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 March 31, 2001
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 April 30, 2001 there were
outstanding 9,070,020 shares of Common Stock, par value $.0001.
INDEX
Part I. Financial Information
Page
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 2001 and
June 30, 2000 3
Consolidated Statements of Income for the nine and
three months ended March 31, 2001 and 2000 4
Consolidated Statements of Cash Flows for the nine
months ended March 31, 2001 and 2000 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 4. Submission of Matters to a Vote of Security Holders 16
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
March 31, June 30,
2001 2000
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $14,867 $ 9,424
Accounts receivable - trade 27,192 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 $1,400 and $3,042 at
March 31, 2001 and $1,311 and $3,044 at June 30, 2000) 37,921 44,717
Deferred income taxes 934 905
Other current assets 286 423
------- -------
Total Current Assets 81,200 73,671
PROPERTY AND EQUIPMENT, NET 1,873 1,844
OTHER ASSETS 659 401
------- -------
TOTAL ASSETS $83,732 $75,916
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $23,458 $32,707
Other current liabilities 2,213 2,731
------- -------
Total Current Liabilities 25,671 35,438
======= =======
STOCKHOLDERS' EQUITY:
Common stock, $0.0001 par value; authorized 100,000,000 shares, issued
and outstanding 9,446,350 and 9,070,020 shares at March 31, 2001 and
9,332,865 and 8,983,695 shares at June 30, 2000 1 1
Additional paid-in capital 22,691 21,505
Retained earnings 42,829 25,640
Accumulated other comprehensive income (loss) 67 (9)
Treasury stock at cost (7,527) (6,659)
------- -------
Total Stockholders' Equity 58,061 40,478
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $83,732 $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
Nine months ended Three months ended
March 31, March 31,
------------------------ ------------------------
2001 2000 2001 2000
Revenue:
Trade Acceptance Drafts $ 21,231 $ 12,832 $ 7,988 $ 4,681
International Merchandise Trade 21,658 9,007 7,987 3,483
-------- -------- ------- -------
Total Revenue 42,889 21,839 15,975 8,164
-------- -------- ------- -------
Operating Expenses:
General and administrative (8,166) (6,910) (2,837) (2,847)
Bad debt (2,273) (3,626) (1,012) (1,310)
Interest, net (13,040) (3,443) (4,710) (1,127)
-------- -------- ------- -------
Total Operating Expenses (23,479) (13,979) (8,559) (5,284)
-------- -------- ------- -------
Income before Provision for Income Taxes 19,410 7,860 7,416 2,880
Provision for Income Taxes - (Expense) Benefit (2,221) (166) (883) 307
-------- -------- ------- -------
Net Income $ 17,189 $ 7,694 $ 6,533 $ 3,187
======== ======= ======= =======
Net Income per Common Share:
Basic $1.90 $0.89 $0.72 $0.36
Diluted $1.61 $0.86 $0.60 $0.35
Weighted Average Number of Shares Outstanding:
Basic 9,031,990 8,661,434 9,064,937 8,810,196
Diluted 10,698,237 8,926,306 10,907,023 9,203,399
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
Nine months ended March 31,
--------------------------
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $17,189 $7,694
Adjustments to reconcile net income to net cash provided by
(used in) by operating activities:
Depreciation and amortization 699 355
Bad debt expense 2,273 3,626
Deferred income 89 909
Loss (income) from qualifying special purpose entity 639 (1,108)
Compensation expense-amortization of warrants issued 0 186
Deferred income taxes (29) (181)
Changes in operating assets and liabilities:
Accounts receivable - trade and
trade acceptance drafts receivable and investment in and
due from qualifying special purpose entity (5,195) (34,339)
Other assets (116) (1,410)
Other current liabilities (518) 1,676
------- --------
Net cash provided by (used in) operating activities 15,031 (22,592)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (657) (835)
------- --------
Net cash used in investing activities (657) (835)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in short-term borrowings (9,249) 25,093
Proceeds from stock option exercise 318 145
------- --------
Net cash (used in) provided by financing activities (8,931) 25,238
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,443 1,811
Cash, beginning of period 9,424 5,199
------- --------
CASH, END OF PERIOD $14,867 $7,010
======= ========
Supplemental disclosures of cash flow information:
Interest paid during the fiscal period $13,156 $1,441
======= ========
Income taxes paid during the fiscal period $2,887 $991
======= ========
Exercise of options in exchange for common stock $868 $3,743
======= ========
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:
Nine months ended Three months ended
March 31, March 31,
----------------- ------------------
2001 2000 2001 2000
Revenue:
Trade Acceptance Drafts $21,231 $12,832 $ 7,988 $4,681
International Merchandise Trade 21,658 9,007 7,987 3,483
------- ------- ------- ------
$42,889 $21,839 $15,975 $8,164
======= ======= ======= ======
Income before Provision for
Income Taxes:
Trade Acceptance Drafts $ 4,346 $ 1,516 $ 1,651 $ 324
International Merchandise Trade 15,064 6,344 5,765 2,556
------- ------- ------- ------
$19,410 $ 7,860 $ 7,416 $2,880
======= ======= ======= ======
Depreciation and Amortization:
Trade Acceptance Drafts $ 688 $ 340 $ 242 $ 219
International Merchandise Trade 11 15 4 7
------- ------- ------- ------
$ 699 $ 355 $ 246 $ 226
======= ======= ======= ======
Interest, Net:
Trade Acceptance Drafts $ 7,386 $ 1,464 $ 2,757 $ 561
International Merchandise Trade 5,654 1,979 1,953 566
------- ------- ------- ------
$13,040 $ 3,443 $ 4,710 $1,127
======= ======= ======= ======
March 31, June 30,
2001 2000
--------- --------
Total Assets:
Trade Acceptance Drafts $28,332 $34,356
International Merchandise Trade 55,400 41,560
------- ------
$83,732 $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:
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 United States 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 "Revenue" from
its International Merchandise Trade activities is 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 revenue.
The adoption of SAB 101 did not have any impact on the net income of the
Company.
I. Results of Operations - Nine and Three Months Ended March 31, 2001, Fiscal
2001 Compared to Nine and Three Months Ended March 31, 2000, Fiscal 2000.
All figures included in the following discussion have been rounded to the
nearest $1,000 for presentation purposes.
A. Nine Months Ended March 31, 2001 vs. March 31, 2000:
Revenue:
For the first nine months of fiscal 2001, the Company had consolidated
revenue of $42,889,000 as compared to $21,839,000 for the same period in
fiscal 2000, an increase of 96.4%. This increase resulted from substantial
revenue increases in each of the Company's business segments as outlined
below.
E-TAD Program
Revenue for the nine months ended March 31, 2001 from the E-TAD Program
totaled $21,231,000, as compared to $12,832,000 for the nine months ended
March 31, 2000, an increase of 65.5%. 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).
9
For the nine months ended March 31, 2001, total TAD originations
(representing the face amount of all TAD transactions) totaled $267,827,000.
International Merchandise Trade
Revenue from international merchandise trade during this period climbed to
$21,658,000 for the first nine months of fiscal 2001, as compared to
$9,007,000 for the first nine months of fiscal 2000, an increase of 140.5%.
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 nine 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 nine months ended March 31, 2001
were $8,166,000, as compared to $6,910,000 for the same period last year, an
increase of 18.2%. This increase includes $559,000 of additional fees paid
in connection with the increased international trade revenue noted above as
well as increased legal fees. The legal fee increase of $981,000 reflects
increased litigation costs to recover monies from defaulted TADs. 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. Other professional fees
decreased $443,000 due to non-recurring financial and e-commerce-consulting
projects undertaken during the nine months ended March 31, 2000.
Compensation (including commissions and facility costs) declined to
$3,632,000 in the first nine months of fiscal 2001 from $3,837,000 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 the expansion of sales force and back-office
support personnel and additional office space to support the new E-TAD
Program. This expansion also accounted for the $548,000 increase in other
components of general and administrative expenses.
With respect to the balance of fiscal 2001, management projects that 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.
10
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 nine months of fiscal
2001, the Company provided for bad debt expense in the amount of $2,273,000
as compared to $3,626,000 in the first nine months 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.
Interest
For the first nine months of fiscal 2001, the Company incurred net interest
expense of $13,040,000 as compared to $3,443,000 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 $4,346,000 for
the first nine months of fiscal 2001, as compared to $1,516,000 for the
first nine months of fiscal 2000, an increase of 186.7%. 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 nine months ended March 31, 2001 from international
merchandise trade operations totaled $15,064,000 as compared to $6,344,000
for the first nine months of fiscal 2000, an increase of 137.5%. 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
first nine months of fiscal 2001 of $17,189,000, or $1.61 per share
(diluted), as compared to $7,694,000 or $0.86 per share (diluted), for the
first nine months of fiscal 2000. This represented an increase in net income
of 123.4% over the same period last year and an
11
increase in earnings per share of 87.2% over last year. The income tax
provision increased from $166,000 in the first nine months of fiscal 2000 to
$2,221,000 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 March 31, 2001 vs. March 31, 2000:
Revenue:
For the three months ended March 31, 2001 of fiscal 2001, the Company had
consolidated revenue of $15,975,000 as compared to $8,164,000 for the same
period in fiscal 2000, an increase of 95.7%. This increase resulted from
substantial revenue increases in each of the Company's business segments as
outlined below.
E-TAD Program
Revenue for the third quarter of fiscal 2001 from the E-TAD Program totaled
$7,988,000, as compared to $4,681,000 in the third quarter of fiscal 2000,
an increase of 70.6%. 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 third quarter of fiscal 2001, total TAD originations (representing
the face amount of all TAD transactions) totaled $102,879,000.
International Merchandise Trade
Revenue from international merchandise trade during this period climbed to
$7,987,000 for the third quarter of fiscal 2001, as compared to $3,483,000
for the third quarter of fiscal 2000, an increase of 129.3%. 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 third 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.
12
Expenses:
General and Administrative
General and administrative expenses for the three months ended March 31,
2001 were $2,837,000, as compared to $2,847,000 for the same period last
year, a decrease of 0.4%. This includes a legal fee increase of $158,000
reflecting increased litigation costs to recover monies from defaulted TADs.
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
professional fees decreased $227,000 due to non-recurring financial and
e-commerce-consulting projects undertaken during the nine months ended March
31, 2000. Compensation (including commissions and facility costs) increased
to $1,353,000 in this quarter from $1,216,000 in the same period last year.
The expansion of the sales force and back-office support personnel and
additional office space to support the new E-TAD program were offset in part
by cost reductions arising from the closing of Capital's offices in
California and Georgia and the associated reduction in personnel. This
expansion also accounted for a $127,000 increase in other components of
general and administrative expenses.
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 March 31,
2001, the Company provided for bad debt expense in the amount of $1,012,000
as compared to $1,310,000 during the same 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.
Interest
For the third quarter of fiscal 2001, the Company incurred net interest
expense of $4,710,000 as compared to $1,127,000 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 $1,651,000 for
the third quarter of fiscal 2001, as compared to $324,000 for the third
quarter of fiscal 2000, an increase of 409.6%. 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 March 31, 2001 from international
merchandise trade operations totaled $5,765,000 as compared to $2,556,000
for the three months ended March 31, 2000, an increase of 125.5%. 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
third quarter of fiscal 2001 of $6,533,000, or $0.60 per share (diluted), as
compared to $3,187,000, or $0.35 per share (diluted), for the third quarter
of fiscal 2000. This represented an increase in net income of 105.0% over
the same period last year and an increase in earnings per share of 71.4%
over last year. The tax benefit of $307,000 for the third quarter of fiscal
2000 changed to a provision for $883,000 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 March 31, 2001, the Company had working capital of $55,529,000 as
compared to working capital of $38,233,000 at June 30,2000. As of March 31,
2001 the Company had cash and cash equivalents of $14,867,000 as compared to
$9,424,000 at June 30, 2000. Short-term borrowings decreased $9,249,000 from
June 30, 2000 to March 31, 2001. 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 March 31, 2001, Capital had approximately $33.8 million in Surety bonds
guaranteeing payment of E-TADs it had purchased, in addition to $12.5
million in credit insurance.
At March 31, 2001, the Company's total stockholders' equity increased to
$58,061,000 as compared to $40,478,000 at June 30, 2000. The principal
source of funds for the Company's operations continues to be the net
earnings of 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 March 31, 2001, 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.
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
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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 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Shareholders of the Company was held on March 23, 2001
at which meeting the shareholders voted upon the election of the current Board
of Directors. Voting for directors was as follows:
Number of Shares
--------------------
For Withheld
--- --------
Amos Aharoni 5,196,957 768,110
Prof. Harry Friedman 5,950,280 14,787
Robert Furstner 5,951,380 13,687
Elizabeth Melnik 5,701,651 263,416
Alexander C. Stonkus 5,246,779 718,288
John Woerner 5,952,480 12,587
Item 6. Exhibits and Reports on Form 8-K
The Company filed a report on Form 8-K dated January 3, 2001 describing recent
additions and changes to the Company's key executive personnel.
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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: April 30, 2001
ACTRADE FINANCIAL TECHNOLOGIES LTD.
BY: /s/ Joseph P. D'Alessandris
----------------------------
Chief Financial Officer
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