<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q/A
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
----------------------------------
For Quarter Ended March 31, 1999
Commission File Number 0-18711
ACTRADE INTERNATIONAL, LTD.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C>
Delaware 13-3437739
(State or other Jurisdiction (I.R.S. Employer Ident-
of incorporation or organization) ification Number)
7 Penn Plaza, Suite 422, New York, N.Y. 10001
(Address of principal executive offices) (Zip Code)
</TABLE>
Same
(Former Address) (Zip Code)
(212) 563-1036
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X__ No____
Indicate the number of Shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date. As of April 30, 1998 there were
outstanding 8,559,551 shares of Common Stock, par value $.0001.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Condensed consolidated financial statements (restated):
Consolidated balance sheets as of March 31, 1999 and
June 30, 1998 3
Consolidated statement of income for nine and three
months ended March 31, 1999 and 1998 4
Consolidated statement of cash flows for the nine months
ended March 31, 1999 and 1998 5
Notes to the consolidated financial statements 6-9
Item 2. Management's discussion and analysis of financial
Condition and results of operations 10-16
PART II. OTHER INFORMATION
Exhibits and reports on Form 8-K 16
Signatures 17
</TABLE>
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1999 AND JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1999 June 30, 1998
-------------- -------------
(as restated,
see Note 5)
ASSETS
<S> <C> <C>
Current assets:
Cash $445,768 $13,381,678
Accounts receivable - trade 17,018,594 3,307,873
Trade acceptance drafts receivable and other (net of deferred
income and allowance for doubtful accounts of $1,260,618 and
$461,700 at March 31, 1998 and $14,190 and $61,700 at
June 30, 1998 respectively) 22,740,488 8,957,506
Deferred income taxes and other assets 764,614 74,669
------------ ------------
Total current assets 40,969,464 25,721,726
------------ ------------
Property and equipment (net of accumulated depreciation and
amortization of $401,140 at March 31, 1998 and $293,519
at June 30, 1998) 793,889 374,679
Other assets 319,594 26,807
------------ ------------
Total Assets $42,082,947 $26,123,212
------------ ------------
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $9,073,638 $0
Accounts payable and customer reserves payable 6,623,200 3,195,691
Accrued expenses 67,890 17,439
Income taxes payable 169,949 285,441
------------ ------------
Total current liabilities 15,934,677 3,498,571
Other liabilities 20,170 31,721
------------ ------------
Total liabilities 15,954,847 3,530,292
------------ ------------
Shareholders' equity:
Common stock, $0001 par value; authorized
100,000,000 shares, issued, and outstanding
8,528,051 shares at March 31, 1999 and 8,541,051 shares at
June 30, 1998 856 854
Accumulated other comprehensive income 6,973 0
Additional paid-in capital 14,550,466 14,489,668
Retained earnings 12,022,161 8,102,398
Treasury stock at cost; 31,500 shares at March 31, 1999 (452,356) 0
------------ ------------
Total shareholders' equity 26,128,100 22,592,920
------------ ------------
Total Liabilities & Shareholders' Equity $42,082,947 $26,123,212
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
3
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
NINE AND THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Three months ended
March 31, March 31,
------------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
(as restated, (as restated,
see Note 5) see Note 5)
<S> <C> <C> <C> <C>
Gross Sales - Trade Acceptance Drafts $84,814,820 $40,143,813 $34,352,565 $15,337,639
Gross Sales - International Merchandise Trade 52,289,784 28,527,589 18,537,605 10,216,319
------------ ----------- ----------- -----------
Total Gross Sales $137,104,604 $68,671,402 $52,890,170 $25,553,958
============ =========== =========== ===========
Gross Sales - International Merchandise Trade $52,289,784 $28,527,589 $18,537,605 $10,216,319
Cost of Sales - International Merchandise Trade (47,260,014) (25,083,545) (16,588,198) (9,010,300)
------------ ----------- ----------- -----------
Gross Profit - International Merchandise Trade 5,029,770 3,444,044 1,949,407 1,206,019
Gross Profit- Trade Acceptance Drafts 3,986,622 2,409,192 1,566,022 887,801
------------ ----------- ----------- -----------
Total Gross Profit 9,016,392 5,853,236 3,515,429 2,093,820
General and Administrative Expenses (4,757,351) (2,544,461) (1,910,245) (955,388)
------------ ----------- ----------- -----------
Income from Operations 4,259,041 3,308,775 1,605,184 1,138,432
Other Income (Expenses):
Interest income 55,047 68,599 3,203 6,379
Interest expense (411,708) 13,990 (261,247) 25,749
Other income, net 0 30,508 0 21,073
---------- ---------- ---------- ----------
Net Income before Income Taxes 3,902,380 3,421,872 1,347,140 1,191,633
Provision for Income Taxes (Benefit) (17,383) 277,709 (25,461) 84,414
---------- ---------- ---------- ----------
Net Income $3,919,763 $3,144,163 $1,372,601 $1,107,219
============ =========== =========== ===========
Net Income per Common Share:
Basic $0.46 $0.39 $0.16 $0.13
============ =========== =========== ===========
Diluted $0.45 $0.35 $0.16 $0.12
============ =========== =========== ===========
Weighted Average Number of Shares Outstanding:
Basic 8,434,911 8,028,614 8,435,213 8,268,311
========= ========= ========= =========
Diluted 8,763,992 8,993,297 8,739,762 8,982,648
========= ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1999 and 1998
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-------------------------------------
1999 1998
(as restated,
see Note 5)
<S> <C> <C>
Cash flows from operating activities:
Net Income $3,919,763 $3,144,163
Adjustments to reconcile net income to cash used in
operating activities:
Depreciation and amortization 107,620 55,796
Deferred income 1,246,428 47,131
Changes in other operating assets and liabilities:
Accounts receivable - trade and trade acceptance drafts receivable
and other (28,685,102) (3,570,573)
Deferred income taxes and other assets (689,945) (53,473)
Other assets (292,787) 0
Accounts payable and customer reserves payable 3,427,509 (72,828)
Accrued expenses 2,395 (8,977)
Income taxes payable (115,492) 139,507
Other liabilities (11,551) (26,587)
----------- ----------
Net cash used in operating activities (21,091,162) (345,841)
Cash flows from investing activities:
Purchase of Property and equipment (526,830) (160,465)
---------- -----------
Net cash used in investing activities (526,830) (160,465)
Cash flows from financing activities:
Proceeds from issuance of common stock 60,800 1,201,213
Purchase of treasury stock (452,356) 0
Changes in short-term borrrowings 9,073,638 (1,019,392)
----------- ----------
Net cash provided by financing activities 8,682,082 181,821
----------- ----------
Net decrease in cash (12,935,910) (324,485)
Cash, beginning of period 13,381,678 7,352,465
----------- ----------
Cash, end of period $445,768 $7,027,980
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $951,017 $148,265
=========== ==========
Income taxes $669,908 $138,202
=========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included. The
results of operations for the nine months ended is not necessarily indicative of
the results to be expected for the full year. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report for the year ended June 30, 1998, included in its Annual
Report filed on Form 10-K.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant inter-company balances and transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principals 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 these estimates.
Certain prior period amounts have been reclassified to conform with the current
presentation.
6
<PAGE>
2. Net Income Per Share:
<TABLE>
<CAPTION>
Nine months ended
March 31,
---------------------------------------------------------------
1999 1998
------------------------------- -------------------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
<S> <C> <C> <C> <C>
Net income $3,919,763 $3,919,763 $3,144,163 $3,144,163
---------- ---------- ---------- ----------
Weighted average of
shares outstanding 8,434,911 8,434,911 8,028,614 8,028,614
Weighted average of
options outstanding 329,081 964,683
--------- ---------
Total equivalent shares 8,434,911 8,763,992 8,028,614 8,993,297
========= ========= ========= =========
Net income per common
share $0.46 $0.45 $0.39 $0.35
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------------------------------------------
1999 1998
------------------------------- -------------------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
<S> <C> <C> <C> <C>
Net income $1,372,601 $1,372,601 $1,107,219 $1,107,219
---------- ---------- ---------- ----------
Weighted average of
shares outstanding 8,435,213 8,435,213 8,268,311 8,268,311
Weighted average of
options outstanding 304,549 714,337
----------
Total equivalent shares 8,435,213 8,739,762 8,268,311 8,982,648
========== ========== ========== ==========
Net income per common
share $0.16 $0.16 $0.13 $0.12
===== ===== ===== =====
</TABLE>
7
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999
(Unaudited)
3. Common stock purchase warrants and options:
In the nine months ended March 31, 1999, 18,500 warrants were exercised at
prices ranging from $3.00 to $6.40, resulting in net proceeds to the Company of
$60,800 and the issuance of 18,500 common shares.
4. Asset-Backed Securitization Program
In March 1999, the Company entered into an asset-backed securitization program
with a financial institution for the sale of Trade Acceptance Draft ("TAD's") to
Actrade Funding, a wholly-owned subsidiary of the Company, for proceeds of up to
$25 million. The program qualifies for sale treatment under Statement of
Financial Accounting Standards No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, and the Company records
income (loss) from the subsidiary on the equity basis of accounting. 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 carrying value based on
relative fair value, are included in Trade Acceptance Drafts Receivable and
Other.
8
<PAGE>
5. Restated Financial Statements
Subsequent to the issuance of the Company's financial statements for the nine
months and three months ended March 31, 1999, the Company's management
determined that the revenue earned on Trade Acceptance Drafts transactions were
not recorded in the proper period and net income per share was not properly
calculated. As a result, the consolidated statement of financial position,
consolidated statement of operations and cash flows have been restated from the
amounts previously reported to reflect the proper revenue earned on TAD
transactions and the proper calculation of net income per share.
The following table represents the amounts as previously reported and as
restated:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31, 1999 March 31, 1999
----------------------------------- ------------------------------------
As Reported As Restated As Reported As Restated
<S> <C> <C> <C> <C>
Trade Acceptance Drafts Receivable, net
of deferred revenues and bad debt allowance $14,075,941 $22,740,488 $14,075,941 $22,740,488
Accounts receivable - trade 23,337,383 17,018,594 23,337,383 17,018,594
Trade Acceptance Drafts, on hand (*) 432,223 0 432,223 0
Interest only strip, net of amortization (*) 740,652 0 740,652 0
Retained interest in trade TADs (*) 2,432,701 0 2,432,701 0
Deferred income taxes and other assets 192,815 764,614 192,815 764,614
Other assets 320,394 319,594 320,394 319,594
Accounts payable and customer reserves 6,630,262 6,623,200 6,630,262 6,623,200
Accrued expenses 19,834 67,890 19,834 67,890
Accumulated other comprehensive income 0 6,973 0 6,973
Gross profit 10,864,285 9,016,392 4,186,136 3,515,429
Interest expense 951,017 411,708 479,933 261,247
Provision for income taxes 554,416 (17,383) 174,630 (25,461)
Net income $4,656,548 $3,919,763 $1,624,621 $1,372,601
Basic net income per share $0.54 $0.46 $0.19 $0.16
Diluted net income per share $0.54 $0.45 $0.19 $0.16
Basic weighted average shares 8,697,215 8,434,911 8,693,592 8,435,213
Diluted weighted average shares 8,697,215 8,763,992 8,693,592 8,739,762
</TABLE>
(*) Re-classed to Trade Acceptance Drafts Receivable
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
I. RESULTS OF OPERATIONS
- - GENERAL
During the first nine months of fiscal 1999, ended March 31, 1999, the Company
had combined gross sales of $137,104,604, as compared to $68,671,402 for the
first nine months of fiscal 1998, an increase of $68,433,202 or 99% above the
same period in fiscal 1998. Gross profits from operations were $9,016,392 for
the nine month period ended March 31, 1999, compared to $5,853,236 for the same
period in fiscal 1998, an increase of approximately 54%. After general and
administrative expenses of $4,757,351 income from operations increased to
$4,259,041, as compared to $3,471,030 for the same period last year, an increase
of 23%. After interest income and interest expense and provisions for income
taxes, the Company experienced net income of $3,919,763, as compared to
$3,144,163 for the first nine months of fiscal 1998 (an increase of 25%), or
$0.46 basic net income per share as compared to $0.39 basic net income per share
for the same period last year.
The substantial increase in gross sales during this period was primarily due to
the expansion of the Company's operations through (i) significantly increased
sales by Actrade Capital Inc. ("Capital"), including its recently formed
subsidiary Actrade Capital Canada, Inc. ("Canada"), through its TAD Program,
discussed separately below (see "III. IMPACT OF THE TRADE ACCEPTANCE DRAFT
PROGRAM AND THE OPERATIONS OF CAPITAL") and (ii) the increased sales by the
international merchandise trade division (International), which includes the
results of Actrade S.A and its subsidiary Actrade Resources, Inc. ("Resources")
and Actrade International Inc. Continuing the trend of recent periods, the major
portion of the Company's sales, over 62% at the end of the first nine months of
fiscal 1999 are now derived from Capital's TAD Program ($84,814,280). However,
apart from direct sales made by Capital in the US market, it is important to
consider the commencement of sales in the Canadian market by Canada (resulting
in gross sales of $436,539 for this period) related to TADs.
During the third quarter of fiscal 1999, the operations of International
contributed significantly to the Company's overall sales. Gross sales for the
nine months ended March 31, 1999 were $52,289,784 as compared to $28,527,589 for
the similar period of fiscal 1998.
- - THIRD QUARTER RESULTS
With respect to the three months ended March 31, 1999 the Company continued to
show substantial growth on a par with recent quarters. Gross sales reached
$52,890,170 (up $27,336,212 or 107% from the third quarter of fiscal 1998).
Gross profit climbed to $3,515,429 which represents an increase of $1,421,609 or
68% above the third quarter of fiscal 1998. Net earnings after interest income
and interest expense and allowances for income taxes reached $1,372,601 (an
increase of $265,382 or approximately 24% higher than the same period of fiscal
1998). Per share earnings for the third quarter of fiscal 1999, climbed to $0.16
basic net income per share (as compared to $0.13 basic net income per share for
the third quarter of fiscal 1998), a 23% increase.
10
<PAGE>
During the third quarter selling, general and administrative expenses continued
to escalate and reached $1,910,245 as compared to $955,388 for the same period
in fiscal 1998. However, when viewed as a percentage of gross sales; selling,
general and administrative expenses remained relatively unchanged with these
expenses representing 3.60% of total gross sales during the third quarter of
fiscal 1999, as compared to 3.74% during the same period last year. As
anticipated, the rise in overhead costs associated with the increase in sales
from the TAD program experienced in the first and second quarter of fiscal 1999
have leveled off. Management believes that its current infrastructure will not
require more significant expansion as a result of increased TAD processing for
the balance of fiscal 1999.
II. DISCUSSION OF FINANCIAL CONDITION
On a consolidated basis, at March 31, 1999 the Company had total assets of
$42,082,947, compared with $26,123,212 at the end of fiscal 1998, (an increase
of $15,959,735). Total current liabilities at March 31, 1999 increased to
$15,934,677, compared with $3,498,571 at June 30, 1998, (an increase of
$12,436,106). Of the Company's assets at March 31, 1999, $445,768 was in the
form of cash and cash equivalent (compared to $13,381,678 at June 30, 1998). The
decrease in cash and cash equivalent at March 31, 1999 reflects the ongoing
utilization of available cash by Capital in connection with its TAD Program. At
March 31, 1999 virtually all of the Company's available cash was invested in
TADs, therefore cash on hand at March 31, 1999 was low.
On March 4, 1999, Capital, through Actrade Funding Inc, concluded the
negotiation of a new, 5-year $25 Million credit facility with ING Barings (the
"ING facility"), which was an extension of the $10 Million interim facility
granted by ING. Under this facility, Capital periodically will sell TADs to
Actrade Funding, Inc., a new wholly owned subsidiary that, in turn, pledges the
TADs to ING under the ING facility. The Company pays a commitment fee on the
unused portion of the facility in addition to the fees payable with respect to
TADs sold under the facility. In connection with the ING facility, the Company
has adopted FAS 125 with respect to the accounting treatment for TADs sold in
this manner. The principal advantage of the ING facility for the Company has
been to increase its financing sources and reduce its cost of capital.
At March 31, 1999, total stockholders' equity increased to $26,128,100, 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 and the several credit facilities established by Capital with banks
and other financial institutions.
During the balance of the current fiscal year, ending June 30, 1999, the Company
projects no significant additional capital expenditures in connection with any
of the Company's operations except in connection with the continued expansion
its TAD program
At March 31, 1999 property and equipment, less accumulated depreciation,
increased to $793,889 (compared to $374,679 at June 30, 1998). Most of this is
due to the Company's establishment of new office facilities in New Jersey during
the third quarter. In addition, "other assets" at March 31, 1999 increased from
$26,807 to $319,594. The increase is due to costs associated with the
implementation of the ING credit line facility discussed above. These costs
11
<PAGE>
have been capitalized and are being amortized over a five-year period.
In connection with the Company's relocation during fiscal 1990, it received an
18-month rent abatement from its landlord. To conform to applicable accounting
procedures, the value of this abatement is being amortized over the life of the
lease. At March 31, 1999 the Company continued to show $20,170 in deferred rent
liability.
THE COMPANY'S ACCOUNTS PAYABLE ARE CURRENT.
At March 31, 1999, the Company had short-term borrowings of $7,032,369,
representing advances against Capital's credit line with BPA which is fully
secured by TADs sold to BPA but not yet collected. In addition, the Company has
short-term borrowings of $2,041,269 payable to Summit Bank which are also fully
secured by TADs pledged under a recently instituted credit facility.
At March 31, 1999, management continues to discuss the possible addition of new
credit facilities with several other major domestic and international financial
institutions. If these discussions come to fruition, of which there is no
assurance, these facilities will be available to finance the continued purchase
of TADs by Capital and Canada and for the trade financing activities of
International in much the same manner as the existing bank facilities.
Due to the Company's available cash being fully invested in TAD purchases during
this period, management elected to draw against its credit line. This election
contributed to the increase in interest expense from $148,265 in fiscal 1998 to
$411,708 in fiscal 1999, nine months ending.
With respect to the Company's working capital needs, management believes that
operating revenues from its subsidiaries will continue to reflect a profit, on a
consolidated basis, during the balance of fiscal 1999 and management expects
revenues will be adequate to meet the Company's operating cash needs for the
foreseeable future.
III. IMPACT OF THE TRADE ACCEPTANCE DRAFT PROGRAM AND THE OPERATIONS OF CAPITAL.
During the three months ended March 31, 1999, Capital's sales continued to
increase reaching $34,352,565 for the third quarter of fiscal 1999, as compared
to $15,337,639 for the third quarter of fiscal 1998 an increase of approximately
124%.
Capital's gross sales during the first nine months of fiscal 1999 totaled
$84,814,280 or approximately 62% of the Company's total revenues during this
period.
Perhaps equally important, during fiscal 1999 Canada commenced operations in
October 1998 although no sales were recorded until the third quarter of fiscal
1999. Canada had gross revenues of $436,539 and reflected a modest loss from
operations of $56,794. As had been the case in the United States, Canada's
market requires an education process to introduce the trade acceptance draft in
commercial transactions. Consequently, management has been greatly encouraged by
the operating results in Canada to date and expect acceptance of its program to
increase during the balance of fiscal 1999. However, no estimate can be made as
to the profit or loss that Canada will show by fiscal year end.
12
<PAGE>
With respect to Capital's expansion plan, based upon management's experience
with the TAD Program since its inception, management has determined to place its
primary emphasis on developing a domestic force of aggressive new sales
representatives with a solid background in sales and the experience to present
the TAD Program to large domestic and multi-national companies. Management has
also elected to change its marketing focus away from regional sales offices in
favor of fewer offices with nation-wide marketing efforts.
IV. TRENDS AFFECTING LIQUIDITY, CAPITAL RESOURCES AND OPERATIONS.
A. ACTRADE CAPITAL, INC.
With respect to the TAD Program, management has not identified any trends which
have had, or which can reasonably be expected in the future to have, any adverse
impact upon the operations of Capital or the TAD Program in general. As of the
date of this Report, management is not aware of any other company operating a
program similar to the TAD Program and, as demonstrated by Capital's growth rate
since the introduction of the TAD Program (see discussion above), Capital's
sales and gross profits continue to reach new record levels each quarter.
B. ACTRADE CANADA, INC.
During the first six months of operations, management has not identified any
specific trends which have had or that can reasonably be expected to have an
adverse impact upon the operations of Canada. However, as was the case in the
United States, management recognizes that an educational process will be
required in order to fully realize the potential of the Canadian market. Unlike
the US, however, Canada does not have the benefits of patent protection for the
Program being offered. Despite this, management believes that a substantial
market exists in Canada for this financial service and that the presence of
competition is not expected to adversely affect the ability of Canada to develop
profitable operations in the future.
C. Actrade International Corp. -- Export Division.
Over the past year, a number of factors have developed that have adversely
affected the export operations of Actrade International Corp. of the
international merchandise trade division. Among the external factors, perhaps
the most important has been the renewed strength of the American Dollar compared
to other currencies. This has had the effect of making American products too
expensive to compete with foreign-made products. Principally this is due to the
impact that reduced foreign labor costs have upon the price of competitive
merchandise.
In addition, the recent turmoil in the Asian and South American financial
markets has translated into a slow down in orders for American made products
from these market segments. This has adversely affected International's export
operations. Although International had been able to offset this negative trend
with increased orders from other markets around the world, certain events during
the third quarter have caused management to re-evaluate its existing export
operations.
13
<PAGE>
Principal among these events was the retirement of Mr. Leon Schorr in
mid-January 1999. Mr. Schorr, together with Mr. Woerner, was in charge of
International's export operations. Following Mr. Schorr's retirement
International agreed to the termination of its sale of air conditioning products
manufactured by Bard Manufacturing, who had been a major supplier of cooling
products in the telecommunications industry, a market developed by International
over the past several years. This was not unexpected given the fact that it had
been Mr. Schorr's personal relationship with Bard that led to International's
representation of its products overseas.
Although not material when considering the Company's revenues as a whole, the
loss of Bard as a supplier will have a significant adverse impact upon the
future operations of Actrade International Inc. Currently, management is
evaluating the feasibility of continuing Actrade International's remaining
export operations in light of the Company's priority in expanding Capital's TAD
Program and continuing the expansion of the international trade and finance
operations of Actrade S.A. and Resources.
D. ACTRADE S.A. AND ACTRADE RESOURCES LTD.: INTERNATIONAL MERCHANDISE TRADE
The operations of Actrade S.A. have been designed to compliment the Company's
export operations by providing foreign sources for products. Management believes
that by utilizing the foreign network available to Actrade S.A. as a source of
comparable, less expensive foreign made products, the Company will gain the
flexibility needed to meet changing product demands over the coming years and
adequately offset any decline in its export operations. These changing trends
have been the principal reason for the dramatic increase in sales revenues by
Actrade S.A.
As mentioned above, a result of changing world conditions has been a
significant, adverse impact on foreign markets for US products. Probably the
most important change management has identified has been the impact of the
availability of (or lack of) trade financing. In management's opinion, the real
"key" to success in international trading has become the ability to provide
trade financing in addition to competitive pricing for products.
Beginning in fiscal 1997, management decided that the time had arrived to change
the approach to its international trade and financing operations. Relying upon
the financial strength of the Company, Actrade S.A. utilized management's
expertise in financing to develop its international trade operations. By
providing to its international customers special, innovative financing in
connection with those trading activities, management believed that it could fill
the void created by increasing worldwide demand, thereby allowing it to capture
a larger share of the current international market.
In response to these conditions, Actrade S.A. recently established a wholly
owned subsidiary, Actrade Resources, Ltd. Although Resources is in every sense a
trading company that buys merchandise from suppliers and re-sells it to
commercial buyers, management has successfully adapted certain of the founding
concepts behind the TAD Program to the needs of foreign companies engaged in
international trade.
14
<PAGE>
The effects of this trend are evident in the Company's operating results for
both fiscal 1998 and during the current period. Sales by the international
merchandise trade division rose to $28,527,589 during fiscal 1998 and
$52,289,784 during fiscal 1999, for the first nine months ended.
With respect to the trading operations of the international merchandise trade
division, apart from proving management's assumption that as sales of US
products decrease, sales of foreign products will increase, these results also
point out another important factor. Worldwide demand for all types of products
is increasing, particularly where extended terms are offered to buyers.
However, management believes it is too early to predict whether the
extraordinary rise in sales revenues experienced by this division will continue.
At present, while product demand is high and the availability of trade financing
is low, Actrade S.A. and Resources enjoy a favorable position in the market. As
these factors stabilize and as trade financing becomes more readily available,
it is likely that this advantage will decrease.
Management knows of no other trends reasonably expected to have a material
impact upon the Company's operations or liquidity in the foreseeable future.
VI INFLATION.
During the past few years inflation in the United States has been relatively
stable which, coupled with the relative strength of foreign currencies discussed
above, has had a beneficial effect upon the Company's operations in that the
products it offers have been competitively priced in relation to comparable
foreign made products. Although the recent strength of the American dollar
abroad has served to diminished the demand for American products, in
management's opinion, the impact on its export sales is not expected to be
significant within 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.
VI. "YEAR 2000" COMPLIANCE.
The Year 2000 issue is the result of computer programs being written using two
digits, rather than four to define the applicable year. Any of the Company's
computer programs that have data-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based upon an assessment made during fiscal 1998, the Company is currently
updating all versions of operations and financial software so that all of its
systems will utilize dates beyond December 31, 1999 properly. This updating is
being performed by independent consultants retained by the Company for this
purpose and is expected to cost approximately $150,000. In addition, the Company
has evaluated all of its auxiliary computer application systems for Year 2000
compliance and believes that the planned modifications and conversions will
allow it to mitigate the Year 2000 issue.
15
<PAGE>
The Company has had communications with its significant suppliers, financial
institutions and major customers to determine the extent to which it may be
vulnerable to any third parties' failure to remediate their own Year 2000
issues. The financial impact to the Company of bringing its equipment and
systems into Year 2000 compliance is not anticipated to be material to its
financial position or results of operations.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
None during this period.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 10, 1999
ACTRADE INTERNATIONAL, LTD.
BY: /s/Alexander C. Stonkus
-------------------------------------------
Chief Operating Officer and Chief
Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1999
<PERIOD-START> JAN-01-1999 AUG-01-1999
<PERIOD-END> MAR-01-1999 MAR-31-1999
<CASH> 445,768 445,768
<SECURITIES> 0 0
<RECEIVABLES> 39,759,082 39,759,082
<ALLOWANCES> (1,722,318) (1,722,318)
<INVENTORY> 0 0
<CURRENT-ASSETS> 40,969,464 40,969,464
<PP&E> 1,195,029 1,195,029
<DEPRECIATION> (401,140) (401,140)
<TOTAL-ASSETS> 42,082,947 42,082,947
<CURRENT-LIABILITIES> 15,954,847 15,954,847
<BONDS> 0 0
<COMMON> 856 856
0 0
0 0
<OTHER-SE> 26,127,244 26,127,244
<TOTAL-LIABILITY-AND-EQUITY> 42,082,947 42,082,947
<SALES> 137,104,604 137,104,604
<TOTAL-REVENUES> 0 0
<CGS> 128,088,212 128,088,212
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,910,245 4,757,351
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 258,044 356,661
<INCOME-PRETAX> 1,347,140 3,902,380
<INCOME-TAX> (25,461) (17,383)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,372,601 3,919,763
<EPS-BASIC> .16 .46
<EPS-DILUTED> .16 .45
</TABLE>
