Joe, if you have access to Edgar you can see the filing from today,
Some excerpts...I have not yet waded through it:
III. Impact of the Trade Acceptance Draft Program and the Operations of Capital.
During fiscal 1994, the first full year of operations for the TAD Program,
Capital generated gross revenues of $927,757 (compared to $247,809 during fiscal
1993). During fiscal 1995, management implemented an aggressive new marketing
plan for the TAD Program, which resulted in gross revenues of $3,703,493 for
fiscal 1995, almost 300% higher than fiscal 1994. During fiscal 1996, as Capital
continued to step-up its marketing program, Capital generated gross revenues of
$7,993,932, almost 116% higher than fiscal 1995.
By fiscal 1997 Capital began to expand its sales force and added new regional
sales offices. As a result, gross revenues increased to $21,668,573, over 171%
higher than fiscal 1996. For fiscal 1997, Capital's operations reflected a gross
profit from operations of $1,366,322 with net pre-tax income of $224,669.
Capital's operating revenues during the first nine months of fiscal 1998 totaled
$40,143,813, or approximately 58.5% of the Company's total revenues during this
period, as compared to total revenues of $14,066,755, or approximately 47.8% of
total revenues, during the first nine months of fiscal 1997. Perhaps most
importantly however, Capital's gross revenues during this period were
$26,077,058 higher than in the same period last year, an increase of more than
185%.
During this period, Capital also had interest expenses of $147,804, while
incurring direct selling, general and administrative expenses of $1,816,734
(which included both a percentage of indirect overhead costs and the costs
associated with the addition of two new sales offices), which resulted in net
operating income before taxes of $606,909, with net income of $517,472 after an
allowance for taxes of $89,437.
With respect to Capital's expansion plan, based upon management's experience
with the TAD Program over the past four years, management has determined to
place its primary emphasis on developing a domestic force of aggressive new
sales representatives with a solid background in sales and the experience to
present the TAD Program to large domestic and multi-national companies.
During the third quarter of fiscal 1998, two new sales offices were opened. Due
to the need to train personnel and to promote the TAD Program to the target
market in each region, neither office generated any revenues during the period
ended March 31, 1998. It has been management's experience that a newly
established sales office will require from 3 to 6 months to begin generating
revenues. Consequently, although both the Houston and Kansas City office are
expected to begin generating revenues during the fourth quarter of fiscal 1998,
no projection of the extent of such revenues can be made at this time.
As previously reported, on December 2, 1997 the United States Patent Office
officially granted to Mr. Amos Aharoni a patent with respect to the use of trade
acceptance drafts in Capital's TAD Program. Mr. Aharoni has assigned all of his
right, title and interest in and to said patent to Actrade International, Ltd.
in consideration of the payment of $1.00. Mr. Aharoni will not be entitled to
receive any other form of compensation or royalty in connection with said
patent.
IV. Trends Affecting Liquidity, Capital Resources and Operations.
A. Actrade Capital, Inc.
With respect to the TAD Program, management has not identified any trends which
have had, or which can reasonably be expected in the future to have, any adverse
impact upon the operations of Capital or the TAD Program in general. As of the
date of this Report, management is not aware of any other company operating a
program similar to the TAD Program and, as demonstrated by Capital's growth rate
since the introduction of the TAD Program (see discussion above), Capital's
revenues and profits continue to reach new record levels each quarter.
Actrade International Corp. - Export Division.
Over the years, economic conditions in the United States have caused American
manufacturers to seek new markets for their products and, in particular, to turn
to foreign markets to boost domestic sales. Management believes that over the
past several years this trend, coupled with renewed demand for American products
and improved buying power of foreign currencies, has been beneficial to the
Company's export division and has been a major factor in the growth of this
division.
This trend is now being affected by a number of factors which could adversely
affect future growth rates for the Company's export operations. Most importantly
among these has been the renewed strength of the American Dollar compared to
other currencies which has had the effect of making American products too
expensive to compete with foreign-made products. Principally this is due to the
impact that reduced foreign labor costs have upon the price of competitive
merchandise.
In addition, the recent turmoil in the Asian financial markets is expected to
translate into a slow down in orders for American made products from this market
segment which is expected to adversely affect the Company's export division.
However, to date, the Company has been able to offset this negative trend with
increased orders from other markets around the world, although no assurance can
be given as to future results, particularly if the crisis in the Asian markets
continues.
Actrade S.A. - International Trade Division.
The operations of Actrade S.A. have been designed to compliment the Company's
export operations by providing foreign sources for products. Management believes
that by utilizing the foreign network available to Actrade S.A. as a source of
comparable, less expensive foreign made products, the Company will gain the
flexibility needed to meet changing product demands over the coming years and
adequately offset any decline in its export operations. These changing trends
have been the principal reason for the dramatic increase in sales revenues by
Actrade S.A.
Another result of these changing world conditions, which recently have had an
adverse impact on foreign markets for US products (and probably most
importantly) has been the impact of the availability of (or lack of) trade
financing. In management's opinion, the real "key" to success in international
trading has, at least at present, become the ability to provide trade financing
in addition to competitive pricing for products. During fiscal 1997 the Company
experienced a further expansion of the international trading operations of
Actrade S.A. Due to the financial strength of the Company, Actrade S.A. has been
in a position to benefit from the financing void created by the dramatic
increase in worldwide demand, thereby allowing it to capture a larger share of
the current market demand.
The effects of this trend are evident in the Company's operating results for
both fiscal 1997 and during the current period. Sales by Actrade S.A. rose
dramatically from $7,689,000 during fiscal 1996 to $14,743,695 during fiscal
1997 and $22,918,264 for the first nine months of fiscal 1998 (compared to
$10,436,453 for the first nine months of fiscal 1997). Apart from proving
management's assumption that as sales of US products decrease, sales of foreign
products will increase, these results also point out another important factor,
to wit, that worldwide demand for all types of products is increasing. However,
management cannot predict whether the extraordinary rise in sales revenues
experienced by Actrade S.A. will continue. At present, while product demand is
high and the availability of trade financing is low, Actrade S.A. enjoys a
favorable position in the market. As these factors stabilize and as trade
financing becomes more readily available, it is likely that this advantage will
decrease.
Management knows of no other trends reasonably expected to have a material
impact upon the Company's operations or liquidity in the foreseeable future.
VI Inflation.
During the past few years inflation in the United States has been relatively
stable which, coupled with the relative strength of foreign currencies discussed
above, 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. Although the recent strength of the American dollar
abroad has served to diminished the demand for American products, in
management's opinion, the impact on its export sales is not expected to be
significant within 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 export
division'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. |
