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Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended September 30, 2000
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Commission File Number 0-10832
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AFP Imaging Corporation
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(Exact Name of Registrant as Specified in Its Charter)
New York 13-2956272
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
250 Clearbrook Road, Elmsford, New York 10523
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (914) 592-6100
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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 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
---
The registrant had 9,271,054 shares of Common Stock outstanding as of November
1, 2000.
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This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of the Private Securities Reform Act of 1995. Forward-looking
statements involve known and unknown risks and uncertainties and other factors
that could cause actual results of AFP Imaging Corporation (collectively with
its subsidiaries, the "Company") or achievements expressed or implied by such
forward-looking statements to not occur, not be realized or differ materially
from that stated in such forward-looking statements. Forward-looking statements
may be identified by terminology such as "may", "will", "project", "expect",
"believe", "estimate", "anticipate", "intend", "continue", "potential",
"opportunity" or similar terms, variations of such terms, or the negative of
such terms or variations. Potential risks, uncertainties and factors include,
but are not limited to, adverse changes in general economic conditions, the
ability of the Company to continue to obtain bank and other financing on terms
similar to terms currently available to the Company, the Company's ability to
repay its loans when due, changes in the markets for the Company's products and
services, the ability of the Company to successfully design, develop,
manufacture and sell new products, the Company's ability to successfully market
its existing and new products, adverse business conditions, increased
competition, pricing pressures, risk associated with foreign operations, the
ability to attract and retain key personnel, difficulties in obtaining adequate
long-term financing to meet the Company's obligations, changes in the nature or
enforcement of laws and regulations concerning the Company's products, services,
suppliers, or its customers, changes in currency exchange rates and regulations,
and other factors set forth in this Quarterly Report on Form 10-Q.
PART I. Financial Information
The consolidated financial statements included herein have been prepared by AFP
Imaging Corporation (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. While certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, the Company believes that the
disclosures made herein are adequate to make the information presented not
misleading. It is recommended that these consolidated financial statements be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 2000.
In the opinion of the Company, all adjustments necessary to present fairly the
financial position of AFP Imaging Corporation as of September 30, 2000 and June
30, 2000, and the results of its operations for the three month periods ended
September 30, 2000 and 1999, and its cash flows for the three months periods
then ended, have been included.
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Item 1: FINANCIAL STATEMENTS
AFP Imaging Corporation and Subsidiaries
Consolidated Balance Sheets - September 30, 2000 and June 30, 2000
September 30, June 30,
Assets 2000 2000
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(Audited)
Current Assets:
Cash and cash equivalents $ 145,247 $ 433,620
Accounts receivable, less allowance
for doubtful accounts of $130,600
and $163,000, respectively 3,361,415 3,244,213
Inventories 3,855,980 4,078,073
Prepaid expenses and other 114,245 128,015
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Total current assets 7,476,887 7,883,921
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Property and Equipment, (at cost) 8,103,295 8,065,268
Less accumulated depreciation (7,302,442) (7,173,162)
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800,853 892,106
Intangible Assets,
net of accumulated amortization 2,493,307 2,563,706
Other Assets 51,449 268,172
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$ 10,822,496 $ 11,607,905
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September 30, June 30,
Liabilities and Stockholders' Equity 2000 2000
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(Audited)
Current Liabilities:
Current portion of long-term debt $ 204,926 $ 194,556
Accounts payable 920,434 1,165,012
Accrued expenses 824,389 918,393
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Total current liabilities 1,949,749 2,277,961
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Long Term Debt 4,276,352 4,875,005
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Stockholders' Equity
Common Stock, $.01 par value, 30,000,000
shares authorized, 9,271,054
shares issued and outstanding
at September 30, 2000 and
June 30, 2000, respectively 92,710 92,710
Paid-in capital in excess of par 11,545,883 11,545,883
Accumulated deficit (7,028,080) (7,168,713)
Accumulated other comprehensive loss (14,118) (14,941)
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Total stockholders' equity 4,596,395 4,454,939
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$ 10,822,496 $ 11,607,905
============ ============
The accompanying notes to financial statements are an integral part of
these consolidated balance sheets.
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AFP Imaging Corporation and Subsidiaries
Consolidated Statements of Operations
Three Months Ended
September 30,
2000 1999
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Net Sales $7,077,984 $6,400,193
Cost of Sales 4,898,636 4,116,836
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Gross Profit 2,179,348 2,283,357
Selling, general and
administrative expenses 1,798,249 2,031,092
Research and development 101,010 137,220
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1,899,259 2,168,312
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Operating Income 280,089 115,045
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Interest, net 126,026 116,210
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Income (loss) before provision for taxes 154,063 (1,165)
Provision (Benefit) for income taxes 13,430 (3,160)
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Net Income $140,633 $1,995
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NET INCOME PER SHARE
Basic $.02 $ ---
=====
Diluted $.01 $ ---
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Weighted average outstanding
Common stock
Basic 9,271,054 9,271,054
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Diluted 9,450,095 9,275,346
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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AFP Imaging Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income
For the Three Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Paid-in Other
Comprehensive Common Capital In Accumulated Comprehensive
Income Stock Excess of Par Deficit Income (Loss) Total
------ ----- ------------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1999 $ -- $ 92,710 $11,491,001 $(6,360,831) $ (14,581) $5,208,299
Foreign currency translation
adjustment 3,265 -- -- -- 3,265 3,265
Net income for three months
ended September 30, 1999 1,995 -- -- 1,995 -- 1,995
Comprehensive Income $ 5,260 -- -- -- -- --
======== ----------- ----------- ----------- ---------- ----------
Balance September 30, 1999 $ 92,710 $11,491,001 $(6,358,836) $ (11,316) $5,213,559
=========== =========== =========== ========== ==========
Balance June 30, 2000 $ -- $ 92,710 $11,545,883 $(7,168,713) $ (14,941) $4,454,939
Foreign currency translation
Adjustment 823 -- -- -- 823 823
Net income for three months
ended September 30, 2000 140,633 -- -- 140,633 -- 140,633
Comprehensive Income $141,456 -- -- -- -- --
======== ----------- ----------- ----------- ---------- ----------
Balance September 30, 2000 $ 92,710 $11,545,883 $(7,028,080) $ (14,118) $4,596,395
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes to conslidated financial statements are an integral part
of these consolidated statements.
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AFP Imaging Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $140,633 1,995
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 201,859 182,779
Change in assets and liabilities:
(Increase) decrease in accounts receivable (117,202) 638,968
Decrease in inventories 222,093 324,084
Decrease (increase) in prepaid expenses and other assets 230,593 (211,178)
(Decrease) increase in accounts payable (244,578) 71,191
Decrease in accrued expenses (94,004) (518,755)
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Total adjustments 198,761 487,089
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Net cash provided by operating activities 339,394 489,084
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (40,307) (11,667)
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Net cash used by investing activities (40,307) (11,667)
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CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of debt (588,283) (294,310)
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Net cash used by financing activities (588,283) (294,310)
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EXCHANGE RATE EFFECTS ON CASH AND CASH EQUIVALENTS 823 3,265
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Net (decrease) increase in cash and cash equivalents (288,373) 186,372
CASH AND CASH EQUIVALENTS, at beginning of period 433,620 249,053
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CASH AND CASH EQUIVALENTS, at end of period $145,247 $435,425
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
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AFP Imaging Corporation and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2000
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(Unaudited)
(1) General:
The accounting policies followed during the interim periods reported on herein
are in conformity with generally accepted accounting principles and are
consistent with those applied for annual periods, as described in the Company's
financial statements included in the Company's Annual Report on Form 10-K for
the year ended June 30, 2000.
(2) Net earnings per common share:
The diluted weighted average number of shares outstanding includes 179,041 and
4,292 shares of common stock issuable upon exercise of outstanding stock options
in fiscal 2001 and fiscal 2000.
(3) Long and Short Term Debt:
As of September 30, 2000, the Company had a senior credit facility consisting of
a revolver and term loan facility (the "Facility") with its senior lender (the
"Senior Lender"). The Facility requires that certain financial ratios and net
worth amounts be maintained. The Company was in compliance with all of its
covenants and terms, with the exception of the debt service coverage ratio. The
Facility was originally due to expire on July 13, 2000. The Senior Lender
temporarily extended the expiration date, and on October 12, 2000, the Senior
Lender renewed the Facility through October 31, 2001, with amended terms and
conditions. The Facility was decreased to $4.5 million, the interest rate was
increased to 1.5% over the prime rate, and the amortization of the outstanding
term loan was reduced from ten years to five years. As part of the renewal, the
Senior Lender amended the terms of the debt service coverage ratio for September
30, 2000, December 31, 2000, and March 31, 2001. The Facility is collateralized
by accounts receivable, eligible inventory, equipment, life insurance policies
and proceeds thereof, trademarks, licenses, patents, and general intangibles.
The Facility provides for restrictions on borrowings, requires certain financial
ratios related to total debt, debt to tangible net worth, and current assets to
current liabilities, be maintained, and requires minimum levels of working
capital, net worth and cash flow. As of September 30, 2000, the Company was in
compliance with all of the Facility's covenants and terms.
(4) Inventory:
The Company uses the gross margin method related to labor and overhead costs
during interim periods for inventory valuation. Inventory is stated at the lower
of cost (first-in, first-out) or market (net realizable value).
(5) Income Taxes:
The Company's income tax provision (benefit) for fiscal 2001 and 2000, relates
to state and foreign income or capital taxes net of any refunds received. The
Fiscal 2001 provision is net of any income tax benefits related to the losses
reported in fiscal 2000 and prior, in accordance with SFAS No. 109. The income
tax rate is lower than the effective rate due to the utilization of NOL's.
(6) Segment Information:
The segment information for the three months ended September 30, 2000 and 1999
are shown below. Segment information related to operating income includes costs
directly attributable to each segment's operations.
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<TABLE>
<CAPTION>
Depreciation Net
Operating & Capital Interest
Net Sales Income Assets Amortization Expenditures Expense
--------- ------ ------ ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
For the three months ended
September 30, 2000
Medical/Dental $6,309,339 $227,086 $9,932,301 $201,859 $40,307 $106,026
Graphic Arts 768,645 53,003 890,195 0 0 20,000
---------- -------- ----------- -------- ------- --------
Consolidated $7,077,984 $280,089 $10,822,496 $201,859 $40,307 $126,026
========== ======== =========== ======== ======= ========
For the three months ended
September 30, 1999
Medical/Dental $5,547,253 $68,443 $11,461,919 $180,679 $11,667 $86,210
Graphic Arts 852,940 46,602 1,787,551 2,100 0 30,000
---------- -------- ----------- -------- ------- --------
Consolidated $6,400,193 $115,045 $13,249,470 $182,779 $11,667 $116,210
========== ======== =========== ======== ======= ========
</TABLE>
===============================================================================
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operation
Capital Resources, Liquidity and Results of Operations
The Company's working capital at September 30, 2000, decreased by approximately
$78,800 from June 30, 2000. During the three months ended September 30, 2000,
the Company reduced the long-term debt by approximately $600,000, primarily as a
result of reductions in inventory, prepaid expenses and other assets, which more
than offset net income for the quarter and reductions in accounts payable and
accrued expenses.
As of September 30, 2000, the Company had a senior credit facility consisting of
a revolver and term loan facility (the "Facility") with its senior lender (the
"Senior Lender"). The Facility requires that certain financial ratios and net
worth amounts be maintained. The Company was in compliance with all of its
covenants and terms, with the exception of the debt service coverage ratio. The
Facility was due to expire on July 13, 2000. The Senior Lender temporarily
extended the expiration date and, on October 12, 2000, the Senior Lender renewed
the Facility through October 31, 2001, with amended terms and conditions. The
Facility was decreased to $4.5 million, the interest rate was increased to 1.5%
over the prime rate, and the amortization of the outstanding term loan was
reduced from ten years to five years. As part of the renewal, the Senior Lender
amended the terms of the debt service coverage ratio for September 30, 2000,
December 31, 2000, and March 31, 2001. The Facility is collateralized by
accounts receivable, eligible inventory, equipment life insurance policies and
proceeds thereof, trademarks, licenses, patents, and general intangibles. The
Facility provides for restrictions on borrowings, requires certain financial
ratios related to total debt, debt to tangible net worth, and current assets to
current liabilities, be maintained, and requires minimum levels of working
capital, net worth and cash flow. As of September 30, 2000, the Company was in
compliance with all of its covenants and terms. As of September 30, 2000, the
Company had available $1,649,000 of unused credit under the credit Facility.
The Company's historical operating cash flows have been positive; however, the
Company is dependent upon the Facility to finance its ongoing operations. The
Company expects its need for working capital will continue to be financed by
operations and from borrowings against the Facility. The Company is presently
unaware of any other trends, demands, commitments or contingencies which are
reasonably likely to result in a material increase or decrease in its liquidity
or capital resources in the foreseeable future. No assurances can be given that
the Company will have favorable cash flow in the near term.
Capital expenditures for the first three months of Fiscal 2001 were $40,307 and
included production tooling costs and leasehold improvement costs associated
with the Company's renovation of its office space, in conjunction with the
renegotiation of its lease for such facilities. The Company expects to continue
to finance any future capital requirements principally from internally generated
funds.
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Comparison of Three Months Fiscal 2001 Versus Three Months Fiscal 2000
Sales increased $677,800 or 10.6% between the two periods. Included in Fiscal
2001 was a sale to the U.S. military of approximately $1.3 million. The dental
products accounted for most of this increase. The Company had a full quarter of
sales of its intraoral x-ray unit in Fiscal 2001, whereas this product was
marketed and sold beginning in the fourth quarter of Fiscal 2000. The medical
and graphic arts products showed a slight decrease from the prior year.
Gross profit as a percent of sales decreased 4.9 percentage points due to
product mix, which included many more distributor products than Company
manufactured products. Distributor product sales tend to have lower margins than
Company manufactured products. Labor and overhead costs were approximately the
same as the prior year.
Selling, general, and administrative costs decreased $232,900 or 11.5% between
the two periods. The Company closed its small office in Sweden and relocated the
work previously conducted at such office to the United States. Additionally,
management continues to seek ways to reduce fixed overhead.
Research and development costs decreased $36,200 or 26% between the two periods.
The Company has continued to focus on the refinement of its digital dental
products in order to reduce costs and maintain market share. The Company
continues to invest in sustaining engineering for its analog products. The
decrease in the costs is attributable to the timing of consultants'
expenditures.
Interest expense, net decreased $9,800 or 8.4% between the two periods. The
Fiscal 2001 quarter included $17,500 of interest costs associated with a
subordinated note restructured in August 1999. Interest charges were reduced by
approximately $27,000 due to approximately $600,000 less in corporate debt in
the current quarter.
Other
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". In June 1999, the FASB issued SFAS No. 137,
which deferred the effective date of SFAS No. 133. In June 2000, the FASB issued
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities", which amends SFAS No. 133. SFAS No. 133 and SFAS No. 138 establish
accounting and reporting standards for derivative financial instruments. The
Company adopted these standards effective July 1, 2000. The adoption of these
Standards did not have a material effect on the Company's financial position and
results of operations.
Item 3: Quantitative and Qualitative Disclosures About Market Risk.
None
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Part II Other Information
Item 1: Legal Proceedings
Reference is made to Item 3 in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2000, and to the reference therein,
for a discussion of all material pending legal proceedings to which the Company
and its subsidiaries are parties.
Item 2: Changes in Securities and Use of Proceeds.
None
Item 3: Defaults Upon Senior Securities.
None
Item 4: Submission of Matters to a Vote of Security Holders.
None
Item 5: Other Information.
None
Item 6: Exhibits and Reports on Form 8-K.
(a) None
(b) Reports on Form 8-K
None
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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.
AFP IMAGING CORPORATION
/s/ David Vozick
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David Vozick
Chairman of the Board
Secretary, Treasurer
Date: November 20, 2000
/s/ Donald Rabinovitch
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Donald Rabinovitch
President and Director
(Principal Executive Officer)
Date: November 20, 2000
/s/ Elise Nissen
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Elise Nissen
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: November 20, 2000
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