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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, 1999
/__/ 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)
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<S> <C>
Delaware 13-3437739
(State Or Other Jurisdiction Of Incorporation or Organization) (IRS Employer Ident. No.)
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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 -
____________ 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-K or any amendment to this Form 10-K /_X_/
State the issuer's gross sales for its most recent fiscal year. $208,171,657
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 September 29, 1999, the value of such stock was $115,128,689.
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FORM 10-K
ACTRADE INTERNATIONAL LTD.
JUNE 30, 1999
PART I
ITEM 1. BUSINESS
General.
Actrade International, Ltd. (the "Company") is a publicly traded holding
company. Its business operations are conducted through several wholly owned
subsidiaries. A brief description of each constituent corporation is set forth
below. Following this brief introduction, a more detailed discussion of the
various components of the Company's operations is presented.
Actrade International Ltd. (Company), formerly Acquisition Capability, Inc., was
incorporated in the State of Delaware on April 3, 1987. In 1988 the Company
changed its name to Actrade International Ltd.
Actrade Capital, Inc. (Capital), a wholly owned subsidiary of the Company, was
incorporated in Delaware in May of 1991. Capital is the developer of the Trade
Acceptance Draft ("TAD") Program, which enables Capital to purchase Trade
Acceptance Drafts from various suppliers at a discount from their face value.
Actrade Capital Canada Inc. (Actrade Canada), a wholly owned subsidiary of
Capital, was incorporated in the Province of Ontario, Canada on July 14, 1998.
Actrade Canada purchases Trade Acceptance Drafts (TADs) in the Canadian market
in the same fashion as Capital does in the US market.
Actrade Funding Corp. (Funding), a wholly owned subsidiary of Capital, was
formed under the laws of Delaware in 1999 as a special purpose vehicle in
connection with the institution of a new credit facility with a major banking
institution for the purchase of TADs from Capital.
Actrade International Corp. (International), a wholly owned subsidiary of the
Company, incorporated in New York on July 18, 1985, was acquired by the Company
on September 2, 1988. International represents various U.S. manufacturers and
distributors by buying and re-selling their products overseas.
Actrade South American LTD. (Actrade SA), a foreign corporation, a wholly owned
subsidiary of International, was incorporated in Antigua on February 12, 1988.
Actrade SA purchases products from various foreign suppliers and sells them
through its foreign customer's network in the international markets.
Actrade Resources Inc. (Resources), a wholly owned subsidiary of Actrade SA,
formerly Actrade Forfaiting Inc., was incorporated under the Laws of the
Commonwealth of the Bahamas. Actrade
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Resources is engaged in international merchandise trading through the direct
purchase and re-sale of products from various foreign suppliers.
Allstate Travel Corp. (Travel), a wholly owned subsidiary of the Company,
incorporated in New York on August 13, 1985 and acquired by the Company on July
18, 1985. Allstate Travel has extremely limited operations.
Actrade Commerce Inc. (Commerce), formerly TAD International, Ltd., a wholly
owned subsidiary of Actrade SA, was incorporated in Antigua on August 14, 1997.
Commerce has been inactive since inception.
BUSINESS OPERATIONS
The Company's business operations are divided into two principal segments - (1)
the TAD Program and (2) International Merchandise Trade. The TAD Program is
operated by Capital in the United States and Actrade Canada in Canada. The
Company's international merchandise trade activities are conducted by
International, Actrade SA and Resources. The general discussion concerning the
Company's business operations will discuss these segments generally and may not
reflect the precise activities of each of the Company's subsidiaries, except
where the context indicates otherwise.
THE TAD PROGRAM
In mid-1993, Capital completed development of a new trade finance tool for
domestic commercial transactions through the use of the Trade Acceptance Draft
(the "TAD Program") designed to improve cash flow and increase sales. The TAD
Program allows Suppliers to offer credit terms to their commercial customers
through the use of pre-authorized debit trade acceptance drafts ("TADs") that
Capital purchases with immediate payment to the Supplier, and on their due date,
processes the TADs for payment in the same manner as an ordinary check through
the electronic bank checking system.
In developing the TAD Program, Capital's principal goal is to standardize TADs
as the third business-to-business payment option - the first being "cash on
delivery" and the second being "open account." Management believes that, much
like the credit card revolutionized payment for consumer purchases, the TAD
Program will have a similar impact upon the way business funds commercial
transactions. By providing immediate payment to Suppliers with extended payment
terms for Buyers, the benefits the TAD Program offers business closely parallels
the benefit credit cards provide to consumers.
Definition of a TAD.
Essentially, a "TAD" is a post-dated payment draft prepared by the seller of
goods or services ("Suppliers") and accepted by the buyer of the goods or
services ("Buyers") by the Buyers signing and delivering the draft back to the
Supplier. Each TAD specifies the amount of the draft, the due date, and the
Buyer's bank account information. This acceptance of the draft confirms that:
(i) the goods or services have been delivered by the Supplier; (ii) the goods or
services were checked and accepted by the Buyer; and (iii) establishes a
specific payment date. The draft itself constitutes the
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payment instrument for the transaction according to its terms. In addition, the
TAD is negotiable so that the Supplier may endorse it and transfer it to another
party. At its most basic level, a TAD can be viewed as a negotiable promissory
note that at its due date is collected like an ordinary check.
When the commercial transaction is complete, the use of TADs will, in essence,
convert the resulting receivable into a financial instrument (the TAD), which is
purchased by Capital. The advantage to the Supplier is immediate payment (within
48 hours) and the elimination of credit risk. The buyer obtains extended, and
generally, unsecured credit terms.
Three major steps are involved in the TAD Program:
Enrollment of the Buyer: Each commercial Buyer must provide customary credit and
business information to allow Capital to evaluate the Buyer's credit worthiness.
In addition, each Buyer must execute appropriate Buyer Agreements that set forth
the basic terms and conditions of the Program.
Enrollment of the Supplier: Each Supplier must also be enrolled in the Program.
This involves the execution of a basic Letter of Understanding between Capital
and each Supplier that sets forth the basic terms of the Program. For the most
part, this step is purely administrative since the Program depends upon the
credit worthiness of the Buyer (being the party obligated to pay the TADs)
rather than the Supplier who will sell the TADs to Capital without recourse.
Use of the TADs in a Commercial Transaction: After both parties have enrolled in
the Program, the Supplier will prepare the TADs applicable to the particular
commercial transaction and forward them to the Buyer. If the merchandise or
services were acceptable, the Buyer signs the TADs and returns them to the
Supplier in payment for the goods or services.
Since in some cases a Supplier will have received a pre-approval of the
transaction from Capital, upon receipt of the TADs from the Buyer, the Supplier
will forward them to Capital together with the appropriate underlying
documentation (i.e., commercial invoice, bill of sale, etc.). Within 48 hours of
receipt of the completed document package from a Supplier, Capital will remit
full payment for the TADs (equal to the face amount of the TADs less Capital's
fees and discounts).
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. There is no need for Capital to wait
for the Buyer to remit payment. The fees and discounts are paid through the
Supplier as a discount from the face amount of the TAD when purchased by
Capital.
Characteristics of the TAD Program
Although Trade Acceptances are one of the typical method of payment for
commercial transactions overseas (acceptances are called bills of exchange in
England, traits in France, bulls in South Africa, etc.), until re-introduced by
Capital, they have not been used in the U.S. since World War II. Capital has
essentially adapted the traditional bill of exchange or trade acceptance (both
instruments long recognized in international trade) to the U.S. market by adding
an automatic collection feature. The TAD is a negotiable instrument (i.e.,
commercial paper) that converts into a check and is processed like a check on
the due date. This allows for ease of use and less cost for the customer
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and low administration expenses for Capital. Management believes that, as of the
date of this Report, Capital is the only company in the U. S. providing this
type of trade financing for commercial transactions beyond 90 days up to 365
days.
In creating the TAD Program, Capital has added a significant feature to a
traditional acceptance - computer encoding that allows the TAD, a negotiable
instrument, to be processed like a check on the due date. Unless this feature is
copied (which would violate the Company's process patent) a potential competitor
would need to process the TAD for collection manually, a process that would be
prohibitive both from the point of view of time and cost. Unlike other typical
trade financing methods prevalent in the U.S. today, the TAD Program's most
significant attribute is that it serves to convert a receivable into a financial
instrument that can then be sold by Capital much like conventional commercial
paper is bought and sold in the financial markets. In fact, it was this feature
that was a major factor in Capital's ability to secure an aggregate of $48.5
Million in credit facilities with major banks to fund the purchase of TADs.
On December 2, 1997 the United States Patent Office officially granted to Mr.
Amos Aharoni a patent with respect to the use of trade acceptance drafts in
Capital's TAD Program. All his right, title and interest in and to said patent
was assigned to the Company in consideration of the payment of $1.00.
Benefits Of The TAD Program
The TAD Program provides three distinct benefits in one financial instrument:
Financing: the Supplier receives cash within 48 hours, while the Buyer has
terms of up to 12 months.
Credit Protection: Actrade typically will assume the risk of the Buyer not
paying on the TAD. The Supplier no longer worries about non-payment from
his Customer-Buyer.
Collection: Actrade will automatically collect the exact payment on the
specified due date that is printed on each TAD.
From its inception, management has sought to incorporate into the TAD Program as
many safeguards as possible in order to minimize the risk of non-payment. In
management's opinion, the following features of the TAD Program have proven to
reduce the risk of non-collection:
1. Limitation of Exposure. The TAD Program is intended to finance only a small
portion of a Buyers needs. Banks, factors and other lenders typically
continue to fulfill a Buyers principal financing needs. By representing
only a small portion of a company's debt, the overall exposure for Capital
is limited.
2. Credit Insurance and Payment Bonds. Most TADs are insured against
non-payment through a combination of business credit insurance policies
that Capital has secured with a major insurance carrier and Payment Bonds
issued through major surety companies.
See, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS" below for an analysis of Capital's operations.
Expansion of US Market:
As mentioned above, since fiscal 1998 the use of the TAD Program by large
national and international companies has increased significantly. Principally,
these companies have found that the TAD Program's flexibility allows them to
manage certain "special situations" which do not fall within their conventional
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 that will continue and escalate into fiscal 2000 and beyond.
During fiscal 1998, management began a marketing campaign specifically designed
to reach these large companies by educating them as the various ways that using
TADs can increase sales, lower their current collection costs and reduce
delinquent customer accounts. The success of this marketing approach is clearly
reflected in the significantly higher revenues during fiscal 1999, a process
that management expects will continue in future years.
From its experience to date, it has become apparent that even the largest
companies are affected by trade financing problems in much the same way as small
companies. Further, these companies also consider the "cost," both in dollars
and personnel time, of related problems, such as developing secure supply
sources, pursuing collection of past due accounts, etc. to be serious problems.
The TAD Program can be utilized to address many of these concerns. First, it
provides a means of eliminating, or substantially decreasing, the problem of
collections for accounts that utilize TADs as payment instruments. This fosters
more effective cash flow management and substantially increases the ability of a
company to effectively utilize its available capital resources. 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
twelve 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. Finally, it allows large Buyers to assure themselves of stable supply
sources by providing smaller, but critical, suppliers with a means to
significantly enhance their own cash flow.
Expansion Through E-Commerce and the Internet Potential.
During fiscal 1999, management began development of an E-Commerce initiative
where customers (both Suppliers and Buyer) will be able to conduct transactions
electronically over the Internet, once they are enrolled in the Program. An
interactive web site is being developed for this purpose. This site will not
only teach customers about the use of the TAD Program but will also permit them
to enroll in the Program and, when completed, to use the Company's site to
locate Suppliers, learn about their products, place orders and complete all
required paperwork for the transaction. Although management believes that in the
near future all aspects of a transaction will be able to be completed
electronically, including the actual TAD itself, this final step must await
further development in the banking field with respect to such matters as
electronic signatures and fund transfer.
Expansion Into International Markets.
The expansion of the TAD Program into the international market was initiated in
January 1999 when Actrade Canada commenced operations. The Canadian market was
selected as the first international
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site for the Program due to both the proximity to the United States and the
similarities in banking and commercial laws between the two countries. In
August, 1999, following the end of fiscal 1999, management concluded its first
credit facility for Actrade Canada with a major Canadian bank. This initial
facility in the amount of $CDN5,000,000 is intended for use in funding the TAD
Program in Canada.
Apart from the Canadian initiative, management has begun 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 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 help American importers by providing an available financing tool and to
expand access to the US market by foreign companies that would otherwise be
reluctant to extend credit terms to American buyers.
INTERNATIONAL MERCHANDISE TRADE
Actrade International Corp.
Since July 1988, International has been engaged in international merchandise
trade. Its current operations involve the direct export of American products
primarily to 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.)
International offers a less expensive alternative to "in-house" export
operations.
As of the end of fiscal 1999, International's principal product group consisted
of Industrial and Commercial Air Conditioning Equipment including package
systems, stand alone units and spare parts.
International maintains no inventory of products. 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.
During fiscal 1999 and 1998 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. and Resources
The primary markets presently served by Actrade S.A. and Resources are South
America and Europe, although sales in other regions do occur and, depending upon
changing political and economic
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circumstances, management anticipates that sales activities in other geographic
markets will occur in the future.
However, since sales by Actrade S.A. and Resources are usually special
situations of higher dollar amounts, management is unable to predict the impact
of its activities in the future, although it is expected that Actrade S.A. will
continue to operate at least at current levels in the future. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" below.
In general, the success of Actrade S.A. and Resources has been based upon the
ability to offer both Buyers and Suppliers a combination of advantages not
typically available in world markets. From the point of view of the Buyer,
Actrade offers the ability to secure necessary products through its purchasing
network coupled with an ability to obtain extended payment terms. From the point
of view of the Supplier, Actrade offers increased sales to buyers, access into
markets not generally available to the Supplier and immediate payment.
As with its other international merchandise trade activities, Actrade S.A. and
Resources act as re-sellers of the products that will typically be purchased at
an advantageous price from the Supplier and marked-up for sale to the Buyer.
When coupled with its ability to provide immediate payment to the Supplier,
Actrade provides the means to accomplish a transaction that would not otherwise
be possible.
Management believes that for the foreseeable future the greatest demand for all
kinds of foreign products will continue to come from the developing and third
world countries. Typically, Buyers in these countries require extended payment
terms in order to pay for the products they seek. For the very same reasons,
Suppliers in other countries are unwilling, or in many cases unable, to offer
the terms required by a Buyer. In these circumstances, Actrade is often able to
step into the transaction, buy the products with immediate payment to the
Supplier and re-sell the products at a higher price to the Buyer, providing the
Buyer access to necessary trade financing that will give it the much needed
payment terms.
In management's opinion, the real "key" to success in international merchandise
trading, is the ability to provide access to trade financing for transactions
that could otherwise not be completed. In fact, in many cases, the ability to
provide payment to the Supplier and terms to the Buyer can be of greater
importance than the pricing for the products.
Due to the financial strength of the Company, Actrade has been in a position to
fill the 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. and Resources during fiscal 1998 and 1999 will
continue. At present, while product demand is high and the availability of trade
financing is low, Actrade enjoys a favorable position in the market.
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
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efforts in the international trade markets of International, Actrade S.A. and
Resources and in development of the TAD Program. This emphasis is expected to
continue during the foreseeable future. Consequently, during fiscal 1999,
Allstate accounted for an insignificant percentage of the Company's total sales
during fiscal 1999. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" for a complete discussion of the Company's
operations and financial condition.
Competition
With respect to the TAD Program, the Company faces strong competition from many
established financial institutions, including banks, insurance companies and
receivables financing (factoring) companies. Many of these companies are larger
and have greater financial resources. Further, the TAD Program is based upon the
use of Trade Acceptance Drafts that, although a long-established instrument in
international trade, have 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 the operations of Actrade Canada as it initiates its expansion
program and moves into the Canadian marketplace. 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 TAD Program.
With respect to the recent expansion of the TAD Program into the Canadian
market, the Company will not enjoy the protection it is afforded in the United
States by its process patent. Therefore, in Canada, as well as other foreign
jurisdictions, it is likely that the Company will encounter competition from
other companies, including various financial institutions, that do, or in the
future may, offer the same or similar services which directly compete with the
TAD Program. It is impossible at this time for management to accurately predict
the extent or impact of such competition.
With respect to its international merchandise trade division, despite its past
growth, the Company faces strong competition from many other companies (many of
which are larger and have greater financial resources) in three primary areas.
First, the Company competes with export management companies for representation
of manufacturers. Secondly, it also competes with local (overseas) manufacturers
of products similar to those offered by it. Virtually all products offered by
the Company have competitive products manufactured by local companies overseas.
Finally, the Company competes with manufacturers engaged in the direct export of
their products around the world. All of these factors will have an impact upon
the Company's international merchandise trade operations, revenues, profits and
its ability to grow.
ITEM 2. PROPERTIES.
Offices:
New York: The Company's principal corporate offices are located at 7 Penn Plaza,
Suite 422, New York, NY 10001, where it occupies approximately 6,000 square feet
of office space. This lease expires March 31, 2000, and provides for monthly
rentals of $5,400, commencing June 1, 1991 with annual increases of 4.5%.
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New Jersey: As of April 1, 1999, the Company leased 12,970 square feet of office
space in Somerset, New Jersey. These new offices serve as the principal
executive offices for Capital and Funding. This lease expires March 2004 and
provides for monthly rental payments of $20,806. Upon expiration, the Company
has an option to renew for an additional three years.
Florida: 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.
California: As of July 1, 1998, the Company leased approximately 110 square feet
of office space in Newport Beach, California where it maintains a regional sales
office for Capital. This office is leased pursuant to a month-to-month tenancy
at a rental of $350 per month.
Bahamas: As of July 1998 Actrade S.A. and Resources established a separate
interim office in Nassau, The Bahamas. This office is leased from an independent
third party who also provides basic administrative and clerical services. The
rental for this office, including services, is currently $500 per month.
Canada: In November, 1998, Actrade Canada established an office in Toronto,
Canada where it leases approximately 1,850 square feet of space. This lease
expires at the end of October, 2001 and provides for a monthly rental of
$CND2,438.
Representative Offices: The company has representative offices in both Israel
and Brazil in connection with its international merchandise trade operations.
These offices are provided by unaffiliated third parties who serve as a
commission sales agents for Actrade S.A. and Resources.
The Company believes that its present facilities will be adequate for its
purposes for the foreseeable future and does not anticipate the need for
additional office or operating facilities.
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 February 18,
1999 at which meeting the Shareholders voted upon the election of the current
Board of Directors.
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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.
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<CAPTION>
PERIOD HIGH LOW
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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
Quarter ended June 30, 1998 $16.688 $12.25
Quarter ended September 30, 1998 $15.750 $10.00
Quarter ended December 31, 1998 $16.875 $10.75
Quarter ended March 31, 1999 $14.500 $12.375
Quarter ended June 30, 1999 $14.625 $10.938
</TABLE>
On September 29, 1999 the reported closing price for the Company's Common Stock
was $13.50 per Share; there were 359 record holders (representing approximately
4,622 beneficial holders) of the Company's Shares; and there were twelve (12)
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 that would, in the future,
adversely affect the Company's ability to pay dividends to its shareholders.
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ITEM 6. SELECTED FINANCIAL DATA:
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<CAPTION>
Summary Balance Sheet Data: Year Ended June 30
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1999 1998 1997 1996 1995
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Total Assets $44,450,828 $26,123,212 $19,364,462 $8,088,521 $5,987,746
Total Current Assets 43,190,803 25,721,726 19,108,415 7,969,782 5,894,571
Total Current Liabilities 15,941,639 3,530,292 3,127,180 3,198,814 2,856,926
Stockholders Equity 28,509,189 22,592,920 16,192,117 4,889,707 3,066,918
Retained Earnings 14,336,256 8,102,398 3,685,583 1,782,002 1,024,628
<CAPTION>
Summary Earnings Data: Year Ended June 30
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1999 1998 1997 1996 1995
---- ---- ---- ---- ----
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TAD Sales $129,790,196 $ 55,541,301 $ 21,668,573 $ 7,993,932 $ 3,703,493
Int'l Merch. Trade Sales $ 78,381,461 $ 42,934,195 $ 21,830,739 $ 15,844,053 $ 12,712,311
------------ ------------ ------------ ------------ ------------
Total Gross Sales $208,171,657 $ 98,475,496 $ 43,499,312 $ 23,837,985 $ 16,415,804
============ ============ ============ ============ ============
TAD Gross Profit $ 7,941,017 $ 3,300,124 $ 1,366,322 $ 526,386 $ 337,683
Int'l Merch. Trade Gross Profit $ 8,431,215 $ 4,839,929 $ 2,672,149 $ 1,440,708 $ 1,181,218
------------ ------------ ------------ ------------ ------------
Total Gross Profit 16,372,232 8,140,053 4,038,471 1,967,094 1,518,901
General & Administrative Expenses 6,483,039 3,420,519 2,059,384 1,194,445 1,136,243
Bad Debt Expense 1,600,836 64,023 16,034 -- --
Interest Expense 1,776,704 20,277 44,729 150,113 56,991
Interest Income 59,606 174,240 28,684 97,858 78,738
Other income(expense), net (179,952) 30,508 65,724 58,282 --
Income Before Taxes 6,391,307 4,839,982 2,012,732 778,676 404,405
Income Tax (Benefit) 157,449 423,167 109,151 21,302 (3,388)
Net Income 6,233,858 4,416,815 1,903,581 757,374 407,793
Net Income/Common Share, diluted $ 0.71 0.50 0.25 0.14 0.08
</TABLE>
- -------------------------------------------------------
The Company's fiscal year ends June 30 of each year.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General Statement
- Factors That May Affect Future Results.
With the exception of historical information, the matters discussed in
Management's discussion and Analysis of Financial Condition and Results of
operations contain forward looking statements under the 1995 Private
Securities Litigation Reform Act (the "Reform Act") that involve various risks
and uncertainties. Typically, these statements are indicated by words such as
"anticipates," "expects," "believes," "plans," "could," and similar words and
phrases. Factors that could cause the Company's actual results to differ
materially from management's projections, forecasts, estimates and
expectations include but are not limited to, the following:
Changes in the Company's currently available credit facilities;
The inability of the Company to extend or secure additional credit
facilities to fund the anticipated expansion of sales under its TAD
Program;
Unexpected economic changes both in the United States and overseas;
The imposition of new restrictions or regulations affecting either the
Company's international merchandise trade activities or its TAD
Program, either in the US or in Canada.
To the extent possible, the following discussion will highlight the relative
needs of the Company with respect to both its international merchandise trade
activities and in connection with the ongoing expansion of its TAD Program.
- Segment Reporting Disclosures.
The Company's sales are generated from two major business segments: the TAD
Program and international merchandise trade. The TAD Program is operated by
Capital in the United States and Actrade Canada, in Canada. The Company's
international merchandise trade operations are conducted through International
(which is engaged in the re-sale of American made products to foreign buyers)
and Actrade S.A., including its wholly owned subsidiary Resources, (which
engage in the sale of non-US products to foreign buyers). See discussion
immediately below. Further, the reader is referred to the "Financial
Statements - Note 8, Segment Information" for further information regarding
industry segments, gross sales and gross profits by geographical region and
other relevant information.
I. Results of Operations - Fiscal 1999 Compared to Fiscal 1998
Consolidated Sales and Gross Profit
As of June 30, 1999, the Company had combined gross sales of $208,171,657, as
compared to $98,475,496 for fiscal 1998, representing an increase of slightly
over 111%. As a result, the Company reflected gross profit from operations of
$16,372,232 during fiscal 1999, as compared
13
<PAGE>
to $8,140,053 in fiscal 1998, representing an increase of slightly more than
101%.
The increase in gross sales during fiscal 1999 was due to the expansion of the
Company's operations through (i) significantly increased sales by Capital and
Actrade Canada through the TAD Program and (ii) the increased international
merchandise trade activities by Actrade S.A and Resources. With respect to its
international merchandise trade activities, this increase was the result of
increased product sales by both Actrade S.A. and Resources, rather than from
price increases for the products sold.
TAD Program Sales and Gross Profit
Total gross sales for fiscal 1999 included gross sales from the TAD Program,
which represent the face value of TADs transacted, of $129,790,196 (as
compared to $55,541,301 in fiscal 1998). The gross sales amounts for the TAD
Program are reported herein for information purposes only and are not a part
of the basic financial statements of the Company. Gross profit from the TAD
Program, which represent revenues earned on TAD activities, totaled $7,941,017
for fiscal 1999, as compared to $3,300,124 in fiscal 1998, an increase of
slightly less than 141%. The significant increase in gross profit from the TAD
Program is due to a substantially increased number of TAD transactions that
were a direct benefit of the accelerated marketing and expansion program
during fiscal 1999.
International Merchandise Trade Sales and Gross Profit
Also included in total gross sales were gross sales from international
merchandise trade of $78,381,461 (as compared to $42,934,195 in fiscal 1998).
At June 30, 1999, sales by Actrade S.A., including its wholly owned subsidiary
Resources, totaled $74,097,841, as compared to $35,098,753 for fiscal 1998.
Management attributes the continued growth in this business sector to the
ability to provide immediate payment to foreign suppliers as well as
facilitating access to flexible payment terms for the buyers. During fiscal
1999, the Company's principal overseas markets continued to be (i) South
America (ii) Europe, (iii) the Pacific Rim and (iv) Middle East. During fiscal
1999, the Company showed increased sales in all of its primary markets.
See "Financial Statements - Note 1- Summary of Significant Accounting Policies
- Gross Sales" and " - Note 8, Segment Information" for additional
information.
Consolidated Expenses
General and administrative expenses were $6,483,039 as compared to $3,420,519
for fiscal 1998, an increase of slightly less than 90%. Essentially the entire
increase in general and administrative expenses in fiscal 1999 is related to
the expansion of operations of Capital, Actrade Canada and costs related to
the TAD Program. The most significant of these increase included:
1. salaries, payroll and commissions in fiscal 1999 totaled $3,283,033,
as compared to $1,520,501 in fiscal 1998;
2. office rent in fiscal 1999 totaled $345,060, as compared to $181,893
in fiscal 1998;
14
<PAGE>
3. consulting costs and professional fees in fiscal 1999 totaled
$486,407, as compared to $156,860 for fiscal 1998;
4. depreciation of $139,461, as compared to $80,435 in fiscal 1998.
All of these increased costs are directly attributable to the TAD Program
expansion that took place in fiscal 1999, including the establishment of new
corporate headquarters for Capital in Somerset New Jersey and the expansion of
Capital sales force and back-office personnel required by the substantial
increase in TAD transactions. With respect to fiscal 2000, management projects
the costs related to the TAD Program operations will continue to escalate,
particularly as it accelerates its marketing efforts for the TAD Program and
begins implementation of its E-Commerce program. However, management expects to
see significantly increased sales volume as the benefits of the 1999
expenditures mature into new TAD business.
Bad Debt, Interest Expense and Net Income
In fiscal 1999, the Company incurred bad debt expense in the amount of
$1,600,836 as compared to $64,023 in fiscal 1998. The principal reason for the
substantial increase in this expense was because of the rapid expansion of the
TAD Program (both in terms of the number and size of individual transactions)
and the diversity of industries into which the TAD Program has expanded.
In fiscal 1999, the Company incurred interest costs of $1,776,704, as compared
to $20,277 in fiscal 1998. This increase is due to the growth in operations of
the TAD Program as well as Actrade S.A., Resources and results in part from
the costs associated with the new credit facilities secured by Capital during
fiscal 1999. With these new facilities approaching full utilization, and
management's expectation of adding additional credit facilities in the near
term, management expects that this expense item will continue to escalate as
TAD Program operations continue to grow.
During fiscal 1999, Capital entered into an asset-backed securitization
program of up to $25 Million with a financial institution providing for the
transfer and sale of TADs by Capital to Funding, a wholly owned special
purpose vehicle, formed expressly for that purpose. For further information
relating to Funding see "Financial Statements - Note 11."
After interest income, other expenses (including a loss on the disposition of
fixed assets of $179,952) and provision for income taxes of $157,449, the
Company realized net income of $6,233,858, or approximately $0.73 per share
($0.71 per share, fully diluted) for fiscal 1999, as compared to $4,416,815,
or $0.55 per share ($0.50 per share, fully diluted), for fiscal 1998. This
represented an increase in net income for fiscal 1999 of 42%, fully diluted.
During fiscal 1999 the Company's net income expressed as a percentage of gross
profit fell to approximately 38%, as compared to approximately 54% in fiscal
1998. As had been expected, this decrease was the direct result of the
substantial increase in general and administrative expenses associated with
Capital and the TAD Program discussed above.
15
<PAGE>
TAD Program Net Income
Despite the substantial increase in gross profit generated by Capital through
the TAD Program, net income for fiscal 1999 from the TAD Program reflected a
decrease to $89,461 (representing net income of $181,168 for Capital and a net
loss of $91,707 for Actrade Canada), as compared to net income of $637,196 for
fiscal 1998, a decrease of almost 86%. The principal reason for this decline
in net income were the substantially increased general and administrative
costs associated with the expansion of Capital's operations and the
substantial increase in the allowance for bad debt expense, both of which were
discussed earlier. Management believes this situation will be corrected in the
coming year as the Capital begins to realize the benefits from the
expenditures incurred during fiscal 1999.
International Merchandise Trade Net Income
Net income, before provision for income taxes, from the Company's
international merchandise trade operations totaled $6,245,830 as compared to
$4,061,654 for fiscal 1998, an increase of just over 53%. Management believes
that its international merchandise trade operations will continue to grow
during the foreseeable future although no assurance can be given that the rate
of growth will continue at the pace set in fiscal 1999.
- Fiscal 1998 Compared to Fiscal 1997
Consolidated Sales and Gross Profits
For the period ended June 30, 1998, the Company had combined gross sales of
$98,475,496, as compared to $43,499,312 for fiscal 1997, representing an
increase of slightly less than 127%. As a result, the Company realized gross
profit of $8,140,053 during fiscal 1998, as compared to $4,038,471 in fiscal
1997, representing an increase of slightly over 101%.
The increase in gross sales during fiscal 1998 was due to the expansion of the
Company's operations through (i) significantly increased sales by Capital
through the TAD Program and (ii) the increased international merchandise trade
activities by Actrade S.A. With respect to its international merchandise trade
activities, this increase was the result of increased product sales by Actrade
S.A., rather than from price increases for the products sold.
TAD Program Sales and Gross Profits
During fiscal 1998, gross sales from the TAD Program totaled $55,541,301 (as
compared to $21,668,573 in fiscal 1997), which figures are reported herein for
information purposes only. Gross profit from the TAD Program during fiscal
1998 climbed to $3,300,124 from $1,366,322 in fiscal 1997, an increase of over
141%.
International Merchandise Trade Sales and Gross Profits
Gross sales from international merchandise trade were $42,934,195 in fiscal
1998 as compared to
16
<PAGE>
$21,830,739 in fiscal 1997 resulting in a gross profit from international
merchandise trade operations of $4,839,929, as compared to $2,672,149 in
fiscal 1997. During fiscal 1998 sales by Actrade S.A. totaled $35,098,753, as
compared to $14,743,695 for fiscal 1997, with the balance representing sales
by International. During fiscal 1998, the Company's principal overseas markets
were (i) South America (ii) Europe, (iii) the Pacific Rim and (iv) the Middle
East, with the Company showing increased sales in all of those markets.
Consolidated Expenses/Net Income
General and administrative expenses in fiscal 1998 were $3,420,519 as compared
to $2,059,384 in fiscal 1997, an increase of slightly over 66%. Virtually all
of the increase in these expenses were directly attributable to the expansion
of Capital and the TAD Program.
During fiscal 1998, the Company recorded bad debt expense in the amount of
$64,023, as compared to $16,034 for fiscal 1997. This increased reserve was
due to the growth experienced in the TAD Program during fiscal 1998.
The Company realized income from operations of $4,655,511, as compared to
$1,963,053 for fiscal 1997, an increase of slightly less more than 137%.
After interest income and expense, other income and provision for income taxes
of $174,240, $20,277, $30,508 and $423,167, respectively (as compared to
$28,684, $44,729, $65,724 and $109,151 for fiscal 1997) the Company realized
net income of $4,416,815, or approximately $0.55 per share ($0.50 per share,
fully diluted) for fiscal 1998 as compared to $1,903,581, or $0.29 per share
($0.25 per share, fully diluted), in fiscal 1997. This represented an increase
in net income for fiscal 1998 of 100%, fully diluted.
Net income, before provision for income taxes, for fiscal 1998 from the TAD
Program increased to $778,328 as compared to $224,669 for fiscal 1997, an
increase of slightly more than 246%. Net income before provision for income
taxes from international merchandise trade operations for fiscal 1998
increased to $4,061,654 from $1,788,063 in fiscal 1997, an increase of
approximately 127%.
II. Discussion of Financial Condition - Liquidity and Capital Resources
At June 30, 1999, the Company had working capital of approximately
$27,249,164, as compared to working capital of $22,191,434 at June 30, 1998.
On a consolidated basis, as of June 30, 1999 the Company had cash and cash
equivalents on hand of $5,198,951, as compared to $13,381,678 at June 30,
1998. The decrease of approximately $8,183,000 in cash and cash equivalents
resulted from normal variations in the utilization of cash by Capital in its
operations, and not due to any trend which is expected to have a continuing
effect upon operations in the future.
Accounts receivable and TADs receivable (net of deferred income and allowance
for doubtful accounts) increased $9,106,058 and $16,222,688, respectively at
June 30, 1999, as compared to June 30, 1998. The substantial increase in TADs
receivable was due to the ongoing expansion of the TAD Program by Capital and
Actrade Canada. At June 30, 1999, Capital had approximately
17
<PAGE>
$11.5 Million in Surety bonds guaranteeing payment of TADs it had purchased,
in addition to $12.5 Million in credit insurance.
Total current liabilities in fiscal 1999 increased $12,411,347 compared to
fiscal 1998. The substantial increase in current liabilities over the prior
fiscal year is primarily due to the addition of "short-term borrowings,"
representing financing utilized by Capital for its TAD purchases owed under
its various credit facilities.
At June 30, 1999 the Company had total accounts payable of $682,810, as
compared to $3,195,691 at June 30, 1998. The substantial decrease in accounts
payable is due principally to the normal fluctuations in the status of trade
transactions by Actrade S.A. and Resources and not to any trend expected to
have an ongoing impact upon the Company.
In recent years, the Company has experienced growth in its accounts receivable
due to the nature of the sales made by its international merchandise trade
division. Sales by International principally involve larger, higher priced
products. Consequently, the average invoice amount, as well as the average per
item cost, is relatively high, resulting in higher cost of goods sold as well
as higher accounts receivable and payable. Similarly, the sales 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 products.
These factors continued to be true throughout fiscal 1999 and are expected to
continue for the foreseeable future.
At June 30, 1999, the Company's total stockholders' equity increased to
$28,509,189, as compared to $22,592,920 at June 30, 1998. 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, 2000, the Company projects no
significant additional capital expenditures in connection with any of the
Company's international merchandise trade operations. Management plans to
utilize current cash on hand in connection with its international merchandise
trading operations principally for (i) general working capital reserves to
meet any extraordinary or unexpected expenses; (ii) and to finance, if
required, the Company's trading operations.
However, in connection with the TAD Program, management expects that it will
have significant additional capital expenditures relating to the ongoing
expansion of sales and marketing operations by Capital and Actrade Canada,
including implementation of its E-Commerce initiative. Further, with respect
to the TAD Program, in order to sustain a future growth rate comparable to
that experienced in the past few years, management will need to further expand
its credit facilities and other means for financing its purchase of TADs.
At June 30, 1999, the Company had several credit facilities through which
Capital, Funding and Actrade Canada could finance the purchase of TAD in their
TAD Program including (1) a $25 Million securitization funding facility; and
(2) an additional $18.5 Million in credit facilities with two financial
institutions in the United States.
Capital currently has approximately $31 Million in Surety Bonds available to
secure payment of
18
<PAGE>
TADs it has purchased. Subsequent to the fiscal year-end, the Company
increased its two credit facilities from $18.5 Million to $23.5 Million and
Actrade Canada added a $CDN5 Million credit facility from a major Canadian
bank for use in the purchase of TADs in Canada.
Management expects that the TAD Program will continue to grow, in which case
it will require additional credit facilities to sustain the projected growth
in TAD purchases. Although discussions are ongoing with several other
financial institutions to add additional credit facilities to fund the future
expansion of the TAD Program, no assurance can be given that such discussions
will result in the completion of any new financing facilities for Capital or
Actrade Canada. However, based upon its experience with its present banks, as
well as discussions with other financial institutions, management believes
that it will be able to secure adequate financing means to sustain the growth
of the TAD Program in the foreseeable future.
Management knows of no other trends reasonably expected to have a material
impact upon the Company's operations or liquidity in the foreseeable future.
III Inflation.
During the past few years inflation in the United States has been relatively
stable which, coupled with the relative strength of foreign currencies
discussed above, has had a beneficial effect upon the Company's operations in
that the products it offers have been competitively priced in relation to
comparable foreign made products. In management's opinion, this is expected to
continue for the foreseeable future. However, should the American economy
again experience double digit inflation rates, as was the case in the past,
the impact upon prices for American goods could adversely affect the Company's
ability to effectively compete in its overseas markets.
IV. "Year 2000" Compliance.
Overview
The Year 2000 issue is the result of computer programs being written using two
digits, rather than four to define the applicable year. Beginning in the Year
2000, and in certain instances prior to the Year 2000, these date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. 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.
Internal Systems and Equipment
Based upon an assessment made during fiscal 1998, the Company assessed and
identified all of its systems and equipment that may be vulnerable to Year
2000 problems. The Company has prioritized the identified items as either
critical or non-critical to the operations of the Company. During fiscal 1999,
the Company began, and as of the date of this Report has substantially
completed, upgrading and/or replacing the equipment and systems it had
identified as being non-
19
<PAGE>
compliant. Management expects that it will have completed the required updated
of all versions of operations and financial software before December 1999 so
that all of its systems will utilize dates beyond December 31, 1999 properly.
In addition, the Company has completed the evaluation and substantially
completed the upgrade of all of its auxiliary computer application systems for
Year 2000 compliance. The Company believes that the planned modifications,
upgrades and conversions, that are expected to be completed and initiated
before December 1999, will allow it to fully mitigate the Year 2000 issue.
Third Party Relationships
The Company also initiated 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. Based upon the response received,
management believes that all of the Company's major suppliers and financial
institutions are also Year 2000 compliant. There can be no assurance, however,
that the systems of other companies, or a conversion that is incompatible with
the Company's systems, would not have an impact on the Company's operations.
Of all such third parties, management is of the opinion that the only segment
that would have a materially adverse impact upon the Company's operations
would be the various financial institutions with whom it currently has credit
facilities that are critical to the operation of the TAD Program. As to this
sector, management has received what it believes to be dependable assurances
that no disruption in the Company's credit facilities will occur due to Year
2000 problems.
Costs/Risks
Management currently estimates that the total cost in connection with bringing
its own systems and equipment into compliance was approximately $130,000
during fiscal 1999 and does not expect the additional cost to complete its
modifications an upgrade to exceed $70,000. As such, 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. Although the Company is not aware of any material operational
issues or costs associated with the completion of this process, there can be
no assurance that there will not be a delay in, or increased costs associated
with, the implementation of the necessary systems and changes to address the
Year 2000.
The principal risk associated with Year 2000 compliance include, but are not
necessarily limited to, (i) the inability by Capital or Actrade Canada to
utilize its credit facilities in connection with their purchase of TAD from
customers under the TAD Program; (ii) the inability of Capital or Actrade
Canada to properly process TADs for collection on their due dates; (iii) the
inability to pay suppliers in a timely manner for TADs purchased by Capital or
Actrade Canada; and (iv) interruption of payments under letters of credit or
other financial instruments in connection with the Company's international
merchandise trade operations.
Provided that there is no material disruption of services among the Company's
several financial institutions, as to which the Company has received what it
believes to be reliable assurances, management does not believe that any Year
2000 problems that may occur will be material or
20
<PAGE>
cause any material adverse consequence to the Company or any of its
operations.
All statements concerning Year 2000 issues other than historical statements,
including, without limitation, estimated costs and the projected timetable of
Year 2000 compliance, constitute "forward-looking statements" as defined in
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements should be read in conjunction with the Company's disclosures under
the heading "General Statement - Factors That May Affect Future Results."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Financial Statements: Reference:
--------------------- ----------
<S> <C>
Independent Auditor's Report F-1 - F1A
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-16
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Actrade International Ltd.:
We have audited the accompanying consolidated balance sheet of Actrade
International Ltd. and subsidiaries (the "Company") as of June 30, 1999, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 1999, and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
September 20, 1999
F-1
<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 the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
years ended June 30, 1998 and 1997. 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 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 provide a reasonable basis for our opinion.
In our opinion, 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 and
1997, in conformity with generally accepted accounting principles.
ZELLER WEISS & KAHN, LLP
Mountainside, New Jersey
August 14, 1998
F-1A
<PAGE>
ACTRADE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,198,951 $ 13,381,678
Accounts receivable - trade 12,413,931 3,307,873
Trade acceptance drafts receivable and other (net of deferred income and
allowance for doubtful accounts of $1,275,747
and $1,560,295 in 1999 and $14,190 and $61,700 in 1998) 25,180,194 8,957,506
Prepaid expenses 27,004 69,299
Prepaid income taxes 153,836 --
Deferred income taxes 216,887 5,370
------------ ------------
Total current assets 43,190,803 25,721,726
------------ ------------
PROPERTY AND EQUIPMENT (Net of accumulated depreciation and
amortization of $290,615 in 1999 and $293,519 in 1998) 953,736 374,679
OTHER ASSETS 306,289 26,807
------------ ------------
TOTAL ASSETS $ 44,450,828 $ 26,123,212
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 14,261,405 $ --
Accounts payable and customer reserves payable 682,810 3,195,691
Accrued expenses 997,424 49,160
Income taxes payable -- 285,441
------------ ------------
Total current liabilities 15,941,639 3,530,292
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value; authorized
100,000,000 shares, issued, and outstanding
8,528,051 shares in 1999 and 8,541,051 shares in 1998 856 854
Additional paid-in capital 14,614,123 14,489,668
Retained earnings 14,336,256 8,102,398
Accumulated other comprehensive income 10,310 --
Treasury stock at cost; 31,500 shares in 1999 (452,356) --
------------ ------------
Total stockholders' equity 28,509,189 22,592,920
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 44,450,828 $ 26,123,212
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
ACTRADE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Gross Sales - Trade Acceptance Drafts $ 129,790,196 $ 55,541,301 $ 21,668,573
Gross Sales - International Merchandise Trade 78,381,461 42,934,195 21,830,739
------------- ------------- -------------
Total Gross Sales $ 208,171,657 $ 98,475,496 $ 43,499,312
============= ============= =============
Gross Sales - International Merchandise Trade $ 78,381,461 $ 42,934,195 $ 21,830,739
Cost of Sales - International Merchandise Trade (69,950,246) (38,094,266) (19,158,590)
------------- ------------- -------------
Gross Profit - International Merchandise Trade 8,431,215 4,839,929 2,672,149
Gross Profit - Trade Acceptance Drafts 7,941,017 3,300,124 1,366,322
------------- ------------- -------------
Total Gross Profit 16,372,232 8,140,053 4,038,471
------------- ------------- -------------
General and Administrative Expenses (6,483,039) (3,420,519) (2,059,384)
Bad Debt Expense (1,600,836) (64,023) (16,034)
------------- ------------- -------------
Income from Operations 8,288,357 4,655,511 1,963,053
Other Income (Expenses):
Interest income 59,606 174,240 28,684
Interest expense (1,776,704) (20,277) (44,729)
Other income (expense), net (179,952) 30,508 65,724
------------- ------------- -------------
Income before Provision for Income Taxes 6,391,307 4,839,982 2,012,732
Provision for Income Taxes 157,449 423,167 109,151
------------- ------------- -------------
Net Income $ 6,233,858 $ 4,416,815 $ 1,903,581
============= ============= =============
Net Income per Common Share:
Basic $ 0.73 $ 0.55 $ 0.29
Diluted $ 0.71 $ 0.50 $ 0.25
Weighted Average Number of Shares Outstanding:
Basic 8,527,851 8,079,996 6,617,167
Diluted 8,810,267 8,903,726 7,701,712
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ACTRADE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
<S> <C> <C> <C> <C>
BALANCE, JUNE 30, 1996 5,683,181 $ 568 $ 3,107,137 $ 1,782,002
Net Income 1,903,581
Issuance of Common Stock 652,500 65 1,922,214 --
Issuance of Common Stock upon
Exercise of Options 450,000 45 987,455 --
Issuance of Common Stock 685,000 69 6,488,981 --
------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1997 7,470,681 747 12,505,787 3,685,583
Net Income 4,416,815
Issuance of Common Stock upon
Exercise of Options 1,070,370 107 1,983,881 --
------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1998 8,541,051 854 14,489,668 8,102,398
Comprehensive Income, Net of Tax:
Net Income 6,233,858
Other Comprehensive Income:
Foreign Currency Translation
Adjustments
Total Comprehensive Income
Other 63,657
Issuance of Common Stock upon
Exercise of Options 18,500 2 60,798
Purchase of Treasury Stock (31,500) -- -- --
------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1999 8,528,051 $ 856 $ 14,614,123 $ 14,336,256
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total Other
Comprehensive Treasury Stockholders' Comprehensive
Income Stock Equity Income
<S> <C> <C> <C>
BALANCE, JUNE 30, 1996 $ -- $ -- $ 4,889,707
Net Income 1,903,581 $ 1,903,581
============
Issuance of Common Stock -- -- 1,922,279
Issuance of Common Stock upon
Exercise of Options -- -- 987,500
Issuance of Common Stock -- -- 6,489,050
------------ ------------ ------------
BALANCE, JUNE 30, 1997 -- -- 16,192,117
Net Income 4,416,815 $ 4,416,815
============
Issuance of Common Stock upon
Exercise of Options -- -- 1,983,988
------------ ------------ ------------
BALANCE, JUNE 30, 1998 -- 22,592,920
Comprehensive Income, Net of Tax:
Net Income 6,233,858 $ 6,233,858
Other Comprehensive Income:
Foreign Currency Translation
Adjustments 10,310 10,310 10,310
------------
Total Comprehensive Income $ 6,244,168
============
Other 63,657
Issuance of Common Stock upon
Exercise of Options 60,800
Purchase of Treasury Stock -- (452,356) (452,356)
------------ ------------ ------------
BALANCE, JUNE 30, 1999 $ 10,310 $ (452,356) $ 28,509,189
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ACTRADE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,233,858 $ 4,416,815 $ 1,903,581
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 139,461 80,435 41,058
Loss on disposition of property and equipemnt 179,951 -- --
Bad debt expense 1,600,836 64,023 16,034
Deferred income taxes (211,517) (12,407) (9,582)
Deferred income 1,261,557 14,190 --
Other 63,657 -- --
Changes in operating assets and liabilities:
Accounts receivable - trade (9,106,058) 822,757 (728,512)
Trade acceptance drafts receivable and other (19,074,771) (1,419,409) (5,079,329)
Prepaid expenses 42,295 (53,252) 87,254
Prepaid income taxes (153,836) -- --
Other assets (279,482) (9,065) 482
Accounts payable and customer reserves payable (2,512,881) 1,167,094 96,637
Accrued expenses 948,264 (7,764) (10,105)
Income taxes payable (285,441) 218,009 46,130
------------ ------------ ------------
Net cash (used in) provided by operating activities (21,154,107) 5,281,426 (3,636,352)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (898,469) (216,809) (175,658)
------------ ------------ ------------
Net cash used in investing activities (898,469) (216,809) (175,658)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 60,800 1,983,988 9,398,829
Purchase of treasury stock (452,356) -- --
Change in short-term borrowings 14,261,405 (1,019,392) (159,159)
------------ ------------ ------------
Net cash provided by financing activities 13,869,849 964,596 9,239,670
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (8,182,727) 6,029,213 5,427,660
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 13,381,678 7,352,465 1,924,805
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 5,198,951 $ 13,381,678 $ 7,352,465
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest paid during the year $ 1,480,586 $ 23,884 $ 47,137
============ ============ ============
Income taxes paid during the year $ 561,259 $ 205,148 $ 31,187
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ACTRADE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Actrade International, Ltd. (the "Company"),
formerly Acquisition Capability, Inc., is a publicly traded holding
company. Its business operations are conducted through several
wholly-owned subsidiaries. The Company's business operations are divided
into two principal segments: (1) the Trade Acceptance Draft ("TAD" or
"TADs") program which is operated by Actrade Capital, Inc. ("Capital") in
the United States and Actrade Capital Canada Inc. ("Actrade Canada") in
Canada and (2) international merchandise trade activities conducted by
Actrade International Corp. ("International"), Actrade South American LTD.
("Actrade SA") and Actrade Resources Inc. ("Resources"). Capital is the
developer of the TAD program, which enables Capital to purchase TADs from
various suppliers at a discount from their face value. International,
Actrade SA and Resources are engaged in international merchandise trading
through the direct purchase and re-sale of products from various foreign
suppliers. Other wholly-owned subsidiaries with limited operations include
Allstate Travel Corp., Actrade Commerce Inc. and Actrade Funding Corp.
("Funding").
Consolidation - The consolidated financial statements include the accounts
of the Company and its subsidiaries. Significant intercompany balances and
transactions have been eliminated in consolidation (See Note 11).
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions that affect 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 could
differ from those estimates.
Cash Equivalents - Cash equivalents include highly liquid short-term
investments with an original maturity of three months or less.
Property and Equipment - Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets
(5-10 years). Leasehold improvements are amortized using the straight-line
method over the lesser of the term of the related lease or the estimated
useful life of the improvement.
Long-Lived Assets - The Company reviews for the impairment of long-lived
assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when estimated future cash flows expected to result
from the use of the asset and its eventual disposition is less than its
carrying amount.
Customer Reserves Payable - TADs are normally purchased at a discount from
their face value with maturities averaging three to six months. For
certain TADs, a portion of the advance to the seller is held by the
Company for a greater assurance of protection against default by the buyer
of the TAD. In these cases, a customer reserves payable is established for
the cash advances not yet paid to the seller.
F-6
<PAGE>
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities - The Company has adopted Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No.125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, which requires an
entity, after a transfer of financial assets that meets the criteria to be
accounted for as a sale, to recognize the financial assets it controls and
the liabilities it has incurred and to derecognize financial assets when
control has been surrendered.
Revenue Recognition - Sales of merchandise are recognized when title
passes to the customer. Income from TAD transactions are deferred and
recorded as income over the term of TAD or earlier if the TAD is sold.
Income Taxes - The Company uses the asset and liability approach for
financial accounting and reporting for income taxes. A valuation allowance
is established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
Comprehensive Income - Effective July 1, 1998, the Company adopted SFAS
No. 130, Reporting Comprehensive Income. SFAS No. 130 requires that, as
part of a full set of financial statements, entities must present
comprehensive income, which is the sum of net income and other
comprehensive income. Other comprehensive income represents total
non-stockholder changes in equity. The Company has included its
presentation of comprehensive income in the accompanying consolidated
statements of stockholders' equity for the years ended June 30, 1999, 1998
and 1997.
Foreign Currency Translation - Balance sheet accounts of the Company's
foreign operations are translated at the exchange rate in effect at each
year-end and income statement accounts are translated at the average
exchange rate prevailing during the year. Gains and losses arising from
the translation of foreign subsidiary financial statements are included in
other comprehensive income.
Total Gross Sales - Total Gross Sales includes both Gross Sales -
International Merchandise Trade which represents sales of various products
through the Company's subsidiaries and are included as a part of the
consolidated statements of income, as well as Gross Sales - Trade
Acceptance Drafts which represents the face value of TADs transacted.
Total Gross Sales and Gross Sales - Trade Acceptance Drafts are presented
for informational purposes only throughout this report.
Total Gross Profit - Total Gross Profit includes the gross profit from
sales of international merchandise trade activities as well as revenues
earned on TAD transactions.
Reclassifications - Certain prior year amounts have been reclassified to
conform with the 1999 presentation.
Recent Pronouncements - In June 1998, the FASB issued SFAS No.133,
Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments and requires recognition of all derivatives as assets or
liabilities in the statement of position and measurement of these
instruments at fair value. The statement is effective for the Company in
the year ending June 30, 2001. Management believes that adopting this
statement will not have a material impact on the financial position,
results of operations or cash flows of the Company.
F-7
<PAGE>
2. PROPERTY AND EQUIPMENT
The major categories of property and equipment are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Computer equipment $ 453,742 $ 407,364
Furniture and fixture 431,529 70,004
Computer software 168,360 46,914
Leasehold improvements 190,720 143,916
--------- -------
1,244,351 668,198
Accumulated depreciation and amortization (290,615) (293,519)
--------- -------
Net property and equipment $ 953,736 $ 374,679
=========== ===========
</TABLE>
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
trade acceptance drafts receivable and other, short-term borrowings, and
accounts payable and customer reserves payable are estimated by the
Company to approximate fair value based on short-term maturities of these
financial instruments.
4. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of cash and cash
equivalents, accounts receivable and trade acceptance drafts receivable.
The Company deposits certain funds with a bank located in Grand Cayman
Islands where there is no insurance on bank deposits. As of June 30, 1999,
the Company's uninsured deposits amounted to $4,532,405. Concentration of
credit risk with respect to accounts receivable and trade acceptance
drafts receivable is limited due to the Company's large number of
customers and their dispersion across many different industries and
countries worldwide. As of June 30, 1999, the Company had no significant
concentration of credit risk. To mitigate some of the credit risk related
to trade acceptance drafts receivable, the Company had a business credit
insurance policy of $12.5 million and surety bonds guaranteeing payment of
TADs in the amount of approximately $11.5 million as of June 30, 1999.
During the year ended June 30, 1999, a shareholder sold TADs to the
Company accounting for approximately 8 percent of Gross Sales - Trade
Acceptance Drafts.
5. NET INCOME PER SHARE
The Company applies SFAS No. 128, Earnings per Share. In accordance with
SFAS No. 128, basic net income per share has been computed based on the
weighted average of common shares outstanding. Diluted net income per
share gives the effect of outstanding stock options. The treasury stock
method is used to calculate the dilutive effect of stock options issued.
All of the net income reported in the financial statements is available to
common shareholders. Prior years net income per share data has been
adjusted to reflect the adoption of SFAS No. 128.
F-8
<PAGE>
Net income per common share has been computed as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ -----------------------
Basic Diluted Basic Diluted Basic Diluted
<S> <C> <C> <C> <C> <C> <C>
Net Income $6,233,858 $6,233,858 $4,416,815 $4,416,815 $1,903,581 $1,903,581
---------- ---------- ---------- ---------- ---------- ----------
Weighted average of
shares outstanding 8,527,851 8,527,851 8,079,996 8,079,996 6,617,167 6,617,167
Weighted average of
options outstanding -- 282,416 -- 823,730 -- 1,084,545
---------- ---------- ---------- ---------- ---------- ----------
Total equivalent shares 8,527,851 8,810,267 8,079,996 8,903,726 6,617,167 7,701,712
---------- ---------- ---------- ---------- ---------- ----------
Net income per common share $ 0.73 $ 0.71 $ 0.55 $ 0.50 $ 0.29 $ 0.25
========== ========== ========== ========== ========== ==========
</TABLE>
Stock options that have exercise prices in excess of the average market
price during the year are considered antidilutive and are not included in
the calculation for net income per share. Options to purchase 1,329,960,
208,156, and 403,786 shares of common stock were outstanding in 1999, 1998
and 1997, respectively, but were not included for part or all of the year
in the computation of diluted earnings per share because their effect
would have been antidilutive.
6. COMMON STOCK AND STOCK OPTIONS
In the period July through October 1996, the Company sold 87 units
consisting of 7,500 shares of common stock for a net proceed of $1,922,279
resulting in the issuance of 652,500 shares of common stock. In May and
June 1997, the Company sold 274 units consisting of 2,500 shares of common
stocks for a net proceed of $6,489,050 resulting in the issuance of
685,000 shares of common stock.
As part of its compensation to employees, the Company grants incentive
awards by issuing stock options from unissued common stock at the fair
market value at the date of grant. The Company has no formal stock option
plan. A summary of changes in outstanding stock options is as follows:
<TABLE>
<CAPTION>
Exercise Weighted
Options Price Per Share Exercise Price
<S> <C> <C> <C>
Outstanding at July 1, 1996 1,571,888 $1.25 - $3.35 $ 1.90
Granted 602,201 $3.00 - $9.70 $ 6.87
Canceled (80,700) $1.75 $ 1.75
Exercised (450,000) $1.75 - $2.25 $ 2.19
--------- --------------- ------
Outstanding at June 30, 1997 1,643,389 $1.25 - $9.70 $ 3.65
========= ============= ======
Granted 469,219 $10.00 - $19.50 $12.55
Canceled (318) $1.75 $ 1.75
Exercised (1,070,370) $1.25 - $6.40 $ 1.85
--------- --------------- ------
Outstanding at June 30, 1998 1,041,920 $1.25 - $19.5 $ 9.50
========= ============= ======
Granted 672,950 $11.10 - 16.70 $12.29
Exercised (18,500) $5.00 - $6.40 $ 4.11
Expired (29,366) $5.00 - $14.30 $10.12
--------- --------------- ------
Outstanding at June 30, 1999 1,667,004 $3.00 - $19.50 $10.68
========= ============= ======
</TABLE>
The following table summarizes information about fixed-price stock options
outstanding at June 30, 1999
F-9
<PAGE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------- -----------------------
Number Weighted Average
Range of Number Wt'd Average Wt'd Average Exercisable Exercise
Exercise Prices Outstanding Exercise Prices Years to Expiration at 6/30/99 Price
<S> <C> <C> <C> <C> <C>
$1.25 to $6.40 337,044 $ 5.53 0.47 337,044 $ 5.53
$6.41 to $12.80 1,171,148 11.52 2.83 1,146,148 11.51
$12.81 to $19.50 158,812 15.33 1.60 158,812 15.33
--------- ---------
1,667,004 1,642,004
========= =========
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and selected interpretations in accounting
for its option plans. Accordingly, as all options have been granted at
fair market value on the date of grant, no compensation expense has been
recognized. Had compensation cost for the Company's stock option plans
been determined based upon the fair value at the grant date for awards
under these plans consistent with the methodology prescribed under SFAS
No.123, Accounting for Stock-Based Compensation, the Company's net income
(loss) would have been $4,586,003, $1,740,364 and ($75,699) for 1999,
1998, and 1997, respectively. Basic net income per share would have been
$.54, $.20, and $(.01) for 1999, 1998 and 1997, respectively and diluted
net income per share would have been $.52, $.20, and $(.01) for 1999, 1998
and 1997, respectively.
For the purpose of determining compensation expense under SFAS No. 123,
the fair value of each warrant or option is measured at the grant date
using the Black-Scholes option pricing model with the following
assumptions for 1999, 1998 and 1997; dividend yield is 0 percent for all
years, volatility is 41 percent, 23 percent, and 39 percent respectively,
the risk-free interest rate is 5.38 percent, 5.75 percent, and 6.25
percent respectively and expected lives are 2, 2 and 3 years respectively.
The fair values generated by the Black-Scholes model may not be indicative
of the future benefit, if any, that may be received by the warrant holder.
7. DEFINED CONTRIBUTION PLAN
Employees of the Company have been able to participate in the Company's
defined contribution plan. The Company contributes 50 percent of the
employee's contribution up to 6 percent of the employees gross pay. The
Company's expense related to the plan was $53,890, $2,914, and $0 for the
years ended June 30, 1999, 1998, and 1997, respectively.
8. SEGMENT INFORMATION
The Company has adopted SFAS No.131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 requires the Company to
use a management approach in identifying segments of its business and
establishes standards for reporting information about segments. Prior
years' comparative financial information has been restated to conform with
the current year's presentation of segment information.
The Company's business operations are divided into two principal business
segments: TAD program and international merchandise trade activities. The
Company's business segments are based on business units or entities that
offer different products and services. The TAD program is operated by
Capital in the United States and Actrade Canada in Canada. The
international merchandise trade activities are conducted by International,
Actrade SA and Resources. They are managed separately because each
business segment requires different strategic initiatives and marketing.
F-10
<PAGE>
The Company's gross sales, gross profit, income before provision for
income taxes, depreciation and amortization, interest expense and total
assets for each segment for the years ended June 30, 1999, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
Gross Sales:
<S> <C> <C> <C>
Trade Acceptance Drafts $129,790,196 $ 55,541,301 $ 21,668,573
International Merchandise Trade 78,381,461 42,934,195 21,830,739
------------ ------------ ------------
$208,171,657 $ 98,475,496 $ 43,499,312
============ ============ ============
Gross Profit:
Trade Acceptance Drafts $ 7,941,017 $ 3,300,124 $ 1,366,322
International Merchandise Trade 8,431,215 4,839,929 2,672,149
------------ ------------ ------------
$ 16,372,232 $ 8,140,053 $ 4,038,471
============ ============ ============
Income before Provision for
Income Taxes:
Trade Acceptance Drafts $ 145,477 $ 778,328 $ 224,669
International Merchandise Trade 6,245,830 4,061,654 1,788,063
------------ ------------ ------------
$ 6,391,307 $ 4,839,982 $ 2,012,732
============ ============ ============
Depreciation and Amortization:
Trade Acceptance Drafts $ 125,364 $ 60,111 $ 20,614
International Merchandise Trade 14,097 20,324 20,444
------------ ------------ ------------
$ 139,461 $ 80,435 $ 41,058
============ ============ ============
Interest Expense:
Trade Acceptance Drafts $ 609,067 $ -- $ 44,413
International Merchandise Trade 1,167,637 20,277 316
------------ ------------ ------------
$ 1,776,704 $ 20,277 $ 44,729
============ ============ ============
Total Assets:
Trade Acceptance Drafts $ 16,726,768 $ 16,847,631 $ 10,456,771
International Merchandise Trade 27,724,060 9,275,581 8,907,691
------------ ------------ ------------
$ 44,450,828 $ 26,123,212 $ 19,364,462
============ ============ ============
</TABLE>
F-11
<PAGE>
The following table provides the Company's geographic information for
gross sales and gross profit, which is based on the location of
transactions processed for TAD program and the location of customers for
international trade activities:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Gross Sales - Trade Acceptance Drafts:
United States $128,806,016 $ 55,541,301 $ 21,668,573
Canada 984,180 -- --
------------ ------------ ------------
$129,790,196 $ 55,541,301 $ 21,668,573
============ ============ ============
Gross Sales - International Merchandise
Trade:
United States $ -- $ 526,724 $ --
South America 33,697,964 15,188,933 4,690,753
Western Europe 32,464,709 16,897,844 9,005,109
Far East 6,965,188 4,535,200 2,100,000
Middle East 3,831,600 5,785,494 5,321,000
Other Non-U.S. Countries 1,422,000 -- 713,877
------------ ------------ ------------
$ 78,381,461 $ 42,934,195 $ 21,830,739
============ ============ ============
Gross Profit - Trade Acceptance Drafts:
United States $ 7,843,992 $ 3,300,124 $ 1,366,322
Canada 97,025 -- --
------------ ------------ ------------
$ 7,941,017 $ 3,300,124 $ 1,366,322
============ ============ ============
Gross Profit - International Merchandise
Trade:
United States $ -- $ 70,436 $ 656,752
South America 3,405,062 1,750,547 424,123
Western Europe 3,631,164 1,914,522 836,033
Far East 787,218 451,308 194,964
Middle East 471,420 653,116 494,001
Other Non-U.S. Countries 136,351 -- 66,276
------------ ------------ ------------
$ 8,431,215 $ 4,839,929 $ 2,672,149
============ ============ ============
</TABLE>
9. INCOME TAXES
Income before provision for income taxes is comprised of the following for
the years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
United States $ 269,010 $ 864,596 $ 229,699
Foreign 6,122,297 3,975,386 1,783,033
---------- ---------- ----------
$6,391,307 $4,839,982 $2,012,732
========== ========== ==========
</TABLE>
F-12
<PAGE>
Provision for income taxes is comprised of the following for the years
ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current tax expense:
Federal $ 250,581 $ 265,215 $ 59,131
State and local 118,385 170,359 59,602
--------- --------- ---------
368,966 435,574 118,733
--------- --------- ---------
Deferred tax benefit:
Federal (143,064) (8,387) (6,477)
State and local (68,453) (4,020) (3,105)
--------- --------- ---------
(211,517) (12,407) (9,582)
--------- --------- ---------
$ 157,449 $ 423,167 $ 109,151
========= ========= =========
</TABLE>
A reconciliation of income tax expense at the statutory rate to income tax
expense at the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Statutory U.S. Federal rate 34.0% 34.0% 34.0%
State and local income taxes (net of
Federal tax benefit) 0.5 3.5 3.0
Undistributed earnings of foreign subsidiaries (32.6) (27.9) (28.9)
Other 0.6 (0.9) (2.7)
---- ---- ----
2.5% 8.7% 5.4%
==== ==== ====
</TABLE>
Deferred income taxes are comprised of the following as of June 30:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 681,302 $ 26,639
--------- ---------
Deferred tax liabilities:
Depreciation and amortization (90,750) (12,958)
Securitization (373,665) --
Other -- (8,311)
--------- ---------
(464,415) (21,269)
--------- ---------
Net deferred income taxes $ 216,887 $ 5,370
========= =========
</TABLE>
Income tax has not been provided on unrepatriated earnings of foreign
subsidiaries as currently it is the intention of the Company to reinvest
such earnings in their foreign operations. The cumulative amount of
foreign undistributed earnings was approximately $13.8 million as of June
30, 1999.
F-13
<PAGE>
10. SHORT-TERM BORROWINGS
During the year ended June 30, 1999, the Company entered into a revolving
credit agreement with a bank in the amount of $10 million expiring October
31, 1999. Interest on borrowings is determined based on the bank's
floating base rate. As of June 30, 1999, the Company had borrowings of
$9,272,202 under the credit agreement with an interest rate of 7.75
percent.
During the year ended June 30, 1999, the Company also entered into a
revolving credit agreement with another bank in the amount of $8.5 million
expiring September 30, 1999. Interest on borrowings is determined based on
the bank's prime lending rate. As of June 30, 1999, the Company had
borrowings of $4,989,203 under this credit agreement with an interest rate
of 8.25 percent.
Under the terms of the agreements, the proceeds from borrowings are to be
utilized exclusively to finance the Company's TAD program and all of the
borrowings are secured by TADs which are pledged to the banks.
11. ASSET-BACKED SECURITIZATION PROGRAM
In March 1999, the Company entered into an asset-backed securitization
program with a financial institution providing for the transfer and sale
of TADs to Funding, a wholly-owned subsidiary of the Company, for proceeds
of up to $25 million. The program qualifies for sale treatment under SFAS
No. 125 and the Company records income (loss) from the subsidiary on the
equity basis of accounting.
The financial information of Funding as of and for the period ended June
30, 1999 is summarized as follows:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
Cash and cash equivalents $ 1,280,336
Trade acceptance drafts receivable 10,649,641
Other current assets 309,190
-----------
Total assets $12,239,167
===========
Short-term borrowings $ 9,509,875
Other current liabilities 2,223,073
-----------
Total liabilities 11,732,948
Stockholder's equity 506,219
-----------
Total liabilities and stockholder's equity $12,239,167
===========
Gross profit $ 1,089,611
Net operating expenses 584,192
-----------
Net income $ 505,419
===========
</TABLE>
Gains resulting from the securitization or transfers of TADs are included
in Gross Profit - Trade Acceptance Drafts. Interest-only strip which is
recorded at fair value and retained interest which is recorded at the
allocated carrying value based on relative fair value are included in
Trade Acceptance Drafts receivable and other.
F-14
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
Leases - The Company is committed to various noncancelable operating
leases for office space. Future minimum lease payments required under
these leases at June 30 are as follows:
<TABLE>
<CAPTION>
June 30, Amount
-------- ------
<S> <C>
2000 $ 420,728
2001 313,374
2002 268,645
2003 253,680
2004 187,254
----------
1,443,681
Sub-leases (72,456)
----------
Total minimum lease payments $1,371,225
==========
</TABLE>
Rent expense in 1999, 1998 and 1997 was $345,060, $181,893 and $86,964,
respectively.
Letters of Credit - The Company was contingently liable for letters of
credit amounting to $2,984,479 as of June 30, 1999.
13. LEGAL MATTERS
The Company has no legal proceeding which are unusual in nature or not in
the normal course of its business or material in amount. The Company is
aware of no litigation pending, threatened or contemplated, or unsatisfied
judgements against it.
14. SUBSEQUENT EVENTS
On August 3, 1999, the Company entered into a new credit agreement with a
bank in the amount of $15 million expiring October 31, 1999, replacing an
existing $10 million credit agreement.
On August 27, 1999, the Company, through Actrade Canada, also entered into
a credit agreement with another bank in the amount of $5 million Canadian
dollars expiring August 26, 2000. Interest on borrowings will be
determined based on the bank's floating base rate.
F-15
<PAGE>
15. QUARTERLY INFORMATION (UNAUDITED)
The following table shows results of operations for each of the quarters
during fiscal 1999 and 1998.
<TABLE>
<CAPTION>
September 30, December 31, March 31, June 30, Fiscal Year
1998 1998 1999 1999 1999
------------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Gross Sales:
Trade Acceptance Drafts $ 22,306,043 $ 28,156,212 $ 34,352,565 $ 44,975,376 $ 129,790,196
============ ============ ============ ============ =============
International Merchandise Trade $ 15,844,893 $ 17,907,286 $ 18,537,605 $ 26,091,677 $ 78,381,461
============ ============ ============ ============ =============
Gross Profit:
Trade Acceptance Drafts $ 785,933 $ 1,634,667 $ 1,566,022 $ 3,954,395 $ 7,941,017
International Merchandise Trade 1,506,858 1,573,505 1,949,407 3,401,445 8,431,215
------------ ------------ ------------ ------------ -------------
Total Gross Profit $ 2,292,791 $ 3,208,172 $ 3,515,429 $ 7,355,840 $ 16,372,232
============ ============ ============ ============ =============
Net Income $ 1,131,083 $ 1,416,079 $ 1,372,601 $ 2,314,095 $ 6,233,858
============ ============ ============ ============ =============
Net Income per Common Share:
Basic $ 0.13 $ 0.17 $ 0.16 $ 0.27 $ 0.73
============ ============ ============ ============ =============
Diluted $ 0.13 $ 0.16 $ 0.16 $ 0.27 $ 0.71
============ ============ ============ ============ =============
<CAPTION>
September 30, December 31, March 31, June 30, Fiscal Year
1997 1997 1998 1998 1998
------------- ----------- --------- -------- -----------
Gross Sales:
<S> <C> <C> <C> <C> <C>
Trade Acceptance Drafts $ 11,505,082 $ 13,301,092 $ 15,337,639 $ 15,397,488 $ 55,541,301
============ ============ ============ ============ =============
International Merchandise Trade $ 8,496,503 $ 9,814,767 $ 10,216,319 $ 14,406,606 $ 42,934,195
============ ============ ============ ============ =============
Gross Profit:
Trade Acceptance Drafts $ 700,759 $ 871,413 $ 999,275 $ 728,677 $ 3,300,124
International Merchandise Trade 1,006,580 1,231,445 1,206,019 1,395,885 4,839,929
------------ ------------ ------------ ------------ ------------
Total Gross Profit $ 1,707,339 $ 2,102,858 $ 2,205,294 $ 2,124,562 $ 8,140,053
============ ============ ============ ============ =============
Net Income $ 952,855 $ 1,084,093 $ 1,107,219 $ 1,272,648 $ 4,416,815
============ ============ ============ ============ =============
Net Income per Common Share:
Basic $ 0.12 $ 0.13 $ 0.13 $ 0.15 $ 0.55
============ ============ ============ ============ =============
Diluted $ 0.11 $ 0.12 $ 0.12 $ 0.15 $ 0.50
============ ============ ============ ============ =============
</TABLE>
The financial statements for the quarters ended September
30, 1998, December 31, 1998 and March 31, 1999 have been adjusted to
reflect the proper revenue earned on TAD transactions which resulted in a
decrease in net income of $262,145, $222,620 and $252,020, respectively.
F-16
<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:
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
---- --- --------------
<S> <C> <C>
Amos Aharoni 54 Chief Executive Officer of the Company and each of its
subsidiaries, except Capital; Director of the Company
Alexander C. Stonkus 40 President and Chief Operating Officer of the Company
and Capital and Director of the Company.
John Woerner 62 President of Actrade International, Corp.; and Director
Of the Company
Elizabeth Melnik 50 Secretary of the Company and each of its subsidiaries.
Joseph P. D'Alessandris 54 Chief Financial Officer of the Company and Capital
Robert Furstner 66 Director of the Company
Harry Friedman 72 Director of the Company
</TABLE>
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
together with Mr. Aharoni.
Biographical Information for Officers and Directors:
AMOS AHARONI was appointed Chief Executive Officer of the Company effective
February 20, 1991. However, since inception of the Company in 1987, Mr. Aharoni
served as the financial executive of the Company and its subsidiaries. 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
22
<PAGE>
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.
ALEXANDER C. STONKUS currently serves as President and Chief Operating Officer
for the Company and also as President of Actrade Capital, Inc., a wholly owned
subsidiary. He is also a director of the Company and each of its subsidiaries.
Prior to joining Actrade, Mr. Stonkus served in various senior management
positions with Elco Freight International, Inc., a full service shipping,
customs broker, warehousing and distribution company. During his eight-year
tenure with Elco, Mr. Stonkus served as 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
promoted to Senior Vice President and COO of Elco where 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. 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
served on the Board of Directors of various companies during his professional
career. He graduated from The Pennsylvania State University in 1982 receiving a
Bachelor of Science Degree in Finance.
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.
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 co-founded. 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.
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
23
<PAGE>
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.
JOSEPH P. D'ALESSANDRIS has served as Chief Financial Officer of the Company and
Capital since September 13, 1999. Prior to joining the Company, since 1992, Mr.
D'Alessandris served as International Controller for Information Builders, Inc.,
a New York based corporation. In this position he supervised the conversion of
eight international subsidiaries to one accounting and information system,
including establishing uniform reporting for all entities and instituted cost
saving procedures. He was also responsible for legal, banking and tax matters
for this division. During the period immediately prior to joining Information
Builders, Mr. D'Alessandris worked as an independent consultant. From 1976
through 1990, Mr. D'Alessandris served in several capacities for Engelhard
Corporation, a New Jersey based corporation. He began his career with Engelhard
as Manager of Internal Auditing and in 1978 was promoted to Manager of Financial
Controls. He was again promoted in 1983 to Director of International Joint
Ventures & Precious Metal Transportation where he was responsible for the
financial phases of joint venture development, start-up and implementation.
Beginning in 1989, Mr. D'Alessandris was promoted to Financial Manager, Special
Projects where he was responsible for senior management projects affecting the
long-term development of the division. From 1969 to 1976 Mr. D'Alessandris was a
senior auditor with Arthur Anderson. Mr. D'Alessandris received his Bachelor of
Science degree in Economics form Villanova University in 1967 and his Masters
Degree in Accounting and Finance from Ball State University in 1969. He is a
Certified Public Accountant in New Jersey and a member of the New Jersey and
American Institute of Certified Public Accountants.
ROBERT E. FURSTNER has served as a director of the Company since August 1996.
Mr. Furstner had been a senior level banking officer for over 25 years, having
begun his banking career in 1968 as a Territory Assistant for the International
Banking Division of Morgan Guaranty Trust Company in New York City. During his
5-year tenure at Morgan Guaranty Trust Co., Mr. Furstner was responsible for the
administrative duties regarding the Bank's corporate and correspondent bank
relationships in Germany, Switzerland, The Netherlands and Eastern Europe.
Following his employment with Morgan Guaranty Trust Co., Mr. Furstner served a
brief tenure (1973 - 1974) with Franklin National Bank in New York City where he
continued in a similar capacity with Franklin's International Banking Department
with his primary area of responsibility including Germany, Switzerland, Austria
and the Benlux Countries. In 1974 Mr. Furstner joined European American Bank in
New York City as Assistant Treasurer/Assistant Vice President (from 1974 - 1979)
rising to the position of Vice President/Group Head which he held from 1979
until leaving European American Bank in 1987. His duties at European American
Bank primarily involved international credit and bank operations. During his
tenure Mr. Furstner was charged with the management of a geographical area
comprising of the Great Britain, The Netherlands, the Nordic Countries, Eastern
Europe, Yugoslavia and Israel. He was directly involved in export and project
financing, both with and without Eximbank (the Export-Import Bank of The United
States) participation and was actively involved in the implementation of the
bank's lending strategies in order to reduce exposure in high risk countries.
Mr. Furstner was also a participant in the re-scheduling of Polish, Romanian and
Yugoslavian international debt. After 1987, until his retirement
24
<PAGE>
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.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information relating to remuneration received by
officers and directors as of June 30, 1999, the end of the Company's most recent
fiscal year, as well as indicating the compensation agreements for fiscal 2000:
25
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Annual Compensation(1) Long Term Compensation All Other
Position Year Salary Bonus Restricted Stock Awards Compensation
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amos Aharoni, CEO(2) 1999 $146,154 386,671 Warrants(4) $7,405(3)
1998 $ 86,823 323,312 Warrants(4) $9,975(3)
Alexander C. Stonkus, COO 1999 $110,479 $55,000 42,500 Warrants(4) $4,249(5)
1998 $ 80,288 22,500 Warrants(4) $ -0-
John Woerner, Vice Pres. 1999 $ 56,336 2,500 Warrants(4)
1998 $ 80,578 $28,723(7) 2,500 Warrants(4) $ 7,413(5)
Elizabeth Melnik,
Secretary 1999 $ 52,280 2,500 Warrants
1998 $ 52,094 6,000 Warrants(4) $ 107
</TABLE>
- --------------------------------------------------------
(1) The Company has varying compensation arrangements with 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 not annual bonus amounts, if any, which are listed separately under the
"bonus" column.
(2) Mr. Aharoni serves as an employee of the Company until December 31, 1998.
Beginning January 1, 1999 the Company continued to retain his services in
the same capacities as before pursuant to an Executive Services Agreement
with High Sunset Corp., a personal service corporation for Mr. Aharoni,
that expires on December 31, 1999. The terms of Mr. Aharoni's engagement
remain the same except that the management fee payable to High Sunset Corp.
was increased to $200,000 per year, plus the quarterly bonus. All other
benefits that Mr. Aharoni had previously received from the Company were
terminated. The amount set forth herein includes $46,154 that had been paid
to Mr. Aharoni as salary through December 31, 1998 with the balance of
$100,000 representing management fees paid since January 1, 1999.
(3) 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 through December 31,
1998.
(4) In January 1998, 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 1999, the Board approved a similar issuance of
Warrants to the Company's directors in lieu of cash compensation.
(5) This amount includes payments made by the Company for health insurance
premiums on behalf of the officer and his family.
26
<PAGE>
Mr. Alexander C. Stonkus has been employed by the Company since August 18, 1997.
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
Actare 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. Effective July 1, 1999, Mr.
Stonkus' base salary was increased to $150,000 per year.
Mr. Woerner became an officer and employee of the Company as of September 6,
1991 and had been employed pursuant to a written employment agreement until
February 1, 1999. Under the written Agreement Mr. Woerner was employed at a base
salary of $76,125 per year plus an automobile lease, expense reimbursement and a
commission based upon the Company's net profits derived by sales generated
directly by the Air Conditioning Division. Effective February 1, 1999, Mr.
Woerner's status as an employee of the Company was terminated and he continued
to oversee the operations of International as an independent consultant. His
compensation under this new arrangement is based upon commissions only, with no
base salary, bonuses, etc., equal to 50% of International's gross profits (equal
to gross sales less cost of sales less financing costs actually incurred).
Except as herein above described, the Company has no other employment contracts.
Further, it has no retirement, pension, profit sharing, insurance or medical
reimbursement plan covering its officers or directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners.
None other than stated in (b) below.
27
<PAGE>
(b) Security ownership of management.
<TABLE>
<CAPTION>
Name Relationship Number of Shares Percentage(1)
- ---- ------------ ---------------- -------------
<S> <C> <C> <C>
NTS Corp.(2) Shareholder 2,345,549 27.5%
Amos Aharoni(2) Officer & Director 2,345,549 27.5%
Alexander C. Stonkus Officer, Director &
Shareholder 10,000 0.1%
Elizabeth Melnik Officer, Director &
Shareholder 20,000 0.2%
John Woerner(3) Officer, Director &
Shareholder 9,150 0.1%
Robert Furstner(4) Director & Shareholder 11,630 0.1%
Harry Friedman(5) Director & Shareholder 1,250 under 0.01%
Officers & Directors as
a group (6 persons) 2,397,579 28.1%
</TABLE>
- ---------------------------------------
(1) Based upon 8,541,051 shares issued and outstanding at June 30, 1999 without
considering the effect of the possible exercise of outstanding warrants to
management or others.
(2) 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.
(3) Includes 3,650 that Mr. Woerner owns jointly with his mother.
(4) Includes 5,630 shares owned by Mr. Furstner's wife with respect to which he
may be deemed to have a beneficial interest.
(5) Includes 1,250 shares owned by Mr. Friedman's wife with respect to which he
may be deemed to have a beneficial interest.
(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
28
<PAGE>
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: Exhibit 27 -- Financial Data Schedule
Reports on Form 8-K:
1. Report dated April 14, 1999 relating to the resignation of Zeller, Weiss &
Kahn, the Company's former independent auditors; and
2. Report dated June 30, 1999 relating to the appointment of Deloitee Touche,
LLP as the Company's new independent auditors;
29
<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: September 30, 1999 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: September 30, 1999 By: /s/ Amos Aharoni
---------------------------------
Amos Aharoni, Chief Executive
Officer & Director
Dated: September 30, 1999 By: /s/ Alexander C. Stonkus
---------------------------------
Alexander C. Stonkus, President,
Chief Operating Officer, and Director
Dated: September 30, 1999 By: /s/ John Woerner
---------------------------------
John Woerner, Senior Vice President
and Director
Dated: September 30, 1999 By: /s/ Elizabeth Melnik
---------------------------------
Elizabeth Melnik,
Secretary and Director
Dated: September 30, 1999 By: /s/ Joseph P. D'Alessandris
---------------------------------
Joseph P. D'Alessandris,
Chief Financial Officer
Dated: September 30, 1999 By: /s/ Robert Furstner
---------------------------------
Robert Furstner, Director
Dated: September 30, 1999 By: /s/ Harry Friedman
---------------------------------
Harry Friedman, Director
30
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,198,951
<SECURITIES> 0
<RECEIVABLES> 39,154,420
<ALLOWANCES> 1,560,295
<INVENTORY> 0
<CURRENT-ASSETS> 43,190,303
<PP&E> 1,244,351
<DEPRECIATION> 290,015
<TOTAL-ASSETS> 44,450,528
<CURRENT-LIABILITIES> 15,941,639
<BONDS> 0
<COMMON> 856
0
0
<OTHER-SE> 28,508,333
<TOTAL-LIABILITY-AND-EQUITY> 44,450,828
<SALES> 208,171,657
<TOTAL-REVENUES> 208,171,657
<CGS> 69,950,246
<TOTAL-COSTS> 6,483,039
<OTHER-EXPENSES> 179,952
<LOSS-PROVISION> 1,600,836
<INTEREST-EXPENSE> 1,776,704
<INCOME-PRETAX> 6,391,307
<INCOME-TAX> 157,449
<INCOME-CONTINUING> 8,288,367
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,233,358
<EPS-BASIC> .73
<EPS-DILUTED> .71
</TABLE>
