<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 September 30, 1998
Commission File Number 0-18711
ACTRADE INTERNATIONAL, LTD.
(Exact name of Registrant as specified in its Charter)
Delaware 13-3437739
(State or other Jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
7 Penn Plaza, Suite 422, New York, N.Y. 10001
(Address of principal executive offices) (Zip Code)
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 October 25, 1998 there
were outstanding 8,549,051 shares of Common Stock, par value $.0001.
1
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Condensed consolidated financial statements (restated):
Consolidated balance sheets as of September 30, 1998 and June 30, 1998 3
Consolidated statement of operations for the three months
ended September 30, 1998 and 1997 4
Consolidated statements of cash flows for the three months
ended September 30, 1998 and 1997 5
Notes to consolidated financial statements 6-7
Item 2. Management's discussion and analysis of financial condition
and results of operations 8-11
PART II. OTHER INFORMATION
Exhibits and reports on Form 8-K 11
Signatures 12
</TABLE>
2
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ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, 1998 June 30, 1998
------------------ -------------
As Restated, see Note 4
<S> <C> <C>
Current assets:
Cash $ 743,579 $ 13,381,678
Accounts receivable - trade 9,687,694 3,307,873
Trade acceptance drafts receivable and other (net of deferred income
and allowance for doubtful accounts of $579,700 and $111,700 at
September 30, 1998 and $14,190 and $61,700 at June 30, 1998
respectively) 19,241,754 8,957,506
Deferred income taxes and other assets 401,451 74,669
------------ ------------
Total current assets 30,074,478 25,721,726
Property and equipment (net of accumulated depreciation
and amortization of $318,066 at September 30, 1998 and $293,519
at June 30, 1998) 381,031 374,679
Other assets 39,388 26,807
------------ ------------
Total assets $ 30,494,897 $ 26,123,212
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 2,743,706 $ 0
Accounts payable and customer reserves payable 4,324,176 3,195,691
Accrued expenses 61,927 17,439
Income taxes payable 40,744 285,441
------------ ------------
Total current liabilities 7,170,553 3,498,571
Other liabilities 27,907 31,721
------------ ------------
Total liabilities 7,198,460 3,530,292
------------ ------------
Shareholders' equity:
Common stock, $0001 par value; authorized
100,000,000 shares, issued, and outstanding
8,519,551 at September 30, 1998 and 8,541,051 at
June 30, 1998 855 854
Additional paid-in capital 14,514,348 14,489,668
Other comprehensive income-foreign translation 109 0
Retained earnings 9,233,481 8,102,398
Treasury stock at cost, 31,500 shares at September 30, 1998 (452,356) 0
------------ ------------
Total shareholders' equity 23,296,437 22,592,920
------------ ------------
Total Liabilities & Shareholders' Equity $ 30,494,897 $ 26,123,212
============ ============
</TABLE>
See note to consolidated financial statements.
3
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------
September 30, 1998 September 30, 1997
------------------ ------------------
As Restated, See Note 4
<S> <C> <C>
Gross Sales - Trade Acceptance Drafts $ 22,306,043 $ 11,505,082
Gross Sales - International Merchandise Trade 15,844,893 8,496,503
------------ ------------
Total Gross Sales $ 38,150,936 $ 20,001,585
============ ============
Gross Sales - International Merchandise Trade $ 15,844,893 $ 8,496,503
Cost of Sales - International Merchandise Trade (14,338,035) (7,489,923)
------------ ------------
Gross Profit- International Merchandise Trade 1,506,858 1,006,580
Gross profit -Trade Acceptance Drafts 785,933 700,759
------------ ------------
Total Gross Profit 2,292,791 1,707,339
General and Administrative Expenses (1,251,644) (686,067)
------------ ------------
Income from Operations 1,041,147 1,021,272
Other Income (Expenses):
Interest income 45,665 50,368
Interest expense (51,330) (4,484)
Other income, net 0 9,436
Income before Provision for Income Taxes 1,035,482 1,076,592
Provision for Income Taxes 95,601 123,737
------------ ------------
Net Income $ 1,131,083 $ 952,855
------------ ------------
Net Income per Common Share:
Basic $ 0.13 $ 0.12
------------ ------------
Diluted $ 0.13 $ 0.11
------------ ------------
Weighted Average Number of Shares Outstanding:
Basic 8,436,849 7,670,059
============ ============
Diluted 8,790,959 8,886,843
============ ============
</TABLE>
4
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------
September 30, 1998 September 30, 1997
As Restated, See Note 4
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 1,131,083 $ 952,855
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization 24,537 15,106
Deferred income 565,510 0
Changes in other operating assets and liabilities:
Accounts receivable - trade and trade acceptance
drafts receivable, and other (17,229,579) (6,681,129)
Deferred income taxes and other assets (326,782) (28,360)
Other assets (12,472) (6,000)
Accounts payable and customer reserves payable 1,128,485 1,267,534
Accrued expenses 44,488 (8,741)
Income taxes payable (244,697) 40,204
Other liabilities (3,814) (29,840)
----------- ----------
Net cash used in operating activities (14,923,241) (4,478,371)
----------- ----------
Cash flows from investing activities:
Purchase of Property and equipment (30,889) (25,621)
----------- ----------
Net cash used in investing activities (30,889) (25,621)
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock 24,681 755,213
Purchase of treasury stock (452,356) 0
Change in short-term borrowings 2,743,706 (679,577)
----------- ----------
Net cash provided by financing activities 2,316,031 75,636
----------- ----------
Net decrease in cash (12,638,099) (4,428,356)
Cash, beginning of period 13,381,678 7,352,465
----------- ----------
Cash, end of period $ 743,579 $ 2,924,109
----------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the period
Interest $ 180,446 $ 4,484
----------- ----------
Income taxes $ 346,462 $ 88,946
----------- ----------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1998
(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 three 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
Annual Report of Actrade International, Ltd. and subsidiaries (the "Company") on
Form 10-K for the year ended June 30, 1998.
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.
2. Net Income Per Share
Net income per common share has been computed as follows:
<TABLE>
<CAPTION>
Three months ended
September September
1998 1997
-----------------------------------------------------------------------------
Basic Diluted Basic Diluted
<S> <C> <C> <C> <C>
Net income $ 1,131,083 $ 1,131,083 $ 952,855 $ 952,855
----------- ----------- ---------- ----------
Weighted average of shares
outstanding 8,436,849 8,436,849 7,670,059 7,670,059
Weighted average of
options outstanding -- 354,110 -- 1,216,784
----------- ----------- ---------- ----------
Total equivalent shares 8,436,849 8,790,959 7,630,059 8,886,843
----------- ----------- ---------- ----------
Net income per
common share $ 0.13 $ 0.13 $ 0.12 $ 0.11
========== ========== ========== ==========
</TABLE>
6
<PAGE>
F-6
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
3. Common Stock and Stock Options
In the quarter ended September 30, 1998, 8,000 warrants were exercised at prices
ranging from $3.00 to $5.00, resulting in net proceeds to the Company of $24,680
and the issuance of 8,000 common shares.
4. Restated Financial Statements
Subsequent to the issuance of the Company's financial statements for the three
months ending September 30, 1998, 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>
As Reported As Restated
<S> <C> <C>
Trade Acceptance Drafts Receivable - net
of deferred revenues and bad debt allowance $12,257,246 $19,241,754
Accounts receivable- trade $16,111,902 $9,687,694
Trade Acceptance Drafts, on hand $1,140,000 $0
Deferred income taxes and other assets $0 $401,451
Accrued expenses $24,031 $61,927
Gross profit $2,930,089 $2,292,791
Interest expense $189,506 $51,330
Provision for income taxes $141,376 ($95,601)
Basic earnings per share $0.16 $0.13
Diluted earnings per share $0.16 $0.13
Basic weighted average shares 8,695,254 8,436,849
Diluted weighted average shares 8,695,254 8,790,959
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL: This Amendment is being filed to reflect certain changes made in the
presentation of financial information by the Company and to conform the
discussion contained herein to such restated information.
I. RESULTS OF OPERATIONS
During the first three months of fiscal 1999, ended September 30, 1998, the
Company had combined gross sales of $38,150,936, as compared to $20,001,585 for
the first three months of fiscal 1998, an increase of $18,149,351 or almost 91%.
Gross profit reached $2,292,791 for the three month period ended September 30,
1998, compared to $1,707,339 for the same period in fiscal 1998, an increase of
$585,452 (or approximately 34% higher). After general and administrative
expenses of $1,251,644, income from operations increased slightly to $1,041,147,
as compared to $1,021,272 for the same period last year. After interest income
and expenses and provisions for income taxes, the Company experienced net income
of $1,131,083, as compared to $952,855 for the first three months of fiscal 1998
(an increase of 19%), or $0.13 per share, diluted, as compared to $0.11 per
share, diluted, for the same period last year.
The increase in gross sales during this period continues to be due primarily to
the expansion of Actrade's operations through (i) the continued growth of
Capital's TAD Program, discussed separately below (see "III. IMPACT OF TRADE
ACCEPTANCE DRAFT PROGRAM AND THE OPERATIONS OF CAPITAL"), and (ii) the continued
growth within Actrade's existing product lines, in particular with the
operations of Actrade S.A. As was the case during past periods, the increase in
gross sales during this period resulted from increased product sales rather than
from price increases for the Company's products and increased gross sales
derived from Capital's operations.
Continuing the trend first established at the end of the first quarter of fiscal
1998, the major portion of the Company's gross sales, almost 58.5% at the end of
the first three months of fiscal 1999, are now generated by Capital's TAD
Program ($22,306,043 during the first quarter of fiscal 1999), with the
international trading division, accounting for slightly over 41% ($15,844,893)
of total gross sales for this period.
II. DISCUSSION OF FINANCIAL CONDITION
On a consolidated basis, at September 30, 1998 the Company had total current
assets of $30,074,478, compared with $25,721,726 at June 30, 1998, the end of
fiscal 1998, (an increase of $4,352,752 or 16.9%). Total current liabilities at
September 30, 1998 increased to $7,170,553, compared with $3,498,571 at June 30,
1998, (an increase of $3,671,982 or approximately 105%). The major component of
this increase in current liabilities is "short term borrowings", which
represents Capital's utilization of its credit facilities, and increases in
accounts payable and customer reserves payable.
With respect to the cash and cash equivalent component of the Company's assets,
the decrease of $12,638,099 during the period was due to a combination of (i)
the ongoing utilization of available cash by both Capital and the Company's
export division in the ordinary course of business, resulting in increased
accounts receivable-trade at September 30, 1998 ($9,687,694 as compared to
$3,307,873); (ii) the increase in TAD Receivables net of deferred income and
allowance for doubtful accounts from $8,957,506 at June 30, 1998 to $19,241,754
at September 30, 1998.
8
<PAGE>
The substantial increase in the Company's trade accounts receivable during the
first quarter is, in significant part, due to the activities of the
international merchandise trade division.
Other significant changes in the components of the Company's balance sheet at
September 30, 1998 as compared to June 30, 1998, included (i) a decrease of
income taxes payable, resulting from the payment of the Company's year-end tax
liability; (ii) an increase of $565,510 in deferred income and (iii) an increase
of $452,356 in common stock held in treasury, which represents shares
repurchased by the Company in the open market.
At September 30, 1998, total stockholders' equity increased to $23,296,437, 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.
The Company expects to continue to incur significant capital expenditures in
connection with the expansion of the TAD Program of Capital and the continued
implementation and expansion of the international merchandise trade by
Resources. Consequently, no estimate can be made at this time of the potential
impact, either positive or negative, that these expansion efforts will have upon
revenues or profits during fiscal 1999.
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, and management expects revenues and cash flow will be
adequate to meet the Company's operating needs for the foreseeable future.
III. IMPACT OF THE TRADE ACCEPTANCE DRAFT PROGRAM AND THE OPERATIONS OF CAPITAL.
Since fiscal 1994, the first full year of operations for the TAD Program,
Capital's gross TADs transacted have increased significantly. This growth
continues today with Capital's gross sales during the first quarter of fiscal
1999 climbing to $22,306,043, or approximately 58.5% of the Company's total
sales during this period, as compared to total sales of $11,505,082, or
approximately 57.5% of total sales, during the first quarter of fiscal 1998.
During this period gross profit on TADs transacted increased to $785,933,
compared to $700,759 for the first quarter of fiscal 1998. This represents an
increase of approximately 12%.
As a result of the increase in the volume of TADs transacted, general and
administrative expenses increased over 82% as compared to the first quarter of
fiscal 1998. This increase had been expected as a natural result of the growth
of the TAD Program.
With respect to Capital's expansion plans, based upon management's experience
with the TAD Program to date, Capital will continue to place its primary
emphasis on development of a domestic force of aggressive new sales
representatives with a solid background in sales and with the experience and
ability to present the TAD Program to large domestic and multi-national
companies.
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
9
<PAGE>
Program in general. As of the date of this Report, management is not aware of
any company operating a program similar to the TAD Program. As demonstrated by
Capital's growth since introduction of the TAD Program (see discussion above),
Capital's sales and profits have reach new record levels each quarter since the
Program was first introduced.
B. ACTRADE INTERNATIONAL CORP. -- EXPORT DIVISION.
Over the years, economic conditions in the United States have caused American
manufacturers to seek new markets for their products and, in particular, to turn
to foreign markets to boost domestic sales. Management believes that over the
past several years this trend, coupled with renewed demand for American products
and improved buying power of foreign currencies, has been beneficial to the
Company's export division and has been a major factor in the growth of this
division.
This trend is now being affected by a number of factors that could adversely
affect future growth rates for the Company's export operations. Most importantly
among these has been the renewed strength of the American Dollar compared to
other currencies which 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, recent turmoil in the Asian and Eastern European financial markets
is expected to translate into a slow down in orders for American made products
in these regions which is expected to adversely affect the Company's export
division. However, to date, the Company has been able to offset this negative
trend with increased orders from other markets around the world, although no
assurance can be given as to future results, particularly if the crisis in the
Asian and Eastern European markets continue.
C. ACTRADE S.A. -- INTERNATIONAL TRADE DIVISION.
The operations of Actrade S.A. were originally designed to compliment the
Company's export operations by providing foreign sources for products.
Management believes that the network of suppliers established by Actrade S.A.
provides a source of comparable, less expensive foreign made products.
Management believes that Actrade S.A. has 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 increase in sales by the international merchandise trade division.
The effect of this trend is evident in the Company's operating results for both
fiscal 1998 and during the current period. Sales by the international
merchandise trade division during the first quarter of fiscal 1999 were
$15,844,893 as compared to $8,496,503 during the same period in fiscal 1998, an
increase of over 86%. Management cannot predict whether the extraordinary rise
in sales revenues experienced by the international merchandise trade division
over the past few years will continue.
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
10
<PAGE>
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.
VII. "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. 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.
The Company also plans to initiate formal communications with all of its
significant suppliers, financial institutions and major customers to determine
the extent to which the Company may be vulnerable to any third parties' failure
to remediate their own Year 2000 issues. The financial impact to the Company of
bringing its equipment and systems into Year 2000 compliance is not anticipated
to be material to its financial position or results of operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
None during this period.
11
<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: November 11, 1999
ACTRADE INTERNATIONAL, LTD.
BY: /s/Alexander C. Stonkus
------------------------------------
Chief Operating Officer and Chief
Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 743,579
<SECURITIES> 0
<RECEIVABLES> 29,620,848
<ALLOWANCES> 111,700
<INVENTORY> 0
<CURRENT-ASSETS> 30,074,478
<PP&E> 699,097
<DEPRECIATION> 318,066
<TOTAL-ASSETS> 30,494,897
<CURRENT-LIABILITIES> 7,170,553
<BONDS> 0
<COMMON> 855
0
0
<OTHER-SE> 23,295,582
<TOTAL-LIABILITY-AND-EQUITY> 30,494,897
<SALES> 38,150,936
<TOTAL-REVENUES> 38,150,936
<CGS> 27,858,145
<TOTAL-COSTS> 1,251,644
<OTHER-EXPENSES> 5,665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,330
<INCOME-PRETAX> 1,035,482
<INCOME-TAX> 95,601
<INCOME-CONTINUING> 1,131,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,131,083
<EPS-BASIC> $.13
<EPS-DILUTED> $.13
</TABLE>
