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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Fiscal Year Ended JUNE 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to __________
Commission File Number: 0-18711
ACTRADE FINANCIAL TECHNOLOGIES LTD.
(Formerly Actrade International, Ltd.)
(Name Of Small Business Issuer In Its Charter)
Delaware 13-3437739
(State or Other Jurisdiction of (IRS Employer Ident. No.)
Incorporation or Organization)
7 Penn Plaza, Suite 422, New York, New York 10001
(Address Of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number:(212) 563-1036
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Exchange on which registered
Securities registered pursuant to Section 12(g) of the Act: Common -
8,983,695 Shares Outstanding as of the date of this Report (Title Of
Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes _X_ No___
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K [X]
State the issuer's revenue for its most recent fiscal year $31,647,000.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked price of such stock, as of a specified date within the past 60
days. As of September 25, 2000, the value of such stock was $184,320,248.
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FORM 10-K
ACTRADE FINANCIAL TECHNOLOGIES LTD.
(Formerly Actrade International, Ltd.)
JUNE 30, 2000
PART I
ITEM 1. BUSINESS
GENERAL
Actrade Financial Technologies Ltd., formerly Actrade International, Ltd., (the
"Company") is a publicly traded holding company. Its business operations are
conducted through several wholly owned subsidiaries. A brief description of each
constituent corporation is set forth below. Following this brief introduction, a
more detailed discussion of the various components of the Company's operations
is presented.
ACTRADE FINANCIAL TECHNOLOGIES LTD. (THE "COMPANY"), formerly Actrade
International, Ltd., was incorporated in the State of Delaware on April 3, 1987.
The Company was originally formed as an international trading company under the
name of Acquisition Capability, Inc., and changed its name to Actrade
International, Ltd. in 1988. On July 24, 2000, the Company changed its name to
Actrade Financial Technologies Ltd. to better reflect the Company's role in
developing electronic payment technologies that provide financial solutions for
commercial trade activities.
ACTRADE CAPITAL, INC. ("CAPITAL"), a wholly owned subsidiary of the Company, was
incorporated in Delaware in May of 1991. Capital is the developer of the Trade
Acceptance Draft ("TAD(s)") Program, which enables Capital to purchase TADs from
various suppliers at a discount from their face value, and the Electronic Trade
Acceptance Draft ("E-TAD(s)") Program, an online application of the TAD Program.
ACTRADE CAPITAL CANADA INC. ("ACTRADE CANADA"), a wholly owned subsidiary of
Capital, was incorporated in the Province of Ontario, Canada on July 14, 1998.
Actrade Canada purchases TADs in the Canadian market in the same fashion as
Capital does in the US market.
ACTRADE FUNDING CORP. ("FUNDING"), a wholly owned, unconsolidated qualifying
special purpose subsidiary of Capital, was formed under the laws of Delaware in
1999 as a special purpose vehicle in connection with the institution of a new
credit facility with a major banking institution for the purchase of TADs from
Capital.
ACTRADE INTERNATIONAL CORP. ("INTERNATIONAL"), a wholly owned subsidiary of the
Company, incorporated in New York on July 18, 1985, was acquired by the Company
on September 2, 1988. International represents various U.S. manufacturers and
distributors by buying and re-selling their products overseas.
ACTRADE SOUTH AMERICA LTD. ("ACTRADE SA"), a foreign corporation, a wholly owned
subsidiary of International, was incorporated in Antigua on February 12, 1988.
Actrade SA purchases products from various foreign suppliers and sells them
through its foreign customer's network in international markets.
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ACTRADE RESOURCES INC. ("RESOURCES"), a wholly owned subsidiary of Actrade SA,
formerly Actrade Forfaiting Inc., was incorporated under the Laws of the
Commonwealth of the Bahamas on May 29, 1998. Actrade Resources is engaged in
international merchandise trading through the direct purchase and re-sale of
products from various foreign suppliers.
BUSINESS OPERATIONS
The Company's business operations are divided into two principal segments - (1)
the TAD and E-TAD Program and (2) International Merchandise Trade. The TAD and
E-TAD Program is operated by Capital in the United States and Actrade Canada in
Canada. The Company's international merchandise trade activities are conducted
by International, Actrade SA and Resources. The general discussion concerning
the Company's business operations will discuss these segments generally and may
not reflect the precise activities of each of the Company's subsidiaries, except
where the context indicates otherwise.
THE TAD AND E-TAD PROGRAM
THE TAD PROGRAM
In mid-1993, Capital completed development of a new trade finance tool for
domestic commercial transactions through the use of the TAD Program designed to
improve cash flow and increase sales. The TAD Program allows suppliers of
commercial goods and services to offer credit terms to their commercial
customers through the use of pre-authorized debit trade acceptance drafts
(TADs). Capital purchases the TADs from the supplier with immediate payment to
the supplier, and on their due date, processes the TADs for payment from the
buyer in the same manner as an ordinary check through the electronic bank
checking system.
By providing immediate payment to suppliers with extended payment terms for
buyers, the benefits of the TAD Program offers business closely parallels the
benefit credit cards provide to consumers. Management believes that, much like
the credit card revolutionized payment for consumer purchases, the TAD Program,
and particularly the E-TAD Program discussed below, will have a similar impact
upon the way business funds commercial transactions.
Essentially, a TAD is a post-dated payment draft prepared by the seller of goods
or services ("Suppliers") and accepted by the buyer of the goods or services
("Buyers") by the Buyers signing and delivering the draft back to the Suppliers.
Each TAD specifies the amount of the draft, the due date and the Buyer's bank
account information. This acceptance of the draft confirms that: (i) the goods
or services have been delivered by the Suppliers; and (ii) the goods or services
were checked and accepted by the Buyers; and establishes a specific payment
date. The draft itself constitutes the payment instrument for the transaction
according to its terms. In addition, the TAD is negotiable so that the Suppliers
may endorse it and transfer it to another party. At its most basic level, a TAD
can be viewed as a negotiable promissory note that at its due date is collected
like an ordinary check.
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When the commercial transaction is complete, the use of TADs will, in essence,
convert the resulting receivable into a financial instrument (TAD), which is
purchased by Capital. The advantage to the Suppliers is immediate payment
(within 48 hours) and the elimination of credit risk. The Buyers obtains
extended, and generally, unsecured credit terms.
During fiscal 2000, the Company completed the development of the E-TAD Program
which was officially launched in August 2000. In essence, the E-TAD Program is
an online version of the original TAD Program with certain improvements and
modifications to meet the added needs and challenges present in
business-to-business e-commerce.
On December 6, 1997, the United States Patent Office officially granted to Mr.
Amos Aharoni, the CEO of the Company, a patent with respect to the use of trade
acceptance drafts in Capital's TAD Program. All his rights, title and interest
in and to said patent was assigned to the Company in consideration of the
payment of $1.00. A second patent application for the E-TAD Program has been
filed and is pending.
All references herein to "E-TAD" shall include both the TAD and E-TAD Program
(or the "Program"). However, it should be noted that all revenues by Capital
during fiscal 2000 were derived from the Company's original TAD Program.
THE NEW E-TAD PROGRAM
The E-TAD Program is an internet-based deferred payment technology that can be
used for offline and online business to business purchases. With E-TADs,
commercial Buyers are able to pay for purchases with customary terms of up to
six (6) months while Suppliers receive immediate payment. The E-TAD Program is
designed to allow Buyers and Suppliers to complete a transaction entirely online
in a single operation. Like the original TAD Program, the E-TAD Program is based
upon the Buyers creditworthiness and financial strength rather than that of the
Supplier. Because of this, financially weak Suppliers of commercial goods and
services enter into large commercial transaction with the assurance of receiving
immediate payment even when dealing with financially strong Buyers who do not
want to change their typical payment policies to accommodate the needs of their
Suppliers. This feature allows Suppliers to engage in transactions that they
might otherwise be economically unable to handle thereby providing a useful tool
to facilitate their growth.
In developing the TAD Program, Capital's original goal was to standardize TADs
as the third business to business payment option - the first being "cash on
delivery" and the second being "open account". With the E-TAD Program, Capital
has been able to provide a secure online credit, payment, settlement and
integration technology solution that preserves most of the advantages of "open
account" transactions for the buyers while eliminating most of the disadvantages
for the suppliers. Management believes that, much like the credit card
revolutionized payment for consumer purchases, the E-TAD Program will have a
similar impact upon business to business e-commerce transactions. In
management's opinion, the E-TAD Program provides the best available solution to
the problem of online payment for large commercial transactions.
DEFINITION OF AN E-TAD
Essentially, an E-TAD is a pre-authorized, irrevocable and transferable
electronic payment instrument (i.e., commercial paper) issued by a Buyer. The
payment obligation of the E-TAD (i) is absolute and is not affected or
conditioned upon delivery or conformity of the goods purchased and
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(ii) establishes a specific payment date of a specific amount from a designated
bank account. An E-TAD, on its due date, authorizes automatic debit of a Buyer's
designated bank account. The draft itself constitutes the payment instrument for
the transaction according to its terms. At its most basic level, an E-TAD can be
viewed as an electronic promissory note that at its due date is paid
automatically in the same manner as an ordinary check through the automated bank
collection system. In addition, like the original TAD, the E-TAD is negotiable
so that the Supplier may transfer it to another party.
The use of E-TADs will, in essence, convert the commercial receivable into a
payment obligation (E-TAD), which is purchased by Capital. Suppliers have the
financial benefit of converting sales to immediate cash; thereby gaining credit
protection and eliminating collection costs while Buyers obtain extended,
unsecured payment terms.
The major steps involved in the E-TAD Program are:
ENROLLMENT OF THE BUYER: Each commercial Buyer must provide customary
credit and business information to allow Capital and its credit
insurance companies to evaluate the Buyer's credit worthiness. In
addition, each Buyer must execute a Buyer Acknowledgement that sets
forth the basic terms and conditions of the Program. If the Buyer is
approved, an E-TAD facility is set-up.
ENROLLMENT OF THE SUPPLIER: Each Supplier must also be enrolled in the
Program. This involves the execution of a basic Letter of Understanding
between Capital and each Supplier that sets forth the basic terms of
the Program. For the most part, this step is purely administrative
since the Program depends upon the credit worthiness of the Buyer
(being the party obligated to pay the E-TADs) rather than the Supplier
who will sell the E-TADs to Capital without recourse, at a discount
from the face amount for Capital's fees.
USE OF THE TADS IN A COMMERCIAL TRANSACTION
After both parties have enrolled in the Program, a Buyer that has adequate
credit availability for the transaction simply signs E-TADs in payment for the
goods or services. Within 48 hours of receipt of the completed documents (i.e.
commercial invoice, bill of sale, etc.), Capital will remit full payment for the
E-TADs (equal to the face amount of the E-TADs less Capital's fees and
discounts).
On the due date, either Capital or the bank to which the E-TADs have been
pledged or sold automatically debits the Buyer's bank account for the face
amount of the E-TAD without any further involvement of either the Seller or
Buyer. There is no need for Capital to wait for the Buyer to remit payment. The
fees and discounts are paid by the Suppliers by reducing the face amount of the
E-TAD when purchased by Capital.
CHARACTERISTICS OF THE E-TAD PROGRAM
Although trade acceptances are one of the typical methods of payment for
commercial transactions overseas (acceptances are called bills of exchange in
England, traits in France, bulls in South Africa, etc.), until re-introduced by
Capital in mid-1993, they have not been popular for commercial transactions in
the U.S. since World War II. Capital essentially adapted the traditional bill of
exchange or trade acceptance (both instruments long recognized in international
trade) to the U.S. market by adding computer encoding of the draft to provide
for the automatic collection of the E-
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TAD. This has been the basis for both the traditional TAD Program and now for
the E-TAD Program.
In addition, the computerized E-TAD allows for ease of use, less cost for the
customer and low administration expenses for Capital. Management believes that,
as of the date of this report, Capital is the only established company in the
U.S. providing this type of electronic deferred payment solution for online and
offline commercial transactions beyond 90 days and up to 180 days.
Perhaps the most significant attribute of the E-TAD Program is that it serves to
convert a receivable into a financial instrument that can then be purchased and
sold by Capital much like conventional commercial paper is bought and sold in
the financial markets. In fact, it was this feature that was a major factor in
Capital's ability to secure its present credit facilities with major banks to
fund the purchase of E-TADs.
BENEFITS OF THE E-TAD PROGRAM
One of the key benefits of the Program is that both the enrollment and the
transaction can be processed over the internet. All agreements and the actual
E-TADs issued in payment to the supplier can be generated online. E-TAD uses
internet technology to automate the transaction process, including collection
and back office operations, and improved workflow; thereby reducing the amount
of time required to complete a transaction. However, if a Buyer or Supplier does
not have access to the internet, Capital's customer service department can
process the enrollment and transaction for them.
The Program provides three primary and distinct benefits in one financial
instrument:
FINANCING: the Supplier receives cash within 48 hours, while the Buyer
has terms of up to 6 months.
CREDIT PROTECTION: Capital, and its credit insurance companies,
typically assume the risk of the Buyer not paying on the E-TAD. The
Supplier sells the E-TAD to Capital without recourse and no longer worries
about non-payment from his Customer-Buyer.
COLLECTION: Capital or its banks will automatically debit the exact
payment on the specified due date that is printed on each
E-TAD.
From its inception, management has sought to incorporate into the Program as
many safeguards as possible in order to minimize the risk of non-payment. In
management's opinion, the following features of the Program have proven to
reduce the risk of non-collection:
CREDIT INSURANCE AND PAYMENT BONDS. Most E-TADs are insured against non-payment
through a combination of business credit insurance policies that Capital has
secured with a major insurance carrier and Payment Bonds issued through major
surety companies.
SECURITY. In addition to firewall protection to secure the Company's network,
industry standard web access security methods and password-protected log-on
ensure user authentication and data integrity.
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EXPANSION OF US MARKET:
As mentioned above, since fiscal 1998 the use of the TAD Program by national and
international companies has increased significantly. Principally, these
companies have found that the TAD Program's flexibility allows them to manage
certain "special situations" which do not fall within their conventional terms.
In fiscal 2000, the overall number of business-to-business e-commerce
transactions increased heavily and is expect to continue to grow for the
foreseeable future. However, at present, the single greatest limitation to this
growth has been the absence of a viable online payment solution. This opened an
entirely new market for the E-TAD Program in the United States and management
has aggressively pursued development of this market segment, a process that will
continue and escalate into fiscal 2001 and beyond. The success of this marketing
approach is clearly reflected in the significantly higher revenues of the TAD
Program during fiscal 2000, a process that management expects will continue in
future years.
In addition, the E-TAD Program addresses many of the most pressing concerns
affecting the growth of business-to-business e-commerce. The E-TAD Program
provides secure online payment methods ideally suited to the needs of
e-commerce. It also provides a means of eliminating, or substantially
decreasing, the problem of collections for accounts that utilize E-TADs as
payment instruments. This fosters more effective cash flow management and
substantially increases the ability of a company to effectively utilize its
available capital resources. For suppliers, the E-TAD Program eliminates the
need to divert its personnel to pursue slow paying customers. By allowing the
supplier to structure payments by its customers up to a six-month period, the
E-TAD Program provides the supplier immediate payment and allows for a more
manageable payment schedule which, in many cases, results in the avoidance of
late or defaulted payments. Finally, it allows large Buyers to assure themselves
of stable supply sources by providing smaller, but critical, suppliers with a
means to significantly enhance their own cash flow.
EXPANSION THROUGH E-COMMERCE AND THE INTERNET POTENTIAL
An interactive website was developed and implemented in June 2000. This site not
only teaches customers about the use of the E-TAD Program but also permits them
to enroll in the Program and to use the Company's site to locate Suppliers,
learn about their products, place orders and complete all required paperwork for
the transaction, including an online payment solution. Although management
believes that in the near future all aspects of a transaction will be able to be
completed electronically, this final step must await further development in the
banking field with respect to such matters as electronic signatures and fund
transfer.
EXPANSION INTO INTERNATIONAL MARKETS
The expansion of the TAD Program into the international market was initiated in
January 1999 when Actrade Canada commenced operations. The Canadian market was
selected as the first international site for the Program due to both the
proximity to the United States and the similarities in banking and commercial
laws between the two countries. In August 1999, following the end of fiscal
1999, management concluded its first credit facility for Actrade Canada with a
major Canadian bank. This initial facility in the amount of $CN 5,000,000 is
intended for use in funding the TAD Program in Canada.
Apart from the Canadian initiative, management has begun marketing the E-TAD
Program to foreign sellers of products to the American market. By adapting the
E-TAD Program to this business
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segment, an American importer of foreign products can, with the cooperation of
their foreign suppliers, have access to trade financing not typically available
in the import market today. Management believes that this application of the
E-TAD Program will serve to help American importers by providing an available
financing tool and to expand access to the US market by foreign companies that
would otherwise be reluctant to extend credit terms to American buyers.
INTERNATIONAL MERCHANDISE TRADE
INTERNATIONAL
Since July 1988, International has been engaged in international merchandise
trade. Its operations involve the direct export of American products primarily
to the Pacific Rim. International provides US companies foreign markets for
their products through its own network of buyers, wholesalers and distributors.
Coupled with an ability to arrange required export services (including air or
sea shipping, inland freight arrangements, preparation of shipping documents,
export licenses, establishment of letters of credit, etc.) International offers
a less expensive alternative to "in-house" export operations.
As of the end of fiscal 2000, International's principal product group consisted
of industrial and commercial air conditioning equipment including package
systems, stand-alone units and spare parts.
International maintains no inventory of products. It purchases products for its
own account upon confirmation of orders from overseas buyers. In this fashion,
International (i) acts as a principal in the sale; (ii) does not require
warehouse or storage space for inventories; (iii) does not tie up available
capital in inventory; and (iv) assures US manufacturers acceptable payment terms
in the US thereby eliminating the problems of collecting foreign receivables.
Through International, American companies can effectively trade with overseas
buyers without the risks and delays associated with the international market.
ACTRADE SA AND RESOURCES
The primary markets presently served by Actrade SA and Resources are South
America and Europe although sales in other regions do occur and, depending upon
changing political and economic circumstances, management anticipates that sales
activities in other geographic markets will occur in the future.
However, since sales by Actrade SA and Resources are usually special situations
of higher dollar amounts, management is unable to predict the impact of its
activities in the future, although it is expected that these operations will
continue to operate at least at current levels in the future. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" below.
In general, the success of Actrade SA and Resources has been based upon the
ability to offer both Buyers and Suppliers a combination of advantages not
typically available in world markets. From the point of view of the Buyer, the
Company offers the ability to secure necessary products with an ability to
obtain extended payment terms. From the point of view of the Supplier, the
Company offers increased sales to buyers, access into markets not generally
available to the Supplier and immediate payment.
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As with its other international merchandise trade activities, Actrade SA and
Resources act as re-sellers of the products that will typically be purchased at
an advantageous price from the Supplier and marked-up for sale to the Buyer.
When coupled with its ability to provide immediate payment to the Supplier, the
Company provides the means to accomplish a transaction that would not otherwise
be possible.
Management believes that for the foreseeable future the greatest demand for all
kinds of foreign products will continue to come from the developing and third
world countries. Typically, Buyers in these countries require extended payment
terms in order to pay for the products they seek. For the very same reasons,
Suppliers in other countries are unwilling, or in many cases unable, to offer
the terms required by a Buyer. In these circumstances, the Company is often able
to step into the transaction, buy the products with immediate payment to the
Supplier and re-sell the products at a higher price to the Buyer, providing the
Buyer access to necessary trade financing that will give it the much needed
payment terms.
Due to the financial strength of the Company, the Company has been in a position
to fill the void created by the dramatic increase in worldwide demand for all
types of products, thereby allowing it to capture a larger share of the current
market demand. However, management can not predict whether the extraordinary
rise in revenues experienced by Actrade SA and Resources during fiscal 1999 and
2000 will continue. At present, while demand for the products the Company can
provide is high and the Company has available trade financing, the Company
enjoys a favorable position in the market. However, should other companies
provide similar services in the international market, the Company could lose
market share in the future.
During fiscal 2000 and 1999, no single customer represented 10% or more of the
Company's total revenue.
ALLSTATE'S OPERATIONS
Allstate operated as a travel agency since 1987, having been duly licensed as a
ticketing agent with IATA (International Airlines Travel Agents Network). After
several years of extremely limited operations, during fiscal 2000, management
elected to terminate the operations of Allstate. Consequently, during fiscal
2000, Allstate accounted for an insignificant percentage of the Company's total
sales.
CREDIT LOSS EXPERIENCE
The Company closely monitors account delinquency and loss rates in measuring the
potential for credit losses. An account is considered delinquent when a TAD
fails to clear the bank on the due date. Under the Company's policy, when such
notification is made to the Company by the clearing bank, the collection
department investigates and tries to resolve the issues within five business
days. Additional collection efforts are made on a case-by-case basis through the
legal system until the account is collected or is determined uncollectible.
Management of the Company attempts to control buyer delinquency through careful
evaluation of each buyer's application and credit history at the time that the
TAD transaction is entered. The Company maintains an allowance for doubtful
accounts (credit losses) based upon the receivable balances. The allowance is
based on the ongoing assessment of the probable estimated losses inherent in the
receivable balances. See discussion in Item 7 and the Company's Consolidated
Financial Statements.
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COMPETITION
With respect to the E-TAD Program, the Company faces strong competition from
many established financial institutions, including banks, insurance companies
and receivables financing (factoring) companies. Many of these companies are
larger and have greater financial resources. Further, the E-TAD Program is based
upon the use of TADs that, although a long-established instrument in
international trade, have been virtually unknown within the US domestic market.
Consequently, management faces the additional burden of educating its target
market as to the use of this financial technology solution and gaining adequate
market acceptance and confidence in this concept to attract a sufficient number
of participating companies in order to make this Program commercially viable.
These factors will also impact upon the operations of Actrade Canada as it
initiates its expansion program and moves into the Canadian marketplace. As of
the date of this report, management is not aware of any other financial service
program in the United States that utilizes trade acceptance drafts in a manner
similar to the E-TAD Program.
With respect to the expansion of the E-TAD Program into the Canadian market, the
Company will not enjoy the protection it is currently afforded in the United
States by its process patent. Therefore, in Canada, as well as other foreign
jurisdictions, it is likely that the Company will encounter competition from
other companies, including various financial institutions, that do, or in the
future may, offer the same or similar services, which directly compete with the
E-TAD Program. It is impossible at this time for management to accurately
predict the extent or impact of such competition.
With respect to its international merchandise trade division despite its past
growth, the Company faces strong competition from many other companies (many of
which are larger and have greater financial resources) in three primary areas.
First, the Company competes with export management companies for representation
of manufacturers. Secondly, it also competes with local (overseas) manufacturers
of products similar to those offered by it. Virtually all products offered by
the Company have competitive products manufactured by local companies overseas.
Finally, the Company competes with manufacturers engaged in the direct export of
their products around the world. All of these factors will have an impact upon
the Company's international merchandise trade operations, revenues, profits and
its ability to grow. However, management believes that as its ability to provide
buyers the ability to secure expended payment terms increases, the Company will
better be able to compete for business in this market and continue its
historical growth in this area.
ITEM 2. PROPERTIES
NEW YORK: The Company's principal corporate offices are located at 7 Penn Plaza,
Suite 422, New York, NY 10001, where it occupies approximately 4,200 square feet
of office space. This lease provides for monthly rentals of $9,519, commencing
April 1, 2000 through December 31, 2006 with annual increases of 3%.
NEW JERSEY: As of April 1, 1999, the Company leased 12,970 square feet of office
space in Somerset, New Jersey. These new offices serve as the principal
executive offices for Capital and Funding. This lease expires March 2004 and
provides for monthly rental payments of $20,806. Upon expiration, the Company
has an option to renew for an additional three years. In addition, on March 1,
2000, the Company leased an additional 5,000 square feet of office space
adjacent to its principal space. This lease expires March 2004 and provides for
monthly rental payments of $9,080. Upon expiration, the Company has an option to
renew for an additional three years.
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FLORIDA: As of January 7, 2000, the Company moved its regional sales office to
1515 North Federal Highway, Boca Raton, Florida where it occupies approximately
1,712 square feet of office space at a monthly lease payment of $2,354. This is
a five-year lease with an unaffiliated third party that expires in January 2005.
CALIFORNIA: As of January 2000, the Company closed its California office. This
lease had been a month-to-month tenancy.
BAHAMAS: As of January 2000, Actrade SA and Resources entered into a one year
lease for a business office and related facilities in Nassau, The Bahamas. This
office is leased from a consultant to the Company who provides basic
administrative and clerical services. The rental for this office, including
services, is $3,000 per month.
CANADA: On July 1, 2000, Actrade Canada signed a lease for 2,168 square feet of
office space in Markam, Ontario for three years commencing August 1, 2000
through July 31, 2003 at a monthly cost of CN$2,003. Actrade Canada has sublet
its prior office space in Toronto, Canada, which had a lease term expiring at
the end of October 2001 and a monthly rental of CN$2,438 for CN$3,600; yielding
a net reduction of lease cost of CN$1,162 per month.
WEBSITE: The Company launched its website approximately four years ago at
www.Actrade.com. On August 21, 2000, the site was expanded to launch E-TAD and
provide for buyers and sellers to sign-up to use E-TAD in doing
"business-to-business (B2B)" TAD transactions via the web. This B2B business
includes the generation of TADs, review order status, check their accounts, etc.
ITEM 3. LEGAL PROCEEDINGS
a. During fiscal 2000, a participant in Capital's TAD Program defaulted under
its obligations in the principal amount of approximately $4,000,000. This
obligation was secured by both the personal guarantees of its principal and by a
surety bond. After numerous attempts to resolve the dispute, the matter resulted
in litigation being instituted by the participant against Capital to preclude
Capital from its efforts to secure payment under the surety bond. This suit,
initially filed in the Superior Court of the State of Georgia, was removed and
is presently pending in the United States District Court for the Northern
District of Georgia. The surety company was originally joined as a defendant in
this suit. However, upon motion by Capital, the surety company was realigned by
the Court as a plaintiff in the action and removal of the suit to the Federal
District Court was affirmed. The complaint alleges claims of breach of contract
and misrepresentation against Capital. Capital has filed counterclaims against
the plaintiffs for breach of contract seeking repayment of TADs that are in
default and filed claims against the surety company for breach of contract
resulting from their failure to pay under the express terms of the bond. At the
present time, the discovery phase of the litigation has begun under a favorable
ruling from the Court limiting the discovery period to six months. Based upon
the facts of the matter and upon the opinion of its litigation counsel, Capital
believes that the plaintiff's claims are spurious in nature, that it has valid
defenses to the claims against it and that it will ultimately prevail in the
suit and obtain payment from plaintiff or, in the alternative, from the surety
company pursuant to the terms of the surety bond. Management does not anticipate
any adverse financial consequences as a result of this suit.
b. In another unrelated matter, a California company defaulted under its
obligations to Capital in the principal amount of approximately $1,300,000. The
total defaulted TADs were in the original
<PAGE>
principal amount of approximately $6,300,000 and were fully insured by two
surety bonds issued in favor of Capital. After the default, Capital filed claims
with both surety companies. One surety company paid $5,000,000 to Capital as
required by its surety bond. The second surety, which is the same surety company
that issued the bond referred to under paragraph (a) above, refused payment in
breach of its obligations under its bond. That surety company, as plaintiff,
filed a complaint in the Superior Court of California, County of Los Angeles,
Central District, against the principals of the defaulting party to force those
persons to post certain collateral they had promised to deliver in connection
with the surety agreeing to issue the surety bond. This complaint was amended by
the surety company to include Capital, among several other parties, as a
defendant in that action. The plaintiff brought claims against Capital seeking
to avoid its obligation to Capital on a number of surety bonds, which secured
underlying transactions between Capital and certain of its program participants.
In essence, plaintiff has alleged breach of contract and fraud against Capital.
Discovery has begun in this action. Capital believes that the surety's claims of
fraud are totally without merit and intended solely to avoid its obligations
under its surety bonds and Capital intends to file a motion to dismiss these
claims. Based upon the facts of the matter and upon the opinion of its
litigation counsel, Capital believes that the plaintiff's claims are spurious in
nature, that it has valid defenses to the claims against it and that it will
ultimately prevail in the suit and obtain payment from plaintiff or, in the
alternative, pursuant to the terms of the surety bond. Management does not
anticipate any adverse financial consequences as a result of this suit.
c. Capital is involved in several other routine suits primarily relating to the
collection of defaulted TADs. However, none of these other suits, individually
or in the aggregate, represents amounts that, in management's opinion, are
material or which could have a material adverse impact upon either the business
or financial condition of either Capital or the Company.
In all of the pending suits, neither the Company nor any of its other
subsidiaries, except Capital, are parties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual meeting of the shareholders of the Company was held on April 4, 2000
at which meeting the shareholders voted upon the election of the current Board
of Directors.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The principal market on which the Company's securities are traded is the
over-the-counter market. Since November 1996 the Company's securities have been
trading on the NASDAQ National Market System under the symbol "ACRT". The
following table sets forth for the periods indicated high and low bid quotations
for the Company's Common Stock which were listed for the Company's Common Stock
as reported by NASDAQ in the Monthly Statistical Reports.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
-----------------------------------------------------------------------
<S> <C> <C>
Quarter ended September 30, 1997 $12.125 $11.25
Quarter ended December 31, 1997 $30.00 $14.125
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Quarter ended March 31, 1998 $17.625 $11.8125
Quarter ended June 30, 1998 $16.688 $12.25
Quarter ended September 30, 1998 $15.750 $10.00
Quarter ended December 31, 1998 $16.875 $10.75
Quarter ended March 31, 1999 $14.500 $12.375
Quarter ended June 30, 1999 $14.625 $10.938
Quarter ended September 30, 1999 $14.938 $12.00
Quarter ended December 31, 1999 $24.00 $13.00
Quarter ended March 31, 2000 $20.813 $12.50
Quarter ended June 30, 2000 $25.25 $11.50
</TABLE>
On September 25, 2000, the reported closing price for the Company's Common Stock
was $28.00 per Share; there were 292 record holders (representing approximately
5,777 beneficial holders) of the Company's Shares; and there were eleven (11)
market makers for the Company's securities.
The Company has not paid any cash dividends and there are presently no plans to
pay any such dividends in the foreseeable future. The declaration and payment of
dividends in the future will be determined by the Board of Directors in light of
conditions then existing, including earnings, financial condition, capital
requirements, and other factors. There are no contractual restrictions on the
Company's present or future ability to pay dividends. Further, there are no
restrictions in any of the Company's subsidiaries that would, in the future,
adversely affect the Company's ability to pay dividends to its shareholders.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
Summary Balance Sheet Data: Year Ended June 30 (in thousands)
-----------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets $75,916 $44,451 $26,123 $19,364 $ 8,089
Total Current Assets 73,671 43,191 25,722 19,108 7,970
Total Current Liabilities 35,438 15,942 3,530 3,127 3,199
Stockholders' Equity 40,478 28,509 22,593 16,192 4,890
Retained Earnings 25,640 14,336 8,102 3,686 1,782
</TABLE>
<TABLE>
<CAPTION>
Summary Earnings Data: Year Ended June 30 (in thousands, except per share)
---------------------------------------------------------------------
2000 1999 (*) 1998 (*) 1997 (*) 1996 (*)
---- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TAD Revenue $ 16,872 $ 7,941 $ 3,300 $ 1,366 $ 526
International Merchandise Trade Revenue 14,775 8,431 4,840 2,672 1,441
-------- -------- -------- -------- --------
Total Revenue $ 31,647 $ 16,372 $ 8,140 $ 4,038 $ 1,967
-------- -------- -------- -------- --------
General & Administrative Expenses 8,693 6,483 3,421 2,059 1,194
Bad Debt Expense 6,074 1,601 64 16 0
Interest Expense, net 5,375 1,717 (154) 16 52
Other Income (Expense), net (2) (180) 31 66 58
-------- -------- -------- -------- --------
Income Before Taxes 11,503 6,391 4,840 2,013 779
Income Taxes 199 157 423 109 21
-------- -------- -------- -------- --------
Net Income $ 11,304 $ 6,234 $ 4,417 $ 1,904 $ 758
======== ======== ======== ======== ========
Net Income per Common Share, basic $ 1.30 $ 0.73 $ 0.55 $ 0.29 $ 0.14
Net Income per Common Share, diluted $ 1.23 $ 0.71 $ 0.50 $ 0.25 $ 0.14
</TABLE>
-------------------------------------------------------------------------------
The Company's fiscal year ends June 30 of each year.
(*) "The prior period presentation of revenue has been changed to conform to
the current period presentation. See Note 1 to the Consolidated Financial
Statements in Item 8"
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL STATEMENT
FACTORS THAT MAY AFFECT FUTURE RESULTS.
With the exception of historical information, the matters discussed in
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward looking statements under the 1995 Private Securities
Litigation Reform Act that involve various risks and uncertainties. Typically,
these statements are indicated by words such as "anticipates", "expects,"
"believes," "plans", "could", and similar words and phrases. Factors that could
cause the Company's actual results to differ materially from management's
projections, forecasts, estimates and expectations include but are not limited
to, the following:
o Changes in the Company's currently available credit facilities;
o The inability of the Company to extend or secure additional
credit facilities to fund the anticipated expansion of sales
under its TAD Program;
o Unexpected economic changes both in the United States and
overseas; and
o The imposition of new restrictions or regulations affecting
either the Company's international merchandise trade activities
or its TAD Program, either in the US or in Canada.
To the extent possible, the following discussion will highlight the relative
needs of the Company with respect to both its international merchandise trade
activities and in connection with the ongoing expansion of its TAD Program.
CHANGES IN INCOME STATEMENT INFORMATION.
Beginning with this Report, the Company has adopted Securities and Exchange
Commission STAFF ACCOUNTING BULLETIN NO. 101 ("SAB101") - REVENUE RECOGNITION IN
FINANCIAL STATEMENTS. In essence, the adoption of SAB101 changes the
presentation of revenue information on the Consolidated Statements of Income of
the Company.
The Company's revenues are generated from two major business segments: the TAD
Program and international merchandise trade. The TAD Program is operated by
Capital in the United States and its wholly owned subsidiary, Actrade Canada, in
Canada (collectively referred to herein as Capital). The Company's international
merchandise trade operations are conducted by International (which is engaged in
the re-sale of American made products to foreign buyers) and Actrade SA,
including its wholly owned subsidiary Resources (which engage in the sale of
non-US products to foreign buyers).
Beginning with this Report, in conformity with the requirements of SAB101, the
Company's Consolidated Statements of Income simply reflect "Revenues". In the
case of Capital, "Revenues" represents the net of total TAD originations (i.e.
the face amount of the TADs purchased by Capital) less the cost of purchasing
those TADs.
Similarly, beginning with this Report, the Company has also changed the
presentation of
<PAGE>
"Revenues" from its International Merchandise Trade activities from reflecting
sales and cost of sales to a net basis. This change provides uniformity of
presentation among the Company's two major revenue sectors. Further, the reader
is referred to THE "FINANCIAL STATEMENTS - NOTE 1, SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES AND NOTE 8, SEGMENT INFORMATION" for further information
regarding industry segments, revenue by geographical region, and other relevant
information.
On a combined basis the term "Revenues" in this Report is the equivalent of the
amount previously reported as "Gross Profit". All prior period amounts and
discussions have been changed to reflect the new presentation of revenues.
The adoption of SAB 101 did not have any impact on the net income of the
Company.
I. RESULTS OF OPERATIONS - FISCAL 2000 COMPARED TO FISCAL 1999
CONSOLIDATED REVENUE
In fiscal 2000, the Company had combined revenue of $31,647,000, as compared to
$16,372,000 for fiscal 1999, representing an increase of slightly over 93%. The
increase in revenue during fiscal 2000 was due to the expansion of the Company's
operations through (i) significantly increased revenues by Capital through the
TAD Program and (ii) the increased international merchandise trade activities by
Actrade SA and Resources. With respect to its international merchandise trade
activities, this increase was the result of increased product sales by both
Actrade SA and Resources, rather than from price increases for the products
sold.
TAD PROGRAM REVENUE
Revenues from the TAD Program totaled $16,872,000 for fiscal 2000 (earned on
total TAD originations of $300,915,000), as compared to $7,941,000 in fiscal
1999 (earned on total TAD originations of $129,790,000), an increase in revenues
of 112% (representing an increase in TAD originations of slightly less than 131%
over fiscal 1999). The significant increase in both total originations and
revenue from the TAD Program is due to a substantially increased number of TAD
transactions that were a direct benefit of the accelerated marketing and
expansion program during fiscal 2000.
INTERNATIONAL MERCHANDISE TRADE REVENUE
Also included in total revenue were revenues from international merchandise
trade of $14,775,000 in fiscal 2000 (as compared to $8,431,000 in fiscal 1999).
For fiscal 2000, revenue by Actrade SA, including its wholly owned subsidiary
Resources, totaled $14,630,000, as compared to $7,766,000 for fiscal 1999.
Management attributes the continued growth in this business sector to the
ability to provide immediate payment to foreign suppliers as well as
facilitating access to flexible payment terms for the buyers. During fiscal
2000, the Company's principal overseas markets continued to be (i) South America
(ii) Europe, (iii) the Pacific Rim and (iv) Middle East. During fiscal 2000, the
Company showed increased revenues in all of its primary markets.
See "FINANCIAL STATEMENTS - NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
REVENUE RECOGNITION " AND " - NOTE 8, SEGMENT INFORMATION" for additional
information.
<PAGE>
CONSOLIDATED EXPENSES
General and administrative expenses were $8,693,000 in fiscal 2000 as compared
to $6,483,000 for fiscal 1999, an increase of 34%. Essentially the entire
increase in general and administrative expenses in fiscal 2000 and fiscal 1999
is attributable to the expansion of operations of Capital and costs related to
the continued development of the E-TAD Program. The most significant of these
increases included:
1. salaries, payroll and commissions in fiscal 2000 totaled
$4,347,000 as compared to $3,283,000 in fiscal 1999;
2. office rent in fiscal 2000 totaled $561,000, as compared to
$345,000 in fiscal 1999;
3. consulting costs and professional fees in fiscal 2000 totaled
$1,559,000, as compared to $486,000 for fiscal 1999 (most of
which were specifically in connection with development of the
E-TAD Program); and
4. depreciation and amortization of $490,000 in fiscal 2000 as
compared to $139,000 in fiscal 1999.
All of these increased costs are directly attributable to the TAD Program
expansion that took place in fiscal 2000 and 1999, including the new corporate
headquarters for Capital in Somerset New Jersey and the expansion of Capital
sales force and back-office personnel required by the substantial increase in
TAD transactions. With respect to fiscal 2001, management projects the costs
related to the TAD Program operations will continue to escalate, particularly as
it accelerates its marketing efforts for the TAD Program and begins
implementation of its E-Commerce program. However, management expects to see
significantly increased revenue as the benefits of the fiscal 1999 and 2000
expenditures continue to mature into new TAD business.
BAD DEBT, INTEREST EXPENSE AND NET INCOME
In fiscal 2000, the Company incurred bad debt expense in the amount of
$6,074,000 as compared to $1,601,000 in fiscal 1999. There were two principal
reasons for the substantial increase in this expense item. First, a write-off
was made of a number of outstanding TADs receivable that, in management's
opinion, were unlikely to be collected in the future. For the most part, these
accounts represented balances due from companies with whom the Company no longer
does business or that filed for bankruptcy or similar legal protection from
their creditors during the fiscal year. The second factor contributing to this
substantial increase is related to the rapid expansion of the TAD Program (both
in terms of the number and size of individual transactions) and the diversity of
industries into which the TAD Program has expanded. Based upon this significant
growth, with a corresponding increase in trade acceptance drafts receivable
($44,717,000 at June 30, 2000 as compared to $25,180,000 at June 30, 1999),
management decided that the prudent course was to make a corresponding increase
in the allowance for doubtful accounts ($3,044,000 at June 30, 2000 as compared
to $1,560,000 at June 30, 1999), which is also reflected in the "bad debt
expense" item on the Company's Consolidated Statements of Income. See discussion
of "Bad Debt and Allowance for Doubtful Accounts" in the Consolidated Footnotes
to the Financial Statements.
In fiscal 2000, the Company incurred interest expenses of $5,437,000, as
compared to $1,777,000 in fiscal 1999. This increase is due to the growth in
operations of the TAD Program as well as Actrade SA and Resources. Further, this
increase results in part from the costs associated with the
<PAGE>
new credit facilities secured by Capital during fiscal 2000. Although management
believes that its current facilities are adequate for the foreseeable future,
the Company continues to explore expansion of its existing facilities with its
current financial institutions and the feasibility of adding additional credit
facilities with other financial institutions during fiscal 2001. Management
expects that this expense item will continue to escalate as TAD Program
operations continue to grow.
During fiscal 1999, Capital entered into an asset-backed securitization program
of up to $25,000,000 with a financial institution providing for the transfer and
sale of TADs by Capital to Funding, a wholly owned special purpose vehicle,
formed expressly for that purpose. The use of this facility continued throughout
fiscal 2000. For further information relating to Funding see "FINANCIAL
STATEMENTS - NOTES 1 AND 11."
After interest income, other expenses and provision for income taxes of $62,000,
$2,000 and $199 respectively (compared to $60,000, $180,000 and $157,000
respectively in fiscal 1999), the Company reported net income of $11,304,000, or
$1.30 per share ($1.23 per share, fully diluted) for fiscal 2000, as compared to
$6,234,000, or $0.73 per share ($0.71 per share, fully diluted), for fiscal
1999. This represented an increase in earnings per share for fiscal 2000 of 73%,
based on fully diluted shares.
During fiscal 2000 the Company's net income expressed as a percentage of revenue
was approximately 36%, as compared to approximately 38% in fiscal 1999. Again,
this slight decrease was principally due to the costs of the Company's continued
expansion of the TAD Program during fiscal 2000. Management believes that this
will adjust as increased revenues are realized in the future.
TAD PROGRAM NET INCOME
The substantial increase in revenue generated by Capital through the TAD Program
saw net income for fiscal 2000 increase to $999,000 (representing net income of
$1,289,000 for Capital and a net loss of $290,000 for Canada), compared to net
income of $36,000 for fiscal 1999. Management believes this upward trend will
continue in fiscal 2001 as Capital further realizes the benefits from the
expenditures incurred during fiscal 2000 and 1999.
INTERNATIONAL MERCHANDISE TRADE NET INCOME
Net income from the Company's international merchandise trade operations totaled
$10,305,000 as compared to $6,198,000 for fiscal 1999, an increase of just over
66%. Management believes that its international merchandise trade operations
will continue to grow during the foreseeable future although no assurance can be
given that the rate of growth will continue at the pace set in fiscal 2000.
FISCAL 1999 COMPARED TO FISCAL 1998
CONSOLIDATED REVENUE
For the period ended June 30, 1999, the Company had consolidated revenue of
$16,372,000, as compared to $8,140,000 for fiscal 1998, representing an increase
of slightly more than 101%.
<PAGE>
The increase in revenue during fiscal 1999 was due to the expansion of the
Company's operations through (i) significantly increased revenue by Capital
through the TAD Program and (ii) the increased international merchandise trade
activities by Actrade SA. With respect to its international merchandise trade
activities, this increase was the result of increased product sales by Actrade
SA, rather than from price increases for the products sold.
TAD PROGRAM REVENUE
Revenues from the TAD Program totaled $7,941,000 for fiscal 1999 (earned on
total TAD originations of $129,790,000), as compared to $3,300,000 in fiscal
1998 (earned on total TAD originations of $55,541,000), an increase in revenues
of 141% (representing an increase in TAD originations of 134% over fiscal 1998).
The significant increase in both total originations and revenue from the TAD
Program is due to a substantially increased number of TAD transactions that were
a direct benefit of the accelerated marketing and expansion program during
fiscal 1999.
INTERNATIONAL MERCHANDISE TRADE FINANCING REVENUE
Revenue from international merchandise trade was $8,431,000 in fiscal 1999 as
compared to $4,840,000 in fiscal 1998. During fiscal 1999, revenue by Actrade
SA, including its wholly owned subsidiary Resources totaled $7,766,000, as
compared to $3,936,000 for fiscal 1998, with the balance representing revenue by
International. During fiscal 1999, the Company's principal overseas markets were
(i) South America (ii) Europe, (iii) the Pacific Rim and (iv) the Middle East,
with the Company showing increased sales in all of those markets.
CONSOLIDATED EXPENSES/NET INCOME
General and administrative expenses in fiscal 1999 were $6,483,000 as compared
to $3,420,000 in fiscal 1998, an increase of slightly over 89%. Virtually all of
the increase in these expenses was directly attributable to the expansion of
Capital and the TAD Program.
During fiscal 1999, the Company recorded bad debt expense in the amount of
$1,601,000, as compared to $64,000 for fiscal 1998. This increased reserve was
due to the growth experienced in the TAD Program during fiscal 1999.
The Company reported income from operations of $6,391,000 in fiscal 1999, as
compared to $4,840,000 for fiscal 1998, an increase of 32%.
After interest income and expense, other expense and provision for income taxes
of $60,000, $1,777,000, $180,000 and $157,000, respectively (as compared to
$174,000, $20,000, $31,000 and $423,000 for fiscal 1998) the Company reported
net income of $6,234,000, or approximately $0.73 per share ($0.71 per share,
fully diluted) for fiscal 1999 as compared to $4,417,000, or $0.55 per share
($0.50 per share, fully diluted), in fiscal 1998. This represented an increase
in net income for fiscal 1999 of 42%, fully diluted.
Net income, before provision for income taxes, for fiscal 1999 from the TAD
Program was $145,000 as compared to $778,000 for fiscal 1998, a decrease of
slightly more than 81%. Net income before provision for income taxes from
international merchandise trade operations for fiscal 1999 increased to
$6,246,000 from $4,062,000 in fiscal 1998, an increase of approximately 54%.
<PAGE>
II. DISCUSSION OF FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had working capital of approximately $38,233,000,
as compared to $27,249,000 at June 30, 1999. On a consolidated basis, at June
30, 2000, the Company had cash and cash equivalents of $9,424,000, as compared
to $5,199,000 at June 30, 1999. The increase of approximately $4,225,000 in cash
and cash equivalents resulted from normal variations in the utilization of cash
by Capital in its operations, and not due to any trend which is expected to have
a continuing effect upon operations in the future.
Accounts receivable and TADs receivable (net of deferred income and allowance
for doubtful accounts) increased $25,325,000 at June 30, 2000, as compared to
June 30, 1999. The substantial increase in TADs receivable was due to the
ongoing expansion of the TAD Program by Capital and Actrade Canada. At June 30,
2000, Capital had approximately $37,000,000 in Surety Bonds guaranteeing
payments of TADs it had purchased, in addition to $12,500,000 in credit
insurance.
Total current liabilities at June 30, 2000 increased $19,496,000 compared to
fiscal 1999. The substantial increase in current liabilities over the prior
fiscal year is primarily due to the addition of short-term borrowings,
representing financing utilized by Capital for its TAD purchases owed under its
various credit facilities.
At June 30, 2000, the Company had total accounts payable of $373,000, as
compared to $683,000 at June 30, 1999. The decrease in accounts payable is due
principally to the normal fluctuations in the status of trade transactions by
Actrade SA and Resources and not to any trend expected to have an ongoing impact
upon the Company.
In recent years, the Company has experienced growth in its accounts receivable
due to the nature of the revenue made by its International Merchandise Trade
division. Revenue generated by international merchandise trade activities
principally involves larger, higher priced products. Consequently, the average
invoice amount, as well as the average per item cost, is relatively high,
resulting in higher cost of goods sold as well as higher accounts receivable and
payable. Similarly, the revenue generated by Actrade SA are from the sale of
less expensive foreign made products where the typical gross margins are much
lower than for similar American products. These factors continued to be true
throughout fiscal 2000 and are expected to continue for the foreseeable future.
At June 30, 2000, the Company's total stockholders' equity increased to
$40,478,000 as compared to $28,509,000 at June 30, 1999. The principal source of
funds for the Company's operations continues to be revenues earned by its
operating subsidiaries.
During the fiscal year ending June 30, 2001, the Company projects no significant
additional capital expenditures in connection with any of the Company's
international merchandise trade operations. Management plans to utilize current
cash on hand in connection with its international merchandise trading operations
principally for (i) general working capital reserves to meet any extraordinary
or unexpected expenses; (ii) and to finance, if required, the Company's trading
operations.
However, in connection with the TAD Program, management expects that it will
have significant
<PAGE>
additional capital expenditures relating to the ongoing expansion of financing
revenue and marketing operations by Capital and Actrade Canada, including
implementation of its E-Commerce initiative. Further, with respect to the TAD
Program, in order to sustain a future growth rate comparable to that experienced
in the past few years, management will need to continue to expand its credit
facilities and other means for financing its purchase of TADs in pace with the
overall growth of the TAD Program.
On June 15, 2000, the Company announced an increase in one of its credit
facilities from $15,000,000 to $20,000,000. This increase brought the Company's
credit facilities through which Capital, Funding and Actrade Canada could
finance the purchase of TAD in their TAD Program to approximately $88,500,000;
(1) a $25,000,000 securitization funding facility; (2) an additional $60,000,000
in credit facilities with two financial institutions in the United States; and
(3) approximately $3,500,000 (CN$5,000,000) in a Canadian credit facility.
Capital currently has approximately $37,000,000 in Surety Bonds available to
cure payment of TADs it has purchased.
Management expects that the TAD Program will continue to grow, in which case it
will require additional credit facilities to sustain the projected growth in TAD
purchases. Although discussions are ongoing with several other financial
institutions to add additional credit facilities to fund the future expansion of
the TAD Program, no assurance can be given that such discussions will result in
the completion of any new financing facilities for Capital. However, based upon
its experience with its present banks, as well as discussions with other
financial institutions, management believes that it will be able to secure
adequate financing means to sustain the growth of the TAD Program in the
foreseeable future.
Management knows of no other trends reasonably expected to have a material
impact upon the Company's operations or liquidity in the foreseeable future.
III. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of The Effective Date
of FASB Statement No. 133, and SFAS No. 138, Accounting for Certain Derivative
Financial Instruments and Certain Hedging Activities - An Amendment of FASB
Statement No. 133, which is effective for all fiscal years beginning after June
15, 2000. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. Under SFAS No. 133, certain
contracts that were not formerly considered derivatives may now meet the
definition of a derivative. SFAS No. 133 is effective for the Company as of July
1, 2000. Management does not expect the adoption of SFAS No. 133 to have a
significant impact on the financial position or results of operations of the
Company.
IV. INFLATION
During the past few years inflation in the United States has been relatively
stable which has had a beneficial effect upon the Company's operations in that
the products it offers have been competitively priced in relation to comparable
foreign made products. In management's opinion,
<PAGE>
this is expected to continue for the foreseeable future. However, should the
American economy again experience double digit inflation rates, as was the case
in the past, the impact upon prices for American goods could adversely affect
the Company's ability to effectively compete in its overseas markets.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
Index to the Consolidated Financial Statements: Reference:
------------------------------------------------- ----------
<S> <C>
Independent Auditors' Report F-1 - F1A
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-16
Financial Statement Schedule -
Schedule II - Valuation and Qualifying Accounts F-17
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Actrade Financial Technologies Ltd. (formerly Actrade International, Ltd.)
Somerset, New Jersey
We have audited the accompanying consolidated balance sheets of Actrade
Financial Technologies Ltd. (formerly Actrade International, Ltd.) and
subsidiaries (the "Company") as of June 30, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. Our audits also included the financial statement schedule
listed in the Index at Item 8. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of June 30, 2000 and
1999, and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
New York, New York
September 25, 2000
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Actrade Financial Technologies Ltd.
(formerly Actrade International, Ltd.) and Subsidiaries
New York, New York
We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Actrade Financial Technologies Ltd.
(formerly Actrade International, Ltd.) and Subsidiaries (the "Company") for the
year ended June 30, 1998. Our audit also included the financial statement
schedule listed in the Index at Item 8. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audit. We did not audit the financial
statements of Actrade Resources Inc. (Formerly Actrade Forfaiting Incorporated),
which statements reflect total revenue of $202,618 for the year ended June 30,
1998. Such financial statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for Actrade Resources Inc., is based solely on the report of the other
auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, such
consolidated financial statements present fairly, in all material respects, the
results of operations and cash flows of the Company for the year ended June 30,
1998 in conformity with generally accepted accounting principles. Also, in our
opinion, based on our audit and the report of other auditors, such financial
statement schedule, when considered in relation to the basic consolidated
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ZELLER WEISS & KAHN, LLP
Mountainside, New Jersey
August 14, 1998
<PAGE>
ACTRADE FINANCIAL TECHNOLOGIES LTD. AND SUBSIDIARIES
(Formerly Actrade International, Ltd.)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
------------------------------------------------------------------------------
Dollars in thousands except per share amounts
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $9,424 $5,199
Accounts receivable - trade 18,202 12,414
Trade acceptance drafts receivable and investment in and due from
qualifying special purpose entity (net of deferred income
and allowance for doubtful accounts of $1,311 and $3,044 at
June 30, 2000 and $1,276 and $1,560 at June 30, 1999) 44,717 25,180
Deferred income taxes 905 217
Other current assets 423 181
------- -------
Total Current Assets 73,671 43,191
PROPERTY AND EQUIPMENT, NET 1,844 954
OTHER ASSETS 401 306
------- -------
TOTAL ASSETS $75,916 $44,451
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $32,707 $14,262
Accounts payable 373 683
Accrued expenses 1,557 997
Income taxes payable 801 0
------- -------
Total Current Liabilities 35,438 15,942
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.0001 par value; authorized 100,000,000 shares, issued
and outstanding 8,983,695 shares at June 30, 2000 and
8,528,051 shares at
June 30, 1999 1 1
Additional paid-in capital 21,505 14,614
Retained earnings 25,640 14,336
Accumulated other comprehensive (loss) income (9) 10
Treasury stock at cost; 349,170 shares at June 30, 2000 and
31,500 shares at June 30, 1999 (6,659) (452)
------- -------
Total Stockholders' Equity 40,478 28,509
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $75,916 $44,451
======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ACTRADE FINANCIAL TECHNOLOGIES LTD. AND SUBSIDIARIES
(Formerly Actrade International, Ltd.)
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
-------------------------------------------------------------------------------
Dollars in thousands except per share amounts
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Revenue:
Trade Acceptance Drafts $ 16,872 $ 7,941 $ 3,300
International Merchandise Trade 14,775 8,431 4,840
----------- ----------- -----------
Total Revenue 31,647 16,372 8,140
----------- ----------- -----------
Operating Expenses:
General and administrative (8,693) (6,483) (3,420)
Bad debt (6,074) (1,601) (64)
Interest, net (5,375) (1,717) 153
Other, net (2) (180) 31
----------- ----------- -----------
Total Operating Expenses (20,144) (9,981) (3,300)
----------- ----------- -----------
Income before Provision for Income Taxes 11,503 6,391 4,840
Provision for Income Taxes (199) (157) (423)
----------- ----------- -----------
Net Income $ 11,304 $ 6,234 $ 4,417
=========== =========== ===========
Net Income per Common Share:
Basic $1.30 $0.73 $0.55
Diluted $1.23 $0.71 $0.50
Weighted Average Number of Shares Outstanding:
Basic 8,708,380 8,527,851 8,079,996
Diluted 9,211,874 8,810,267 8,903,726
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ACTRADE FINANCIAL TECHNOLOGIES LTD. AND SUBSIDIARIES
(Formerly Actrade International, Ltd.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
Dollars in thousands except per share amounts
<TABLE>
<CAPTION>
Common Stock
------------
Additional Accumulated Other
Number of Paid-in Retained Comprehensive Treasury
Shares Amount Capital Earnings (Loss) Income Stock
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 7,470,681 | $1 $12,505 $3,685 $0 $0
--------- | -- ------- ------ -- --
Comprehensive Income, Net of Tax: |
Net Income | 4,417
|
Issuance of Common Stock upon |
Exercise of Options 1,070,370 | 1,984
--------- | --------- --------- --------- --------- ---------
|
Balance, June 30, 1998 8,541,051 | 1 14,489 8,102 0 0
--------- | -- ------- ------ -- --
|
Comprehensive Income, Net of Tax: |
Net Income 6,234 | $6,234
Foreign Currency |
Translation Adjustments | 10
Total Comprehensive Income |
|
Other | 64
Issuance of Common Stock upon |
Exercise of Options 18,500 | 61
|
Purchase of Treasury Stock (31,500)| (452) (452)
------- | ----
|
Balance, June 30, 1999 8,528,051 | $1 $14,614 $14,336 $10 ($452)
--------- | -- ------- ------- --- -----
|
Comprehensive Income, Net of Tax: |
Net Income | 11,304
Foreign Currency |
Translation Adjustments | (19)
Total Comprehensive Income |
|
Issuance of Common Stock upon |
Exercise of Options 773,314 | 6,676
|
Purchase of Treasury Stock (317,670)| (6,207)
Warrants issued for Compensation | 215
--------- | --------- --------- --------- --------- ---------
Balance, June 30, 2000 8,983,695 | $1 $21,505 $25,640 ($9) ($6,659)
========= | == ======= ======= === =======
<CAPTION>
Total Other
Stockholders' Comprehensive
Equity Income
<S> <C> <C>
Balance, June 30, 1997 $16,191
-------
Comprehensive Income, Net of Tax:
Net Income 4,417 $4,417
======
Issuance of Common Stock upon
Exercise of Options 1,984
-------
Balance, June 30, 1998 22,592
-------
Comprehensive Income, Net of Tax: 6,234 6,234
Net Income
Foreign Currency
Translation Adjustments 10 10
---
Total Comprehensive Income $6,244
======
Other 64
Issuance of Common Stock upon
Exercise of Options 61
Purchase of Treasury Stock (452)
----
Balance, June 30, 1999 $28,509
-------
Comprehensive Income, Net of Tax:
Net Income 11,304 $11,304
Foreign Currency
Translation Adjustments (19) (19)
---
Total Comprehensive Income $11,285
=======
Issuance of Common Stock upon
Exercise of Options 6,676
Purchase of Treasury Stock (6,207)
Warrants issued for Compensation 215
---
Balance, June 30, 2000 $40,478
=======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ACTRADE FINANCIAL TECHNOLOGIES LTD. AND SUBSIDIARIES
(Formerly Actrade International, Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
------------------------------------------------------------------------------
Dollars in thousands except per share amounts
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $11,304 $ 6,234 $ 4,417
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 490 139 80
Loss on disposition of property and equipment 2 180 0
Bad debt expense 6,074 1,601 64
Deferred income 35 1,262 14
Income from qualifying special purpose entity (845) (505) 0
Deferred income taxes (688) (211) (12)
Compensation expense - amortization of warrants issued 215 64 0
Changes in operating assets and liabilities:
Accounts receivable - trade and
trade acceptance drafts receivable and investment in and
due from qualifying special purpose entity (30,589) (27,676) (596)
Other assets (356) (392) (62)
Accounts payable (310) (2,513) 1,167
Accrued expenses 560 948 (8)
Income taxes payable 801 (285) 218
-------- -------- --------
Net cash (used in) provided by operating activities (13,307) (21,154) 5,282
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,382) (898) (217)
-------- -------- --------
Net cash used in investing activities (1,382) (898) (217)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 6,676 61 1,984
Purchase of treasury stock (6,207) (453) 0
Change in short-term borrowings 18,445 14,261 (1,019)
-------- -------- --------
Net cash provided by financing activities 18,914 13,869 965
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,225 (8,183) 6,030
CASH, BEGINNING OF YEAR 5,199 13,382 7,352
-------- -------- --------
CASH, END OF YEAR $ 9,424 $ 5,199 $13,382
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year $ 1,883 $ 1,481 $ 24
======== ======== ========
Income taxes paid during the year $ 579 $ 561 $ 205
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ACTRADE FINANCIAL TECHNOLOGIES LTD. AND SUBSIDIARIES
(Formerly Actrade International, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
--------------------------------------------------
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Actrade Financial Technologies Ltd. (the
"Company"), formerly Actrade International, Ltd., is a publicly traded
holding company. Its business operations are conducted through several
wholly-owned subsidiaries. The Company's business operations are divided
into two principal segments: (1) the Trade Acceptance Draft ("TAD" or
"TADs") program which is operated by Actrade Capital, Inc. ("Capital") in
the United States and Actrade Capital Canada Inc. ("Actrade Canada") in
Canada and (2) international merchandise trade activities conducted by
Actrade International Corp. ("International"), Actrade South American LTD.
("Actrade SA") and Actrade Resources Inc. ("Resources"). Capital is the
developer of the TAD program, which enables Capital to purchase TADs from
various suppliers at a discount from their face value. International,
Actrade SA and Resources are engaged in international merchandise trading
through the direct purchase and re-sale of products from various foreign
suppliers. Other wholly-owned subsidiaries with limited operations include
Allstate Travel Corp. and Actrade Funding Corp. ("Funding"). As of June
30, 2000, Allstate Travel Corp. ceased operations.
CONSOLIDATION - The consolidated financial statements include the accounts
of the Company and its subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
CASH EQUIVALENTS - Cash equivalents include highly liquid short-term
investments with an original maturity of three months or less.
REVENUE RECOGNITION - Revenue from international merchandise trade
activities are recognized when title passes to the customer. Income from
TAD transactions are deferred and recorded as income over the term of the
TAD or earlier if the TAD is sold.
During the fourth quarter of the year ended June 30, 2000, the Company has
adopted the Securities and Exchange Commission Staff Accounting Bulletin
No. 101 ("SAB 101") - Revenue Recognition in Financial Statements. SAB 101
was issued to provide guidance in applying generally accepted accounting
principles to the large number of revenue recognition issues that
registrants encounter. Accordingly, the Company changed the income
statement presentation of Revenue - International Merchandise Trade from
reflecting sales and cost of sales to a net basis. In addition, the
Company will no longer disclose, in the consolidated statements of income,
Gross Sales - Trade Acceptance Drafts and Gross Sales - International
Merchandise Trade. The prior
<PAGE>
period presentation has been changed to conform to the current period
presentation. The adoption of SAB 101 did not have any impact on the net
income of the Company.
BAD DEBT AND ALLOWANCE FOR DOUBTFUL ACCOUNTS - The allowance for doubtful
accounts is maintained at a level sufficient to provide for estimated
credit losses based on evaluating known and inherent risks in the
receivables portfolio. The Company provides, through charges to income, an
allowance for doubtful accounts which, based upon management's evaluation
of numerous factors, including economic conditions, a predictive analysis
of the outcome of the current portfolio and prior credit loss experience,
is deemed adequate to cover reasonably expected losses inherent in
outstanding receivables.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets
(5-10 years). Leasehold improvements are amortized using the straight-line
method over the lesser of the term of the related lease or the estimated
useful life of the improvement.
SOFTWARE DEVELOPMENT COSTS - Certain computer software project costs
incurred during the application development stage have been capitalized
and are being amortized on a straight-line basis over a period of three
years in accordance with the American Institute of Certified Public
Accounts' Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. Such costs include
external direct costs of materials and services consumed in developing
internal-use software directly associated with internal-use software
projects and are included in Property and equipment on the consolidated
balance sheets.
LONG-LIVED ASSETS - The Company reviews for the impairment of long-lived
assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when estimated future cash flows expected to result
from the use of the asset and its eventual disposition is less than its
carrying amount.
ACCOUNTING FOR TRANSFERS OF FINANCIAL ASSETS - The Company has adopted
Financial Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which
requires an entity, after a transfer of financial assets that meets the
criteria to be accounted for as a sale, to recognize the financial assets
it controls and the liabilities it has incurred and to derecognize
financial assets when control has been surrendered.
ASSET SECURITIZATION AND QUALIFYING SPECIAL PURPOSE ENTITY - Funding was
incorporated in March 1999 as a wholly-owned, qualifying special purpose
subsidiary of Capital for the specific purpose of purchasing TADs from
Capital. SFAS No.125 requires that a qualifying special purpose entity,
which engages in qualified purchases of financial assets with an
affiliated company, be accounted for on an unconsolidated basis.
Sales of TADs from Capital to Funding occur on a periodic basis and are
recorded based on the relative fair value of TADs sold. Fair value is
estimated based on the present value of expected future cash flows using
management's best estimates and assumptions (discount rate, credit loss,
available market data, cost of servicing and transaction costs).
<PAGE>
The Company's residual interests in TADs sold to Funding are $7,430 and
$3,620 at June 30, 2000 and 1999, respectively, which are included in
Trade acceptance drafts receivable and investment in and due from
qualifying special purpose entity in the consolidated balance sheets, with
income from the residual interests included in Revenue - Trade Acceptance
Drafts in the consolidated statements of income.
INCOME TAXES - The Company uses the asset and liability approach for
financial accounting and reporting for income taxes. A valuation allowance
is established when necessary, to reduce deferred tax assets to the amount
expected to be realized.
COMPREHENSIVE INCOME - Effective July 1, 1998, the Company adopted SFAS
No. 130, Reporting Comprehensive Income. SFAS No. 130 requires that, as
part of a full set of financial statements, entities must present
comprehensive income, which is the sum of net income and other
comprehensive income. Other comprehensive income represents total
non-stockholder changes in equity. The Company has included its
presentation of comprehensive income in the accompanying consolidated
statements of stockholders' equity.
FOREIGN CURRENCY TRANSLATION - Balance sheet accounts of the Company's
foreign operations are translated at the exchange rate in effect at each
year-end and income statement accounts are translated at the average
exchange rate prevailing during the year. Gains and losses arising from
the translation of foreign subsidiary financial statements are included in
other comprehensive income.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform to the 2000 presentation.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the FASB issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, amended
by SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of The Effective Date of FASB Statement No. 133, and
SFAS No. 138, Accounting for Certain Derivative Financial Instruments and
Certain Hedging Activities - An Amendment of FASB Statement No. 133, which
is effective for all fiscal years beginning after June 15, 2000. SFAS No.
133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. Under SFAS No. 133, certain
contracts that were not formerly considered derivatives may now meet the
definition of a derivative. SFAS No. 133 is effective for the Company as
of July 1, 2000. Management does not expect the adoption of SFAS No. 133
to have a significant impact on the financial position or results of
operations of the Company.
<PAGE>
2. PROPERTY AND EQUIPMENT
The major categories of property and equipment are as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Computer equipment $ 865 $ 454
Furniture and fixtures 536 432
Computer software 1,007 168
Leasehold improvements 209 191
------- -------
2,617 1,245
Accumulated depreciation and amortization (773) (291)
------- -------
Net property and equipment $ 1,844 $ 954
======= =======
</TABLE>
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
trade acceptance drafts receivable and investment in and due from
qualifying special purpose entity, short-term borrowings and accounts
payable approximate fair value based on the short-term maturities of these
financial instruments.
4. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist primarily of cash and cash
equivalents, accounts receivable and trade acceptance drafts receivable.
The Company deposits certain funds with a bank located in Grand Cayman
Islands where there is no insurance on bank deposits. As of June 30, 2000,
the Company's uninsured deposits amounted to $8,517. Concentration of
credit risk with respect to accounts receivable and trade acceptance
drafts receivable is limited due to the Company's large number of
customers and their dispersion across many different industries and
countries worldwide. As of June 30, 2000, the Company had no significant
concentration of credit risk. To mitigate some of the credit risk related
to trade acceptance drafts receivable, the Company has a business credit
insurance policy of $12,500 and surety bonds guaranteeing payment of TADs
in the amount of approximately $37,300 as of June 30, 2000.
During the year ended June 30, 1999, a shareholder sold TADs to the
Company accounting for approximately 12 percent of revenue - Trade
Acceptance Drafts.
5. NET INCOME PER SHARE
The Company applies SFAS No. 128, Earnings per Share. In accordance with
SFAS No. 128, basic net income per share has been computed based on the
weighted average of common shares outstanding. Diluted net income per
share gives the effect of outstanding stock options. The treasury stock
method is used to calculate the dilutive effect of stock options issued.
All of the net income reported in the financial statements is available to
common shareholders.
<PAGE>
Net income per common share has been computed as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------ ------------------------- -------------------------
Basic Diluted Basic Diluted Basic Diluted
------- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Net Income $11,304 $11,304 $6,234 $6,234 $4,417 $4,417
------- ------- ------ ------- ------ ------
Weighted average of
shares outstanding 8,708,380 8,708,380 8,527,851 8,527,851 8,079,996 8,079,996
Weighted average of
options outstanding 503,494 282,416 823,730
------- ------- -------
Total equivalent shares 8,708,380 9,211,874 8,527,851 8,810,267 8,079,996 8,903,726
========= ========= ========= ========= ========= =========
Net income per common share $1.30 $1.23 $0.73 $0.71 $0.55 $0.50
===== ===== ===== ===== ===== =====
</TABLE>
Stock options that have exercise prices in excess of the average market
price during the year are considered antidilutive and are not included in
the calculation for net income per share. Options to purchase 599,619,
1,329,960 and 208,156 shares of common stock were outstanding in 2000,
1999 and 1998, respectively, but were not included for part or all of the
year in the computation of diluted earnings per share because their effect
would have been antidilutive.
6. COMMON STOCK AND STOCK OPTIONS
As part of its compensation to employees, the Company grants incentive
awards by issuing stock options from unissued common stock at the fair
market value at the date of grant. The Company has no formal stock option
plan. A summary of changes in outstanding stock options is as follows:
<PAGE>
<TABLE>
<CAPTION>
Number of Exercise Price Weighted Exercise
Options Per Share Price
<S> <C> <C> <C> <C>
Outstanding at June 30, 1997 1,643,389 $ 1.25 - $ 9.70 $ 3.65
----------
Granted 469,219 $ 10.00 - $ 19.50 $12.55
Canceled (318) $1.75 $ 1.75
Exercised (1,070,370) $ 1.25 - $ 6.40 $ 1.85
----------
Outstanding at June 30, 1998 1,041,920 $ 1.25 - $ 19.50 $ 9.50
----------
Granted 672,950 $ 11.10 - $ 16.70 $12.29
Canceled (18,500) $ 5.00 - $ 6.40 $ 4.11
Exercised (29,366) $ 5.00 - $ 14.30 $10.12
----------
Outstanding at June 30, 1999 1,667,004 $ 3.00 - $ 19.50 $10.68
----------
Granted 2,484,282 $ 12.00 - $ 16.19 $13.21
Canceled (29,500) $ 3.00 - $ 14.30 $10.35
Exercised (773,314) $ 5.00 - $ 16.70 $ 8.53
----------
Outstanding at June 30, 2000 3,348,472 $ 3.00 - $ 19.50 $13.22
==========
</TABLE>
The following table summarizes information about fixed-price stock options
outstanding at June 30, 2000.
<TABLE>
<CAPTION>
Number of
Weighted Weighted Options Weighted
Number of Average Average Exercisable Average
Range of Exercise Options Exercise Years to at June 30, Exercise
Prices Outstanding Prices Expiration 2000 Price
<S> <C> <C> <C> <C> <C>
$3.00 to $6.40 21,500 $5.02 0.41 21,500 $5.02
$10.00 to $12.88 974,707 $12.23 3.82 774,707 $12.22
$13.00 to $19.50 2,352,265 $13.70 3.55 1,592,265 $13.89
--------- ------ ---- --------- ------
Total 3,348,472 $13.22 3.61 2,388,472 $13.28
========= ====== ==== ========= ======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and selected interpretations in accounting
for its options. Accordingly, as all
<PAGE>
options have been granted at fair value on the date of grant, no
compensation expense has been recognized. Had compensation cost for the
Company's stock options been determined based upon the fair value at the
grant date for these awards consistent with the methodology prescribed
under SFAS No.123, Accounting for Stock-Based Compensation, the Company's
net income (loss) would have been $(5,390), $4,586 and $1,740 for 2000,
1999 and 1998, respectively. Basic net income per share would have been
$(.62), $.54 and $.20, for 2000, 1999 and 1998, respectively, and diluted
net income per share would have been $(.59), $.52 and $.20, for 2000, 1999
and 1998, respectively.
For the purpose of determining compensation expense under SFAS No. 123,
the fair value of each warrant or option is measured at the grant date
using the Black-Scholes option pricing model with the following
assumptions for the years 2000, 1999 and 1998. The dividend yield is 0%
for all years, volatility is 65%, 41% and 23%, respectively, the
risk-free interest rate is 6.11%, 5.38 % and 5.75%, respectively, and
expected lives are 4, 2 and 2 years, respectively. The fair values
generated by the Black-Scholes model may not be indicative of the future
benefit, if any, that may be received by the warrant holder.
7. DEFINED CONTRIBUTION PLAN
Employees of the Company have been able to participate in the Company's
defined contribution plan. The Company contributes 50 percent of the
employee's contribution up to 6% of the employee's gross pay. The
Company's expense related to the plan was $47, $54 and $3 for the years
ended June 30, 2000, 1999 and 1998, respectively.
8. SEGMENT INFORMATION
The Company adopted SFAS No.131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 requires the Company to
use a management approach in identifying segments of its business and
establishes standards for reporting information about segments.
The Company's business operations are divided into two principal business
segments: TAD program and international merchandise trade activities. The
Company's business segments are based on business units or entities that
offer different products and services. The TAD program is operated by
Capital in the United States and Actrade Canada in Canada. The
international merchandise trade activities are conducted by International,
Actrade SA and Resources. They are managed separately because each
business segment requires different strategic initiatives and marketing.
The Company's revenue, income before provision for income taxes,
depreciation and amortization, interest expense, total assets and capital
expenditures for each segment for the years ended June 30, 2000, 1999 and
1998 were as follows:
<PAGE>
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Revenue:
Trade Acceptance Drafts $16,872 $ 7,941 $ 3,300
International Merchandise Trade 14,775 8,431 4,840
------- ------- -------
$31,647 $16,372 $ 8,140
======= ======= =======
Income before Provision for
Income Taxes:
Trade Acceptance Drafts $ 1,177 $ 145 $ 778
International Merchandise Trade 10,326 6,246 4,062
------- ------- -------
$11,503 $ 6,391 $ 4,840
======= ======= =======
Depreciation and Amortization:
Trade Acceptance Drafts $ 480 $ 125 $ 60
International Merchandise Trade 10 14 20
------- ------- -------
$ 490 $ 139 $ 80
======= ======= =======
Interest Expense:
Trade Acceptance Drafts $ 1,902 $ 609 $ 0
International Merchandise Trade 3,535 1,168 21
------- ------- -------
$ 5,437 $ 1,777 $ 21
======= ======= =======
Total Assets:
Trade Acceptance Drafts $34,356 $27,724 $16,848
International Merchandise Trade 41,560 16,727 9,275
------- ------- -------
$75,916 $44,451 $26,123
======= ======= =======
Capital Expenditures:
Trade Acceptance Drafts $ 1,382 $ 876 $ 202
International Merchandise Trade 0 22 15
------- ------- -------
$ 1,382 $ 898 $ 217
======= ======= =======
</TABLE>
<PAGE>
The following table provides the Company's geographic information for
revenue, which is based on the location of transactions processed for TAD
program and the location of customers for international trade activities:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Revenue - Trade Acceptance Drafts:
United States $16,519 $7,844 $3,300
Canada 353 97 0
------- ------ ------
$16,872 $7,941 $3,300
======= ====== ======
Revenue - International Merchandise Trade:
United States $3 $0 $70
South America 5,796 3,405 1,751
Eastern Europe 1,231 0 0
Western Europe 1,708 3,631 1,915
Far East 2,382 787 451
Middle East 2,003 472 653
Other Non-U.S. Countries 1,652 136 0
------- ------ ------
$14,775 $8,431 $4,840
======= ====== ======
</TABLE>
9. INCOME TAXES
Income before provision for income taxes is comprised of the following for
the years ended June 30:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
United States $ 1,254 $ 269 $ 865
Foreign 10,249 6,122 3,975
------- ------- -------
$11,503 $ 6,391 $ 4,840
======= ======= =======
</TABLE>
<PAGE>
Provision for income taxes is comprised of the following for the years
ended June 30:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Current tax expense:
Federal $ 616 $ 250 $ 265
State and local 271 118 170
----- ----- -----
887 368 435
----- ----- -----
Deferred tax benefit:
Federal (497) (143) (8)
State and local (191) (68) (4)
----- ----- -----
(688) (211) (12)
----- ----- -----
$ 199 $ 157 $ 423
===== ===== =====
</TABLE>
A reconciliation of income tax expense at the statutory rate to income tax
expense at the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Statutory U.S. Federal rate 34.0% 34.0% 34.0%
State and local income taxes (net
of Federal tax benefit) 0.5 0.5 3.5
Undistributed earnings of foreign subsidiaries (30.3) (32.6) (27.9)
Income from qualifying special
purpose entity (2.5) 0.0 0.0
Other 0.0 0.6 (0.9)
---- ---- ----
1.7% 2.5% 8.7%
==== ==== ====
</TABLE>
<PAGE>
Deferred income taxes are comprised of the following as of June 30:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $1,129 $681
------ ----
Deferred tax liabilities:
Depreciation and amortization (121) (91)
Securitization (103) (373)
---- ----
(224) (464)
---- ----
Net $905 $217
==== ====
</TABLE>
Income tax has not been provided on unrepatriated earnings of foreign
subsidiaries, as currently it is the intention of the Company to reinvest
such earnings in their foreign operations. The cumulative amount of
foreign undistributed earnings was approximately $24,800 as of June 30,
2000.
10. SHORT-TERM BORROWINGS
On February 1, 2000, Capital renewed its existing credit agreement with a
bank in the amount of $10,000. This agreement continues in full force and
effect until it is terminated by either party giving at least 60 days
notice. Interest on borrowings is determined based on the bank's prime
rate. As of June 30, 2000, Capital had borrowings of $3,705 under this
agreement at an average interest rate of 9.0%. In addition, on March 16,
2000, Capital entered into a revolving credit agreement with the same bank
for $30,000, expiring at the end of December 2000. As of June 30, 2000,
Capital had borrowings of $10,377 under this agreement with the interest
rate determined based on the bank's prime rate.
On June 2, 2000, Capital entered into a revolving credit agreement with a
bank in the amount of $20,000, expiring November 2000. Interest on
borrowings is determined based on the bank's prime rate. As of June 30,
2000, Capital had borrowings of $12,490 under this credit agreement at an
average interest rate of 8.7%. On September 16, 1999, Actrade Canada
entered into a credit agreement with a bank in the amount of $5,000
Canadian dollars, expiring December 20, 2000. Interest on borrowings is
determined based on the bankers' acceptance rate. As of June 30, 2000, the
Company had borrowings of $3,170 under this credit agreement at an average
interest rate of 6.5%. As of June 30, 2000, Actrade Capital and Actrade
Canada had total borrowings of $29,700 under these credit agreements with
a weighted average interest rate of approximately 8.5%. Under the terms of
the agreements, the proceeds from borrowings are to be utilized
exclusively to finance the Company's TAD program and all of the borrowings
are secured by TADs, which are pledged to the banks.
In addition, International had a $3,000 open letter of credit with a bank
expiring March 20, 2001.
<PAGE>
11. ASSET SECURITIZATION AND QUALFYING SPECIAL PURPOSE ENTITY
In March 1999, through, Funding, a wholly-owned, qualifying special
purpose subsidiary of Capital, the Company entered into an asset
securitization program with a financial institution whereby Capital sells
TADs to Funding for the proceeds of up to $25,000.
The financial information of Funding as of and for the periods ended June
30, 2000 and 1999 is summarized as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Cash and cash equivalents $ 387 $ 1,280
Trade acceptance drafts receivable, net 8,947 10,650
Other current assets 225 309
------- -------
Total assets $ 9,559 $12,239
======= =======
Short-term borrowings $ 3,667 $ 9,510
Other current liabilities 4,541 2,223
------- -------
Total liabilities 8,208 11,733
Stockholder's equity 1,351 506
------- -------
Total liabilities and stockholder's equity $ 9,559 $12,239
======= =======
Revenue $ 4,473 $ 1,090
Net operating expenses (3,628) (585)
------- -------
Net income $ 845 $ 505
======= =======
</TABLE>
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
Leases - The Company is committed to various noncancelable operating
leases for office space. Future minimum lease payments required under
these leases at June 30 are as follows:
<TABLE>
<CAPTION>
June 30, Amount
-------- ------
<S> <C>
2001 $599
2002 535
2003 528
2004 429
2005 and thereafter 149
------
2,240
Sub-leases (83)
------
Total minimum lease payments $2,157
======
</TABLE>
Rent expense for the years ended June 30, 2000, 1999 and 1998 was $561,
$345 and $182, respectively.
Letters of Credit - The Company is contingently liable for letters of
credit amounting to $71 as of June 30, 2000.
13. LEGAL MATTERS
a. During the year ended June 30, 2000, a participant in Capital's TAD
Program defaulted under its obligations in the principal amount of
approximately $4,000. This obligation was secured by both the personal
guarantees of its principal and by a surety bond. After numerous attempts
to resolve the dispute, the matter resulted in litigation being
instituted by the participant against Capital to preclude Capital from
its efforts to secure payment under the surety bond. This suit, initially
filed in the Superior Court of the State of Georgia, was removed and is
presently pending in the United States District Court for the Northern
District of Georgia. The surety company was originally joined as a
defendant in this suit. However, upon motion by Capital, the surety
company was realigned by the Court as a plaintiff in the action and
removal of the suit to the Federal District Court was affirmed. The
complaint alleges claims of breach of contract and misrepresentation
against Capital. Capital has filed counterclaims against the plaintiffs
for breach of contract seeking repayment of TADs that are in default and
filed claims against the surety company for breach of contract resulting
from their failure to pay under the express terms of the bond. At the
present time, the discovery phase of the litigation has begun under a
favorable ruling from the Court limiting the discovery period to six
months. Based upon the facts of the matter and upon the opinion of its
litigation counsel, Capital believes that the plaintiff's claims are
spurious in nature, that it has valid defenses to the claims against it
and that it will ultimately prevail in the suit and obtain payment from
plaintiff or, in the alternative, from the surety company pursuant to the
terms of the surety bond.
<PAGE>
b. In another unrelated matter, a California company defaulted under its
obligations to Capital in the principal amount of approximately $1,300.
The total defaulted TADs were in the original principal amount of
approximately $6,300 and were fully insured by two surety bonds issued in
favor of Capital. After the default, Capital filed claims with both
surety companies. One surety company paid $5,000 to Capital as required
by its surety bond. The second surety, which is the same surety company
that issued the bond referred to under paragraph (a) above, refused
payment in breach of its obligations under its bond. That surety company,
as plaintiff, filed a complaint in the Superior Court of California,
County of Los Angeles, Central District, against the principals of the
defaulting party to force those persons to post certain collateral they
had promised to deliver in connection with the surety agreeing to issue
the surety bond. This complaint was amended by the surety company to
include Capital, among several other parties, as a defendant in that
action. The plaintiff brought claims against Capital seeking to avoid its
obligation to Capital on a number of surety bonds, which secured
underlying transactions between Capital and certain of its program
participants. In essence, plaintiff has alleged breach of contract and
fraud against Capital. Discovery has begun in this action. Capital
believes that the surety's claims of fraud are totally without merit and
intended solely to avoid its obligations under its surety bonds and
Capital intends to file a motion to dismiss these claims. Based upon the
facts of the matter and upon the opinion of its litigation counsel,
Capital believes that the plaintiff's claims are spurious in nature, that
it has valid defenses to the claims against it and that it will
ultimately prevail in the suit and obtain payment from plaintiff or, in
the alternative, pursuant to the terms of the surety bond.
c. Capital is involved in several other routine suits primarily relating
to the collection of defaulted TADs. However, none of these other suits,
individually or in the aggregate, represents amounts that, in
management's opinion, are material or which could have a material adverse
impact upon either the business or financial condition of either Capital
or the Company.
In all of the pending suits, neither the Company nor any of its other
subsidiaries, except Capital, are parties.
While it is not possible to predict with certainty the outcome of these
cases, it is the opinion of management that these pending lawsuits,
claims and proceedings will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
<PAGE>
14. QUARTERLY INFORMATION (UNAUDITED)
The following table shows results of operations for each of the quarters
during fiscal 2000 and 1999.
<TABLE>
<CAPTION>
September 30, December 31, March 31, June 30, Fiscal Year
1999 1999 2000 2000 2000
<S> <C> <C> <C> <C> <C>
Revenue:
Trade Acceptance Drafts $4,073 $4,078 $4,681 $4,040 $16,872
International Merchandise Trade 2,680 2,844 3,483 $5,768 $14,775
------ ------ ------ ------ -------
Total Revenue $6,753 $6,922 $8,164 $9,808 $31,647
====== ====== ====== ====== =======
Net Income $2,508 $1,999 $3,187 $3,610 $11,304
====== ====== ====== ====== =======
Net Income per Common Share:
Basic $0.29 $0.23 $0.36 $0.41 $1.30
===== ===== ===== ===== =====
Diluted $0.29 $0.22 $0.35 $0.38 $1.23
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31, March 31, June 30, Fiscal Year
1998 1998 1999 1999 1999
<S> <C> <C> <C> <C> <C>
Revenue:
Trade Acceptance Drafts $ 786 $1,635 $1,566 $3,954 $ 7,941
International Merchandise Trade 1,507 1,573 1,949 3,402 $ 8,431
------ ------ ------ ------ -------
Total Revenue $2,293 $3,208 $3,515 $7,356 $16,372
====== ====== ====== ====== =======
Net Income $1,131 $1,416 $1,373 $2,314 $ 6,234
====== ====== ====== ====== =======
Net Income per Common Share:
Basic $0.13 $0.17 $0.16 $0.27 $0.73
===== ===== ===== ===== =====
Diluted $0.13 $0.16 $0.16 $0.27 $0.71
===== ===== ===== ===== =====
</TABLE>
The prior period presentation of revenue has been changed to conform to the
current period presentation.
<PAGE>
SCHEDULE II
ACTRADE FINANCIAL TECHNOLOGIES LTD.
(Formerly Actrade International, Ltd.)
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to
Beginning Costs and Balance at
Description of Year Expenses Deductions End of Year
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Year Ended June 30, 2000
Allowance for doubtful accounts $1,560 $6,074 $4,590 $3,044
====== ====== ====== ======
Year Ended June 30, 1999
Allowance for doubtful accounts $ 62 $1,601 $ 103 $1,560
====== ====== ====== ======
Year Ended June 30, 1998
Allowance for doubtful accounts $ 35 $ 64 $ 37 $ 62
====== ====== ====== ======
</TABLE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) AND (b) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS.
The following identification of officers and directors, including biographies,
set forth the present officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
---- --- ---------------
<S> <C> <C>
Amos Aharoni 55 Chief Executive Officer of the Company and each of its
subsidiaries, except Capital; Director of the Company
Alexander C. Stonkus 41 President and Chief Operating Officer of the Company
and Capital and Director of the Company.
Joseph P. D'Alessandris 55 Chief Financial Officer of the Company
John Woerner 63 President of Actrade International, Corp.; and Director
Of the Company
Elizabeth Melnik 51 Secretary of the Company
Robert Furstner 67 Director of the Company
Harry Friedman 73 Director of the Company
</TABLE>
Directors hold office until the next annual shareholders meeting or until their
death, resignation, retirement, removal, disqualification, or until a successor
has been elected and qualified. Vacancies in the Board are filled by majority
vote of the remaining Directors. Officers of the Company serve at the will of
the Board of Directors. There are no family relationships among the Officers,
and there are no arrangements or understandings pursuant to which they were
elected officers. All officers hold office for one year or until their
successors are elected and qualified, unless otherwise specified by the Board of
Directors; provided, however, that any officer is subject to removal with or
without cause, at any time, by a vote of the Board of Directors.
Both Mr. Friedman and Mr. Furstner serve on the Company's Audit Committee
together with Mr. Aharoni.
Biographical Information for Officers and Directors:
AMOS AHARONI was appointed Chief Executive Officer of the Company effective
February 20, 1991. However, since inception of the Company in 1987, Mr. Aharoni
served as the financial executive of the Company and its subsidiaries. Since
1987, Mr. Aharoni has been president of NTS Corporation, a foreign holding
corporation. NTS Corporation is also the principal shareholder of the Company.
Mr. Aharoni received his Bachelor of Arts Degree in Economics and Political
Science from
<PAGE>
Hebrew University of Jerusalem in 1974. He moved permanently to the United
States in 1985 and has been actively involved in all aspects of international
trade since that time.
ALEXANDER C. STONKUS currently serves as President and Chief Operating Officer
for the Company and also as President of Actrade Capital, Inc., a wholly owned
subsidiary. He is also a director of the Company and each of its subsidiaries.
Prior to joining Actrade, Mr. Stonkus served in various senior management
positions with Elco Freight International, Inc., a full service shipping,
customs broker, warehousing, and Distribution Company. Mr. Stonkus has served on
the Board of Directors of various companies during his professional career. He
graduated from The Pennsylvania State University in 1982 receiving a Bachelor of
Science Degree in Finance.
JOSEPH P. D'ALESSANDRIS has served as Chief Financial Officer of the Company
since September 13, 1999. Prior to joining the Company, Mr. D'Alessandris served
as International Controller for Information Builders, Inc.; a New York based
computer Software Corporation. Prior to joining Information Builders, Mr.
D'Alessandris worked in several management positions for Engelhard Corporation;
a New Jersey based corporation from 1976 through 1990. From 1969 to 1976 Mr.
D'Alessandris was a senior auditor with Arthur Anderson. Mr. D'Alessandris
received his Bachelor of Science degree in Economics form Villanova University
in 1967 and his Masters Degree in Accounting and Finance from Ball State
University in 1969. He is a Certified Public Accountant in New Jersey and a
member of the New Jersey and American Institute of Certified Public Accountants.
JOHN WOERNER has been a Vice President of Actrade International Corp., a wholly
owned subsidiary of the Company, since September 1991. Effective January 15,
1992, Mr. Woerner was appointed Vice President and a Director of the Company. In
fiscal 1998, Mr. Woerner was appointed President of Actrade International Corp.
From March 1987 until joining Actrade, Mr. Woerner was employed as Marketing
Manager with Ad Auriema, Inc., a privately held import/export company
headquartered in the New York metropolitan area. From December 1984 until March
1987, Mr. Woerner served as a General Manager of the Air Conditioning and
Refrigeration Division for Connell Export Company, also a privately held export
company located in New Jersey. From July 1978 until March 1987, he was a
principal of Global Systems, Inc., a privately held import/export company that
he co-founded. From April 1965 through July 1978, Mr. Woerner served as Vice
President of Sillcox Air Conditioning & Refrigeration Corp., a privately held
corporation located in New York City. Mr. Woerner is a licensed Professional
Engineer in New York and New Jersey and is a member of the American Society of
Heating, Refrigeration & Air Conditioning Engineers. Mr. Woerner is a graduate
of Lehigh University having received his Bachelors of Science Degree in
Mechanical Engineering in 1959.
ELIZABETH MELNIK was first employed by the Company as Controller in October
1993, having been promoted to Secretary of the Company as of November 1, 1996.
From December 1991 until joining the Company, Ms. Melnik was employed as
Financial Manager of Gainsborough Marketing Company, a privately held public
relations/marketing firm located on Long Island, NY. From June 1989 until
December 1991 Ms. Melnik served as Accounting/Office Manager for Scheine, Fusco,
Brandenstein & Rada, the largest Workers Compensation Law Firm on Long Island,
NY. Prior thereto, from May 1986, she served as director of Operations & Media
for Futuristic Concepts in Advertising, a privately held advertising firm also
located on Long Island NY. From February 1982 until May 1986, Ms. Melnik served
as Financial Manager for The Guide Dog Foundation for the Blind, Inc., a
not-for-profit corporation located in Smithtown, NY. Ms. Melnik graduated from
the State University of New York at Stonybrook in 1976 receiving her Bachelor of
Arts Degree in Finance & Accounting.
<PAGE>
ROBERT E. FURSTNER has served as a director of the Company since August 1996.
Mr. Furstner had been a senior level banking officer for over 25 years, having
begun his banking career in the International Banking Division of Morgan
Guaranty Trust Company in New York City. Following his employment with Morgan
Guaranty Trust Co., Mr. Furstner served a brief tenure (1973 - 1974) with
Franklin National Bank's International Banking Department in New York City. In
1974 Mr. Furstner joined European American Bank in New York City as Assistant
Treasurer/Assistant Vice President (from 1974 - 1979) rising to the position of
Vice President/Group Head which he held from 1979 until leaving European
American Bank in 1987. His duties at European American Bank primarily involved
international credit and bank operations. During his tenure Mr. Furstner was
charged with the management of a geographical area comprising Great Britain, The
Netherlands, the Nordic Countries, Eastern Europe, Yugoslavia and Israel. He was
directly involved in export and project financing, both with and without
Eximbank (the Export-Import Bank of The United States) participation and was
actively involved in the implementation of the bank's lending strategies in
order to reduce exposure in high risk countries. Mr. Furstner was also a
participant in the re-scheduling of Polish, Romanian and Yugoslavian
international debt. After 1987, until his retirement in late 1995, Mr. Furstner
served with the New York Branch of Banco Portugues do Atlantico, SA, in various
capacities and most recently where he was charged with implementing the bank's
lending strategies for trade finance. Educated in the Netherlands, Mr. Furstner
came to the U.S. in 1962 with a degree equivalent to a bachelor's degree in
business administration and foreign languages.
HARRY FRIEDMAN has served as director of the Company since August 1996.
Professor Friedman currently teaches a Venture Capital Seminar in the MBA
program at Columbia University Graduate School of Business. He also taught
various courses at the Stern Graduate School of Business at New York University,
including "Venture Capital Investing," "Investment Timing and Portfolio
Management," "Mergers and Acquisitions" and "High Technology Investing" from
1978-1999. Earlier, he taught at a number of universities both in the United
States and abroad (including Iran and Japan), and has lectured on small business
and innovative entrepreneurship under USIA auspices in Tanzania and Zimbabwe.
His education at UCLA; University of Chicago; the University of Wisconsin; and
NYU has ranged from mathematics to economics to finance. Professor Friedman
published "Mergers and Acquisitions - Offensive and Defensive Strategies" which
appears as a chapter in the Handbook for Corporate Controllers, and co-authored
with Tomilson Hill III, an article in Corporate Accounting", Financial
Implications of Offense and Defense in Corporate Takeovers". He has edited and
reviewed books for Prentice-Hall and Xerox Learning Systems. He as appeared as a
guest panelist on various financial television programs, and as an expert
witness before the IRS and the New York Supreme Court. As a management
consultant and investment advisor, he has negotiated several mergers,
acquisitions, and IPOs. Professor Friedman has served on the board of directors
for diverse companies over the years, both public and private. He currently
serves on the board, or is an advisor to the board, of five companies.
2. DIRECTORSHIPS
None, other than listed above.
(f) OTHER INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
There have been no events under any bankruptcy act, no criminal proceedings and
no judgments or injunctions material to the evaluation of the ability and
integrity of any director or executive officer during the past five years.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information relating to remuneration received by
officers and directors as of June 30, 2000, the end of the Company's most recent
fiscal year, as well as indicating the compensation agreements for fiscal 2001:
<TABLE>
<CAPTION>
Annual Compensation Long term Compensation
Name and Principal Position Year Salary Bonus Restricted Stock Awards All Other Compensation
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amos Aharoni, CEO (2) 2000 $200,000 2,500 Warrants (5) $1,887 (3)
1999 $146,000 386,671 Warrants
Alexander C. Stonkus, COO (9) 2000 $178,522 227,500 Warrants (5) $4,583 (6)
1999 $111,000 $55,000 42,500 Warrants $7,050 (7)
Joseph P. D'Alessandris, CFO (4) 2000 $125,000 17,500 Warrants $2,564 (6)
John Woerner, Vice Pres. 2000 2,500 Warrants (5) $65,499 (8)
1999 $56,000 2,500 Warrants
Elizabeth Melnik, Secretary 2000 $58,312 2,500 Warrants (5) $2,592 (7)
1999 $52,000 2,500 Warrants
</TABLE>
-------------------------------------------------------
(1) The Company has varying compensation arrangements with its executive
officers as more particularly described below. It should be noted that
the figures listed as "salary" include both base salary and earned
commissions, but not annual bonus amounts, if any, which are listed
separately under the "bonus" column.
(2) Mr. Aharoni served as an employee of the Company until December 31,
1998. Beginning January 1, 1999 the Company continued to retain his
services in the same capacities as before pursuant to an Executive
Services Agreement with High Sunset Corp., a personal service
corporation for Mr. Aharoni. The terms of Mr. Aharoni's engagement
remain the same except that the management fee payable to High Sunset
Corp. was increased to $200,000 per year, plus the quarterly bonus.
(3) The amount set forth herein includes amounts paid by the Company for
the insurance premiums on Mr. Aharoni's automobile through June 30,
2000.
(4) The Company has employed Mr. Joseph P. D'Alessandris since August 18,
1999. Under his employment agreement, he receives a base salary of
$125,000 per year. In addition to his salary, Mr. D'Alessandris was
granted 10,000 Warrants at $13.875. On December 21, 1999, the Board
awarded Mr. D'Alessandris an additional 10,000 Warrants at a price of
$13.63 per share. Effective July 1, 2000, Mr. D'Alessandris' base
salary was increased to $150,000 per year
(5) In April 2000, the Board of Directors approved the issuance of Warrants
to the Company's directors in lieu of compensation. Each Director who
was also an employee of the Company or any of its subsidiaries received
2,500 Warrants and the Company's two independent Directors received
5,000 Warrants each.
(6) This amount includes payments made by the Company for health insurance
premiums on behalf of the officer and his family.
(7) This amount includes 401K contributions made by the Company on behalf
of the officer.
<PAGE>
(8) Mr. Woerner became an officer and employee of the Company as of
September 6, 1991 and had been employed pursuant to a written
employment agreement until February 1, 1999. Effective February 1,
1999, Mr. Woerner's status as an employee of the Company was terminated
and he continued to oversee the operations of Actrade International
Corp. as an independent consultant. His compensation under this new
arrangement is based upon commissions only, with no base salary,
bonuses, etc., equal to 50% of International's gross profits (equal to
gross sales less cost of sales less financing costs actually incurred).
(9) The Company has employed Mr. Alexander C. Stonkus since August 18,
1997. He was originally employed as Chief Operating Officer for the
Company and Capital. December 1, 1997, Mr. Stonkus assumed the duties
as Chief Financial Officer of the Company and President of Capital. Mr.
Stonkus relinquished his duties as CFO on September 13, 1999 with the
appointment of Mr. D'Alessandris as CFO. On July 29, 1999 Mr. Stonkus
assumed the position of President of the Company. On October 1, 1999,
the Company issued 100,000 warrants to Mr. Stonkus at an exercise price
of $13.75. On April 17, 2000, Mr. Stonkus's agreement was modified to
increase his base salary to $175,000 per year and has been granted
125,000 warrants at a price of $12.25 per share.
Except as herein above described, the Company has no other employment contracts.
Further, it has no retirement, pension, profit sharing, insurance or medical
reimbursement plan covering its officers or directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
None other than stated in (b) below.
(b) SECURITY OWNERSHIP OF MANAGEMENT
<PAGE>
<TABLE>
<CAPTION>
Name Relationship # of Shares Percentage (1)
<S> <C> <C> <C>
NTS Corp. (2) Shareholder 2,345,549 26.11%
P.O. Box 1301
Nevis Street, St. John
Antigua, West Indies
Amos Aharoni (2) Officer & Director 2,345,549 26.11%
2373 Braodway
New York, NY 10024
Alexander C. Stonkus Officer & Director & Shareholder 10,000 0.11%
27 Crestview Drive
Kendall Park, NJ 08824
Joseph P. D'Alessandris Officer & Shareholder 2,000 0.02%
1422 Janet Place
Wall, NJ 07719
Elizabeth Melnik Officer & Director & Shareholder 20,000 0.22%
53 Cedar Street
Kings Park, NY 11754
John Woerner (3) Officer & Director & Shareholder 9,150 0.10%
435 Whitewood Road
Englewood, NJ 07631
Robert Furstner (4) Director & Shareholder 11,630 0.13%
843 Winyah Avenue
Westfield, NJ 07090
Harry Friedman (5) Director & Shareholder 2,500 0.03%
52 Ravine Drive
Matawan, NJ 07747
Officers & Directors as a group (7 persons) 2,400,829 26.72%
</TABLE>
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(1) Based upon 8,541,051 shares issued and outstanding at June 30, 1999 without
considering the effect of the possible exercise of outstanding warrants to
management or others.
(2) Mr. Amos Aharoni controls the business of and is the sole officer and
director of NTS Corporation, which is the Company's principal shareholder.
By reason of his position with NTS Corp., Mr. Aharoni may be deemed to have
a beneficial interest in the Shares owned by NTS Corporation. Mr. Aharoni
owns no Shares apart from those owned by NTS Corporation.
(3) Includes 3,650 shares that Mr. Woerner owns jointly with his mother.
(4) Includes 5,630 shares owned by Mr. Furstner's wife with respect to which he
may be deemed to have a beneficial interest and 370 shares owned by Mr.
Furstner's son with respect to which he may be deemed to have a beneficial
interest.
(5) Includes 2,500 shares owned by Mr. Friedman's wife with respect to which he
may be deemed to have a beneficial interest.
(c) CHANGES IN CONTROL.
<PAGE>
None
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The Company has been registered pursuant to Section 12 of the Securities
Exchange Act of 1934 since September 23, 1990 and, by reason thereof, all
officers, directors and 10% or more shareholders of the Company became obligated
to file Forms 3, 4 and 5, describing the ownership of securities in the Company
and any changes thereto, as they may apply, since that date.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Exhibits: None
Reports on Form 8-K:
1. Report dated April 14, 1999 relating to the resignation of Zeller, Weiss &
Kahn, the Company's former independent auditors; and
2. Report dated June 30, 1999 relating to the appointment of Deloitte & Touche
LLP as the Company's new independent auditors;
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ACTRADE FINANCIAL TECHNOLOGIES LTD.
Date: September 25, 2000 By: /s/ Amos Aharoni
--------------------------------
Amos Aharoni, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Dated: September 25, 2000 By: /s/ Amos Aharoni
----------------------------------
Amos Aharoni, Chief Executive
Officer & Director
Dated: September 25, 2000 By: /s/ Alexander C. Stonkus
----------------------------------
Alexander C. Stonkus, President,
Chief Operating Officer, and Director
Dated: September 25, 2000 By: /s/ Joseph P. D'Alessandris
----------------------------------
Joseph P. D'Alessandris, Chief
Financial Officer
Dated: September 25, 2000 By: /s/ John Woerner
----------------------------------
John Woerner, Senior Vice President
and Director
Dated: September 25, 2000 By: /s/ Elizabeth Melnik
----------------------------------
Elizabeth Melnik, Secretary and Director
Dated: September 25, 2000 By: /s/ Robert Furstner
----------------------------------
Robert Furstner, Director
Dated: September 25, 2000 By:/s/Harry Friedman
----------------------------------
Harry Friedman, Director
</TABLE>
