INDEX
Part I. Financial information
Item 1. Condensed consolidated financial statements:
Balance sheet as of December 31, 1998 and
June 30, 1998 F-2
Statement of operations for the six and three
months ended December 31, 1998 and 1997 F-3
Statement of cash flows for the six months
ended December 31, 1998 and 1997 F-4
Notes to condensed consolidated financial
statements F-5 - F-10
Item 2. Management's discussion and analysis of financial
condition
Part II. Other information
Exhibits and reports on Form 8-K
Signatures
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
December 31, June 30,
1998 1998
Current assets:
Cash $ 1,827,387 $13,381,678
Trade acceptance draft receivable, bank 14,266,234 1,248,368
Accounts receivable, less allowance for
doubtful accounts of $350,000 and $61,700
at December 31, 1998 and June 30, 1998,
respectively 14,825,300 11,031,201
Trade acceptance drafts, on hand 6,286,823
Prepaid expenses 202,498 74,669
----------- -----------
Total current assets 37,408,242 25,735,916
----------- -----------
Property and equipment:
Furniture and fixtures 671,606 524,282
Leasehold improvements 143,916 143,916
----------- -----------
815,522 668,198
Less accumulated depreciation 349,350 293,519
----------- -----------
466,172 374,679
----------- -----------
Other assets:
Patent right 1 1
Security deposit 30,287 26,806
----------- -----------
30,288 26,807
----------- -----------
$37,904,702 $26,137,402
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash advance from bank $ 7,718,079
Accounts payable and customer reserves
payable 4,503,350 $ 3,195,691
Accrued expenses 11,086 17,439
Deferred income 102,083 14,190
Income taxes payable 312,719 285,441
----------- -----------
Total current liabilities 12,647,317 3,512,761
----------- -----------
Commitments
Deferred rent liability 24,094 31,721
----------- -----------
Shareholders' equity:
Common stock, $.0001 par value, authorized 100,000,000 shares issued and
outstanding 8,559,551 at December 31, 1998 and 8,541,051
at June 30, 1998 856 854
Common stock purchase warrants
Additional Paid in capital 14,550,466 14,489,668
Retained earnings 11,134,325 8,102,398
----------- -----------
25,685,647 22,592,920
Common stock held in treasury, 31,500 shares ( 452,356)
----------- -----------
25,233,291 22,592,920
$37,904,702 $26,137,402
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX AND THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Six months ended Three months ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
Net sales $84,214,434 $43,117,444 $46,063,498 $23,115,859
Cost of sales 77,536,285 39,307,247 42,315,438 21,013,001
----------- ----------- ----------- -----------
Gross profit 6,678,149 3,810,197 3,748,060 2,102,858
Selling, general and
administrative
expenses 2,847,196 1,589,073 1,595,552 903,006
----------- ----------- ----------- -----------
Income from operations 3,830,953 2,221,124 2,152,508 1,199,852
----------- ----------- ----------- -----------
Other income (charges):
Interest income 51,844 62,220 6,179 11,852
Interest expense ( 471,084) ( 62,540) ( 281,578) ( 58,056)
Miscellaneous income 9,435
----------- ----------- ----------- -----------
( 419,240) 9,115 ( 275,399) ( 46,204)
----------- ----------- ----------- -----------
Income before income
taxes 3,411,713 2,230,239 1,877,109 1,153,648
Income tax expense 379,786 193,292 238,410 69,555
----------- ----------- ----------- -----------
Net income $ 3,031,927 $ 2,036,947 $ 1,638,699 $ 1,084,093
=========== =========== =========== ===========
Earnings per common
share:
Primary $ .35 $ .24 $ 0.19 $ 0.13
=========== =========== =========== ===========
Fully diluted $ .35 $ .24 $ 0.19 $ 0.13
=========== =========== =========== ===========
Weighted average common shares outstanding:
Primary 8,702,932 8,434,256 8,693,592 8,615,574
=========== =========== =========== ===========
Fully diluted 8,702,932 8,434,256 8,693,592 8,615,574
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements
F-3
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, December 31,
1998 1997
Operating activities:
Net income $ 3,031,927 $ 2,036,947
Adjustments to reconcile net income to
cash provided from operating activities:
Depreciation 55,831 34,182
Changes in assets and liabilities:
Accounts, bank and trade acceptances
receivable ( 16,811,965) ( 7,025,714)
Prepaid expenses ( 127,829) ( 3,893)
Inventory, trade acceptance drafts ( 6,286,823)
Accounts payable 1,307,659 660
Accrued expenses ( 6,353) 25,804
Deferred income 87,893
Income taxes payable 27,278 106,639
Deferred rent ( 7,627) ( 6,508)
Security deposits ( 3,481) ( 8,800)
Customer deposits ( 26,587)
----------- -----------
Net cash used in operating activities ( 18,733,490) ( 4,867,270)
----------- -----------
Investing activities:
Purchase of treasury stock ( 452,356)
Property and equipment ( 147,324) ( 104,948)
----------- -----------
Net cash used in investing activities ( 599,680) ( 104,948)
----------- -----------
Financing activities:
Proceeds from issuance of common stock 60,800 1,171,213
Cash advances from bank 7,718,079 ( 1,019,392)
----------- -----------
Net cash provided by financing activities 7,778,879 151,821
----------- -----------
Net decrease in cash ( 11,554,291) ( 4,820,397)
Cash, beginning of period 13,381,678 7,352,465
----------- -----------
Cash, end of period $ 1,827,387 $ 2,532,068
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 462,024 $ 62,540
=========== ===========
Income taxes $ 346,462 $ 101,446
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
F-4
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998
(Unaudited)
1. 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 Company's annual report for the year ended
June 30, 1998, included in its Annual Report filed on Form 10-K. All reference
to Actrade in these footnotes, relate to Actrade International, Ltd., the
Company's wholly owned subsidiaries.
2. Organization of the Company:
The Company was incorporated in the State of Delaware on April 3, 1987.
Actrade Capital, Inc. a wholly owned subsidiary of Actrade International, Ltd.,
was incorporated in Delaware in May of 1991. Actrade Capital, Inc. offers
alternatives to existing accounts receivable management to domestic companies.
Actrade International Corp., a New York corporation, was incorporated on July
18, 1985. Actrade represents various U. S. manufacturers and distributors by
buying and exporting their products overseas. Actrade South America, Inc. a
wholly owned foreign corporation and subsidiary of Actrade International, Corp.,
was incorporated in Antigua and Bahamas on February 12, 1988 and was acquired in
January 1990. On August 14, 1997, TAD International Ltd. and on May 29, 1998,
Actrade Forfaiting, Inc. were incorporated under the laws of the Commonwealth of
the Bahamas. Both Companies are wholly owned subsidiaries of Actrade South
America, Inc. TAD International, Ltd. has been inactive since inception. Actrade
Forfaiting, Inc. deals with trade acceptance drafts (TAD's) on the foreign
market and began operations in June of 1998. In October 1998, Actrade
Forfaiting, Inc. changed its name to Actrade Resources, Inc. In July of 1998,
Actrade Capital Canada, Ltd. was incorporated under the laws of Canada. The
Company is a wholly owned subsidiary of Actrade Forfaiting, Inc. and deals with
trade acceptance drafts (TAD's) on the Canadian market, beginning operations in
October of 1998.
F-5
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998
(Unaudited)
3. Principles of consolidation:
The consolidated financial statements of Actrade International, Ltd. and
subsidiaries include the accounts of all significant wholly owned subsidiaries,
after elimination of all significant intercompany transactions and accounts. The
accounts of Actrade South America, a foreign corporation, Actrade International
Corp. and Actrade Capital, Inc. are included as the subsidiaries of Actrade
International, Ltd. Actrade Resources, Inc. (formerly Actrade Forfaiting, Inc.)
and TAD International, Ltd. are included as subsidiaries of Actrade South
America. Actrade Capital Canada, Ltd. is included as a subsidiary of Actrade
Forfaiting, Inc.
4. Risks and uncertainties:
With respect to Actrade Capital, Inc. and its TAD Program, the Company
faces strong competition from many established financial institutions, including
banks, insurance companies and receivables financing (factoring) companies.
Actrade Capital, Inc.'s TAD Program (see Note 8) is based upon the introduction
of a Trade Acceptance Draft (TAD). There is no assurance that management will be
successful in either gaining the necessary market acceptance for the TAD Program
or in securing adequate additional capital to expand to its full commercial
potential.
A portion of the Company's sales are in foreign markets. There is no
guarantee that the foreign market will continue to develop since the
incorporation of foreign and domestic government intervention, economic
conditions world wide and any other unforeseen situations may occur.
5. Related party transactions:
During each of the three years ended December 31, 1998, the Company and its
subsidiaries have advanced and received funds to and from related parties. Such
receivable and payables are non-interest bearing and are due on demand.
The Company has entered into several employment agreements with its
officers.
F-6
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998
(Unaudited)
6. Leases:
Monthly
Location Term Payment
New York 03/01/90 to 03/31/00 $5,715.58 to $6,241.58
New York 11/01/98 to 03/31/99 5,131.38
New York 04/01/97 to 03/31/00 1,628.63 to 1,716.28
Illinois 11/01/97 to 10/31/00 2,502.00 to 2,576.00
Florida 12/25/97 to 12/25/98 1,223.75
California 11/20/98 to 11/30/99 1,448.00
Georgia 09/01/98 to 08/31/01 3,274.38 to 3,474.20
Israel month to month 500.00 to 1,100.00
Bahamas month to month 500.00
Canada 11/01/98 to 10/31/01 2,260.00
Future minimum lease payments required under the non cancelable operating
leases by fiscal year are as follows:
December 31, 1999 $198,767
December 31, 2000 93,637
December 31, 2001 27,794
--------
$320,198
========
Rent expense amounted to $133,970 and $79,165 for 1998 and 1997,
respectively.
7. Income taxes:
The components of income tax expense are:
1998 1997
---- ----
Income taxes currently payable:
Federal $218,280 $129,095
State 150,386 67,197
-------- --------
368,666 196,292
-------- --------
Deferred tax expense arising from:
Excess of Financial accounting
depreciation over tax ( 5,829) ( 2,024)
Other 16,949 ( 976)
-------- --------
11,120 ( 3,000)
-------- --------
Total income tax expense $379,786 $193,292
======== ========
F-7
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998
(Unaudited)
7. Income taxes (continued):
Deferred income tax provisions resulting from differences between accounting
for financial statement purposes and accounting for tax purposes are
reflected above.
A reconciliation of income tax expense at the statutory rate to income tax
expenses at the Company's effective rate is as follows:
1998 1997
---- ----
Computed tax at the expected
statutory rate $1,159,982 $843,587
Surtax exemption ( 16,750) ( 16,750)
State income taxes 150,386 67,197
Foreign income ( 924,952) ( 697,742)
Other 11,120 ( 3,000)
---------- --------
Income tax expense $ 379,786 $193,292
========== ========
The effective statutory rate for 1998 was 34% for federal tax purposes.
The Company has made adjustments to eliminate the tax provisions for
foreign earnings since said earnings are undistributed and will be permanently
invested. The cumulative amounts of foreign undistributed earnings are
$10,325,063 at December 31, 1998 and $5,548,539 at December 31, 1997.
The Company has adopted SFAS 109 for the fiscal year beginning July 1,
1993. SFAS 109 changes accounting for income taxes from the deferred method,
required by APB-11 to the asset/liability method, commonly referred to as the
liability method. The deferred method places primary emphasis on the matching of
revenues and expenses. The liability method places primary emphasis on the
valuation of current and deferred tax assets and liabilities.
F-8
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998
(Unaudited)
8. Trade Acceptance Drafts receivable, bank:
As of December 31, 1998, the Company had total TAD amounts due from banks of
$14,103,410. The bank purchases the TAD's at the face value and advances these
amounts to Actrade. The bank purchases the TAD's without recourse and the
Company has granted a security interest in all TAD's purchased by the bank and
all accounts represented by the TAD's together with all proceeds of the above.
The bank will purchase each TAD from Actrade that has been assigned and
delivered, whereby providing financing in an overdraft or loan agreement. At
December 31, 1998 there were advances of $7,718,079 on the overdraft. As each
TAD is collateralized, the face amount will be credited to the Actrade account
to reduce the advance overdraft. Interest is payable at 1% over prime per annum
on the first day of each month.
As of December 31, 1998, the Company had sold TAD's to a banking institution
in the amount of $162,824. This amount was due from the bank at December 31,
1998 and collected in January.
As of December 31, 1998, Actrade Capital, Inc. has recorded in income all
TAD's issued with a 90 day expiration date. Any TAD's issued for over 90 days
have been recorded with deferred income at December 31, 1998 amounting to
$102,083.
9. Reconciliation of shares used in computation of earnings per share:
Six and three months ended
December 31,
1998 1997
---- ----
Weighted average of shares
actually outstanding 8,531,963 8,531,823 8,076,470 8,257,788
Common stock purchase
warrants and options 170,969 161,769 357,786 357,786
--------- --------- --------- ---------
Primary and fully diluted
weighted average common
shares outstanding 8,702,932 8,693,592 8,434,256 8,615,574
========= ========= ========= =========
F-9
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998
(Unaudited)
10. Common stock purchase warrants and options:
In the six months ended December 31, 1998, 18,500 warrants were exercised
at prices ranging from $3.00 to $6.40, resulting in net proceeds to the Company
of $76,000 and the issuance of 18,500 common shares.
In the quarter ended December 31, 1998, the Company refunded an overpayment
from the exercise of certain warrants in June of 1998. This refund amounted to
$15,200.
In October 1995, the FASB issued Statement 123, Accounting for Stock-based
Compensation (SFAS 123). This statement is effective for transactions that are
entered into in fiscal years beginning after December 15, 1995. SFAS 123
establishes a fair value-based method of accounting for employee stock options.
This method provides for compensation cost to be charged to results of
operations at the grant date. However, the statement allows companies to
continue to follow the accounting treatment prescribed by Accounting Principles
Board Opinion 25. Opinion 25 generally requires compensation cost to be
recognized only for the excess of the quoted market price at the grant date over
the price that an employee must pay to acquire stock. Companies electing to
continue with Opinion 25 must make disclosure of net income as if SFAS 123 had
been adopted.
The Company has determined the method of accounting that it will follow for
stock options by continuing the use of Opinion 25. However, the Company does not
expect that adoption of the requirements of SFAS 123 would have a material
impact on the financial position, results of operations or cash flows.
Accordingly, no compensation cost will be recognized in 1998.
11. Patent rights:
In January 1998, Amos Aharoni assigned to the Company all patent rights for
the trade acceptance draft process for $1.
F-10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
I. Results of Operations
During the first six months of fiscal 1999, ended December 31, 1999, the Company
had combined gross sales of $84,214,434, compared with $43,117,444 for the first
six months of fiscal 1998, an increase of more than 95%. During this period,
cost of sales totaled $77,536,285 (or 92% of total sales), as compared to
$39,307,247 for the same period last year (or slightly over 91% of total sales).
The continued increase in cost of sales as a percentage of total sales results
from the fact that profit margins experienced by Actrade Capital, Inc.
("Capital") are lower than the margins associated with the Company's
international trade operations. As sales from Capital's Trade Acceptance Draft
Program (the "TAD Program") increase as a percentage of overall sales, the
Company's overall profit margins will continue to decrease.
In the first half of fiscal 1999, a majority of the Company's sales were
generated by Capital's TAD Program which had sales of $50,462,255, almost 60% of
total sales for the period, with the international trading division accounting
for the balance.
During the first half of fiscal 1999, gross profits from operations reached
$6,678,149, an increase of $2,867,952 (or approximately 75.3% higher than the
first half of fiscal 1998). Net profits from operations for this period, after
provision for interest and taxes, climbed to $3,031,927, as compared to
$2,036,947 for the same period last year, an increase of approximately 49%.
Based upon the Company's currently issued and outstanding shares, earnings per
share for the first half of fiscal 1999 reached $0.35 per share, as compared to
$0.24 per share for the first half of fiscal 1998, an increase of almost 46%.
The substantial increase in gross sales during the first half of fiscal 1999
continues to be due primarily to the ongoing expansion of operations through (i)
significantly increased sales by Capital through its TAD Program, discussed
separately below (see "III. Actrade Capital, Inc. And The Trade Acceptance Draft
Program") and (ii) increased sales by its subsidiary Actrade S.A.
With respect to the three months ended December 31, 1998, gross sales increased
to $46,063,498 (up over 99% from the second quarter of fiscal 1998) while gross
profits climbed to $3,748,060 (an increase of over 78% from the second quarter
of fiscal 1998). During the second quarter income from operations totaled
$2,152,508 (up over 79% from the same period in fiscal 1998) and net earnings,
after interest income and interest expense and allowance for taxes, reached
$1,638,699 (an increase of over 51% from fiscal 1998). Second quarter earning
per share totaled approximately $0.19 as compared to $0.13 per share for the
second quarter of fiscal 1998, an increase of over 46%. Cost of sales during the
second quarter, as a percentage of gross sales, was almost 91.9%, compared with
90.9% for the same period last year.
II. Discussion of Financial Condition
On a consolidated basis, at December 31, 1998 the Company had total assets
of $37,904,702, with total current liabilities of $12,647,317 (compared with
$26,137,402 and $3,512,761, respectively, at June 30, 1998, the end of fiscal
1998). Of the Company's assets at December 31, 1998, $1,827,387 was in the form
of cash and cash equivalent (compared to $13,381,678 at June 30, 1998). The
substantial decrease in cash and cash equivalent at December 31, 1998 reflects
the utilization of available cash on hand for the purchase of TADs in Capital's
TAD Program.
In addition to cash, the Company had at December 31, 1998, Accounts
Receivable (less an allowance for doubtful accounts of $350,000) of $14,825,300.
In addition, Capital has "trade acceptances drafts receivable, bank" in the
amount of $14,266,234, representing TADs that have been sold to a bank and
"trade acceptance drafts, on hand" of $6,286,823, representing TADs that were
held in inventory and not sold to banks. The increase in assets at December 31,
1998 over fiscal year-end, was principally due to a substantial increase in
purchases of TADs by both Capital and Actrade Resources. This increased activity
also resulted in a corresponding increase in liabilities, as reflected in "cash
advance from bank", which represents utilization by Capital of its credit lines,
and trade accounts receivable.
During December 1998 the Company concluded an interim financing facility
with a major financial institution which provided Capital with up to $10 Million
of additional funding ability for the purchase of TADs. The Company is currently
negotiating a permanent facility, expected to be for $25 Million, which will
replace the interim facility.
At December 31, 1998, the Company's total stockholders' equity increased to
$25,233,291 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 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 of
the operations of Capital.
At December 31, 1998 the Company also had property, less accumulated
depreciation, of $466,172 (compared to $374,679 at June 30, 1998) and security
deposits and prepaid expenses $30,288 and $202,498 respectively. 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
December 31, 1998 the Company continued to show $24,094 in deferred rent
liability.
Based upon available cash on hand, current and anticipated credit
facilities and expected revenues from operations, management is of the opinion
that it will have adequate available funds to meet its anticipated capital
expenditures and cash needs for the balance of fiscal 1999. Thereafter, future
capital expenditures will be decided based upon operating results and available
revenues from operations. Apart from expenses associated with the expansion of
Capital's operations, which cannot be estimated at this time, management
projects no significant additional capital expenditures in connection with its
operations during the next twelve months.
At December 31, 1998, the Company had total outstanding liabilities to its
bank of $7,718,079, representing advances against Capital's credit facilities in
connection with the sale of TADs. These credit facilities are fully secured by
the proceeds due from TADs which have been sold to the bank involved but which
have not yet been collected. Consequently, the payment of these outstanding
loans is not expected to have any impact upon the Company's liquidity. This loan
amount is constantly changing based upon a number of factors including the total
amount of TADs sold to the bank and the extent to which Capital needs to utilize
this credit facility.
Actrade Capital Inc. And The Trade Acceptance Draft Program.
During the first half of fiscal 1999, Capital's sales reached $50,462,255,
as compared with $22,306,043 for the first half of fiscal 1998, an increase of
over 126%. Cost of sales totaled $46,864,469 resulting in gross profits of
$3,597,786 during the first half as compared to $23,234,002 and $1,572,172
respectively for the same period in fiscal 1998. This represented an increase in
gross profits of more than 128% over last year. After general and administrative
expenses of $2,223,440, interest expense of $457,748 (net of interest income of
$13,059) and provision for taxes of $152,513, Capital realized net income from
its operations of $764,085, as compared to net income of only $372,263 an
increase of over 105%.
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 revenues and profits continue to reach new record levels each quarter.
B. Actrade International Corp. - Export Division.
Over the years, economic conditions in the United States have caused many
American manufacturers to seek new markets for their products and, in
particular, to turn to foreign markets to boost domestic sales. This trend is
now being affected by a number of other 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.
Actrade S.A. - International Trade Division.
To meet the changing conditions in the international marketplace, the
Company expanded the operations of Actrade S.A. 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.
Another result of these changing world conditions has been the impact upon the
availability (or lack thereof) of trade financing. In management's opinion, the
real "key" to success in international trading has, at least at present, become
the ability to provide trade financing in addition to competitive pricing for
products. To meet this market demand, in fiscal 1997 the Company initiated a
further expansion of the international trading operations of Actrade S.A. Due to
the financial strength of the Company, Actrade S.A. has been in a position to
fill the financing void created by the dramatic increase in worldwide demand,
thereby allowing it to capture a larger share of the current market demand.
The effects of this trend are evident in the Company's operating results
for both fiscal 1998 and during the current period. However, management cannot
predict whether the extraordinary rise in sales revenues experienced by Actrade
S.A. will continue. At present, while product demand is high and the
availability of trade financing is low, Actrade S.A. enjoys a favorable position
in the market. As these factors stabilize and as trade financing becomes more
readily available, it is likely that this advantage will decrease.
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. "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.
<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: January 28, 1999
ACTRADE INTERNATIONAL, LTD.
BY:_/s/Alexander C. Stonkus
Alexander C. Stonkus,
Chief Financial Officer
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