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, 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 January 29, 2001 there
were outstanding 9,057,520 shares of Common Stock, par value $.0001.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Page
Consolidated balance sheets as of December 31, 2000 and
June 30, 2000 3
Consolidated statements of income for the six and
three months ended December 31, 2000 and 1999 4
Consolidated statements of cash flows for the six
months ended December 31, 2000 and 1999 5
Notes to consolidated financial statements 6
Item 2. Management's discussion and analysis of financial
condition and results of operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 16
Signatures 17
2
ACTRADE FINANCIAL TECHNOLOGIES LTD. AND SUBSIDIARIES
(Formerly Actrade International, Ltd.)
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
DECEMBER 31, JUNE 30,
2000 2000
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $14,445 $9,424
Accounts receivable - trade 21,230 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 $1,512 and $4,140 at
December 31, 2000 and $1,311 and $3,044 at June 30, 2000) 39,687 44,717
Deferred income taxes 1,418 905
Other current assets 303 423
------- -------
Total Current Assets 77,083 73,671
PROPERTY AND EQUIPMENT, NET 1,960 1,844
OTHER ASSETS 671 401
------- -------
TOTAL ASSETS $79,714 $75,916
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $25,714 $32,707
Other current liabilities 2,678 2,731
------- -------
Total Current Liabilities 28,392 35,438
------- -------
STOCKHOLDERS' EQUITY:
Common stock, $0.0001 par value; authorized 100,000,000 shares, issued and
outstanding 9,433,850 and 9,057,520 shares at December 31, 2000 and
9,332,865 and 8,983,695 shares at June 30, 2000 1 1
Additional paid-in capital 22,525 21,505
Retained earnings 36,296 25,640
Accumulated other comprehensive income (loss) 27 (9)
Treasury stock at cost (7,527) (6,659)
------- -------
Total Stockholders' Equity 51,322 40,478
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $79,714 $75,916
======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
ACTRADE FINANCIAL TECHNOLOGIES LTD. AND SUBSIDIARIES
(Formerly Actrade International, Ltd.)
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
--------------------------------------------------------------------------------
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
SIX MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------- ---------------------------
2000 1999 2000 1999
Revenue:
Trade Acceptance Drafts $13,243 $8,151 $6,887 $4,078
International Merchandise Trade 13,671 5,524 7,474 2,844
------- ------ ------ ------
Total Revenue 26,914 13,675 14,361 6,922
------- ------ ------ ------
Operating Expenses:
General and administrative (5,329) (4,063) (2,757) (2,024)
Bad debt (1,261) (2,316) (690) (1,385)
Interest, net (8,330) (2,316) (4,621) (1,394)
------- ------ ------ ------
Total Operating Expenses (14,920) (8,695) (8,068) (4,803)
------- ------ ------ ------
Income before Provision for Income Taxes 11,994 4,980 6,293 2,119
Provision for Income Taxes (1,338) (473) (532) (120)
------- ------ ------ ------
Net Income $10,656 $4,507 $5,761 $1,999
======= ====== ====== ======
Net Income per Common Share:
Basic $1.18 $0.52 $0.64 $0.23
Diluted $1.01 $0.51 $0.55 $0.22
Weighted Average Number of Shares Outstanding:
Basic 9,015,474 8,587,831 9,038,132 8,646,428
Diluted 10,601,676 8,862,945 10,466,318 9,068,434
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
ACTRADE FINANCIAL TECHNOLOGIES LTD. AND SUBSIDIARIES
(Formerly Actrade International, Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
--------------------------------------------------------------------------------
DOLLARS IN THOUSANDS
SIX MONTHS ENDED
DECEMBER 31,
------------------------------------
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $10,656 $4,507
Adjustments to reconcile net income to net cash provided by
(used in) by operating activities:
Depreciation and amortization 453 129
Bad debt expense 1,261 2,316
Deferred income 201 419
Loss (income) from qualifying special purpose entity 137 (1,304)
Compensation expense-amortization of warrants issued 0 124
Deferred income taxes (513) (854)
Changes in operating assets and liabilities:
Accounts receivable - trade and
trade acceptance drafts receivable and investment in and
due from qualifying special purpose entity 403 (21,363)
Other assets (163) (90)
Other current liabilities (53) 2,009
------- -------
Net cash provided by (used in) operating activities 12,382 (14,107)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (520) (675)
------- -------
Net cash used in investing activities (520) (675)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in short-term borrowings (6,993) 13,961
Proceeds from stock option exercise 152 121
------- -------
Net cash provided by financing activities (6,841) 14,082
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,021 (700)
Cash, beginning of period 9,424 5,199
------- -------
CASH, END OF PERIOD $14,445 $4,499
======= ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the fiscal period $8,386 $800
====== ====
Income taxes paid during the fiscal period $2,550 $959
====== ====
Exercise of options in exchange for common stock $868 $1,734
==== ======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
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
interim periods 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: the trade acceptance draft 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 requires different
strategic initiatives and marketing.
6
The following is a summary of the Company's segment information:
SIX MONTHS ENDED DECEMBER 31, THREE MONTHS ENDED DECEMBER 31,
---------------------------- ----------------------------
2000 1999 2000 1999
Revenue:
Trade Acceptance Drafts $13,243 $ 8,151 $ 6,887 $4,078
International Merchandise Trade 13,671 5,524 7,474 2,844
------- ------- ------- ------
$26,914 $13,675 $14,361 $6,922
======= ======= ======= ======
Income before Provision for
Income Taxes:
Trade Acceptance Drafts $ 2,695 $ 1,192 $ 1,080 $ 343
International Merchandise Trade 9,299 3,788 5,213 1,776
------- ------- ------- ------
$11,994 $ 4,980 $ 6,293 $2,119
======= ======= ======= ======
Depreciation and Amortization:
Trade Acceptance Drafts $ 446 $ 121 $ 211 $ 59
International Merchandise Trade 7 8 3 4
------- ------- ------- ------
$ 453 $ 129 $ 214 $ 63
======= ======= ======= ======
Interest Expense:
Trade Acceptance Drafts $ 4,629 $ 903 $ 2,569 $ 496
International Merchandise Trade 3,804 1,429 2,114 905
------- ------- ------- ------
$ 8,433 $ 2,332 $ 4,683 $1,401
======= ======= ======= ======
December 31,
2000 June 30, 2000
------------ -------------
Total Assets:
Trade Acceptance Drafts $28,893 $34,356
International Merchandise Trade 50,821 41,560
------- ------
$79,714 $75,916
======= =======
7
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 E-TAD
Program as defined below;
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 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: the
trade acceptance draft 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.
8
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 "Revenue". In the case of Capital, "Revenue" 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 "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 "Revenue" 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 - SIX AND THREE MONTHS ENDED DECEMBER 31, 2000,
FISCAL 2001 COMPARED TO SIX AND THREE MONTHS ENDED DECEMBER 31, 2000,
FISCAL 2000.
All figures included in the following discussion have been rounded to the
nearest $1,000 for presentation purposes.
A. SIX MONTHS ENDED DECEMBER 31, 2000 VS. DECEMBER 31, 1999:
REVENUE:
For the first six months of fiscal 2001, the Company had consolidated
revenue of $26,914,000 as compared to $13,675,000 for the same period in
fiscal 2000, an increase of 96.8%. This increase resulted from substantial
revenue increases in each of the Company's business segments as outlined
below.
9
E-TAD PROGRAM
Revenue for the six months ended December 31, 2000 from the E-TAD Program
totaled $13,243,000, as compared to $8,151,000 in the six months ended
December 31, 1999, an increase of 62.5%. 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 "EXPENSES" and "LIQUIDITY
AND CAPITAL RESOURCES" below).
For the six months ended December 31, 2000, total TAD originations
(representing the face amount of all TAD transactions) totaled
$164,948,000.
INTERNATIONAL MERCHANDISE TRADE
Revenue from international merchandise trade during this period climbed to
$13,671,000 for the first six months of fiscal 2001, as compared to
$5,524,000 for the first six months of fiscal 2000, an increase of 147.5%.
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 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 six
months 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.
EXPENSES:
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the six months ended December 31,
2000 were $5,329,000, as compared to $4,063,000 for the same period last
year, an increase of 31.2%. This increase includes $527,000 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
$847,000 reflects increased litigation costs to recover monies from
defaulted TAD's. Most of these costs have been incurred in connection with
the litigation described in Note 13 to the financial statements of the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2000. Compensation (including commissions and facility costs) declined to
$2,279,000 in the first six months of fiscal 2001 from $2,621,000 in the
prior period. 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, back-office personnel and
additional office space to support the new E-TAD Program. This expansion
also accounted for the $234,000 increase in other components of general and
administrative expenses.
10
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
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. For the first six months of fiscal
2001, the Company provided for bad debt expense in the amount of $1,261,000
as compared to $2,316,000 in the first six months of fiscal 2000. In
evaluating bad debts, 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.
INTEREST
For the first six months of fiscal 2001, the Company incurred net interest
expense of $8,330,000 as compared to $2,316,000 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.
PRE-TAX INCOME:
E-TAD PROGRAM
Pre-tax income attributable to the TAD business segment was $2,695,000 for
the first six months of fiscal 2001, as compared to $1,192,000 for the
first six months of fiscal 2000, an increase of 126.1%. 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 for the six months ended December 31, 2000 from
international merchandise trade operations totaled $9,299,000 as compared
to $3,788,000 for the first six months of fiscal 2000, an increase of just
over 145.5%. 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.
11
NET INCOME:
After provision for income taxes, the Company reported net income for the
first six months of fiscal 2001 of $10,656,000, or $1.01 per share
(diluted), as compared to $4,507,000 or $0.51 per share (diluted), for the
first six months of fiscal 2000. This represented an increase in net income
of 136.4% over the same period last year and an increase in earnings per
share of 98.0% over last year. The tax provision increased from $473,000 in
the first six months of fiscal 2000 to $1,338,000 in the current period
primarily due to increased pre-tax income from the TAD segment. 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. Substantially all of the pre-tax income for the
International Merchandise Trade segment is comprised of such unrepatriated
earnings.
B. THREE MONTHS ENDED DECEMBER 31, 2000 VS. DECEMBER 31, 1999:
REVENUE:
For the three months ended December 31, 2000 of fiscal 2001, the Company
had consolidated revenue of $14,361,000 as compared to $6,922,000 for the
same period in fiscal 2000, an increase of 107.5%. This increase resulted
from substantial revenue increases in each of the Company's business
segments as outlined below.
E-TAD PROGRAM
Revenue for the second quarter of fiscal 2001 from the E-TAD Program
totaled $6,887,000, as compared to $4,078,000 in the second quarter of
fiscal 2000, an increase of 68.9%. 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 "EXPENSES" and "LIQUIDITY AND
CAPITAL RESOURCES" below).
For the second quarter of fiscal 2001, total TAD originations (representing
the face amount of all TAD transactions) totaled $81,508,000.
INTERNATIONAL MERCHANDISE TRADE
Revenue from international merchandise trade during this period climbed to
$7,474,000 for the second quarter of fiscal 2001, as compared to $2,844,000
for the second quarter of fiscal 2000, an increase of 162.8%. 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 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 three months 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.
12
See "CONSOLIDATED FINANCIAL STATEMENTS - NOTE 2, SEGMENT INFORMATION" for
additional information.
EXPENSES:
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended December 31,
2000 were $2,757,000, as compared to $2,024,000 for the same period last
year, an increase of 36.2%. The major component of this increase was a
legal fee increase of $553,000. This reflects increased litigation costs to
recover monies from defaulted TAD's. Most of these costs were incurred in
connection with the litigation described in Note 13 to the financial
statements of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2000. Other general and administrative expenses increased
$180,000. This represents expansion of the sales and back office personnel
and facilities to support the new E-TAD program. This was partially offset
by cost reductions arising from the closing of Capital's offices in
California and Georgia and the associated reduction in personnel and
facility costs.
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
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. For the three months ended December
31, 2000 of fiscal 2001, the Company provided for bad debt expense in the
amount of $690,000 as compared to $1,385,000 during the same quarter of
fiscal 2000. In evaluating bad debts, 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.
INTEREST
For the second quarter of fiscal 2001, the Company incurred net interest
expense of $4,621,000 as compared to $1,394,000 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.
13
PRE-TAX INCOME:
E-TAD PROGRAM
Pre-tax income attributable to the TAD business segment was $1,080,000 for
the second quarter of fiscal 2001, as compared to $343,000 for the second
quarter of fiscal 2000, an increase of 214.9%. 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 for the three months ended December 31, 2000 from
international merchandise trade operations totaled $5,213,000 as compared
to $1,776,000 for the three months ended December 31, 1999, an increase of
193.5%. 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.
NET INCOME:
After provision for income taxes, the Company reported net income for the
second quarter of fiscal 2001 of $5,761,000, or $0.55 per share (diluted),
as compared to $1,999,000 or $0.22 per share (diluted), for the second
quarter of fiscal 2000. This represented an increase in net income of
188.2% over the same period last year and an increase in earnings per share
of 149.7% over last year. The tax provision increased from $120,000 for the
second quarter of fiscal 2000 to $532,000 in the current period primarily
due to increased pre-tax income from the TAD segment. 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. Substantially all of the pre-tax income for the
International Merchandise Trade segment is comprised of such unrepatriated
earnings.
II. DISCUSSION OF FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company had working capital of $48,691,000 as
compared to working capital of $38,233,000 at June 30,2000. As of December
31, 2000 the Company had cash and cash equivalents of $14,445,000 as
compared to $9,424,000 at June 30, 2000. Short-term borrowings decreased
$6,933,000 from June 30 to December 31, 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.
14
At December 31, 2000, Capital had approximately $31.2 million in Surety
bonds 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. arises from the sale 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 half of fiscal 2001 and are expected to continue
for the foreseeable future.
At December 31, 2000, the Company's total stockholders' equity increased to
$51,322,000 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 trade
operations principally for (i) general working capital reserves to meet any
extraordinary or unexpected expenses; (ii) and to finance, if required, the
Company's trade 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 December 31, 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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RECENT ACCOUNTING PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board issued Statement
of Financial Standards ("SFAS") No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 140
replaces SFAS No. 125, issued in June 1996. It revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of the
provisions of SFAS No. 125 without reconsideration. SFAS No. 140 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. SFAS No. 140 is effective for
recognition and reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. The Company is currently evaluating this pronouncement;
however, the Company does not expect it to have a material effect on its
financial position or results of operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Issuer filed a Report on Form 8-K dated October 30, 2000 recasting
(for informational purposes only) previously issued unaudited quarterly income
statements. This was done in connection with the Issuer's adoption of SAB 101-
REVENUE RECOGNITION IN FINANCIAL STATEMENTS.
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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: January 29, 2001
ACTRADE FINANCIAL TECHNOLOGIES LTD.
BY: /s/ Joseph P. D'Alessandris
---------------------------
Chief Financial Officer
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