<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------------------------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
----------------------------------
For the quarterly period ended December 31, 1999
Commission File Number 0-18711
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 February 12, 2000 there
were outstanding 8,742,862 shares of Common Stock, par value $.0001.
<PAGE>
INDEX
<TABLE>
<S> <C>
Part 1. Financial Information
Item 1. Consolidated condensed financial ststements:
Consolidated balance sheets as of December 31, 1999
June 30, 1999 3
Consolidated statements of income for the six and
three months ended December 31, 1999 and 1998 4
Consolidated statements of stockholders' equity for the
six months ended December 31, 1999 5
Consolidated statements of cash flows for the six and
three months ended December 31, 1999 and 1998 6
Notes to the consolidated financial statements 7-10
Item 2. Management's discussion and analysis of financial condition
and results of operations
Part II. Other Information
Exhibits and reports on Form 10Q
Signatures
</TABLE>
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND JUNE 30, 1999
Dollars in thousands except per share amounts
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,499 $ 5,199
Accounts receivable - trade 22,437 12,414
Trade acceptance drafts receivable and other (net of deferred income and
allowance for doubtful accounts of $ 1,695 and $ 1,589 at
December 31, 1999 and $ 1,276 and $ 1,560 at June 30, 1999 35,090 25,180
Deferred income taxes 1,252 398
-------- --------
Total current assets 63,278 43,191
PROPERTY AND EQUIPMENT (Net of accumulated depreciation and
amoritization of $ 398 at December 31, 1999 and $ 291 at June 30, 1999) 1,465 954
Other Assets 416 306
-------- --------
TOTAL ASSETS $ 65,159 $ 44,451
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 28,223 $ 14,262
Accounts payable and customer reserves payable 2,112 683
Accrued expenses 1,398 997
Income taxes payable 179 0
-------- --------
Total Current Liabilities 31,912 15,942
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value; authorized 100,000,000 shares, issued, and
outstanding 8,742,290 at December 31, 1999 and 8,528,051 at
June 30, 1999 1 1
Additional paid in capital 16,593 14,614
Retained earnings 18,843 14,336
Accumulated other comprehensive income/(loss) (4) 10
Treasury stock, 138,805 shares at cost (2,186) (452)
-------- --------
Total stockholders' equity 33,247 28,509
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 65,159 $ 44,451
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS AND THREE MONTHS ENDED DECEMBER 31,
1999 AND 1998
Dollars thousands except per share amounts
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- --------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross Sales - Trade Acceptance Drafts $ 133,597 $ 50,462 $ 68,237 $ 28,156
Gross Sales - International Merchandising Trade 64,932 33,752 33,831 17,907
----------- ----------- ----------- -----------
Total Gross Sales $ 198,529 $ 84,214 $ 102,068 $ 46,063
=========== =========== =========== ===========
Gross Sales - International Merchandising Trade 64,932 33,752 33,831 17,907
Cost of Sales - International Merchandise Trade (59,408) (30,672) (30,987) (16,334)
----------- ----------- ----------- -----------
Gross Profit- International Merchandising Trade 5,524 3,080 2,844 1,573
Gross Profit - Trade Acceptance Drafts 8,151 2,421 4,078 1,635
----------- ----------- ----------- -----------
Total Gross Profit 13,675 5,501 6,922 3,208
----------- ----------- ----------- -----------
General, and Administrative expenses (4,063) (2,523) (2,024) (1,321)
Bad Debt Expense (2,316) (324) (1,385) (274)
----------- ----------- ----------- -----------
Income from Operations 7,296 2,654 3,513 1,613
Other Income (Expenses):
Interest income 16 52 7 6
Interest Expense (2,332) (151) (1,401) (99)
----------- ----------- ----------- -----------
Income before Provision for Income Taxes 4,980 2,555 2,119 1,520
Provision for Income Tax (473) (8) (120) (104)
----------- ----------- ----------- -----------
Net Income $ 4,507 $ 2,547 $ 1,999 $ 1,416
=========== =========== =========== ===========
Net Income per common share:
Basic $ 0.52 $ 0.30 $ 0.23 $ 0.17
Diluted $ 0.51 $ 0.29 $ 0.22 $ 0.16
Weighted Average Number of Shares Outstanding:
Basic 8,587,831 8,434,760 8,646,428 8,433,838
Diluted 8,862,945 8,776,109 9,068,434 8,762,426
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
ACTRADE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
Dollars in thousands except per share amounts
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Accum. Other Total Total Accum
------------ Paid-in Retained Comp. Treasury Stockholders' Other Comp
Shares Amount Capital Earnings Income/(Loss) Stock Equity Income/(Loss)
------- ----- ------- -------- ------------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1999 8,528,051 $1 $14,614 $14,336 $10 ($452) $28,509
Comprehensive Income, Net of Tax:
Net Income 4,507 4,507 4,507
Other Comprehensive Income/(Loss):
Foreign Currency
Translation Adjustments (14) (14) (14)
Total Other Comprehensive
Income/(Loss) $4,493
======
Issuance of Common Stock upon
Exercise of Options 321,544 1,855 1,855
Purchase of Treasury Stock (107,305) (1,734) (1,734)
Warrants issued for compensation 124 124
Balance, December 31, 1999 8,742,290 $1 $16,593 $18,843 ($4) ($2,186) $33,247
========== === ======== ======== ==== ======== =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
Dollars in thousands except per share amounts
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,507 $ 2,547
Adjustments to reconcile net income to net cash (used in)
operating activities:
Depreciation and amortization 129 56
Bad debt expense 2,316 324
Deferred income 419 865
Compensation Expense - amortization of warrants issued 124 0
Changes in operating assets and liabilities:
Accounts receivable - trade and
Trade acceptance drafts receivable and other (22,667) (23,341)
Deferred income taxes and other assets (944) (503)
Accounts payable and customer reserves payable 1,429 1,305
Accrued expenses and other liabilities 401 (15)
Income taxes payable 179 27
-------- --------
Net cash (used in ) operating activities (14,107) (18,735)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (675) (147)
-------- --------
Net cash used in investing activities (675) (147)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,855 61
Purchase of treasury stock (1,734) (452)
Change in short-term borrowings 13,961 7,718
-------- --------
Net cash provided by financing activities 14,082 7,327
-------- --------
Net (decrease) in cash and cash equivalents (700) (11,555)
Cash and cash equivalents, beginning of period 5,199 13,382
-------- --------
Cash and cash equivalents, end of period $ 4,499 $ 1,827
======== ========
Supplemental disclosures of cash flow information:
Interest paid during the fiscal period $ 800 $ 462
======== ========
Income taxes paid during the fiscal period $ 959 $ 346
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
ACTRADE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in thousands except per share amounts
1. Basis of Presentation:
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included. The
results of operations for the six and 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 International, Ltd. and
subsidiaries (the "Company") Form 10-K for the year ended June 30, 1999.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant inter-company balances and transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
<PAGE>
2. 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 income per share gives the effect
to 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.
Net income per common share has been computed as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
--------------------------------------------------
1999 1998
---------------------------- ---------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
<S> <C> <C> <C> <C>
Net Income $ 4,507 $ 4,507 $ 2,547 $ 2,547
---------- ---------- ---------- ----------
Weighted average of
shares outstanding 8,587,831 8,587,831 8,434,760 8,434,760
Weighted average of
options outstanding 275,114 341,349
---------- ----------
Total equivalent shares 8,587,831 8,862,945 8,434,760 8,776,109
---------- ---------- ---------- ----------
Net income per common share $0.52 $0.51 $0.30 $0.29
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
--------------------------------------------------
1999 1998
------------------------- -----------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
<S> <C> <C> <C>
Net Income $ 1,999 $ 1,999 $ 1,416 $ 1,416
---------- ---------- ---------- ----------
Weighted average of
shares outstanding 8,646,428 8,646,428 8,433,838 8,433,838
Weighted average of
options outstanding 422,006 328,588
---------- ----------
Total equivalent shares 8,646,428 9,068,434 8,433,838 8,762,426
---------- ---------- ---------- ----------
Net income per common share $0.23 $0.22 $0.17 $0.16
========== ========== ========== ==========
</TABLE>
<PAGE>
3. Common Stock and Stock Options:
On October 1, 1999, the Company issued 100,000 warrants to its president
and chief operating officer at an exercise price of $13.75 expiring on
September 30, 2004.
On December 6, 1999, an officer exercised 176,629 warrants at $ 6.05. Also
on December 6, 1999, the Company purchased 58,077 shares of stock from the
same officer as Treasury stock at a price of $18.41.
On May 13, 1999, the Company issued 100,000 warrants at an exercise price
of $12.50 to an investment advisor for compensation. The warrants will
vest on May 13, 2000. The fair market value of the warrants at the date of
the issuance is being amortized on a straight-line basis over a
twelve-month period to compensation expense. The Company has recognized
$123,861 in amortized compensation expense for the first six months of
fiscal year 2000 as a result of this transaction.
4. Segment Information:
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 gross sales, gross profit, income before provision for
income taxes, depreciation and amortization, interest expense and total
assets for each segment for the six and three months ended December 31,
1999, 1998 were as follows:
<PAGE>
The following is a summary of the Company's segment information:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
------------------ ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross Sales:
Trade Acceptance Drafts $133,597 $ 50,462 $ 68,237 $ 28,156
International Merchandise Trade 64,932 33,752 33,831 17,907
-------- -------- -------- --------
$198,529 $ 84,214 $102,068 $ 46,063
======== ======== ======== ========
Gross Profit:
Trade Acceptance Drafts $ 8,151 $ 2,421 $ 4,078 $ 1,635
International Merchandise Trade 5,524 3,080 2,844 1,573
-------- -------- -------- --------
$ 13,675 $ 5,501 $ 6,922 $ 3,208
======== ======== ======== ========
Income before Provision for
Income Taxes:
Trade Acceptance Drafts $ 1,192 $ 60 $ 343 $ 240
International Merchandise Trade 3,788 2,495 1,776 1,280
-------- -------- -------- --------
$ 4,980 $ 2,555 $ 2,119 $ 1,520
======== ======== ======== ========
Depreciation and Amortization:
Trade Acceptance Drafts $ 121 $ 47 $ 59 $ 83
International Merchandise Trade 8 9 4 5
-------- -------- -------- --------
$ 129 $ 56 $ 63 $ 88
======== ======== ======== ========
Interest Expense:
Trade Acceptance Drafts $ 903 $ 72 $ 496 $ 58
International Merchandise Trade 1,429 79 905 41
-------- -------- -------- --------
$ 2,332 $ 151 $ 1,401 $ 99
======== ======== ======== ========
June 30, 1999
--------------
Total Assets:
Trade Acceptance Drafts $ 32,896 $ 23,951 $ 16,727
International Merchandise Trade 32,263 13,446 27,724
-------- -------- --------
$ 65,159 $ 37,397 $ 44,451
======== ======== ========
</TABLE>
<PAGE>
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 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:
Changes in the Company's currently available credit facilities;
The inability of the Company to extend or secure additional credit
facilities to fund the anticipated expansion of sales under its TAD
Program;
Unexpected economic changes both in the United States and overseas;
The imposition of new restrictions or regulations affecting either the
Company's international merchandise trade activities or its TAD Program
in the US or 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.
- SEGMENT REPORTING DISCLOSURES.
The Company's sales are generated from two major business segments: the TAD
Program and international merchandise trade. 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 supplier. The 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. All figures included in the
following discussion have been rounded to the nearest $1,000 for presentation
purposes.
I. I. RESULTS OF OPERATIONS
A. SIX MONTHS ENDED DECEMBER 31, 1999, COMPARED TO THE SIX MONTHS
ENDED DECEMBER 31, 1998.
CONSOLIDATED SALES AND GROSS PROFIT.
During the first six months of fiscal 2000, the Company had combined gross
sales of $198,529,000, compared with $84,214,000 for the first six months
fiscal 1999, an increase of more than 135%. Gross profit climbed to
$13,675,000 for the six months ended December 31, 1999, compared to $5,501,000
for the same period in fiscal 1999, an increase of over 149%. During this
period, income from operations reached $7,296,000 as compared to $2,654,000
<PAGE>
for the same period last year. This represented an increase of over 175%.
The substantial increase in gross sales during the first half of fiscal 2000
continues to be due primarily to the ongoing expansion of operations through
(i) significantly increased sales activity by Capital through its TAD Program
(discussed separately below) and (ii) increased sales by the international
merchandise trade division.
THE TRADE ACCEPTANCE DRAFT PROGRAM
During the first half of fiscal year 2000, gross profit on TAD transactions
reached $8,151,000, as compared to $2,421,000 for the first half of fiscal
year 1999, an increase of over 236%. After general and administrative
expenses, bad debt expense, interest income, interest expense, but before a
provision for income taxes, income from the TAD Program was $1,192,000 for the
first six months of fiscal year 2000 compared to $60,000 for the comparable
period of fiscal 1999; this represents an increase in the TAD program of over
1800%.
In evaluating the TAD Program operating results for the first half of fiscal
2000, the reader must consider the effect of the increased the bad debt
expense ($2,316,000 for the six months ended December 31, 1999 as compared to
$324,000 for same period last year). The bad debt expense reported by the
Company related solely to the TAD Program operations. A major reason for the
increase in this item is because of the bankruptcy of a number of buyers.
INTERNATIONAL TRADE
Gross sales from the international trade division were strong for the first
six months of fiscal year 2000 reaching $64,932,000 for the period as compared
to $33,752,000 for the first six months of fiscal year 1999, an 92% increase.
Cost of sales as a percent of gross sales increased slightly during the period
as compared to the prior fiscal year. This resulted in a 52% increase in
income before taxes from $2,495,000 in fiscal year 1999 to $3,788,000 in
fiscal year 2000.
The increase in international merchandise trade activities was the result of
increased product sales by both Actrade S.A. and Resources, rather than from
price increases for the products sold.
CONSOLIDATED EXPENSES
General and administrative expenses for the six months ended December 31, 1999
were $4,063,000, as compared to $2,523,000 for the same period last year, an
increase of 61%. The most significant of these increase included:
1. salaries, payroll and commissions totaling $2,335,000 in the first
half of fiscal 2000, compared to $1,519,000 in the first half of
fiscal 1999;
2. office rent of $286,000 in the first half of fiscal 2000, compared to
$142,000 in the first half of fiscal 1999;
3. consulting costs and professional fees of $615,000 in the first half
of fiscal 2000, compared to $198,000 for the first half of fiscal
1999;
<PAGE>
4. depreciation and amortization of $129,000 in the first half of fiscal
2000, compared to $112 in the first half of fiscal 1999; and
5. advertising and communication costs of $307,000 in the first half of
fiscal 2000, compared to $198,000 in the first half of fiscal 1999.
The majority of these increased costs are directly attributable to the TAD
Program's expansion that required a significant expansion of both sales force
and back-office personnel. With respect to the balance of fiscal 2000,
management projects the costs related to the TAD Program operations, both in the
United States and in Canada will continue to escalate, particularly as marketing
efforts for the TAD Program increase and Capital begins implementation of its
E-Commerce program. However, management believe the impact of these continued
increased costs will be offset as Capital begins to see significantly increased
sales volume as the benefits of the fiscal 1999 expenditures mature into new TAD
business.
INTEREST EXPENSE AND NET INCOME
In the first half of fiscal 2000, the Company incurred interest expense of
$2,332,000 as compared to $150,000 in the same period last year. This increase
is due to the growth in operations of the TAD Program as well as Actrade S.A.
and Resources and results in part from the costs associated with the new and
extended credit facilities secured by Capital during fiscal 1999. With these new
facilities approaching full utilization, and management's expectation of adding
additional credit facilities in the near term, management expects that this
expense item will continue to escalate as TAD Program operations continue to
grow during the balance of fiscal 2000.
Net income for the six months ended December 31, 1999 climbed to $4,507,000, as
compared to $2,547,000 for the same period last year, an increase of
approximately 77%. Based upon the Company's currently issued and outstanding
shares, earnings per share (diluted) for the first half of fiscal 2000 amounted
to $.51 per share, as compared to $.29 for the first six months of fiscal 1999,
an increase of just under 76%.
However, the Company's net income expressed as a percentage of gross profit fell
to approximately 33% during the first half of fiscal 2000, as compared to
approximately 46% for the same period last year. This decrease had been expected
and was the direct result of the substantial increase in general and
administrative expenses associated with Capital and the TAD Program discussed
above.
B. 2ND QUARTER OF FISCAL 2000 COMPARED TO 2ND QUARTER FISCAL OF 1999
CONSOLIDATED SALES AND GROSS PROFIT.
For the three months ended December 31, 1999, gross sales increased to
$102,068,000 (up over 121% from the second quarter of fiscal 1999) while gross
profits climbed to $6,922,000 (an increase of just under 116% from the second
quarter of fiscal 1999). The increase in gross sales during the second quarter
of fiscal 2000 was also primarily due to the expansion of the Company's
operations through (i) significantly increased TAD transactions through the
TAD Program and (ii) the increased international merchandise trade activities
by Actrade S.A and Resources. With respect to its international merchandise
trade activities, this increase was the result of increased product sales by
both Actrade S.A. and Resources, rather than from price increases for the
products sold.
<PAGE>
THE TRADE ACCEPTANCE DRAFT PROGRAM
Gross profit from the TAD Program for the three months ended December 31, 1999
(which represent revenues earned on TAD activities by both Capital and Actrade
Canada) totaled $4,078,000; with net income before a provision for income
taxes was $343,000. The increase in gross profit 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 begun during the
prior fiscal year and which continues today.
However, as is the case in evaluating the six-month results, in evaluating the
results for the second quarter of fiscal 2000, the effect of the Company
election to increase the bad debt expense is of equal significance. For the
three-month period, the Company recorded a bad debt expense of $1,385,000 as
compared to only $274,000 for the first half of fiscal 1999.
INTERNATIONAL MERCHANDISE TRADE SALES
Gross sales from international merchandise trade during the second quarter of
fiscal 2000 climbed to $33,831,000, as compared to $17,907,000 in the second
quarter of fiscal 1999, an increase of 89%. Cost of sales as a percent of
gross sales remained virtually unchanged at approximately 92% during the
period as compared to the same period last year. This resulted in a 39%
increase in net income before taxes from $1,280,000 in fiscal year 1999 to
$1,776,000 in fiscal year 2000.
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 the
second quarter of fiscal 2000, the Company's principal overseas markets
continued to be (i) South America (ii) Europe, (iii) the Pacific Rim and (iv)
Middle East.
See "FINANCIAL STATEMENTS - NOTE 1- BASIS OF PRESENTATION - GROSS SALES" AND "
NOTE 4, SEGMENT INFORMATION" FOR ADDITIONAL INFORMATION.
CONSOLIDATED EXPENSES
General and administrative expenses for the three months ended December 31,
1999 were $2,024,000, as compared to $1,321,000 for the same period last year,
an increase of over 53%. Essentially the entire increase in general and
administrative expenses over fiscal 1999 is attributable to the expansion of
operations of Capital, Actrade Canada and increased costs related to the TAD
Program. The most significant changes for the quarterly period included:
1. salaries, payroll and commissions totaling $1,156,000 in the second
quarter of fiscal 2000, compared to $762,000 in the second quarter of
fiscal 1999;
2. office rent of $142,000 in the second quarter of fiscal 2000,
compared to $86,000 in the second quarter of fiscal 1999;
3. consulting costs and professional fees of $322,000 in the second
quarter of fiscal 2000, compared to $90,000 for the second quarter of
fiscal 1999;
<PAGE>
4. depreciation and amortization of $63,000 in the second quarter of
fiscal 2000, compared to $87,000 in the second quarter of fiscal
1999; and
5. advertising and communication costs of $175,000 in the second quarter
of fiscal 2000, compared to $126,000 in the second quarter of fiscal
1999.
As indicated above, the majority of these increased costs are directly
attributable to the TAD Program's expansion.
INTEREST EXPENSE AND NET INCOME
In the second quarter of fiscal 2000, the Company incurred interest expense of
$1,401,000 as compared to $99,000 in the same period last year. This increase
is due to the growth in operations of the TAD Program as well as Actrade S.A.,
Resources and results in part from the costs associated with the new credit
facilities secured by Capital during fiscal 1999.
During the second quarter, income from operations totaled $3,513,000 (up over
118% from the same period in fiscal 1999) and net earnings, after general and
administrative expense, bad debt expense, interest income, interest expense
and provision for taxes, reached $1,999,000 (an increase of over 41% from the
second quarter of fiscal 1999). Second quarter earning per share (diluted)
totaled $.22 as compared to $.16 per share for the second quarter of fiscal
1999, an increase of over 38%.
However, the Company's net income expressed as a percentage of gross profit
fell to approximately 29% during the second quarter of fiscal 2000, as
compared to approximately 44% for the second quarter of fiscal 1999. This
decrease had been expected and was the direct result of the substantial
increase in general and administrative expenses associated with Capital and
the TAD Program discussed above.
II. DISCUSSION OF FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had working capital of approximately
$31,366,000 as compared to working capital of $27,249,000 at December 31,
1998. On a consolidated basis, as of December 31, 1999, the Company had cash
and cash equivalents on hand of $4,499,000 as compared to $5,199,000 at June
30, 1999. The decrease of approximately $700,000 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.
At December 31, 1999, Capital had approximately $44.65 Million in Surety bonds
guaranteeing payment of TADs it had purchased, in addition to $12.5 Million in
credit insurance.
Total current liabilities at December 31, 1999 increased to $31,912,000 as
compared to $15,942 at June 30, 1999. The substantial increase in current
liabilities over the prior fiscal period is primarily due to increases in
"short-term borrowings," representing financing utilized by Capital for its
TAD purchases owed to various credit facilities, and "accounts payable and
customer reserves payable." The increase in accounts payable is due
principally to
<PAGE>
the normal fluctuations in the status of trade transactions by Actrade S.A.
and Resources and not to any trend expected to have an ongoing impact upon the
Company.
At December 31, 1999, the Company's total stockholders' equity increased to
$33,247,000 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 balance of fiscal 2000, 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 additional capital expenditures relating to the ongoing
expansion of sales 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 further expand
its credit facilities and other means for financing its purchase of TADs.
At December 31, 1999, there existed several credit facilities through which
the purchase of TADs were financed, including (1) a $25 million securitization
facility between Funding and ING Baring Capital Markets; (2) a $15 million
credit facility between Capital and Summit Bank; and (3) a $10 Million credit
facility between Capital and Banco Potuguese do Atlantico, in the United
States. In addition, Actrade Canada had a $5 million (Canadian) credit
facility with a financial institution in Canada.
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. Discussions are ongoing with several other financial
institutions to add additional credit facilities to fund the future expansion
of the TAD Program, as well as with Actrade's current financial institutions
to increase or expand existing facilities. However, no assurance can be given
that such discussions will result in the completion of any new or expanded
financing facilities for Capital or Actrade Canada. 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 INFLATION.
During the past few years inflation in the United States has been relatively
stable which, coupled with the relative strength of foreign currencies, 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, 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
<PAGE>
Company's ability to effectively compete in its overseas markets.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
None during this period.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 14, 2000
ACTRADE INTERNATIONAL, LTD.
BY: /s/ Joseph P. D'Alessandris
-------------------------------
Chief Financial Officer
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