The main thing is to know how to spot buying opportunities. The right time to buy is in fact after a crash at a time when the stock is dropping far below it real value.

Actrade Financial Technologies Ltd.  is one of my successful investments. The company, which was  founded by Amos Aharoni in 1987, specialized in the development of advanced e-commerce and payment solutions.

The relationship between risk and probability is the name of the game for investment houses. The higher the exposure to risk the higher the yield generated from potential investments. In the speculative stock market the wheel turns, the market value of a public company jumps or falls at times in reaction to drastic changes. The main thing is to know how to spot buying opportunities. The right time to buy is in fact after a crash at a time when everyone is “rushing out” and the stock is dropping far below it real value.

Actrade Financial Technologies Ltd., which today is being managed by a liquidation trust, is one of my successful investments. The company founded by Amos Aharoni in 1987, which specialized in the development of advanced e-commerce and payment solutions for business-to-business transactions in 1990s, was at the time considered a pioneer in its field by leading business magazines.
 
In 2002, Actrade was caught into existential crisis because of anonymous allegations and rumors about possible irregularities and improprieties at the company which until today have not been proven.
 
As a result of the alleged fears and uncertainty from the side of investors the value of the public company plunged as the share price fell dramatically from a high of $30 in 2000 to 30 cents. The stock was taken off the Nasdaq, all business activity was terminated and Actrade was turned into an inactive company sitting on a cash pile of tens of millions of dollars.

From my point of view, this situation represented a buying opportunity with a particularly high potential for profit. Although as a result of the crisis in the company all business activity was stopped, economic analysis of the company for the purpose of investment showed that Actrade at the time still owned assets worth about $35 million generated from profits and own capital without any debt commitments to external parties.

In addition, the company was in the ownership of 10 million shares. Simple calculation showed that the potential value of each share was $3 ten times the market value of its last quote at the time (30 cents).

In retrospective my investment promised excellent potential but a number of risks remained. Here are a number of facts:

• Despite the rumors, investigations and law suits filed against the company and its previous managers for improper business activities, no wrong doing was found. The class action suit was settled at a relatively low amount and the actions filed against former managers were dismissed.

• Even today, there is a significant amount of about $26 million in the company's coffers. The company remained without any debt obligations to financial institutions or suppliers.

• Actrade is suing a number of international customers.

• Actrade is being sued by the receiver of one of its clients who went into bankruptcy.

Conclusion:

My estimate is that within a year all legal issues will be resolved and settled. Although we don’t know what the court will decide estimates are that at the end of this saga about $20 million in company assets will be retained. In this case, the trust is expected to divide up the remaining cash cushion among the shareholders - that is $20 million among about 8 million shareholders at $2.5 per share. Taking into account that the shares were originally bought at a price of 30 cents, I can expect to make a yield of 800% - a brilliant investment.

Actrade Financial Technologies Ltd. was founded in 1987 by Israeli business man Amos Aharoni. In the first years of activity, Actrade started off as an exporter of American industrial equipment but during the years changed itself to a financing company for business to business transactions of American and international trade.
 
One of the first companies to offer innovative online financial payment services on the web in the mid-1990s, Actrade realized the vast potential of the internet as the future medium for companies to manage their financial needs more efficiently and effectively helping them to lower costs and increase savings. Actrade in 1995, developed the E-Tad Program, pioneering a little-known financial instrument called the Trade Acceptance Draft, an electronic tool for financing an accounts receivable or payable. With the start of operations of the E-TAD Program at the end of the 1990s, Actrade almost doubled its revenues year-on-year.  

Business model analysis:

The business was directed to serve two main markets:

• The US market – Large multiplicator of small deals through the development of the E-TAD Program and e-financial solutions widening the pool of clients through the internet.
• The international market – Expansion of the volume of deals, development of good relations with international representatives and clients building long-term relationships.

Analysis of the company’s revenues shows that the main engine of revenue growth, about 80% of total revenues, emerged from international business activities, which was developed by Amos Aharoni. US activity managed by the US team and dependent on the internet buzz did not meet targets generating only 20% of total revenues.

Analysis of main points leading to breakdown of the public company:

It seems that the first signs surfaced already at the end of 2000 when Amos Aharoni stepped down as CEO of Actrade transferring managerial responsibilities to the US management team. The year 2000 was the company’s peak year with a market value of about $400 million as annual revenues surpassed the $100 million line and net profit was more then $20 million. At the time investment banks’ expectations were supportive of continued growth at the company.

In May 2002, Actrade received anonymous allegations and false rumors of possible irregularities and improprieties in the company’s international business of which Amos Aharoni was in charge as part of his position as chairman of the company. The US management in New York decided to launch a new business policy which requested immediately from all customers and business partners a full disclosure of ownership and shareholder names.
 Aharoni disagreed vehemently with the new management over this move arguing that the demand was in contradiction to what had been agreed with them and would seriously harm the company’s business activities destroying the option of collecting debts from customers and business partners. Following the dispute Amos Aharoni resigned from all his positions with Actrade in August 2002.
Over the next couple of months the US management tried to continue business as usual but the new policy led to a loss of most of the company’s clients and the breakdown of the international business.
A law firm appointed by the US management took over the management of the company and a petition for relief under Chapter 11 was filed for which a total of $5 million in law fees were charged from the company’s cash coffers.
 
At this point, shareholders who saw the value of their investments crashing were prepared to sell off at any price pushing the share price down to 30 cents. The new shareholders – mainly funds specializing in the purchase of shares of crashing companies – gained control of the management of the company and stopped its cash-flow.

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