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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
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For the quarterly period ended September 30, 2000
Commission File Number 0-18711
ACTRADE FINANCIAL TECHNOLOGIES LTD.
(formerly Actrade International, Ltd.)
Incorporated under the laws of the State of Delaware
I. R. S. Employer Identification Number 13-3437739
7 Penn Plaza, Suite 422, New York, N.Y. 10001
Telephone Number (212) 563-1036
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of Shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date. As of October 16, 2000 there
were outstanding 9,026,517 shares of Common Stock, par value $.0001.
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INDEX
Part I. Financial Information
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated balance sheets as of September 30, 2000 and
June 30, 2000 3
Consolidated statements of income for the
three months ended September 30, 2000 and 1999 4
Consolidated statements of cash flows for
the three months ended September 30, 2000 and 1999 5
Notes to consolidated financial statements 6
Item 2. Management's discussion and analysis of financial condition and
results of operations 7
Part II. Other Information
Item 6. Exhibits and reports on Form 8-K 13
Signatures 14
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ACTRADE FINANCIAL TECHNOLOGIES LTD. AND SUBSIDIARIES
(Formerly Actrade International, Ltd.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
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Dollars in thousands except per share amounts
September 30, 2000 June 30, 2000
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $6,588 $9,424
Accounts receivable - trade 25,084 18,202
Trade acceptance drafts receivable and investment in and due from
qualifying special purpose entity (net of deferred income
and allowance for doubtful accounts of $1,385 and $3,544 at
September 30, 2000 and $1,311 and $3,044 at June 30, 2000) 33,923 44,717
Deferred income taxes 1,154 905
Other current assets 261 423
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Total Current Assets 67,010 73,671
PROPERTY AND EQUIPMENT, NET 1,909 1,844
OTHER ASSETS 718 401
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TOTAL ASSETS $69,637 $75,916
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $21,042 $32,707
Accounts payable 257 373
Accrued expenses 2,077 1,557
Income taxes payable 865 801
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Total Current Liabilities 24,241 35,438
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STOCKHOLDERS' EQUITY:
Common stock, $0.0001 par value; authorized
100,000,000 shares, issued and outstanding
9,399,747 shares and 9,026,517 shares at September 30, 2000 and
9,332,865 shares and 8,983,695 shares at June 30, 2000 1 1
Additional paid-in capital 22,314 21,505
Retained earnings 30,535 25,640
Accumulated other comprehensive income (loss) 14 (9)
Treasury stock at cost; 373,230 shares at September 30, 2000 and
349,170 shares at June 30, 2000 (7,468) (6,659)
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Total Stockholders' Equity 45,396 40,478
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $69,637 $75,916
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</TABLE>
See notes to consolidated financial statements.
3
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ACTRADE FINANCIAL TECHNOLOGIES LTD. AND SUBSIDIARIES
(Formerly Actrade International, Ltd.)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
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Dollars in thousands except per share amounts
Three months ended September 30,
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2000 1999
<S> <C> <C>
Revenue:
Trade Acceptance Drafts $6,356 $4,073
International Merchandise Trade 6,197 2,680
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Total Revenue 12,553 6,753
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Operating Expenses:
General and administrative (2,572) (2,039)
Bad debt (571) (931)
Interest, net (3,709) (922)
------ ----
Total Operating Expenses (6,852) (3,892)
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Income before Provision for Income Taxes 5,701 2,861
Provision for Income Taxes (806) (353)
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Net Income $4,895 $2,508
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Net Income per Common Share:
Basic $0.54 $0.29
Diluted $0.46 $0.29
Weighted Average Number of Shares Outstanding:
Basic 8,992,816 8,528,051
Diluted 10,625,041 8,780,414
</TABLE>
See notes to consolidated financial statements.
4
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ACTRADE FINANCIAL TECHNOLOGIES LTD. AND SUBSIDIARIES
(Formerly Actrade International, Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
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Dollars in thousands except per share amounts
Three months ended September 30,
----------------------------------------
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $4,895 $2,508
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 190 66
Bad debt expense 571 931
Deferred income 74 137
Income from qualifying special purpose entity (68) (424)
Deferred income taxes (249) 3
Changes in operating assets and liabilities:
Accounts receivable - trade and
trade acceptance drafts receivable and investment in and
due from qualifying special purpose entity 3,335 (21,811)
Other assets (132) (634)
Accounts payable (116) 640
Accrued expenses 520 422
Income taxes payable 64 4
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Net cash provided by (used in) operating activities 9,084 (18,158)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (255) (416)
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Net cash used in investing activities (255) (416)
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CASH FLOWS FROM FINANCING ACTIVITIES
Change in short-term borrowings (11,665) 17,996
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Net cash provided by financing activities (11,665) 17,996
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NET DECREASE IN CASH AND CASH EQUIVALENTS (2,836) (578)
Cash and cash equivalents, beginning of year 9,424 5,199
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CASH AND CASH EQUIVALENTS, END OF PERIOD $6,588 $4,621
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Supplemental disclosures of cash flow information:
Interest paid during the period $3,520 $309
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Income taxes paid during the period $1,024 $508
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Exercise of options in exchange for common stock $809 $665
======= ======
</TABLE>
See notes to consolidated financial statements.
5
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ACTRADE FINANCIAL TECHNOLOGIES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Dollars in thousands
1. Summary of Significant Accounting Policies:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a
fair presentation have been included. The results of operations for the
three months ended are not necessarily indicative of the results to be
expected for the full year. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Annual Report of Actrade Financial Technologies Ltd. (the "Company") and
subsidiaries on Form 10-K for the fiscal year ended June 30, 2000.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.
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. It also requires disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
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 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.
2. Segment Information:
The Company's business operations are divided into two principal business
segments: Trade acceptance drafts program and international merchandise
trade activities. The Company's business segments are based on business
units or entities that offer different products and services. They are
managed separately because each business segment
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requires different strategic initiatives and marketing.
Revenue, income before provision for income taxes, depreciation and
amortization, interest expense and total assets for each segment for the
three months ended September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
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2000 1999
<S> <C> <C>
Revenue:
Trade Acceptance Drafts $6,356 $4,073
International Merchandise Trade 6,197 2,680
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$12,553 $6,753
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Income before Provision for
Income Taxes:
Trade Acceptance Drafts $1,615 $849
International Merchandise Trade 4,086 2,012
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$5,701 $2,861
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Depreciation and Amortization:
Trade Acceptance Drafts $186 $62
International Merchandise Trade 4 4
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$190 $66
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Interest Expense:
Trade Acceptance Drafts $2,060 $407
International Merchandise Trade 1,690 524
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$3,750 $931
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September 30, 2000 June 30, 2000
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Total Assets:
Trade Acceptance Drafts $24,794 $34,356
International Merchandise Trade 44,843 41,560
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$69,637 $75,916
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</TABLE>
ITEM 2. 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
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forward looking statements under the 1995 Private Securities Litigation
Reform Act (the "Reform Act") that involve various risks and uncertainties.
Typically, these statements are indicated by words such as "anticipates,"
"expects," "believes," "plans," "could," and similar words and phrases.
Factors that could cause the Company's actual results to differ materially
from management's projections, forecasts, estimates and expectations
include but are not limited to, the following:
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 E-TAD Program as defined below;
o Unexpected economic changes both in the United States and
overseas;
o The imposition of new restrictions or regulations affecting
either the Company's international merchandise trade activities
or its E-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 E-TAD
Program.
Segment Reporting Disclosures.
The Company's sales are generated from two major business segments: trade
acceptance drafts program ("TAD Program"), including the recently introduced
E-TAD Program and international merchandise trade. For purposes of this
Report, references to the E-TAD Program include the original TAD Program. A
TAD is a post-dated payment draft prepared by the seller of goods or
services ("Supplier") and accepted by the buyer of the goods or services
("Buyer") by the Buyer signing and delivering the draft back to the
Supplier. The E-TAD Program denotes the Company's ongoing plan for all
aspects of TADs to be processed, marketed, and fulfilled electronically,
including prospective E-commerce applications. The E-TAD Program is operated
by Actrade Capital, Inc. ("Capital") in the United States and Actrade
Capital Canada, Inc. ("Actrade Canada") in Canada. The Company's
international merchandise trade operations are conducted through Actrade
International Corp. ("International"), which is engaged in the re-sale of
American made products to foreign buyers and Actrade S.A., including its
wholly owned subsidiary Actrade Resources, Inc. ("Resources"), which engage
in the sale of non-US products to foreign buyers. See discussion immediately
below.
Changes in Income Statement Information.
Beginning with the Company's 10-K Report for fiscal 2000, the Company adopted
Securities and Exchange Commission Staff Accounting Bulletin No. 101
("SAB101") - Revenue Recognition in Financial Statements. In essence, the
adoption of SAB101 changed the presentation of revenue information on the
Consolidated Statements of Income of the Company. 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
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the TADs purchased by Capital) less the cost of purchasing those TADs.
Similarly "Revenues" from its International Merchandise Trade activities
are also reported on a net basis. This change provides uniformity of
presentation among the Company's two major revenue sectors.
On a combined basis the term "Revenues" is the equivalent of the amount
reported as "Gross Profit" in prior periods. 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 - First Quarter, Fiscal 2001 Compared to First
Quarter, Fiscal 2000.
All figures included in the following discussion have been rounded to the
nearest $1,000 for presentation purposes.
Revenue:
For the quarter ended September 30, 2000, the Company had consolidated
revenue of $12,553,000 as compared to $6,753,000 for the same period in
fiscal 2000, an increase of 85.9%. This increase resulted from substantial
revenue increases in each of the Company's business segments as outlined
below.
E-TAD Program Revenue
Revenue for the first quarter of fiscal 2001 from the E-TAD Program totaled
$6,356,000, as compared to $4,073,000 in the first quarter of fiscal 2000,
an increase of 56.1%. This increase represents a higher volume of E-TAD
transactions that management believes were a direct result of the
accelerated marketing and expansion program begun during the prior fiscal
year and which continues today. (See also Consolidated Expenses and
Liquidity and Capital Resources below).
For the first quarter of fiscal 2001, total TAD originations (representing
the face amount of all TAD transactions) totaled $83,440,000, as compared
to $65,360,000 during the first quarter of fiscal 2000.
International Merchandise Trade Revenue
Revenue from international merchandise trade during this period climbed to
$6,197,000, as compared to $2,680,000 in the first quarter of fiscal 2000,
an increase of 131.2%. This increase was the result of increased product
sales by Resources, rather than from price increases for the products sold.
Management attributes the continued growth in
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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 the first quarter of fiscal 2001, the Company's principal
overseas markets continued to be (i) South America (ii) Europe, (iii) the
Pacific Rim and (iv) Middle East.
See "Consolidated Financial Statements - Note 2, Segment Information" for
additional information.
Consolidated Expenses
General and administrative expenses for the quarter ended September 30,
2000 were $2,572,000, as compared to $2,039,000 for the same period last
year, an increase of 26%. The major component of this increase was due to
$462,000 of additional fees paid in connection with the increased
international trade revenues noted above as well as increased legal fees.
The legal fee increase of $277,000 reflects increased litigation costs to
recover monies from defaulted TAD's. This increase was offset in part by a
decline in salaries, payroll, and commissions from $1,105,000 in the first
quarter of fiscal 2000 to $814,000 in the current quarter. This reflected
cost reductions arising from the closing of Capital's offices in California
and Georgia and the associated reduction in personnel, offset in part by
expansion of sales and back-office personnel to support the new E-TAD
Program.
With respect to the balance of fiscal 2001, management projects the costs
related to the E-TAD Program operations will continue to escalate,
particularly as marketing efforts for the E-TAD Program increase and
Capital implements its E-Commerce program. However, management believes
that the impact of these continued increased costs would be outweighed by
increased revenue as the benefits of the fiscal 2001 business and system
development mature.
Bad Debt, Interest Expense and Net Income
Bad debt expense arises almost exclusively from the TAD business segment.
International merchandise trade transactions are generally secured and the
Company has had no history of losses. In the first quarter of fiscal 2001,
the Company provided for bad debt expense in the amount of $571,000 as
compared to $931,000 in the first quarter of fiscal 2000. In evaluating bad
debt, management looks at the adequacy of its allowance for doubtful
accounts based on the status of individual past due accounts as well as
estimating the aggregate amount realizable based on aging.
Management does not believe a meaningful comparison can be made between bad
debt expense and revenues due to the current presentation in the Company's
Consolidated Statements of Income. Management does believe that the
appropriate comparison is between bad debt expense and total TAD
originations for the period. Although the dollar amount of bad debt expense
can be expected to increase as total TAD originations increase, when
expressed as a percentage of total originations, it is expected that bad
debt expense will decline.
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In the first quarter of fiscal 2001, the Company incurred net interest
expense of $3,709,000 as compared to $922,000 in the same period last year.
This increase is due to volume growth in both business segments. Fees and
other expenses resulting from the ongoing need for new credit facilities
are expensed as incurred due to the short-term nature of these facilities.
Interest expense is expected to rise consistent with expected revenue
growth in both business segments noted above.
After provision for income taxes, the Company reported net income for the
first quarter of fiscal 2001 of $4,895,000, or approximately $0.46 per
share (diluted), as compared to $2,508,000 or $0.29 per share (diluted),
for the first quarter of fiscal 2000. This represented an increase in net
income of 95.2% over the same period last year and an increase in earnings
per share of 58.6% over last year. The tax provision increased from
$353,000 in the first quarter of fiscal 2000 to $806,000 in the current
quarter primarily due to increased pre-tax income from the TAD segment.
TAD Pre-tax Income
Pre-tax income attributable to the TAD business segment was $1,615,000 for
the first quarter of fiscal 2001, as compared to $849,000 for the first
quarter of fiscal 2000, an increase of just over 90%. Management believes
that this significant improvement reflects the investment made in the
expansion of the E-TAD program during fiscal 2000 and that such improvement
will continue during the balance of fiscal 2001.
International Merchandise Trade Pre-tax Income
Pre-tax income for the September 30, 2000 quarter from international
merchandise trade operations totaled $4,086,000 as compared to $2,012,000
for the first quarter of fiscal 2000, an increase of just over 103%.
Management believes that these operations will continue to grow during the
foreseeable future although no assurance can be given that the rate of
growth will continue to be sustained.
II. Discussion of Financial Condition - Liquidity and Capital Resources
At September 30, 2000, the Company had working capital of approximately
$42,769,000 as compared to working capital of $38,233,000 at June 30,2000.
As of September 30, 2000 the Company had cash and cash equivalents of
$6,588,000 as compared to $9,424,000 at June 30, 2000. Short-term
borrowings decreased $11,665,000 from June 30 to September 30, 2000. Such
changes in working capital, short-term borrowings, and cash and cash
equivalents resulted from normal variations in the utilization of these
items by Capital in its operations, and not due to any trend which is
expected to have a continuing effect upon operations in the future.
However, consistent with prudent business practice, management attempts to
minimize cash at Capital so as to reduce short-term borrowings and related
interest expense.
At September 30, 2000, Capital had approximately $26.1 million in Surety
bonds
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guaranteeing payment of E-TADs it had purchased, in addition to $12.5
million in credit insurance.
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 by International principally involves
larger, higher priced products. Consequently, the average invoice amounts,
as well as the average per item cost is relatively high, resulting in
higher costs as well as higher accounts receivable and payable. On the
other hand, the revenue generated by Actrade S.A. are from the revenue of
less expensive foreign made products where the typical margins are much
lower than for similar American products. These factors continued to
be true throughout the first quarter of fiscal 2001 and are expected
to continue for the foreseeable future.
At September 30, 2000, the Company's total stockholders' equity increased
to $45,396,000 as compared to $40,478,000 at June 30, 2000. The principal
source of funds for the Company's operations continues to be revenues
earned by its operating subsidiaries.
During the balance of fiscal 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 E-TAD Program, management expects that it
will have significant additional capital expenditures relating to the
ongoing expansion of sales and marketing operations, including
implementation of its E-Commerce initiative.
At September 30, 2000, there existed four credit facilities with four
different banks through which the purchase of TADs were financed: a $25
million securitization facility; $20 million and $40 million credit
facilities with two financial institutions in the United States; and a CN$5
million (Canadian) credit facility with a financial institution in Canada.
In order to sustain a future growth rate comparable to that experienced in
the past few years, management will need to further expand its credit
facilities and other means for financing its purchase of E-TADs. 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. However, based upon its
experience with its present lenders, as well as discussions with other
financial institutions, management believes that it will be able to secure
adequate financing 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.
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Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
None during this period.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: October 30, 2000
ACTRADE FINANCIAL TECHNOLOGIES LTD.
BY: /s/ Joseph P. D'Alessandris
------------------------------
Chief Financial Officer
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