the American
Society of Heating, Refrigeration & Air Conditioning Engineers. Mr. Woerner is a
graduate of Lehigh University having received his Bachelors of Science Degree in
Mechanical Engineering in 1959.
LEON SCHORR has been a Vice President of Actrade, a wholly owned subsidiary of
the Company, since September 1991. Effective January 15, 1992, Mr Schorr was
appointed Vice President and a Director of the Company. From October, 1988 until
joining Actrade, Mr. Schorr was employed as Manager of the Florida based Latin
American and Caribbean Sales Office of Ad Auriema, Inc., a privately held
import/export company headquartered in the New York metropolitan area. From
January 1987 until October 1988 Mr. Schorr served as Export Manager for TRACO
Overseas Corporation, a privately held, Florida based export company. From
December 1984 until March 1987, Mr. Schorr served as a General Manager of the
Air Conditioning and Refrigeration Division for Connell Export Company, also a
privately held export company located in New Jersey. From July 1978 until March
1987, he was a principal of Global Systems, Inc. a privately held import/export
company which he founded with Mr. Woerner, also an officer of Actrade. From June
1971 through September 1978 Mr. Schorr served as Manager of the Air Conditioning
and Food Service Equipment Division of Drake America Corporation. Mr. Schorr is
also a member of the
<PAGE>
American Society of Heating, Refrigeration & Air Conditioning Engineers.
Mr. Schorr is a graduate of Rutgers University having received his Bachelors of
Arts Degree in 1959.
AMOS AHARONI was appointed Chief Executive Officer of the Company effective
February 20, 1991. Effective February 1, 1993, Mr. Aharoni was also appointed
President of Actrade Capital, Inc. Mr. Aharoni, age 51, has previously served as
a special financial consultant to the Company and its subsidiaries since the
Company's inception. In addition, he has been president of Mentor Communication
and Production Corp., a privately held New York corporation, since 1985. This
company provides consulting services in the area of international trade and
finance. Since 1987, Mr. Aharoni has been president of NTS Corporation, a
foreign holding corporation. NTS Corporation is also the principal shareholder
of the Registrant. Mr. Aharoni received his Bachelor of Arts Degree in Economics
and Political Science from Hebrew University of Jerusalem in 1974. He moved
permanently to the United States in 1985 and has been actively involved in all
aspects of international trade since that time.
ELIZABETH MELNIK was first employed by the Company as Controller in October
1993, having been promoted to Secretary and Chief Financial Officer of the
Company as of November 1, 1996. From December 1991 until joining the Company,
Ms. Melnik was employed as Financial Manager of Gainsborough Marketing Company,
a privately held public relations/marketing firm located on Long Island, NY.
From June 1989 until December 1991 Ms. Melnik served as Accounting/Office
Manager for Scheine, Fusco, Brandenstein & Rada, the largest Workers
Compensation Law Firm on Long Island, NY. Prior thereto, from May 1986, she
served as director of Operations & Media for Futuristic Concepts in Advertising,
a privately held advertising firm also located on Long Island NY. From February
1982 until May 1986, Ms. Melnik served as Financial Manager for The Guide Dog
Foundation for the Blind, Inc., a not-for-profit corporation located in
Smithtown NY. Ms. Melnik graduated from the State University of New York at
Stonybrook in 1976 receiving her Bachelor of Arts Degree in Finance &
Accounting.
ROBERT E. FURSTNER has served as a director of the Company since August 1996.
Mr. Furstner had been a senior level banking officer for over 25 years, having
begun his banking career in 1968 as a Territory Assistant for the International
Banking Division of Morgan Guaranty Trust Company in New York City. During his
5-year tenure at Morgan Guaranty Trust Co., Mr. Furstner was responsible for the
administrative duties regarding the Bank's corporate and correspondent bank
relationships in Germany, Switzerland, The Netherlands and Eastern Europe.
Following his employment with Morgan Guaranty Trust Co., Mr. Furstner served a
brief tenure (1973 - 1974) with Franklin National Bank in New York City where he
continued in a similar capacity with Franklin's International Banking Department
with his primary area of responsibility including Germany, Switzerland, Austria
and the Benlux Countries. In 1974 Mr. Furstner joined European American Bank in
New York City as Assistant Treasurer/Assistant Vice President (from 1974 - 1979)
rising to the position of Vice President/Group Head which he held from 1979
until leaving European American Bank in 1987. His duties at European American
Bank primarily involved international credit and bank operations. During his
tenure Mr. Furstner was charged with the management of a geographical area
comprising of the Great Britain, The Netherlands, the Nordic Countries, Eastern
Europe, Yugoslavia and Israel. He was directly involved in export and project
financing, both with and without Eximbank (the Export-Import Bank of The United
States) participation and was actively involved in the implementation of the
bank's lending strategies in order to reduce exposure in high risk countries.
Mr.
<PAGE>
Furstner was also a participant in the re-scheduling of Polish, Romanian and
Yugoslavian international debt. After 1987, until his retirement in late 1995,
Mr. Furstner served with Banco Portugues do Atlantico, New York City Branch,
where he was charged with implementing the bank's lending strategies for trade
financing with special emphasis on promoting and selling EXIMBANK's CGF program
in the Southern Hemisphere. Mr. Furstner was educated in The Netherlands and
holds a European degree equivalent to a bachelors degree in business
administration and foreign languages.
HARRY FRIEDMAN has served as director of the Company since August 1996. Mr.
Friedman is presently self-employed as a management consultant and investment
advisor for emerging companies seeking growth through venture capital financing
and/or acquisitions. Mr. Freidman has also served on the board of directors for
diverse companies over the years, including having been an advisor to the board
of directors of Tofutti, Inc. a publicly held food company. Currently he holds a
position as a Director of Princeton Capital, Inc., a publicly held investment
banking firm which is a member of the National Association of Securities
Dealers, Inc. Mr. Friedman teaches various courses at New York University on
"Venture Capital," "Going Public" and "Mergers and Acquisitions." He has also
taught at a number of universities both in the United States and abroad
(including Iran and Japan), has lectured on small business and innovative
entrepreneurship under the USIA auspices in Tanzania and Zimbabwe, and has made
exploratory trips to China and over 100 other countries as part of his
missionary efforts to promote the value of emerging company concepts. His
education at the University of California, Los Angeles; the University of
Chicago; the University of Wisconsin; and New York University has ranged from
economics to mathematics to finance. Mr. Friedman has also authored a Working
Paper on "Mergers and Acquisitions - Offensive and Defensive Strategies" which
now appears as a chapter in the "Handbook for Corporate Controllers." Mr.
Friedman has also served as president of an investment advisory firm and has
appeared as a guest panelist on various financial television programs.
MICHAEL MEMBRADO, Executive Vice President of both Capital and Actrade, has been
with the Company since November 1996. Having graduated from law school in 1987,
Mr. Membrado had been in private legal practice with several different firms in
New York up until 1994, when he became a Managing Director/General Counsel of
The Bay Finance Group, Inc. (including BFG WorldWide Holdings), a New York based
private investment firm specializing in international purchase order and trade
finance. During the period in which he was in private practice, Mr. Membrado was
principally involved in the areas of corporate mergers and acquisitions,
commercial finance and international trade. In the few years immediately
preceding his association with the Bay Finance Group, Inc., he served as
Associate General (outside) Counsel to the Snapple Beverage Corporation. In this
role, Mr. Membrado was largely responsible for establishing Snapple Finance
Corporation and for transacting the international distribution rights of the
various Snapple product lines. He also served as an integral member of the
Snapple corporate acquisition group. Since joining Actrade Capital, Inc., Mr.
Membrado has been involved in many aspects of the Company is currently focused
on developing and managing the Export/International TAD Program for the Company,
as well as certain joint venture trading activities in connection with Actrade.
A member of the New York State Bar Association, Mr. Membrado currently resides
in New York City and has a petition pending under Chapter 7 of the United States
Bankruptcy Code in the District Court for the Southern District of New York, as
a result of personal losses sustained in connection with his interest in The Bay
Finance Group, Inc.
<PAGE>
JACQUES MUNRO joined the Company in August 1994. Prior thereto, since June 1992,
he was employed as a credit manager for Copy Cat Industries, Inc., a privately
held manufacturing company, where he was charged with examination and analysis
of potential customers credit worthiness; preparation of financial statements
for the factor; was responsible for all corporate credit and collection
decisions and generally interacted with all internal department heads. From 1990
to 1992, Mr. Munro was employed as a Senior Account Representative by CIT
Group/Factoring, a major institutional banking firm. /in this position Mr. Munro
dealt directly with major chain store accounts, prepared and provided reports
and updates to various credit providers, handled collection responsibilities and
resolved disputes between clients and customers. From 1988 to 1990, Mr. Munro
was employed as a junior credit analyst for World Wide Capital Group, also an
institutional banking firm where he was primarily responsible for investigation
and credit analysis of new customers. In addition, since 1990, Mr. Munro has
served as a director of the Greenbriar Condominium, a 250 unit residential
complex in Briarwood New York. Mr. Munro received his Bachelors Degree in
Finance from LaSalle University in 1994 and his Associates Degree in Credit from
the New York Institute of Credit in 1993.
2. Directorships.
None, other than listed above.
(f) Other Involvement in Certain Legal Proceedings.
There have been no events under any bankruptcy act, no criminal proceedings
and no judgments or injunctions material to the evaluation of the ability and
integrity of any director or executive officer during the past five years.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information relating to remuneration received
by officers and directors as of June 30, 1996, the end of the Company's most
recent fiscal year, as well as indicating the compensation agreements for
fiscal 1997:
<TABLE>
<CAPTION>
Name and Principal Annual Compensation(1) Long Term Compensation All Other
Position
Year Salary Bonus Restricted Stock Awards Compensation
<S> <C> <C> <C> <C>
Amos Aharoni, CEO(2) 1997 $76,000 516,701 Warrants(3) $ 17,308
1996 $52,000 $ 18,413(4)
Henry N. Seror, President 1997 $36,829 $10,571 2,500 Warrants(5) $ 1,084
1996 $46,157 $ 1,076(6)
John Woerner, Vice Pres. 1997 $78,008 $47,332(7) 2,500 Warrants(5) $ 8,375(6)
1996 $76,125 $22,953(7)
$ 13,153
Elizabeth Melnik, CFO 1997 $44,308 $ 2,500 Warrants(8)
1996 $41,711 $ $
Michael Membrado 1997 $41,250 $ $ 448
1996 $ -0- $ $ -0-(9)
Leon Schorr, Vice Pres. 1997 $75,168 $47,332 2,500 Warrants(5) $ 9,178(6)
1996 $72,875 $22,953 $ 9,299(6)
Jacques Munro 1997 $35,313 $26,860 $ 941
1996 $41,953 $ 1,625
- --------------------------------------------------------
</TABLE>
TheCompany has varying compensation arrangements with each of its
executive officers as more particularly described below. It should
be noted that the figures listed as "salary" include both base
salary and earned commissions, but do not included annual bonus
amounts, if any, which are listed separately under the "bonus"
column.
In addition to serving as Chief Executive Officer of the Company, Mr.
Aharoni also serves as President of Actrade Capital, Inc., one of
its wholly owned subsidiaries.
Pursuant to Mr. Aharoni's employment agreement, Mr. Aharoni has
elected to receive his performance bonuses in the form of Warrants
to purchase shares of the Company's Common Stock. His bonus is
computed on a quarter-annual basis and the Warrant exercise price
is fixed at 80% of the average closing bid price of the Company's
common stock over the ten trading days immediately preceding the
end of the quarterly period. Neither the Warrants nor the
underlying shares of Common Stock are registered under the
Securities Act of 1933.
The amount set forth herein includes amounts paid by the Company for
both the insurance premiums on Mr. Aharoni's automobile, and for health
insurance premiums for Mr. Aharoni and his family.
In January 1997, the Board of Directors approved the issuance of
Warrants to the Company's directors in lieu of compensation. Each
Director who was also an officer of the Company or any of its
subsidiaries received 2,500 Warrants and the Company's
<PAGE>
two independent Directors received 5,000 Warrants each. Each
Warrant issued to the Directors represents the right to purchase
one share of Common Stock at a price of $6.40 per Share.
This amount includes payments made by the Company for health insurance
premiums on behalf of the officer and his family including, in the
case of Mr. Schorr, disability insurance premiums. This amount also
includes an automobile expense reimbursement at the agreed to rate
of $400 per month.
1 Pursuant to the terms of the employment contracts between the
Company and each of Messrs. Woerner and Schorr, who jointly
head the Company's Air Conditioning and Refrigeration
Division, the annual bonus earned by them, based upon the
operating results of their Division, is divided equally
between them.
1 In January 1997, the Board of Directors approved the issuance
of 2,500 Warrants, each to purchase one share of Common Stock
at a price of $6.40 per Share, to Ms. Melnik in consideration
of her assuming the duties of Chief Financial Officer of the
Company without additional monetary compensation.
Mr. Membrado joined the Company in November 1996 and, therefore, received no
compensation during fiscal 1996.
During the year ended June 30 1997, Mr. Seror was employed pursuant to
a restructured employment agreement with Actrade. Under this agreement
Mr. Seror's salary has been restated and he now receives a base salary
of $42,500. In addition Mr. Seror receives a commission based upon the
Company's net sales profits generated directly by him equal to 15% of
the first $150,000; 20% of the next $50,000 and 25% of all net sales
profits above $200,000.
Mr. Woerner became an officer and employee of the Company as of
September 6, 1991. He was employed pursuant to an oral employment
agreement until January 1, 1992, at which time Mr. Woerner and the
Company entered into a formal written employment agreement. This
Agreement was modified and renewed effective as of January 1, 1995.
Under this new Agreement Mr. Woerner is employed at a base salary of
$76,125 per year. In addition Mr. Woerner receives an automobile lease
and expense reimbursement of $4,800 per year and a commission based
upon the Company's net profits derived by sales generated directly by
the Air Conditioning Division equal to 15% of all such net profits up
to $110,000; 20% of the next $110,000 and 25% of all amounts over
$220,000. In determining net profits attributable to the Division, the
Company deducts from gross sales profits (gross sales less cost of
sales) all direct expenses as specified in the Agreement and an agreed
to percentage apportionment of the Company's overhead expenses up to a
maximum of $149,000 per year.
Mr. Schorr became an officer and employee of the Company as of
September 6, 1991. He was employed pursuant to an oral employment
agreement until January 1, 1992, at which time Mr. Schorr and the
Company entered into a formal written employment agreement. This
Agreement was modified and renewed effective as of January 1, 1995.
<PAGE>
Under this new Agreement Mr. Schorr is employed at a base salary of
$72,875 per year. In addition Mr. Schorr receives an automobile lease
and expense reimbursement of $4,800 per year and a commission based
upon the Company's net profits derived by sales generated directly by
the Air Conditioning Division equal to 15% of all such net profits up
to $110,000; 20% of the next $110,000 and 25% of all amounts over
$220,000. In determining net profits attributable to the Division, the
Company deducts from gross sales profits (gross sales less cost of
sales) all direct expenses as specified in the Agreement and an agreed
to percentage apportionment of the Company's overhead expenses up to a
maximum of $149,000 per year.
As of February 20, 1991, the Company engaged the services of Mr. Amos
Aharoni as a special consultant of the Company. Under that agreement,
Mr. Aharoni, who is also the president of NTS Corporation, the
Company's principal shareholder, was responsible, among other matters,
with the implementation and supervision of the Company's internal
financial matters; negotiation for new credit facilities with banking
institutions on behalf of the Company; preparation of financial budgets
and projections for the Company's various subsidiaries and product
divisions; review of potential acquisition candidates for the Company;
the review of internal operating procedures and preparation of
recommendations concerning changes to such procedures; and such
additional special projects as may be designated by the Board of
Directors. In addition to his other duties, effective March 1, 1993 he
was appointed President of Actrade Capital, Inc. and has been in charge
of the development and implementation of Capital's TAD Program.
Further, in April 1993, Mr. Aharoni was also appointed as Chief
Executive Officer of the Company and its subsidiaries at an annual
salary of $76,000, plus reimbursement of any expenses incurred by him
on behalf of the Company. In addition, the Company is obligated to
provide Mr. Aharoni with a car for his use, and currently provides
reimbursement for his car insurance premiums as well as for health
insurance for Mr. Aharoni and his family.
Except as herein above described, the Company has no other employment
contracts. Further, it has no retirement, pension, profit sharing,
insurance or medical reimbursement plan covering its officers or
directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security ownership of certain beneficial owners.
None other than stated in (b) below.
<PAGE>
(b) Security ownership of management.
Name Relationship Number of Shares(3) Percent-
age(4)
NTS Corp. (1) Shareholder 2,345,549 31.4%
Henry N. Seror(2) Officer, Director &
Shareholder 27,083 0.4%
Amos Aharoni Officer 2,345,549 31.4%
Officers & Directors as
a group (3 persons) 2,372,632 31.8%
- ---------------------------------------
(1) Mr. Amos Aharoni controls the business of and is the sole officer and
director of NTS Corporation which is the Company's principal shareholder. By
reason of his position with NTS Corp., Mr. Aharoni may be deemed to have a
beneficial interest in the Shares owned by NTS Corporation. Mr. Aharoni owns no
Shares apart from those owned by NTS Corporation.
(2) Mr. Seror is the only officer or director of the Company or any of its
subsidiaries which is also a Shareholder of the Company, except for Mr. Aharoni
who has beneficial ownership through NTS Corp.
(3) Does not consider Warrants issued to management (see "Item 11.Executive
Compensation" above).
(4) Percentage figures are based upon 7,470,681 Shares issued and outstanding
as of June 30, 1997, without considering outstanding warrants.
(c) Changes in Control.
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Compliance With Section 16(a) of the Exchange Act.
The Company has been registered pursuant to Section 12 of the Securities
Exchange Act of 1934 since September 23, 1990 and, by reason thereof, all
officers, directors and 10% or more shareholders of the Company became obligated
to file Forms 3, 4 and 5, describing the ownership of securities in the Company
and any changes thereto, as they may apply, since that date.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
Exhibits: None
Reports on Form 8-K: None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ACTRADE INTERNATIONAL, LTD.
Date: August 14, 1997 By:/s/Henry N. Seror__________
Henry N. Seror, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Dated: August 14, 1997 By:/s/Henry N. Seror___________
Henry N. Seror, President & Director
Dated: August 14, 1997 By:/s/Amos Aharoni______________
Amos Aharoni, Chief Executive
Officer, and Director
Dated: August 14, 1997 By:/s/John Woerner______________
John Woerner, Senior Vice President
and Director
Dated: August 14, 1997 By:/s/Leon Schorr_______________
Leon Schorr, Senior Vice President
and Director
Dated: August 14, 1997 By:/s/Elizabeth Melnik__________
Elizabeth Melnik, Chief Financial Officer
Dated: August 14, 1997 By:/s/Robert Furstner__________
Robert Furstner, Director
Dated: August 14, 1997 By:/s/Harry Friedman___________
Harry Friedman, Director
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
YEAR ENDED JUNE 30, 1997
CONTENTS
Page
Independent auditors' report F-1
Consolidated financial statements:
Balance sheet F-2
Statement of operations F-3
Statement of changes in shareholder's equity F-4
Statement of cash flows F-5
Notes to consolidated financial statements F-6 - F-21
<PAGE>
[LETTER OF ZELLER WEISS & KAHN]
Board of Directors
Actrade International, Ltd. and Subsidiaries
New York, New York
We have audited the accompanying consolidated balance sheet of Actrade
International, Ltd. and Subsidiaries as of June 30, 1997 and June 30, 1996, and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for the years ended June 30, 1997, 1996, and 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Actrade
International, Ltd. and Subsidiaries as of June 30, 1997 and 1996 and the
results of its consolidated operations, changes in stockholders' equity and cash
flows and for the years ended June 30, 1997, 1996 and 1995, in conformity with
generally accepted accounting principles.
/S/ZELLER WEISS & KAHN
August 6, 1997
Mountainside, New Jersey
F-1
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997 AND 1996
ASSETS
1997 1996
---- ----
Current assets:
Cash, including time deposits of $0 and
$750,000 in 1997 and 1996, respectively $ 7,352,465 $1,924,805
Accounts receivable, less allowance for
doubtful accounts of $35,000 and $25,000
in 1997 and 1996, respectively 5,269,516 3,361,821
Trade acceptance draft receivable, bank 6,477,424 2,578,015
Interest receivable 3,162
Due from affiliates 77,164
Prepaid expenses 9,010 24,815
----------- ----------
Total current assets 19,108,415 7,969,782
----------- ----------
Property and equipment:
Furniture and fixtures 308,717 161,829
Leasehold improvements 142,672 113,902
----------- ----------
451,389 275,731
Less accumulated depreciation 213,084 172,026
----------- ----------
238,305 103,705
----------- ----------
Security deposits 17,742 15,034
----------- ----------
$19,364,462 $8,088,521
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash advance from bank $ 1,019,392 $1,178,551
Customer deposits 26,587 55,954
Accounts payable and customer reserves payable 1,995,148 1,872,880
Accrued expenses 11,759 11,041
Payroll taxes payable 6,862
Due to affiliates 3,126
Income taxes payable 67,432 21,302
----------- ----------
Total current liabilities 3,127,180 3,142,854
----------- ----------
Commitments
Deferred rent liability 45,165 55,960
----------- ----------
Shareholders' equity:
Common stock, $.0001 par value; authorized
100,000,000 shares, issued and
outstanding 7,470,681 at June 30, 1997
and 5,683,181 at June 30, 1996 747 568
Common stock purchase warrants
Additional paid in capital 12,505,787 3,107,137
Retained earnings 3,685,583 1,782,002
----------- ----------
16,192,117 4,889,707
----------- ----------
$19,364,462 $8,088,521
=========== ==========
See notes to consolidated financial statements.
F-2
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $43,499,312 $23,837,985 $16,415,804
Cost of sales 39,460,841 21,870,891 14,896,903
----------- ----------- -----------
Gross profit 4,038,471 1,967,094 1,518,901
Selling, general, and
administrative expenses 2,075,418 1,194,445 1,136,243
----------- ----------- -----------
Income from operations 1,963,053 772,649 382,658
----------- ----------- -----------
Other income (charges):
Interest income 28,684 97,858 78,738
Interest expense ( 44,729) ( 150,113) ( 56,991)
Miscellaneous income 65,724 58,282
----------- ----------- ----------
49,679 6,027 21,747
----------- ----------- -----------
Income before income taxes 2,012,732 778,676 404,405
Income tax expense (benefit) 109,151 21,302 ( 3,388)
----------- ----------- -----------
Net income $ 1,903,581 $ 757,374 $ 407,793
=========== =========== ===========
Earnings per common share:
Primary $ .28 $ 0.14 $ 0.08
=========== =========== ===========
Fully diluted $ .28 $ 0.14 $ 0.08
=========== =========== ===========
Weighted average common shares
outstanding
Primary 6,828,971 5,378,427 5,304,735
=========== =========== ===========
Fully diluted 6,828,971 5,378,427 5,304,735
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Additional
$.0001 par value Paid In Retained
Shares Amount Capital Earnings Total
<S> <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 652,500 65 1,922,214 1,922,279
Issuance of common stock on
exercise of stock purchase
options 450,000 45 987,455 987,500
Issuance of common stock 685,000 69 6,488,981 6,489,050
Net income for the year ended
June 30, 1997 1,903,581 1,903,581
--------- ---- ----------- ---------- -----------
Balance at June 30, 1997 7,470,681 $747 $12,505,787 $3,685,583 $16,192,117
========= ==== =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $1,903,581 $ 757,374 $ 407,793
Adjustments to reconcile net income
to cash provided from operating
activities:
Depreciation 41,058 24,617 22,375
Changes in other operating assets and liabilities:
Accounts receivable ( 5,807,104) ( 1,871,009) ( 1,918,445)
Prepaid expenses 15,805 4,179 4,993
Interest receivable 3,162 24,401 ( 14,809)
Accounts payable 92,901 163,848 762,064
Income tax benefits receivable 4,823
Accrued expenses ( 2,408) 753 8,739
Payroll taxes payable 6,862 ( 9,213) 9,213
Income taxes payable 46,130 20,602
Deferred rent ( 10,795) ( 7,942) ( 5,205)
Deferred taxes 13,439
---------- ----------
Net cash used in operating activities ( 3,710,808) ( 878,951) ( 718,459)
---------- ---------- ----------
Investing activities:
Increase in security deposits ( 2,708)
Purchase of property and equipment ( 175,658) ( 35,147) ( 16,381)
Increase in loans receivable, affiliates ( 85,843)
---------- ---------- ----------
Net cash used in investing activities ( 178,366) ( 35,147) ( 102,224)
---------- ---------- ----------
Financing activities:
Proceeds from issuance of common stock 9,398,829 1,065,299 567,574
Increase in cash advances from bank 123,653 887,787
Decrease in due to/from affiliates 77,164 30,784 2,822
Decrease in cash advances from bank ( 159,159)
Decrease in long-term debt ( 149,882) ( 180,000)
---------- ---------- ----------
Net cash provided from financing activities 9,316,834 1,069,854 1,278,183
---------- ---------- ----------
Net increase in cash 5,427,660 155,756 457,500
Cash, beginning of year 1,924,805 1,769,049 1,311,549
---------- ---------- ----------
Cash, end of year $7,352,465 $1,924,805 $1,769,049
========== ========== ==========
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 47,137 $ 141,227 $ 57,552
========== ========== ==========
Income taxes $ 31,187 $ 2,983 $ 700
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1. 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. Actrade Capital, Inc. offers alternatives to
existing accounts receivable management to domestic companies. Actrade
South America, Ltd., formerly Standard Corporation, a wholly owned foreign
corporation and subsidiary of
Actrade International, Corp., was incorporated in Antigua and Barbados
on February 12, 1988 and was acquired in January 1990. American Cooling,
Inc., a wholly owned subsidiary of Actrade International, Ltd. was
incorporated in Delaware in 1992 and was liquidated in 1996. 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 never activated.
On May 9, 1988, in a public offering, the Company sold 2,434,000 units at
$.05 per unit, which consisted of one share of stock and four warrants. The
total offering amounted to $121,700 less expenses of offering of $36,638
for a net proceeds to the Company of $85,062. The Company issued 2,434,000
shares and 9,736,000 warrants exercisable at $.075 per share.
On September 2, 1988, the Company acquired 100% of the issued and
outstanding capital stock of Actrade International, Corp. and Allstate
Travel Corp. in exchange for 6,000,000 shares of the Company's common
stock, .001 par value and changed its name to Actrade International, Ltd.
Effective January 2, 1991, the Company declared a one for eight reverse
split of its common stock.
On October 31, 1991, the Company declared and distributed a dividend of
514,844 Class B redeemable stock purchase warrants to shareholders of
record at the close of business on October 31, 1991 on the basis of one
Class B warrant at a price of $1.75. As of October 31, 1991, 3,179,185
shares were outstanding, of which 2,149,562 shares were owned by two
principal shareholders, who declined receipt of warrants and only 1,029,623
were issued dividend warrants. These warrants expired July 29, 1994. A
total of 324,327 common shares were issued as the result of the exercise of
the Class B Warrants and the Company received a total of $567,572 as a
result thereof. The proceeds from the exercises of the
Class B Warrants were received during July of 1994.
F-6
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1. Organization of the Company (continued):
On May 8, 1988, at the closing of the public offering, underwriter warrants
in the amount of 30,425 at $.0001 or $24, were sold. The warrants are
exercisable at $.48 per common share at anytime during the four year period
commencing February 22, 1989. These warrants were exercised in February of
1993.
2. Summary of significant accounting policies:
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 and Actrade Capital, Inc. are
included in the consolidated financial statements of Actrade
International, Ltd.
Revenue Recognition:
The Company recognizes revenues when realizable and earned. The Company
generally recognizes revenues at the date of shipment of merchandise.
Actrade Capital, Inc. recognizes revenue on the accrual basis.
Discounts on Trade Acceptance Drafts (TAD) are amortized over the term
of the TAD. All other related fees are recorded as income when
incurred. Discounts earned are recognized as income using the interest
method or methods which produce similar results. Income accrual is
suspended after 30 days on delinquent TAD's.
Actrade Capital, Inc. recognizes gross revenues from sale of TAD's at the
gross value of the TAD's face amount and cost of sales at the gross
value less the deferred discount. The usual discount is 5% to 10% and
the Company funds 75% of the purchase price of the TAD. The balance is
accounted for as a customer reserve payable. The deferred discount is
amortized over the TAD's term unless the Company sells the TAD. Then the
full discount is recognized in income as the TADs are sold. The balance
due to customers is treated as a liability at the balance sheet date.
Reverse stock split:
On January 2, 1991 the Company effected a 1 for 8 reverse split of its
outstanding shares of common stock and outstanding warrants. All
references to number of shares and warrants and to per share
information in the consolidated financial statements have been adjusted
to reflect this stock split on a retroactive basis, unless otherwise
specified.
F-7
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
2. Summary of significant accounting policies (continued):
Cash and cash equivalents:
Cash and cash equivalents include time and certificates of deposits with
maturities of less than three months.
Accounts receivable and allowance for doubtful accounts:
Accounts receivable are fully secured by either irrevocable letters of
credit, commercial documentary drafts, promissory notes with personal
guarantees or by liens on assets in the United States. Accordingly, the
Company's provision for doubtful accounts is minimal.
Property and equipment:
Property and equipment are stated at cost. Depreciation of property and
equipment is provided using the straight-line method over the following
useful lives:
Years
Automotive equipment 5
Furniture and fixtures 5
Leasehold improvements 10 - 12.75
Expenditures for major renewals and betterment that extend the useful
lives of property and equipment are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred.
Per share amounts:
Net earnings per share are computed by dividing net income by the
weighted average number of shares of common stock and common stock
equivalents outstanding during the period. Common stock equivalents
represent the dilutive effect of the assumed exercise of the
outstanding option. The Company uses the treasury stock method in its
treatment of stock options.
Income taxes:
Deferred income taxes:
Deferred income taxes arise from timing differences resulting from
income and expense items reported for financial/accounting and tax
purposes in different periods. Deferred taxes are classified as current
or non-concurrent, depending on the classification of the assets and
liabilities to which they relate. Deferred taxes arising from timing
differences that are not related to an asset or liability are
classified as current or non current depending on the periods in which
the timing differences are expected to reverse.
F-8
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
2. Summary of significant accounting policies (continued):
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results differ from
these estimates.
Effect of recently issued accounting standards:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impaired of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. "SFAS"
No. 121 requires that Long-Lived Assets and certain identifiable
intangibles to be held and used by the Company be reviewed for
impairment whenever events indicated that the carrying amount of an
asset may not be recoverable.
Additionally, The Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock
Based Compensation". The effective date of SFAS No. 123 is for fiscal
years beginning after December 15, 1995, and established a method of
accounting for stock compensation plans based on fair value. The
Company does not believe the SFAS No. 121 and No. 123 will have an
impact on its financial statements.
3. Risks and uncertainties:
The Company sells in the foreign markets. There is no guarantee that the
foreign market will continue to develop since the incorporation of
foreign and domestic government intervention, economic conditions world
wide and any other unforeseen situations may occur.
With respect to Actrade Capital, Inc. and its TAD Program, the Company
faces strong competition from many established financial institutions,
including banks, insurance companies and receivables financing
(factoring) companies. Actrade Capital, Inc.'s TAD program (see Note
12) is based upon the introduction of a Trade Acceptance Draft (TAD).
There is no assurance that management will be successful in either
gaining the necessary market acceptance for the TAD program or in
securing adequate additional capital to expand to its full commercial
potential.
F-9
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
4. Common stock purchase warrants and options outstanding:
Summary of warrants (w) and options (o) outstanding:
<TABLE>
<CAPTION>
Warrants (w) Exercise Expiration
Date Options (o) Price Date
<S> <C> <C> <C> <C> <C>
Amos Aharoni 06/30/93 80,000 (w) $1.25 12/31/97
Amos Aharoni 06/30/94 80,000 (w) 1.25 12/31/97
Amos Aharoni 06/30/95 200,000 (w) 1.35 06/30/98
Amos Aharoni 06/30/96 200,000 (w) 3.35 06/30/99
Amos Aharoni 06/06/97 132,915 (w) 5.00 09/30/99
Amos Aharoni 06/06/97 176,629 (w) 6.05 12/31/99
Amos Aharoni 06/06/97 207,157 (w) 9.70 03/31/00
Amos Aharoni 02/06/97 3,000 (o) 5.00 12/31/00
---------
1,079,701
John Woerner 06/30/94 131,500 (w) 1.35 12/31/97
John Woerner 01/21/97 2,500 (o) 6.40 01/20/01
John Woerner 02/06/97 2,500 (o) 5.00 12/31/00
John Woerner 02/06/97 3,000 (o) 5.00 12/31/00
---------
139,500
Leon Schorr 06/30/94 131,500 (w) 1.35 12/31/97
Leon Schorr 01/21/97 2,500 (o) 6.40 01/20/01
Leon Schorr 02/06/97 2,500 (o) 5.00 12/31/00
Leon Schorr 02/06/97 3,000 (o) 5.00 12/31/00
---------
139,500
Mitch Menik 03/12/97 12,500 (w) 2.50 03/11/00
Mitch Menik 09/12/96 12,500 (o) 2.50 09/12/00
Mitch Menik 02/06/97 1,000 (o) 5.00 12/31/00
---------
26,000
Fahnstock 06/30/96 50,000 (w) 2.50 06/30/99
Other employees 01/21/97 10,000 (o) 6.40 01/20/01
Other employees 02/06/97 35,500 (o) 5.00 12/31/00
---------
95,500
Total 1,480,201
=========
</TABLE>
F-10
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
4. Common stock purchase warrants and options outstanding (continued):
At June 30, 1996, the Company had outstanding warrants to purchase
435,000 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 June 30, 1996, 435,000 shares of common stock were
reserved for that purpose.
In December 1996, 50,000 of these warrants were exercised with proceeds
of $87,500 to the Company. As of June 30, 1997, the remaining warrants
were cancelled due to non-performance of service contracts as explained
in Note 17.
The Company has elected to continue use of the methods of accounting
described by APB-25 "Accounting for Stock Issued to Employees" which is
based on the intrinsic value of equity instruments and has not adopted
the principles of SFAS-123 "Accounting for Stock Based Compensation"
effective for fiscal year beginning after December 15, 1995, which is
based in fair value. There is no significant difference between
compensation cost recognized by APB-25 and the fair value method of
SFAS-123. The Company has not recognized compensation on the granting
of options or warrants to employees and consultants since the fair
value of warrants or options is the same as or less than the exercise
price.
5. Foreign and domestic operations and export sales:
The Company's revenues are generated through the sale and export to
countries outside the United States and through the domestic sale of
commercial trade acceptances. Actrade South America, Actrade's wholly
owned foreign subsidiary, sales accounted for a material amount of the
Company's sales. The following table indicated the relative amounts of
net sales, income from operations and identifiable assets of Actrade
International Ltd. by geographic area during the three year period
ended June 30, 1997.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States $21,791,000 $ 8,093,000 $ 3,975,464
Middle East 5,321,000 4,350,000 3,643,911
South America 4,568,326 3,424,000 2,926,184
Europe 9,005,109 5,300,000 2,652,436
Far East 2,100,000 1,750,000 2,387,653
Other 713,877 920,985 830,156
----------- ----------- -----------
Total consolidated revenues $43,499,312 $23,837,985 $16,415,804
=========== =========== ===========
Operating profit (loss):
United States $ 2,023,074 $ 666,844 $ 364,536
Middle East 494,001 359,978 334,158
South America 424,123 283,262 273,402
Europe 836,033 436,695 243,024
Far East 194,964 143,598 227,835
Other 66,276 76,717 75,946
----------- ----------- -----------
Total operating profit $ 4,038,471 $ 1,967,094 $ 1,518,901
=========== =========== ===========
</TABLE>
F-11
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
5. Foreign and domestic operations and export sales (continued):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
General corporate expenses, net $ 2,009,694 $ 1,136,163 $ 1,136,243
Interest expense (income), net 16,045 52,255 ( 21,747)
----------- ----------- -----------
2,025,739 1,188,418 1,114,496
----------- ----------- -----------
Income from continuing operations
before income taxes $ 2,012,732 $ 778,676 $ 404,405
=========== =========== ===========
Identifiable assets at June 30:
United States $ 6,295,337 $ 2,715,850 $1,455,891
Middle East 1,537,217 1,446,078 1,329,554
South America 1,319,772 1,153,635 1,070,862
Europe 2,601,542 1,778,521 974,605
Far East 606,682 584,829 878,348
Other 206,235 332,444 306,820
----------- ----------- -----------
12,566,785 8,011,357 6,016,080
Corporate assets 6,797,677 77,164 108,484
----------- ----------- -----------
Total assets at June 30 $19,364,462 $ 8,088,521 $ 6,124,564
=========== =========== ===========
Net sales to one country over ten percent of total:
Brazil $ 2,132,000
Hong Kong 1,752,000
Finland
$ 3,884,000
Exports sales:
Middle East $ 5,321,000 $ 4,350,000 $ 3,643,911
South America 4,568,326 3,424,000 2,926,184
Europe 9,005,109 5,300,000 2,652,436
Far East 2,100,000 1,750,000 2,387,653
Other 713,877 920,985 830,156
----------- ----------- -----------
$21,708,312 $15,744,985 $12,440,340
=========== =========== ===========
</TABLE>
Two customers accounted for approximately 27% of consolidated revenues in
1995, or $4,448,284. In 1997 and 1996 the Company had no one customer or
country which accounted for 10% or more of the Company's consolidated
revenues.
F-12
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
6. Employment contracts:
OnJanuary 1, 1995, the Company and its President entered into a revised
employment agreement. The president receives a base salary of $42,500
per year. In addition, the president receives a commission based upon
the Company's net sales profits generated by him, subject to recoupment
of the guaranteed draw, equal to 15% of the first $150,000, 20% of the
next $50,000 and 25% of all net sales profits above $200,000. Net sales
profits are defined as invoiced sales less direct cost of goods sold,
discounts, bank charges and other expenses.
OnSeptember 6, 1991, two officers of the company were employed pursuant to
oral agreements until January 1, 1992, at which time the officer and the
Company entered into formal written employment agreements. These
agreements were modified as of January 1, 1995 and provide for base
salaries of $76,125 and $72,875 per year. In addition, both officers
receive expense reimbursements of $4,800 per year and commissions based
on Company's net profit and derived by sales generated directly by Air
Conditioning Division equal to 15% of all such profits up to $110,000,
20% of the next $110,000 and 25% of all amounts over $220,000.
Inaddition to foregoing employment contracts with management, as of
February 20, 1991, the Company has engaged the services of a chief
executive officer pursuant to a written consulting agreement which
provides an annual salary of $78,000, plus reimbursement of any expenses
incurred on behalf of the Company. Said individual is the president of
the Company's majority shareholders, NTS Corporation. In addition to his
other duties, effective March 1, 1993, he was appointed President of
Amworld and has been charged with the implementation of Amworld's
business plan. Further, in April 1993, he was also appointed as Chief
Operating Officer of the Company and as Secretary Treasurer of the
Company and its subsidiaries.
All of the above employment contracts are currently in force at June 30,
1997.
7. Leases:
From March 1, 1989 to February 28, 1990, the Company and its subsidiaries
used office facilities under a non-cancelable operating sublease of
which commenced March 1, 1989 and was to expire February 28, 1992. The
related sublease agreement provided for monthly rentals of $4,000 and
gave a subsidiary of the Company the option to renew, for an additional
three years (to February 28, 1995), at the same monthly rental.
F-13
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
7. Leases (continued):
InFebruary 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.
InDecember 1991, Actrade entered into a non-cancelable 36 month operating
lease to house its Florida office. The lease provides for monthly
payments of $734 plus cost of living increases annually, capped @ 5% per
annum. The lease was renewed on December 24, 1994 for a three year term
under the above terms and expires on December 24, 1997.
InAugust 1996, Actrade Capital, Inc. entered into a 12 month lease
expiring on August 31, 1997 for space in an Illinois office suite. Both
parties have the option to terminate the lease with thirty days written
notice to either party. The lease provides for monthly payments of
$1,100 on the first day of each month.
In May 1997, Actrade Capital, Inc. entered into a 15 month lease for
office space in Utah. The lease expires July 31, 1998 and calls for
monthly rent payments in the amount of $329.
InApril 1997, Actrade Capital, Inc. entered into a lease agreement for
additional space in its New York office. The lease expires on March 31,
2000 and calls for rent of $1,628 per month in the first year, $1,672
per month in the second year and $1,716 per month in the third year.
Beginning July 1, 1997, Actrade entered into a lease agreement for
additional space in its New York facility. The lease, which carries rent
at $3,000 per month, expires on October 31, 1998.
F-14
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
7. Leases (continued):
Future minimum lease payments required under non-cancelable operating
leases by fiscal year are as follows:
June 30, 1998 $ 99,282
June 30, 1999 $ 93,005
June 30, 2000 $ 65,377
Rent expense amounted to $86,964, $73,337 and $71,675 for 1997, 1996 and
1995 respectively.
Actrade South America, maintains a separate sales office in Israel, held
by a commissioned sales agent of the Company. The terms of the
agreement are reviewable yearly and the annual fee was $9,000 in 1997
and $6,000 in 1996 and 1995, subject to adjustment based upon the
commissions paid to the agent during such year.
8. Income taxes:
The components of income tax expenses are:
1997 1996 1995
---- ---- ----
Income taxes currently payable:
Federal tax $ 59,131 $ 38,181
State and local 59,602 7,336 $ 700
---------- -------- ------
118,733 45,517 700
---------- -------- ------
Deferred tax expense arising from:
Excess of financial accounting
depreciation over tax 9,313 4,795 ( 434)
Charges to allowance for doubtful
accounts over tax write-offs
for bad debts ( 3,400) 16,720 ( 5,421)
Rent expense for financial
accounting (over) under tax
deductible rent 3,669 2,700 1,767
---------- -------- ------
9,582 24,215 ( 4,088)
---------- -------- ------
Total income tax expense $ 109,151 $ 21,302 ($3,388)
========== ======== ======
Deferred income tax provisions resulting from differences between
accounting for financial statement purposes and accounting for tax
purposes are reflected above.
F-15
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
8. Income taxes (continued):
Areconciliation of income tax expense at the statutory rate to income
tax expenses at the Company's effective rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed tax at the expected
statutory rate $ 652,428 $265,075 $137,498
Surtax exemption ( 11,750) ( 11,750) ( 11,750)
State income taxes 59,602 7,336 700
Foreign income ( 581,547) ( 215,144) ( 125,748)
Other ( 9,582) ( 24,215) ( 4,088)
---------- -------- --------
Income tax expense (benefit) $ 109,151 $ 21,302 ($ 3,388)
========== ======== ========
Foreign income before income taxes $1,783,033 $632,777 $434,589
Domestic income (loss) before
income taxes 229,699 145,899 ( 30,184)
---------- -------- --------
Net income before income taxes $2,012,732 $778,676 $404,405
========== ======== ========
</TABLE>
The expected statutory rate for 1997, 1996 and 1995 was 34% 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 is $3,741,373 at June 30, 1997.
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.
F-16
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
9. Financial instruments with off-balance-sheet risk:
The Corporation's wholly owned subsidiary, Actrade Capital, Inc., is a
party to financial instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and purchase trade
acceptance drafts. These instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount recognized in the
statement of financial position. The Corporation does not require
collateral or other security to support financial instruments with credit
risk.
The Corporation, Actrade Capital, Inc. has its highest percentage of Trade
Acceptance Drafts in the east coast area, with New York and New Jersey
representing a majority of all sales.
The Corporation has on deposit, amounts in Banco Portuguese De Atlantico,
in Grand Cayman, where there is no insurance. At June 30, 1997, the
Company's uninsured balances are $7,111,939 as reflected in the balance
sheet.
10. Industry Segments:
The Company's three business segments are the exporting of machinery and
equipment from U.S. and foreign manufactures, travel agency services
and the purchase and sale of commercial Trade Acceptance Draft
documents. The following is a summary of selected consolidated
information for the related segments during 1997, 1996 and 1995.
Sales (1): 1997 1996 1995
---- ---- ----
Machinery and equipment $21,809,314 $15,825,000 $12,669,780
Travel agency service 21,425 19,053 42,531
Trade Acceptance Drafts 21,668,573 7,993,932 3,703,493
----------- ----------- -----------
Consolidated net sales $43,499,312 $23,837,985 $16,415,804
=========== =========== ===========
F-17
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
10. Industry Segments (continued):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income (loss) from operations:
Machinery and equipment $ 1,813,386 $ 678,586 $ 392,295
Travel agency service 1,032 ( 3,059) 1,122
Trade Acceptance Drafts 173,574 100,616 7,153
----------- ---------- ----------
1,987,992 776,143 400,570
Corporate and other (2) ( 84,411) ( 18,769) 7,223
----------- ---------- ----------
Consolidated income (loss) $ 1,903,581 $ 757,374 $ 407,793
=========== ========== ==========
Identifiable assets (3):
Machinery and equipment $ 4,546,762 $4,532,213 $4,643,233
Travel agency service 6,242 5,011 15,586
Trade Acceptance Drafts 8,013,781 3,474,133 1,357,261
----------- ---------- ----------
12,566,785 8,011,357 6,016,080
Corporate and other
consolidated assets 6,797,677 77,164 108,484
----------- ---------- ----------
$19,364,462 $8,088,521 $6,124,564
=========== ========== ==========
</TABLE>
(1) Sales between industry segments are not material.
(2) Corporate and other includes corporate general and administrative
expenses, net interest expense, other non-operating income and
expenses and income taxes.
(3) Identifiable assets by industry segment exclude inter-company
loans, advances and investments. Inter-company trade receivables
between segments have also been excluded from identifiable
assets. Corporate assets are principally cash, marketable
securities, deferred charges and assets held for disposition.
F-18
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
11. Trade Acceptance Drafts receivable, bank:
As of June 30, 1997, Actrade Capital, Inc., formerly Amworld Commerce,
Inc., a wholly owned subsidiary of Actrade International, Ltd, has sold
and assigned all outstanding Trade Acceptance Drafts (TAD's) to Banco
Portuguese De Atlantico (Bank). The total TAD amounts due from the bank
were $6,477,424 at June 30, 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 guarantees 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 June 30, 1997, the advances on the overdraft account
amounted to $1,019,392. 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 shall be charged on the 1st day of each
month.
On June 30, 1996 the Company was issued a business credit insurance
policy from American Credit Indemnity Company, with an effective date of
May 1, 1996, covering specifically any TAD transactions. The policy will
cover losses to $3,000,000 and allow a discretionary coverage of $50,000
per customer. The policy has a deductible of $40,000 per year and was
renewed on May 1, 1997 for another one year period.
12. Reconciliation of shares used in computation of earnings per share:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average of shares
actually outstanding 6,358,159 5,334,974 5,304,735
Common stock options and warrants 470,812 43,453
--------- --------- ---------
Primary and fully diluted weighted
average common shares outstanding 6,828,971 5,378,427 5,304,735
========= ========= =========
</TABLE>
F-19
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
13. Related party transactions:
During the period ended June 30, 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.
These balances consist of the following:
1996 1995
---- ----
Due from affiliates:
NTS Corp. $ 2,500
Henessey Corp. $27,677 27,677
Executive 900 Corp. 49,487 78,307
------- --------
$77,164 $108,484
======= ========
Due to affiliates:
NTS Corp. $ 3,126 $ 3,662
------- --------
$ 3,126 $ 3,662
======= ========
14. Proceeds from additional stock offerings:
Effective June 4, 1996 the Company offered a total of 134 units, each
consisting of 7,500 shares of common stock, at a gross unit price of
$25,125. This price does not include certain commissions or fees. In June
of 1996 the Company sold 47 units for a net proceed of $1,065,299
resulting in an issuance of 352,500 shares of common stock. In the period
July through October 1996, the Company sold an additional 86 units for a
net proceed of $1,951,300 resulting in the issuance of 652,500 shares of
common stock.
In January 1997, the Company received total proceeds of $987,500 on the
exercise of common stock options with the exercise price ranging from
$1.75 to $3.00. A total of 450,000 common shares were issued.
F-20
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
14. Proceeds from additional stock offerings (continued):
Effective May 30, 1997, the Company offered a total of 400 units, each
consisting of 2,500 shares of common stock, at a gross price of $25,000
per unit. This price does not include certain commissions or fees. In May
and June 1997, the Company sold 274 units for a net proceed of $6,475,350
resulting in an issuance of 685,000 shares of common stock.
15. 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 its 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 issue or honor the warrants.
F-21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANICAL INFORMATION FROM THE AUDITED
CONSOLIDATED FINANICAL STATEMENTS OF ACTRADE INTERNATIONAL, LTD. AND
SUBSIDIARIES FOR THE FISCAL YEAR ENDED JUNE 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY THE REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 7,352,465
<SECURITIES> 0
<RECEIVABLES> 11,746,940
<ALLOWANCES> 35,000
<INVENTORY> 0
<CURRENT-ASSETS> 19,108,415
<PP&E> 451,389
<DEPRECIATION> 213,084
<TOTAL-ASSETS> 19,364,462
<CURRENT-LIABILITIES> 3,127,180
<BONDS> 0
0
0
<COMMON> 747
<OTHER-SE> 12,505,787
<TOTAL-LIABILITY-AND-EQUITY> 19,364,462
<SALES> 43,499,312
<TOTAL-REVENUES> 43,499,312
<CGS> 39,460,841
<TOTAL-COSTS> 2,075,418
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,729
<INCOME-PRETAX> 2,012,732
<INCOME-TAX> 109,151
<INCOME-CONTINUING> 1,903,581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,903,581
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
