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, 1998
/__/ 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 - 8,541,051 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. $98,475,496
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 12, 1998, the value of such stock was: $91,674,592.
<PAGE>
FORM 10-K
ACTRADE INTERNATIONAL LTD.
JUNE 30, 1998
PART I
ITEM 1. BUSINESS
General.
Actrade International, Ltd. ("Actrade" or the "Company") was incorporated
under the name "Acquisition Capability, Inc." in 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 that 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
innovative financial services to domestic companies. In fiscal 1998, the Company
formed Actrade Forfaiting, Inc. ("Forfaiting"), a Bahamian corporation, for the
purpose of developing and marketing similar innovative financial services for
international companies.
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
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 of a TAD.
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 Buyers signing and delivering the draft back to the Seller.
This acceptance of the draft confirms that: (i) the goods or services have been
delivered by the Seller; (ii) the goods or services were checked and accepted by
the Buyer; and (iii) it establishes a specific payment date. 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
<PAGE>
most basic level, a TAD can be viewed as a negotiable promissory note which at
its due date is collected like an ordinary check.
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.
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 the
TADs 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 payment for TADs sold to
Capital within 48 hours, 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 bank account on the due date.
- - Safety.
The TAD Program incorporates many safeguards to minimize the risk of
non-payment. In management's opinion, the following features of the TAD Program
will reduce the risk of non-collection:
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 one company is limited.
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 business credit insurance policies it has
secured with major insurance carriers. These policies, in the aggregate,
currently covers losses up to $10 Million.
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 $55,541,301
during fiscal 1998. See, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" below for an analysis
<PAGE>
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 that utilizes trade acceptance
drafts. On December 2, 1997 Patent No. 5,694,552 was issued by the United States
Patent Office on the processes involved in the TAD 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 opened an entirely new market for the TAD
Program in the United States and management has aggressively pursued development
of this market segment, a process which will continue into fiscal 1999 and
beyond. During fiscal 1998, Capital developed a new marketing and promotional
approach specifically designed to reach these large companies by educating them
as the various ways that using TAD's can increase sales, lower their current
collection costs and reduce delinquent customer accounts.
From its experience to date, it has become apparent that the common problem of
aging receiveables plague even the largest of companies in much the same way as
they do small companies. Further, 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.
Expansion Into International Markets and Actrade Forfaiting, Ltd.
In the fourth quarter of fiscal 1998, the Company established a new wholly owned
subsidiary, Actrade Forfaiting, Inc., which was incorporated in the Commonwealth
of the Bahamas on May 29, 1998 and commenced operations on June 1, 1998. Through
Forfaiting, management plans to develop 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 offered by Capital to
foreign sellers of products to the American market. By adapting the TAD Program
to this business segment, an American importer of
<PAGE>
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 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 that 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 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. 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.
In the second phase of Capital's expansion program the TAD Program will be
adapted 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 will be that the TADs that will be
purchased will be issued by foreign companies and be drawn on foreign banks.
Forfaiting has been established in order to facilitate these foreign
transactions. To mitigate the potential risk involved, Forfaiting 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. To further protect against the risk of
loss, management intends to have the parties to the transaction contractually
waive their right to claim any commercial dispute in an action to collect
defaulted TADs. As mentioned earlier, Forfaiting began commercial activities
during the fourth quarter of fiscal 1998 and by June 30, 1998 had generated
gross revenues of $3,540,016 with net income from its operations of $206,835,
ahead of management's expectations.
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, Forfaiting has been
established as 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. As
part of this effort, the Company is currently in the process of establishing a
new office in Toronto, Canada for the purpose of marketing the TAD Program in
Canada. 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. Management believes that this aspect of its international
TAD Program will achieve commercial scale operations during fiscal 1999.
Actrade International Corp. - General:
International is engaged in international trade and finance having, since
July 1988, concentrated in the direct
<PAGE>
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 1998, International's principal product group consisted
of Industrial and Commercial Air Conditioning Equipment including package
systems, stand alone units and 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.
During fiscal 1998, ended June 30, 1998, out of Actrade's three principal
product groups, the Air Conditioning and Refrigeration Division accounted for
gross sales revenues of $7,806,724, or approximately 8% of the Company's total
sales. During fiscal 1997, Air Conditioning and Refrigeration sales totaled
approximately 14% of total sales for the Company. 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 and again during fiscal 1998 due to the
increase in revenues by Actrade S.A. (see discussion below) and the substantial
expansion of 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 upon confirmation of 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
<PAGE>
continues to offer extended credit to its largest, most credit-worthy customers.
During fiscal 1998 and 1997 no single customer represented 10% or more of
the Company's total sales. See "MANAGEMENT'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 $31,558,737 in fiscal 1998. Actrade S. A. accounted
for approximately 32% of the Company's total gross revenues for fiscal 1998 and
represented the second largest revenue 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.
In recent years, however, 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 and 1998 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>
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, during fiscal 1998, Allstate's total revenues
consisted of $28,718, 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 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 have an 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 Forfaiting'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 Forfaiting
will need to adapt its TAD Program to operate with TADs denominated in various
foreign currencies. At that point, the Company 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 in the United States that utilizes
trade acceptance drafts in a manner similar to Capital. However, in the
international market, there are a number of other companies offering services
similar to those offered by Forfaiting. However, at the present time, management
cannot accurately predict the effect that such competition will have on
Forfaiting's future operations.
ITEM 2. PROPERTIES.
<PAGE>
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 March 31, 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.
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.
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. As of the date of this
Report, Capital maintains Regional Sales Offices in Philadelphia, Chicago,
Houston, Atlanta and Los Angeles. Each of these sales offices consist of less
than 2,000 useable square feet and are all leased from independent third
parties.
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 10,
1997 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 1998 fiscal year.
<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 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
Quarter ended September 30, 1997 $12.125 $11.25
Quarter ended December 31, 1997 $30.00 $14.125
Quarter ended March 31, 1998 $17.625 $11.8125
On August 12, 1998 the reported closing price for the Company's Common Stock was
$14.938 per Share; there were 377 record holders of the Company's Shares; and
there were nineteen (19) 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 in 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>
<S> <C> <C>
Summary Balance Sheet Data: ______________________________________Year Ended June 30___________
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Total Assets $26,137,402 $19,364,462 $8,088,521 $5,987,746 $3,663,777
Total Current Assets 25,735,916 19,108,415 7,969,782 5,894,571 3,538,629
Total Current Liabilities 3,512,761 3,127,180 3,198,814 2,856,926 1,353,122
Stockholders Equity 22,592,920 16,192,117 4,889,707 3,066,918 2,091,667
Retained Earnings 8,102,398 3,685,583 1,782,002 1,024,628 616,835
Summary Earnings Data: ___________________________________Year Ended June 30___________________
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Total Revenues $98,475,496 $43,499,312 $23,837,985 $16,415,804 $12,125,468
Cost of Sales 90,043,713 39,460,841 21,870,891 14,896,903 10,869,674
Selling, General & Administrative
Expenses 3,484,542 2,075,418 1,194,445 1,136,243 1,004,752
Interest Expense 312,007 44,729 150,113 56,991 25,520
Interest Income 174,240 28,684 97,858 78,738 33,981
Income Before Taxes 4,839,982 2,012,732 778,676 404,405 259,503
Income Tax (Benefit) 423,167 109,151 21,302 (3,388) 5,253
Net Income 4,416,815 1,903,581 757,374 407,793 254,250
Earnings per Share 0.52 0.28 0.14 0.08 0.06
- -------------------------------------------------------
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 1998, ended June 30, 1998, the Company had combined gross
revenues from operations of $98,475,496, as compared to $43,499,312 for fiscal
1997; $23,837,985 for fiscal 1996 and $16,415,804 for fiscal 1995. Total cost
of revenues during fiscal 1998 were $90,043,713, as compared to $39,460,841
for fiscal 1997; $21,870,891 in fiscal 1996 and $14,896,903 in fiscal 1995. As
a result, the Company realized gross profit from operations of $8,431,783
during fiscal 1998, as compared to $4,038,471 in fiscal 1997; $1,967,094 in
fiscal 1996 and $1,518,901 in fiscal 1995.
The increase in gross revenues during fiscal 1998, approximately 126% above
fiscal 1997, was primarily due to the expansion of the Company's operations
through (i) 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") and (ii) the increased sales by its subsidiary Actrade S.A.
The increase in revenues in fiscal 1998 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 $4,416,815, or $0.52 per share, as compared
to $1,903,581, or $0.28 per share, for fiscal 1997 and $757,374, or $0.14 per
share, in fiscal 1996. This represented an increase in net operating profits
for fiscal 1998 of approximately 132% above fiscal 1997.
During fiscal 1998, selling, general and administrative expenses continued to
show a significant increase to $3,484,542, as compared to $2,075,418 for
fiscal 1997, an increase of approximately 68%. However, when expressed as a
percentage of overall revenues, selling, general and administrative expenses
represented approximately 3.5% of total revenues for fiscal 1998 (compared to
4.7% in fiscal 1997, 5.0% in fiscal 1996 and 6.9% in fiscal 1995).
Additionally, approximately $2,570,826 of this amount was due directly to
Capital's continued expansion of its operations, as compared to $993,197
during fiscal 1997. Management projects the costs related to Capital's
operations will continue to escalate in fiscal 1999, 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,
3.1% at the end of fiscal 1996 and 4.4% during fiscal 1997. During fiscal
1998, due principally to significantly increased revenues from Capital's TAD
Program and Actrade S.A., and despite the substantial
<PAGE>
increased costs of Capital's expansion program, this ratio continued its
upward trend and, at the end of fiscal 1998, reached an all time high of 4.5%.
Although only slightly higher than fiscal 1997, this ratio confirmed
management's belief that there would be leveling 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. With
the substantial expansion costs expected to be incurred in connection with the
Company's TAD Program, both domestically and internationally, management does
not expect any significant change, either up or down, in this ratio during
fiscal 1999.
Since fiscal 1989, Management has defer any expansion of Allstate's operations
due primarily to the concentration of its personnel and resources in the
import/export business of Actrade and, more recently, in the development of
the TAD Program. In light of management's continued emphasis in these areas
and the expansion of Capital's TAD Program, management does not anticipate any
significant change in the level of operations of Allstate. During fiscal 1998,
Allstate's total sales aggregated only $28,718 which represented only a very
slight increase in gross revenues from fiscal 1997, and accounted for less
than 1/20 of 1% of the Company's total revenues.
As of June 30, 1998, of the Company's total trade accounts receivable in the
amount of $3,307,873, approximately 75% have been collected as of the date of
this Report and, of the balance, approximately $626,000 are secured by
commercial documentary drafts; and approximately $200,000 are open account.
This does not include $1,248,368 in Trade Acceptance Drafts receivable which
have been sold to an independent financial institution and $7,785,028 in Trade
Acceptance Drafts held by the Company. - see Financial Statements, Note 11.
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. Management believed that
a strong demand for new, innovative trade financing methods exists among
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, with a net loss from its operations of $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, revenues from the TAD Program have increased steadily and
significantly each year since it was first introduced. During fiscal 1998,
ended June 30, 1998, Capital generated gross revenues of $55,541,301, over
156% higher that fiscal 1997, with direct general and administrative expenses
of $2,570,826, an increase of almost 159% over fiscal 1997. The dramatic
increase in both gross revenues and general and administrative expenses during
fiscal 1998 were the direct result of management's aggressive expansion of its
marketing efforts for its TAD Program which began during fiscal 1997,
including the initiation of international operations. For fiscal 1998,
Capital's operations reflected a gross profit of $3,591,854 (up almost 163%
from fiscal 1997), with net pre-tax income of $ 778,328 (up more than 246%
over fiscal 1997).
Actrade International Corp. And Actrade S.A., Ltd.: The International Trade
Division.
During fiscal 1998, 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 increase
experienced in the European area, where sales jumped to $16,897,844, 87.6%
higher than fiscal 1997, was due principally to continued strong 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 over 232% in its South American market,
almost 9% in its Middle East market and almost 116% 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 125% over fiscal 1997. The following table
illustrates the Company's gross revenues by market segment during the past
four fiscal years:
Market Segment Amount of Revenues for Fiscal Year
by Area 1998 1997 1996 1995
-------------- --------- ----------- ----------- -----------
Middle East $5,785,494 $5,321,000 $4,350,000 $3,643,911
South America $15,188,933 $4,568,326 $3,424,000 $2,926,184
Europe $16,897,844 $9,005,109 $5,300,000 $2,652,436
Far East $4,535,200 $2,100,000 $1,750,000 $2,387,653
United States $56,068,025 $21,791,000 $8,112,000 $3,975,464
All Others $ -0- $ 713,877 $ 920,985 $ 830,156
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)
<PAGE>
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 overseas buyers to American
manufacturers in payment for products. 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 in the future
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 1998, ended June 30, 1998, sales by Actrade S.A. totaled
$31,558,737, or 32% of the Company's total gross revenues, as compared to
$14,743,695, or 33.9% of the Company's total gross revenues for fiscal 1997
and $7,689,000, or 32.3% for fiscal 1996. The increase in gross revenues for
Actrade S.A. resulted primarily from the sale of computer systems and related
equipment, which represents 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
effort 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 1998, it remains virtually
impossible to accurately project revenues for Actrade S.A. during fiscal 1999.
However, although no assurances can be given, in management's opinion,
revenues are expected to continue at approximately the levels experienced
during fiscal 1998 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. 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 expected to benefit Actrade,
S.A. in the future.
Another factor which management believes will favor the continued growth of
Actrade S.A. has been the improved economic environment in the United States.
As domestic sales of products continue to 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, 1998 the Company had total assets
of $26,137,402 (compared with $19,364,462 at June 30, 1997 and $8,088,521 at
June 30, 1996) with total current liabilities of $3,512,761 (compared with
$8,088,521 and $3,198,814 respectively for June 30, 1997 and 1996). Of
<PAGE>
the Company's assets at June 30, 1998, cash accounted for $13,381,678,
$3,307,873 represents trade accounts receivable, and $9,033,396 represented
TADs receivable (including $1,248,368 of TADs which have been sold to a bank).
The increase in the Company's assets at June 30, 1998 was principally due to
the increase in cash on hand and an increase in trade acceptance drafts
receivable.
There was a decrease of approximately $360,000 in trade accounts receivable at
June 30, 1998 which resulted from normal variations in collections of
receivables by Actrade International Corp. and Actrade S.A. and 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 any required trade financing, if required, as a result of these
transactions since virtually all of these sales are based upon the buyer's
confirmed, irrevocable letters of credit. These factors continued to be true
throughout fiscal 1998 and are expected to continue for the foreseeable
future.
At June 30, 1998, the Company's total stockholders' equity increased to
$22,592,920, as compared to $16,192,117 at June 30, 1997 and $4,889,707 at
June 30, 1996. The principal source of funds for the Company's operations
continues to be revenues earned by its operating subsidiaries.
During the fiscal year ending June 30, 1999, 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
sales and marketing operations by Capital and the expansion of its
international TAD Program. However, no estimate can be made at this time of
the scope or cost of such expansion plans.
At June 30, 1998 the Company also had property, less accumulated depreciation,
of $374,679, (compared to $238,305 at June 30, 1997 and $103,705 at June 30,
1996) and security deposits and prepaid expenses of $26,806 and $74,669
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, 1998 the Company continued
to show $31,721 in deferred rent liability.
The Company recently announced the allocation of $5,000,000 for the repurchase
of its common stock. This decision was based upon management's belief that
recent market prices for the Company's shares
<PAGE>
were below the fair value for such shares. As of the date of this report the
Company has repurchased 20,000 shares of its common stock at a total cost of
approximately $298,000.
Based upon available cash on hand and expected revenues from operations, and
accounting for the allocation of cash for its stock repurchase plan,
management is of the opinion that it will have adequate available funds to
meet its anticipated capital expenditures and cash needs for fiscal 1999.
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 and the continued development
and expansion of its international TAD Program, 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 1999 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 its bank in the amount of
$1,616,589, represent advances against Capital's credit line which is fully
secured by the proceeds due from TADs which have been sold to the bank 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 and the
extent to which Capital needs to utilize this credit facility. As of the date
of this Report, the Company has a total general credit facility of $3.5
Million and further available credit facilities specifically designated for
the sale of TADs in the aggregate amount of $8 Million with other financial
institutions. These additional facilities will be available to finance the
continued purchase of TADs from both domestic and foreign customers.
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 in recent years. This trend,
although expected to continue for the foreseeable future, is now being
affected by a number of other factors that could adversely affect future
growth rates for the
<PAGE>
Company's present operations.
Recently management has observed that, with the collapse of traditional
political and ideological barriers, the demand for products from all parts of
the world has increased perceptibly with many developing and third world
nations now looking for products from many different countries. This has been
particularly true of countries with "soft" currencies (i.e. currencies not
readily exchangeable into established currencies such as British pounds, US
dollars, etc.), which at present are unable to pay for their purchases in US
dollars. Management believes the greatest demand in the next few years for all
kinds of foreign products (including those from the US and other industrial
nations) will continue to come from these new developing third world
countries. 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 continued to improve in recent years, and the dollar
strengthens with respect to other currencies, foreign buying power for
American products has decreased 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
over the coming years.
A review of the Company's Statement of Operations shows that the cost of goods
sold, as a percentage of total sales, has increased from approximately 83% in
fiscal 1990 to approximately 91.4% for fiscal 1998 (which is slightly higher
that the 90.7% experienced in fiscal 1997 but still 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 that has been 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. Many 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
<PAGE>
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 1998 the Company continued
the 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. Management believes that
the introduction of the international TAD Program will enhance the Company's
overall position in the world market and enhance both revenues and profits
during fiscal 1999.
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.) showed only modest gains, reaching
$7,806,724 in fiscal 1997 as compared to $7,065,619 last year. Sales by
Actrade S.A. rose dramatically from $7,689,000 during fiscal 1996 to
$14,743,695 during fiscal 1997 and reaching an all-time high of $31,558,737 in
fiscal 1998. 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.
Beginning in 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. This situation has been further
clouded by the recent instability in certain Asian economies. However, based
upon discussions had with its major customers in the Hong Kong market,
although no assurances can be given, management does not believe that any
materially adverse, long-term consequences will result from either the recent
changes in Hong Kong or the economic uncertainties in that region. In
addition, management believes that increased sales activities in both Europe
and South America will offset any decline in the Pacific markets.
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
<PAGE>
the past, the impact upon prices for American goods could adversely affect the
Company's ability to effectively compete in its overseas markets.
VI. "Year 2000" Compliance.
The Year 2000 issue is the result of computer programs being written using two
digits, rather than four to define the applicable year. Any of the Company's
computer programs that have data-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based upon an assessment made during fiscal 1998, the Company has updated all
versions of operations and financial software so that all of its systems will
utilize dates beyond December 31, 1999 properly. In addition, the Company is
currently evaluating all of its auxiliary computer application systems for
Year 2000 compliance, a process which is expected to be completed during the
first quarter of fiscal 1999. The Company believes that the planned
modifications and conversions will allow it to mitigate the Year 2000 issue.
The Company also plans to initiate formal communications with all of its
significant suppliers, financial institutions and major customers to determine
the extent to which the Company may be vulnerable to any third parties'
failure to remediate their own Year 2000 issues. The financial impact to the
Company of bringing its equipment and systems into Year 2000 compliance is not
anticipated to be material to its financial position or results of operations.
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-20
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
YEAR ENDED JUNE 30, 1998
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-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Actrade International Ltd. and Subsidiaries
New York, New York
We have audited the consolidated balance sheets of Actrade International
Ltd. and Subsidiaries as of June 30, 1998 and 1997 and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for the
years ended June 30, 1998, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Actrade Forfaiting Incorporated, a wholly owned
subsidiary of Actrade South America, Inc. which statements reflect total assets
of $5,206,835 as of June 30, 1998 and total revenues of $3,540,016 for the year
then ended. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for Actrade Forfaiting Incorporated, is based solely on the report of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Actrade International Ltd. and
Subsidiaries as of June 30, 1998 and 1997 and the results of their operations
and their cash flows for the years ended June 30, 1998, 1997 and 1996, in
conformity with generally accepted accounting principles.
ZELLER WEISS & KAHN
MOUNTAINSIDE, NEW JERSEY
August 14, 1998
F-1
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
1998 1997
---- ----
Current assets:
Cash $13,381,678 $ 7,352,465
Accounts receivable, less allowance for
doubtful accounts of $61,700 and $35,000
in 1998 and 1997, respectively 11,031,201 5,269,516
Accounts receivable, trade acceptance drafts 1,248,368 6,477,424
Prepaid expenses 74,669 9,010
-------------- -----------
Total current assets 25,735,916 19,108,415
--------------- -----------
Property and equipment:
Furniture and fixtures 524,282 308,717
Leasehold improvements 143,916 142,672
-------------- -----------
668,198 451,389
Less accumulated depreciation 293,519 213,084
-------------- -----------
374,679 238,305
-------------- -----------
Other assets:
Patent right 1
Security deposits 26,806 17,742
-------------- ----------
26,807 17,742
-------------- ------------
$26,137,402 $19,364,462
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash advance from bank $ 1,019,392
Customer deposits 26,587
Accounts payable and customer reserves payable $ 3,195,691 1,995,148
Accrued expenses 17,439 11,759
Deferred income 14,190
Payroll taxes payable 6,862
Income taxes payable 285,441 67,432
----------- -----------
Total current liabilities 3,512,761 3,127,180
----------- -----------
Commitments
Deferred rent liability 31,721 45,165
----------- -----------
Shareholders' equity:
Common stock, $.0001 par value; authorized 100,000,000 shares, issued and
outstanding 8,541,051 at June 30, 1998 and 7,470,681
at June 30, 1997 854 747
Common stock purchase warrants
Additional paid in capital 14,489,668 12,505,787
Retained earnings 8,102,398 3,685,583
----------- -----------
22,592,920 16,192,117
----------- ----------
$26,137,402 $19,364,462
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
1998 1997 1996
---- ---- ----
Net sales $98,475,496 $43,499,312 $23,837,985
Cost of sales 90,043,713 39,460,841 21,870,891
---------- ---------- ----------
Gross profit 8,431,783 4,038,471 1,967,094
Selling, general, and
administrative expenses 3,484,542 2,075,418 1,194,445
--------- --------- ---------
Income from operations 4,947,241 1,963,053 772,649
--------- --------- -------
Other income (charges):
Interest income 174,240 28,684 97,858
Interest expense ( 312,007) ( 44,729) ( 150,113)
Miscellaneous income 30,508 65,724 58,282
----------- ----------- -----------
( 107,259) 49,679 6,027
----------- ----------- ------------
Income before income taxes 4,839,982 2,012,732 778,676
Income tax expense 423,167 109,151 21,302
----------- ----------- -----------
Net income $ 4,416,815 $ 1,903,581 $ 757,374
=========== =========== ===========
Earnings per common share:
Primary $ .52 $ .28 $ 0.14
============ ============= ===========
Fully diluted $ .52 $ .28 $ 0.14
============ ============= ===========
Weighted average common shares
outstanding
Primary 8,485,562 6,828,971 5,378,427
=========== =========== ===========
Fully diluted 8,485,562 6,828,971 5,378,427
=========== =========== ===========
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, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Common Stock Additional
$.0001 par value Paid In Retained
Shares Amount Capital Earnings Total
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
Issuance of common stock on
exercise of stock purchase
options 1,070,370 107 1,983,881 1,983,988
Net income for the year ended
June 30, 1998 4,416,815 4,416,815
--------- ---- ----------- ---------- -----------
Balance at June 30, 1998 8,541,051 $854 $14,489,668 $8,102,398 $22,592,920
========= ==== =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Operating activities:
Net income $ 4,416,815 $1,903,581 $ 757,374
Adjustments to reconcile net income
to cash provided from operating
activities:
Depreciation 80,435 41,058 24,617
Changes in other operating assets and liabilities:
Accounts receivable and trade acceptances receivable ( 532,629) ( 5,807,104) ( 1,871,009)
Prepaid expenses ( 65,659) 15,805 4,179
Interest receivable 3,162 24,401
Security deposits ( 9,064) ( 2,708)
Accounts payable 1,173,655 92,901 163,848
Accrued expenses ( 1,182) ( 2,408) 753
Deferred income 14,190 6,862 ( 9,213)
Income taxes payable 218,009 46,130 20,602
Deferred rent 13,444 ( 10,795) ( 7,942)
Customer deposits ( 26,587)
Deferred taxes 13,439
------------------------------------------
Net cash provided by (used in) operating activities 5,281,427 ( 3,713,516) ( 878,951)
----------- ---------- ----------
Investing activities:
Patent right ( 1)
Purchase of property and equipment ( 216,809) ( 175,658) ( 35,147)
----------- ---------- ----------
Net cash used in investing activities ( 216,810) ( 175,658) ( 35,147)
----------- ---------- ----------
Financing activities:
Proceeds from issuance of common stock 1,983,988 9,398,829 1,065,299
Cash advances from bank 123,653
Decrease in due from affiliates 77,164 30,784
Payment of debt ( 1,019,392) ( 159,159) ( 149,882)
----------- ---------- ----------
Net cash provided from financing activities 964,596 9,316,834 1,069,854
---------- ----------- -----------
Net increase in cash 6,029,213 5,427,660 155,756
Cash, beginning of year 7,352,465 1,924,805 1,769,049
---------- ----------- -----------
Cash, end of year $13,381,678 $7,352,465 $1,924,805
=========== ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 315,614 $ 47,137 $ 141,227
=========== ============ =============
Income taxes $ 205,148 $ 31,187 $ 2,983
========== ============ =============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
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, Inc., formerly Standard
Corporation, a wholly owned foreign corporation and subsidiary of Actrade
International, Corp., was incorporated in Antigua and Bahamas 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. On August 14, 1997, TAD International Ltd. and on May 29, 1998,
Actrade Forfaiting Inc. were incorporated under the laws of the
Commonwealth of the Bahamas. Both Companies are wholly owned
subsidiaries of Actrade South America, Inc. TAD International, Ltd. has
been inactive since inception. Actrade Forfaiting, Inc. deals with trade
acceptance drafts (TAD's) on the foreign market and began operations in
June of 1998.
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, 1998, 1997 AND 1996
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. Actrade South America includes its two wholly owned
subsidiaries, TAD International Ltd. and Actrade Forfaiting, Inc.
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% to 100% of the purchase price of the TAD. Any
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.
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.
F-7
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
2. Summary of significant accounting policies (continued):
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
Furniture and fixtures 5
Leasehold improvements 10 - 12.75
Expenditures for major renewals and betterment that extend the useful
lives of the property and equipment are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred.
Net income per common share:
The Company adopted SFAS No. 128, "Earnings per Common Share" as of June
30, 1998. In accordance with SFAS No. 128, prior period earnings per
share amounts have been restated to conform with SFAS No. 128. SFAS No.
128 requires basic earnings per share which is computed by dividing
reported earnings available to common stockholders by the weighted
average shares outstanding and diluted earnings per share which
reflects the dilutive effect of common stock equivalents such as stock
options and warrants, unless the inclusion would result in
antidilution.
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.
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.
New accounting pronouncements:
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. SFAS No. 130
establishes standards for the reporting and display of comprehensive
income in a set of financial statements. Comprehensive income is
defined as the change of net assets of a business enterprise during a
period from transactions generated from non-owner sources. It
F-8
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
2. Summary of significant accounting policies (continued):
includes all changes in equity during a period except those resulting
from investments by owners and distributions to owners. Management
believes that the adoption of SFAS No. 130 will not have a material
impact on the financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 133 applies to all public companies and is
effective for fiscal years beginning after December 15, 1997. SFAS
No. 131 requires that business segment financial information be
reported in the financial statements utilizing the management
approach. The management approach is defined as the manner in which
management organizes the segments within the enterprise for making
operating decisions and assessing performance. SFAS No. 131 also
establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company is
currently evaluating the impact, is any, of the adoption of this
pronouncement on the Company's existing disclosures.
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.
4. Common stock purchase warrants and options outstanding:
Warrants (w) Exercise Expiration
Date Options (o) Price Date
Amos Aharoni 10/01/96 132,915 (w) $5.00 06/30/99
Amos Aharoni 01/01/97 176,629 (w) 6.05 12/31/99
Amos Aharoni 04/01/97 207,157 (w) 9.70 03/31/00
Amos Aharoni 01/01/97 3,000 (o) 5.00 12/31/00
Amos Aharoni 07/01/97 220,000 (o) 11.20 06/30/00
Amos Aharoni 10/01/97 56,382 (o) 13.53 09/30/00
Amos Aharoni 01/06/98 2,500 (o) 14.30 01/05/02
Amos Aharoni 01/01/98 44,430 (o) 19.50 12/31/00
-------
843,013
F-9
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
4. Common stock purchase warrants and options outstanding (continued):
Summary of warrants (w) and options (o) outstanding (continued):
Warrants (w) Exercise Expiration
Date Options (o) Price Date
John Woerner 01/06/98 2,500 (o) 14.30 01/05/02
-------
Leon Schorr 01/21/97 2,500 (w) 6.40 01/20/01
Leon Schorr 01/01/97 3,000 (o) 5.00 12/31/00
-------
5,500
-----
Elizabeth Melnick 08/08/96 5,000 (o) 3.00 08/07/00
Elizabeth Melnick 01/01/97 2,500 (o) 5.00 12/31/00
Elizabeth Melnick 01/01/97 3,000 (o) 5.00 12/31/00
Elizabeth Melnick 01/21/97 2,500 (o) 6.40 01/20/01
Elizabeth Melnick 01/06/98 2,500 (o) 14.30 01/05/02
Elizabeth Melnick 01/22/98 3,500 (o) 14.30 01/21/02
------
19,000
------
Alexander Stonkus 10/18/97 5,000 (o) 10.00 11/17/01
Alexander Stonkus 01/06/98 2,500 (o) 14.30 01/05/02
Alexander Stonkus 01/18/98 5,000 (o) 10.00 01/19/02
Alexander Stonkus 06/30/98 5,000 (o) 10.00 06/29/02
Alexander Stonkus 04/18/98 5,000 (o) 10.00 04/17/02
-------
22,500
------
Other employees various 99,225 (o) 1.50-14.30 2000-2002
-------
Total 991,738
=======
In the quarter ended December 31, 1997, 793,070 warrants were exercised at
prices ranging from $1.25 to $6.40, resulting in net proceeds to the
Company of $1,171,213 and the issuance of 793,070 common shares.
In the quarter ended March 31, 1998, 10,000 options were exercised at a
price of $3.00 resulting in net proceeds to the Company of $30,000 and
the issuance of 10,000 common shares.
In the quarter ended June 30, 1998, 267,300 options were exercised at
prices ranging from $1.35 to $3.35, resulting in net proceeds to the
Company of $782,775 and the issuance of 267,300 common shares.
F-10
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
4. Common stock purchase warrants and options outstanding (continued):
In October 1995, the FASB issued Statement 123, Accounting for Stock-based
Compensation (SFAS 123). This statement is effective for transactions
that are entered into in fiscal years beginning after December 15, 1995.
SFAS 123 establishes a fair value-based method of accounting for
employee stock options. This method provides for compensation cost to be
charged to results of operations at the grant date. However, the
statement allows companies to continue to follow the accounting
treatment prescribed by Accounting Principles Board Opinion 25. Opinion
25 generally requires compensation cost to be recognized only for the
excess of the quoted market price at the grant date over the price that
an employee must pay to acquire stock. Companies electing to continue
with Opinion 25 must make disclosure of net income as if SFAS 123 had
been adopted.
The Company has determined the method of accounting that it will follow for
stock options by continuing the use of Opinion 25. However, the Company
does not expect that adoption of the requirements of SFAS 123 would have
a material impact on the financial position, results of operations or
cash flows. Accordingly, no compensation cost will be recognized in
1998.
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, 1998.
1998 1997 1996
---- ---- ----
Sales to unaffiliated customers:
United States $56,068,025 $21,791,000 $ 8,093,000
Middle East 5,785,494 5,321,000 4,350,000
South America 15,188,933 4,568,326 3,424,000
Europe 16,897,844 9,005,109 5,300,000
Far East 4,535,200 2,100,000 1,750,000
Other 713,877 920,985
------------- ------------ -----------
Total consolidated revenues $98,475,496 $43,499,312 $23,837,985
=========== =========== ===========
F-11
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
5. Foreign and domestic operations and export sales (continued):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Operating profit (loss):
United States $ 3,662,290 $ 2,023,074 $ 666,844
Middle East 653,116 494,001 359,978
South America 1,750,547 424,123 283,262
Europe 1,914,522 836,033 436,695
Far East 451,308 194,964 143,598
Other 66,276 76,717
----------- ----------- -----------
Total operating profit $ 8,431,783 $ 4,038,471 $ 1,967,094
=========== =========== ===========
General corporate expenses, net $ 3,454,034 $ 2,009,694 $ 1,136,163
Interest expense (income), net 137,767 16,045 52,255
----------- ----------- ------------
$ 3,591,801 $ 2,025,739 $ 1,188,418
=========== =========== ===========
Income from continuing operations
before income taxes $ 4,839,982 $ 2,012,732 $ 778,676
=========== ============ ===========
Identifiable assets at June 30:
United States $14,249,873 $ 6,295,337 $ 2,715,850
Middle East 1,678,757 1,537,217 1,446,078
South America 4,254,186 1,319,772 1,153,635
Europe 4,961,769 2,601,542 1,778,521
Far East 987,395 606,682 584,829
Other 206,235 332,444
----------- ----------- -----------
26,131,980 12,566,785 8,011,357
Corporate assets 5,422 6,797,677 77,164
----------- ----------- -----------
Total assets at June 30 $26,137,402 $19,364,462 $ 8,088,521
=========== =========== ===========
Exports sales:
Middle East $ 5,785,494 $ 5,321,000 $ 4,350,000
South America 15,188,933 4,568,326 3,424,000
Europe 16,897,844 9,005,109 5,300,000
Far East 4,535,200 2,100,000 1,750,000
Other 713,877 920,985
----------- ----------- -----------
$42,407,471 $21,708,312 $15,744,985
=========== =========== ===========
</TABLE>
In 1998, 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, 1998, 1997 AND 1996
6. Employment contracts:
OnSeptember 6, 1991, two officers of the Company were employed pursuant
to oral agreements until January 1, 1992, at which time the officers 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.
Effective July 1, 1998, Actrade International, Ltd. entered into an
employment agreement with an employee to serve as chief operating
officer, chief financial officer and president of Actrade Capital, Inc.
The term of the agreement is two years at an annual salary of $105,000
with a 5% increase in the second year. Actrade will also pay 50% of the
prevailing medical insurance and all direct business expenses. In
addition to the foregoing, the employee shall earn, over the course of
the agreement, warrants to purchase 40,000 shares to the Company's
common stock of at an exercise price of $12.02 per share. The employee
will receive these warrants in lots of 5,000 every three months and
shall be exercisable at anytime during a four year period. If employment
is terminated the exercise period shall be one year.
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 $76,000, 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
Actrade Capital, Inc. and has been charged with the implementation of
Actrade Capital, Inc.'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,
1998.
F-13
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
7. Leases:
Monthly
Location Terms Payment
New York 03/01/90 to 03/31/00 $5,716 to $6,242
New York 10/01/96 to 10/31/98 3,000
New York 04/01/97 to 03/31/00 1,629 to 1,716
Illinois 11/01/97 to 10/31/00 2,502 to 2,576
Pennsylvania month to month 1,400
Kansas 03/01/98 to 03/31/99 696
Houston 03/15/98 to 03/15/99 850
Florida 12/25/97 to 12/25/98 1,224
California month to month 350
Future minimum lease payments required under non-cancelable operating
leases by fiscal year are as follows:
June 30, 1999 $186,696
June 30, 2000 $113,976
June 30, 2001 $ 61,291
June 30, 2002 $ 6,948
Rent expense amounted to $181,893, $86,964 and $73,337 for 1998, 1997 and
1996 respectively.
Actrade South America maintains separate sales offices 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 1998 and 1997 and
$6,000 in 1996, subject to adjustment based upon the commissions paid to
the agent during such year.
F-14
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
8. Income taxes:
The components of income tax expenses are:
1998 1997 1996
------ ----- -----
Income taxes currently payable:
Federal tax $265,215 $ 59,131 $ 38,181
State and local 170,359 59,602 7,336
-------- ------- --------
435,574 118,733 45,517
-------- -------- --------
Deferred tax expense arising from:
Excess of financial accounting
depreciation over tax 14,328 9,313 4,795
Charges to allowance for doubtful
accounts over tax write-offs
for bad debts ( 6,800) ( 3,400) 16,720
Rent expense for financial
accounting under tax deductible
rent 4,879 3,669 2,700
----- ----- -----
12,407 9,582 24,215
------ ----- ------
Total income tax expense $423,167 $ 109,151 $ 21,302
======== ========== ========
Deferred income tax provisions resulting from differences between
accounting for financial statement purposes and accounting for tax
purposes are reflected above.
A reconciliation of income tax expense at the statutory rate to income tax
expenses at the Company's effective rate is as follows:
1998 1997 1996
---- ---- ----
Computed tax at the expected
statutory rate 1,628,596 $ 652,428 $265,075
Surtax exemption ( 11,750) ( 11,750) ( 11,750)
State income taxes 170,359 59,602 7,336
Foreign income ( 1,351,631) ( 581,547) ( 215,144)
Other ( 12,407) ( 9,582) ( 24,215)
---------- ---------- --------
Income tax expense $ 423,167 $ 109,151 $ 21,302
========== ========== ========
Foreign income before income taxes $3,975,386 $1,783,033 $632,777
Domestic income before income taxes 864,596 229,699 145,899
---------- ---------- --------
Income before income taxes $4,839,982 $2,012,732 $778,676
========== ========== ========
F-15
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
8. Income taxes (continued):
The expected statutory rate for 1998, 1997 and 1996 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 $7,716,759 at June 30, 1998.
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards ("SFAS No. 109"), "Accounting for Income
Taxes", which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the
financial statement and income tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
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 has on deposit, amounts in Banco Portuguese De Atlantico,
in Grand Cayman, where there is no insurance. At June 30, 1998, the
Company's uninsured balances are $8,399,600 as reflected in the balance
sheet.
F-16
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
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 1998, 1997 and 1996.
Sales (1): 1998 1997 1996
---- ---- ----
Machinery and equipment $39,365,461 $21,809,314 $15,825,000
Travel agency service 28,718 21,425 19,053
Trade Acceptance Drafts 59,081,317 21,668,573 7,993,932
---------- ---------- ---------
Consolidated net sales $98,475,496 $43,499,312 $23,837,985
=========== =========== ===========
1998 1997 1996
---- ---- ----
Income (loss) from operations:
Machinery and equipment $3,838,137 $ 1,813,386 $ 678,586
Travel agency service ( 1,005) 1,032 ( 3,059)
Trade Acceptance Drafts 1,223,481 173,574 100,616
--------- ------- -------
5,060,613 1,987,992 776,143
Corporate and other (2) ( 643,798) ( 84,411) ( 18,769)
---------- ----------- ----------
Consolidated income $4,416,815 $ 1,903,581 $ 757,374
========== =========== ==========
Identifiable assets (3):
Machinery and equipment $6,779,576 $ 4,546,762 $4,532,213
Travel agency service 3,242 6,242 5,011
Trade Acceptance Drafts 19,349,162 8,013,781 3,474,133
----------- ----------- ----------
26,131,980 12,566,785 8,011,357
Corporate and other
consolidated assets 5,422 6,797,677 77,164
----------- ----------- ----------
$26,137,402 $19,364,462 $8,088,521
=========== =========== ==========
F-17
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
10. Industry Segments (continued):
(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.
11. Trade Acceptance Drafts receivable, bank:
As of June 30, 1998, 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 a Bank.
The total TAD amounts due from the bank were $1,248,368 at June 30,
1998. 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% to 100% of the face amount of each TAD assigned and
delivered by overdraft on the Actrade Capital, Inc. account. At June 30,
1998, the advances on the overdraft account amounted to $0. 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.
As of June 30, 1998, Actrade Capital, Inc. has recorded in income all
TAD's issued with a 90 day expiration date. Any TAD's issued for over 90
days have been recorded as deferred income at June 30, 1998. Deferred
income from TAD's amounted to $14,190.
F-18
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
11. Trade Acceptance Drafts receivable, bank (continued):
On June 30, 1996 the Company was issued a business credit insurance policy
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 fourteen month period expiring June 30, 1998. Effective for the
period March 1, 1998 to September 1, 1998, the Company was issued a
business credit insurance policy covering all TAD's with a repayment
schedule of 7 to 12 months. The policy has a deductible of $100,000 with
a maximum liability of $1,000,000 and allows discretionary coverage of
$50,000 per customer. Effective June 1, 1998, the Company was issued a
new business credit insurance policy covering losses to $7,000,000 and
allows a discretionary coverage of $250,000 per customer. The policy has
a deductible of $1,000,000 per year and expires June 1, 1999.
12. Reconciliation of shares used in computation of earnings per share:
1998 1997 1996
---- ---- ----
Weighted average of shares
actually outstanding 8,080,541 6,358,159 5,334,974
Common stock options and warrants 415,841 470,812 43,453
------- ------- ------
Primary and fully diluted weighted
average common shares outstanding 8,496,382 6,828,971 5,378,427
========= ========= =========
13. Affiliated party transactions:
During the period ended June 30, 1998, the Company and its subsidiaries
have advanced and received funds to and from affiliated parties. Such
receivable and payables are non-interest bearing and are due on demand.
F-19
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
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.
InJanuary 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.
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. Patent rights:
InJanuary 1998, Amos Aharoni assigned to the Company all patent rights
for the trade acceptance draft process for $1.
F-20
<PAGE>
Supplemental Financial Statements of Actrade Forfaiting Incorporated:
Independent Auditor's Report F-21
Balance Sheet F-22
Statement of Income and Retained Earnings F-23
Statement of Cash Flows F-24
Notes to Financial Statement F-25
<PAGE>
ACTRADE FORFAITING INC.
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE ONE MONTH PERIOD ENDED
JUNE 30, 1998:
Balance Sheet 2
Statement of Income and Retained Earnings 3
Statement of Cash Flows 4
Notes to Financial Statements 5-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Actrade Forfaiting Inc.:
We have audited the accompanying balance sheet of Actrade Forfaiting Inc. (the
"Company") as of June 30, 1998, and the related statements of income and
retained earnings and cash flows for the one month period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing.
Those Standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 1998, and the
results of its operations and its cash flows for the one month period then ended
in accordance with International Accounting Standards.
DELOITTE & TOUCHE
NASSAU, BAHAMAS
July 23, 1998
<PAGE>
ACTRADE FORFAITING INC.
BALANCE SHEET
AS OF JUNE 30, 1998
1998
ASSETS
CURRENT ASSETS
Cash (Note 5) $5,206,835
----------
TOTAL $5,206,835
==========
LIABILITIES AND SHAREHOLDERS" EQUITY
LIABILITIES
Due to parent (Note 4) $4,995,000
----------
Total liabilities 4,995,000
---------
SHAREHOLDERS' EQUITY:
Share capital:
Authorized, issued and fully paid:-
5,000 shares of $1 each 5,000
Retained earnings 206,835
-------
Total shareholders' equity 211,835
-------
TOTAL $5,206,835
==========
See notes to financial statements.
Approved on behalf of the Board:
Director Director
<PAGE>
ACTRADE FORFAITING INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE ONE MONTH PERIOD ENDED JUNE 30, 1998
June 30,
1998
SALES $3,540,016
COST OF SALES 3,337,398
---------
Gross profit 202,618
-------
OTHER INCOME AND EXPENSES:
Interest income 4,262
Administrative expenses ( 45)
----------
Total other income and expenses 4,217
----------
NET INCOME 206,835
RETAINED EARNINGS, BEGINNING OF PERIOD
RETAINED EARNINGS, END OF PERIOD $ 206,835
==========
See notes to financial statements.
<PAGE>
ACTRADE FORFAITING INC.
STATEMENT OF CASH FLOWS
FOR THE ONE MONTH PERIOD ENDED JUNE 30, 1998
June 30,
1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 206,835
----------
Net cash provided by operating activities 206,835
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from parent 4,995,000
Proceeds from share issue 5,000
---------
Net cash provided by financing activities 5,000,000
----------
INCREASE IN CASH 5,206,835
CASH POSITION, BEGINNING OF PERIOD
CASH POSITION, END OF PERIOD $5,206,835
==========
See notes to financial statements.
<PAGE>
ACTRADE FORFAITING INC.
NOTES TO FINANCIAL STATEMENTS
ONE MONTH PERIOD ENDED JUNE 30, 1998
1. GENERAL
Actrade Forfaiting Inc. (the "Company") was incorporated in the
Commonwealth of The Bahamas on May 29, 1998 and commenced operations on June 1,
1998. The Company is a wholly-owned subsidiary of Actrade South America, Ltd.
which is ultimately owned by Actrade International, Ltd. Its principal business
activity is to provide short term financing services to facilitate commercial
transactions between companies in foreign countries through the use of various
commercial instruments, primarily Trade Acceptance Drafts (TAD's).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Revenue recognition - The Company recognizes revenues when
realizable and earned. Gross revenues from the sale of TAD's are
recognized at the gross value of the TAD's face amount and cost
of sales at the gross value less any discount. All TAD's are
purchased and sold without recourse.
b. Foreign currency translation - All amounts in the financial
statements are expressed in United States dollars. Period-end
balances have been converted at period-end exchange rates; income
and expense items in foreign currencies have been converted at
the rate of exchange prevailing at the dates of the transactions.
3. RISKS AND UNCERTAINTIES
The Company sells in foreign markets. There is no guarantee that the foreign
markets will continue to develop since foreign and domestic government
intervention, adverse economic conditions worldwide and any other
unforeseen situations may occur.
4. DUE TO PARENT
The amount due to the parent company is interest-free with no fixed terms of
repayment.
5.
<PAGE>
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company 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 balance sheet . The Company does not
require collateral or other security to support financial instruments
with credit risk.
The Company's cash balances are held at Banco Portuguese De Atlantico, in
Grand Cayman, where there is no insurance.
* * * * * *
<PAGE>
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
- ---- --- --------------
Amos Aharoni 53 Chief Executive Officer of the Company
and each of its subsidiaries, except
Capital; Director of the Company and each
of its subsidiaries
John Woerner 61 Vice President of the Company; President
of Actrade International, Corp.;
and Director of the Company and
its subsidiaries
Leon Schorr 60 Vice President of the Company and
Actrade International, Corp.
Alexander C. Stonkus 38 President of Actrade Capital, Inc., Chief
Financial Officer and Chief Operating
Officer of the Company and each of its
subsidiaries and Director of the Company.
Elizabeth Melnik 49 Secretary of the Company and each of its
subsidiaries.
Robert Furstner 65 Director of the Company
Harry Friedman 71 Director of the Company
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.
Both Mr. Friedman and Mr. Furstner serve on the Company's Audit Committee.
<PAGE>
Biographical Information for Officers and Directors:
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. and was replaced by Mr. Stonkus in such
position during fiscal 1998. Mr. Aharoni, age 53, 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 Company. 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.
JOHN WOERNER has been a Vice President of Actrade International Corp., 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. In
fiscal 1998, Mr. Woerner was appointed President of Actrade International Corp.
following the resignation of Mr. Seror. 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 International Corp., 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 but
subsequently resigned as 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
<PAGE>
Corporation. Mr. Schorr is also a member of the 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.
ALEXANDER C. STONKUS currently serves as Chief Operating Officer and Chief
Financial Officer for the Company and also as President of Actrade Capital,
Inc., a wholly owned subsidiary. Prior to joining Actrade, Mr. Stonkus served in
various senior management positions with Elco Freight International, Inc., full
service shipping, customs broker, warehousing and distribution company with
annual sales of $80 Million. During his eight-year tenure with Elco, Mr. Stonkus
served as Elco's General Manager for four years being promoted to Vice President
and Chief Operating Officer in 1991. As COO of Elco, Mr. Stonkus was primarily
responsible for strategic planning, budgetary and operating accountability and
overall operations for 17 offices, of which 12 were added during his tenure as
COO, and 250 employees. In 1995 Mr. Stonkus was further promoted to Senior Vice
President and COO of Elco. In this position he assisted in the sale of Elco and
several affiliated companies, certain of which he was instrumental in
establishing while with Elco, to The Concord Group. Prior to joining Elco, from
1983 to 1987, Mr. Stonkus was employed as a Converter for Fabriyaz, a privately
held textile conversion company for home furnishings, where he was principally
responsible for purchasing, production, transportation and inventory control.
Mr. Stonkus was also responsible for designing the computerization system for
what had previously been a manually operated company, resulting in improved
control and cost of inventory, accounting, customer services and sales. Mr.
Stonkus has also served on the Board of Directors of various companies during
his professional career. Mr. Stonkus graduated from The Pennsylvania State
University in 1982 receiving a Bachelor of Science Degree in Finance.
ELIZABETH MELNIK was first employed by the Company as Controller in October
1993, having been promoted to Secretary 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
<PAGE>
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. 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.
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, 1998, the end of the Company's most
recent fiscal year, as well as indicating the compensation agreements for
fiscal 1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Name and Principal Annual Compensation(1) Long Term Compensation All Other
Position Year Salary Bonus Restricted Stock Awards Compensation
Amos Aharoni, CEO(2) 1998 $86,823 323,312 Warrants(3)(5) $ 9,975(4)
1997 $76,000 516,701 Warrants (3)(5) $ 17,308(4)
Alexander C. Stonkus, 1998 $80,288 22,500 Warrants(5) $ -0-
COO/CFO 1997 $ -0-
John Woerner, Vice Pres. 1998 $80,578 $28,723(7) 2,500 Warrants(5) $ 7,413(6)
1997 $78,008 $47,332(7) 2,500 Warrants(5) $ 8,375(6)
Elizabeth Melnik, 1997 $52,094 $ 6,000 Warrants(5)(8) $
Secretary 1996 $44,308 $ 2,500 Warrants(5) $
Leon Schorr, Vice Pres. 1998 $77,830 $28,723(7) $9,108(6)
1997 $75,168 $47,332(7) 2,500 Warrants(5) $9,178(6)
</TABLE>
- --------------------------------------------------------
(1) The Company 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.
(2) In addition to serving as Chief Executive Officer of the Company, Mr.
Aharoni also serves as a Director of the Company and each of its
subsidiaries.
(3) 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.
<PAGE>
(4) 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.
(5) 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 two
independent Directors received 5,000 Warrants each. In January
1998, the Board approved a similar issuance of Warrants to the
Company's directors in lieu of cash compensation.
(6) 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.
(7) 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.
(8) In January 1997, the Board of Directors approved the issuance of 2,500
Warrants to Ms. Melnik in consideration of her assuming the duties
of Secretary of the Company without additional monetary
compensation. An additional 3,500 Warrants were approved by the
Board for Ms. Melnik in January 1998 for the same purpose.
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. 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
<PAGE>
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.
As of August 18, 1997 Mr. Alexander C. Stonkus has been employed by the Company.
He was originally employed as Chief Operating Officer for the Company and
Actrade Capital, Inc. Under this Agreement he received a base salary of $85,000
per year. In addition, the Company pays 50% of medical insurance for Mr. Stonkus
and his family, and reimburses him for any expenses incurred on behalf of the
Company. Apart from his salary and benefits, under this Agreement Mr. Stonkus
also received 20,000 Warrants, each to purchase one share of the Company's
common stock at a price of $10.00. Effective December 1, 1997, following his
assumption of duties as Chief Financial Officer of the Company and President of
Actrade Capital, Inc., Mr. Stonkus' Agreement was modified to increase his base
salary to $100,000 per year. Effective July 1, 1998 the Company renewed Mr.
Stonkus' employment agreement for a two year period. Under the new Agreement Mr.
Stonkus will receive an annual base salary of $105,000 per year (subject to an
automatic 5% increase in the second year of his Agreement) and has been granted
an additional 40,000 Warrants, each to purchase one share of the Company's
common stock at a price of $12.02 per share, to be earned by Mr. Stonkus over
the term of the Agreement.
The Company has adopted a 401(K) plan which is available to all eligible
employees who have been employed by the Company for more than six months.
Entrance dates into the plan are July and January 1st of each year. The Company
will contribute $0.50 for each dollar contributed by an employee, up to a
maximum of 3% of employees gross salary.
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.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of certain beneficial owners.
None other than stated in (b) below.
(b) Security ownership of management.
Name Relationship Number of Shares(2) Percent-
age(3)
NTS Corp. (1) Shareholder 2,345,549 27.5%
Alexander C. Stonkus Officer, Director &
Shareholder 6,500 0.1%
Amos Aharoni Officer 2,345,549 27.5%
Officers & Directors as
a group (3 persons) 2,352,049 27.6%
- ---------------------------------------
(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) Does not consider Warrant issued to management (see "Item 11. Executive
Compensation" above).
(3) Percentage figures are based upon 8,541,051Shares issued and outstanding as
of June 30, 1998, without considering the possible exercise of 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.
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, 1998 By:/s/Amos Aharoni_______
Amos Aharoni, Chief Executive Officer
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, 1998 By:/s/Amos Aharoni______________
Amos Aharoni, Chief Executive
Officer & Director
Dated: August 14, 1998 By:/s/Alexander C. Stonkus_________
Alexander C. Stonkus, Chief Financial
Officer, Chief Operating Officer,
and Director
Dated: August 14, 1998 By:/s/John Woerner________________
John Woerner, Senior Vice President
and Director
Dated: August 14, 1998 By:/s/Elizabeth Melnik______________
Elizabeth Melnik, Secretary
and Director
Dated: August 14, 1998 By:/s/Robert Furstner_______________
Robert Furstner, Director
Dated: August 14, 1998 By:/s/Harry Friedman_______________
Harry Friedman, Director
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