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-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: [email protected]
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<SEC-DOCUMENT>0000889812-97-002088.txt : 19971001
<SEC-HEADER>0000889812-97-002088.hdr.sgml : 19971001
ACCESSION NUMBER: 0000889812-97-002088
CONFORMED SUBMISSION TYPE: 10-K405/A
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 19970630
FILED AS OF DATE: 19970930
SROS: NASD
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AFP IMAGING CORP
CENTRAL INDEX KEY: 0000319126
STANDARD INDUSTRIAL CLASSIFICATION: PHOTOGRAPHIC EQUIPMENT & SUPPLIES [3861]
IRS NUMBER: 132956272
STATE OF INCORPORATION: NY
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K405/A
SEC ACT:
SEC FILE NUMBER: 000-10832
FILM NUMBER: 97688576
BUSINESS ADDRESS:
STREET 1: 250 CLEARBROOK RD
CITY: ELMSFORD
STATE: NY
ZIP: 10523
BUSINESS PHONE: 9145926100
MAIL ADDRESS:
STREET 1: 250 CLEARBROOK RD
CITY: ELMSFORD
STATE: NY
ZIP: 10523
FORMER COMPANY:
FORMER CONFORMED NAME: AUTOMATIC FILM PROCESSOR CORP
DATE OF NAME CHANGE: 19821122
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405/A
<SEQUENCE>1
<DESCRIPTION>AMENDMENT NO. 1 TO ANNUAL REPORT
<TEXT>
<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K/A No. 1
[X] Annual Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the Fiscal Year Ended June 30, 1997
-------------
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission File Number: 0-10832
-------
AFP Imaging Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-2956272
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
250 Clearbrook Road, Elmsford, NY 10523
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number: (914)592-6100
Securities registered pursuant Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value .01 per share
-------------------------------------
(Title of Class)
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 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.
[X]
--- ---
Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X )
The aggregate market value of the Registrant's Common stock held by
non-affiliates of the Registrant as of August 29, 1997 was approximately
$9,208,065. On such date, the averages of the closing bid and asked prices
of the Common Stock, as quoted by the Nasdaq SmallCap Market, was $2 7/16.
The registrant had 7,471,185 shares of Common Stock outstanding as of
August 29, 1997,
The Company's Proxy Statement for the 1997 Annual Meeting of Shareholders
tentatively scheduled for December 18, 1997 is hereby incorporated by
reference into Part III of this Form 10K.
<PAGE>
Part I
Item 1. Business
a) General Development of Business
AFP Imaging Corporation (the "Company") was organized on September 20, 1978,
under the laws of the State of New York. Since its inception, the Company has
been engaged in the business of designing, developing, manufacturing and
distributing equipment for producing "hard copy" images by chemical processing
photosensitive materials as well as manufacturing other electro/optical imaging
equipment. These products have been adapted to medical, industrial, dental and
graphic arts applications. The Company's products are distributed to worldwide
markets through a network of dealers.
On July 14, 1997, the Company completed the renegotiation of its credit facility
with its senior secured lender. The general terms, conditions and covenants are
substantially the same as prior to such negotiation, except that the Company
renegotiated a lower interest rate and a broader borrowing base.
On April 17, 1997, the Company expanded its dental imaging business by the
acquisition of Regam Medical Systems International AB ("Regam"), a Swedish
company. Regam is a manufacturer of a filmless digital dental radiography
system, with an installed base of over 3,500 units in Europe and Asia. The
purchase price of $2.9 million consisted of cash, notes payable and a contingent
royalty. The Company financed the cash portion of the purchase price from
available cash on hand.
On August 6, 1996, the Company sold its fluoroscopic imaging inventories located
in Richmond, Virginia. The Company realized a loss of approximately $60,000 on
this transaction which loss had been accrued as of June 30, 1996. The assets of
this division were not material to the total assets of the Company.
As discussed in "Competition", the Company's products are subject to competition
from the development of new technologies, products and services by well
established competitors who may have greater financial resources, facilities and
organization than the Company. Accordingly, the Company's product lines are
susceptible to relatively short life cycles.
b) Financial Information about Industry Segments
The Company is engaged in only one industry segment and management believes that
all of its products and services fall within one class of similar or related
products and services.
c) Narrative Description of Business
Principal Products and Services
Medical, Dental and Industrial X-Ray Processors & Accessories
The Company manufactures and distributes a line of free-standing and table top
medical, dental and industrial x-ray film processors. Various models of these
machines are capable of processing or developing up to 400 films per hour. The
exposed film is inserted into equipment and returned to the operator developed,
fixed, washed and dried. The equipment can be located either in a dark room site
or adapted to a daylight, self-loading system. These units are used for
diagnostic x-ray imaging and industrial, non-destructive testing applications.
The Company's products are distributed worldwide through an unaffiliated dealer
network.
Digital Dental Imaging Systems
The Company manufactures and distributes a filmless digital dental radiography
system, based on electronic imaging technology. Such technology creates dental
images on a computer screen that operates in a Windows based software
environment. Currently, these products are being sold in Europe, Latin America
and Asia. The Company will introduce these products into North American markets
in fiscal 1998.
<PAGE>
Diagnostic Imagers and Viewers
The Company manufactures a line of digital and analog multiformat compact
cameras to permanently record and document the images produced during diagnostic
examinations from several different applications. The cameras can produce
anywhere from one to six images on films that can be processed and developed in
Company manufactured film processors. The Company has the distribution rights to
a line of European monitors specifically designed for the high resolution needs
of the medical display market.
X-Ray Systems
The Company has the distribution rights to a European dental x-ray machine for
the North American market. The x-ray film exposed by each of these units is then
developed in the Company's processors. This x-ray product is also compatible
with the Company's digital x-ray unit.
Graphic Arts Processors
The Company manufactures and distributes various sized graphic arts processors
which develop different photosensitive materials such as rapid access film and
papers. These processors are intended for use with phototypesetting, graphics
and other pre-printing press applications. Newspapers, publishers and commercial
printers are primary customers for these products.
Competition
The Company's product lines are subject to both foreign and domestic competition
and is characterized by research and development of new technologies, products
and services. Competitors are well established in the film manufacturing and
distribution businesses and may have greater financial resources, facilities and
organization than the Company. The Company is also an Original Equipment
Manufacturer (OEM) supplier to others. With respect to all of its products, the
Company competes on the basis of price, features, product quality, applications,
engineering, promptness of delivery and customer service. The Company believes
it is one of the largest domestic equipment manufacturers in its class of
products.
Customers
No customer accounted for 10% or more of net sales in fiscal 1997 or 1996.
Management does not believe the loss of any one customer would have a materially
adverse effect on the Company's consolidated business. Foreign markets and sales
are pursued by various international dealers.
Backlog Orders
As of June 30, 1997, the Company's backlog of orders for its products was
approximately $4,174,052 as compared to $3,654,700 as of June 30, 1996. All of
the orders included in the backlog at June 30, 1997 are scheduled for delivery
by June 30, 1998. OEM purchase commitments are typically negotiated for 12 month
periods but are not based on a calendar or fiscal year. Spare part sales are not
part of the Company's backlog calculations. In the opinion of the Company,
fluctuations in the backlog and its size at any given time are not necessarily
indicative of intermediate or long-term trends in the Company's business. Much
of the Company's backlog can be canceled or the delivery dates extended without
penalty. Delivery of capital equipment is frequently subject to changing budget
conditions of consumers.
Government Contracts
The Company has no current contracts with the federal government that are
material to the consolidated business. The Company's policy is to be responsive
to all governmental Request for Quotations (RFQ) which can be fulfilled within
the scope of the Company's product lines.
Patents and Trademarks
The Company presently owns many domestic and foreign utility patents which it
believes are material to the technology used in its products. The Company is not
aware of any patents held by others that conflict with its current domestic
product designs. The Company is evaluating whether its recently acquired foreign
technology infringes on any domestic patents held by others. The principal
technology applied to the
<PAGE>
construction of the Company's other products is state-of-the-art but not
considered proprietary. The Company owns several domestic and foreign trademarks
which it uses in connection with the marketing of its products.
Research and Development
The amount spent during each of the last three fiscal years on primary research
activities relating to the development of new products and the improvement of
existing products, all of which was Company sponsored, is as follows:
1997 1996 1995
---- ---- ----
$776,423 $1,273,032 $750,818
The Company's level of spending is discussed further in "Management's Discussion
and Analysis of Financial Condition and Results of Operation".
Raw Materials
The Company does not utilize any unique raw materials or processes in the design
and manufacture of its products. The Company anticipates that an adequate
commercial supply of all raw materials will be available from multiple sources.
Employees
As of June 30, 1997, the Company employed 190 persons worldwide on a full-time
basis. The Company has no collective bargaining agreements and considers its
relationship with its employees to be satisfactory.
Sales, Marketing and Distribution
All of the Company's products are manufactured and distributed domestically and
internationally in two configurations. Certain products are custom engineered
and brand labeled for other large OEM's. The balance of the Company's products
are brand labeled by the Company with its own trade names and are distributed
through an extensive network of independent medical, dental and graphic arts
dealers who install and service the equipment. The Company maintains a
significant marketing and regional sales management effort to promote and
support all its products.
The Company advertises in trade journals (domestic and international), provides
sales support and literature, prepares technical manuals and conducts customer
education and training programs in order to promote its products. In addition,
the Company participates in domestic and international trade and clinical shows.
The Company utilizes various domestic and international forms of trademarks,
including AFP Imaging, DENT-X, Sens-A-Ray 2000 and LOGE, among others.
Government Regulation
The United States Food and Drug Administration ("FDA"), Bureau of Medical
Devices regulates the distribution of all equipment used as medical devices. The
Company has registered all of its medical apparatus with this agency. The Bureau
of Medical Devices has the right to disapprove the marketing of any medical
device that it believes is unfit for the purposes intended. The Company believes
that its products and procedures satisfy all the criteria necessary to comply
with the regulations of the FDA's Bureau of Medical Devices. The Company's
primary manufacturing facility is ISO 9001 (International Standards
Organization) certified.
Seasonal Nature
The Company's business is not considered seasonal.
Working Capital Practices
The Company engages in no unusual practices regarding inventories, receivables
or other items of working capital. The Company renegotiated its credit facility
with its existing lender in July 1997. See
<PAGE>
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for further discussion.
Environmental Impact
The Company believes it is in compliance with laws and regulations governing the
protection of the environment and that continued compliance will not have a
material effect on its business or require any material capital expenditures.
The Company does not use any controlled or regulated materials or processes in
its operation. Compliance with local codes for the installation and operation of
the Company's products is the responsibility of the end user.
d) Financial Information about Foreign and Domestic Operations and Export Sales
With respect to the Company's last three fiscal years, domestic sales were
$23,527,612 (1997), $26,368,729 (1996), and $20,818,704 (1995) representing 64%,
72%, and 78% respectively of the Company's sales during such periods. Domestic
operating income was $2,283,895, $1,537,291 and $1,524,181 for the years ended
June 30, 1997, 1996, and 1995, respectively. Export and foreign sales during
such periods were $13,520,898 (1997) $10,160,150 (1996) and $5,770,208 (1995) or
36%, 28% and 22% of total Company sales for each period, respectively. The
Company's Swedish subsidiary, Regam, incurred an operating loss of $154,600 from
April 17, 1997 (acquisition date) through June 30, 1997. The Company had no
foreign operating income or losses for the years ended June 1996 and 1995.
Assets used in the manufacture of export sales are integrated with the other
assets of the Company.
Item 2. Properties
The Company's manufacturing facility is well maintained, is in good operating
condition, and has a productive capacity sufficient to meet the Company's
present and anticipated needs. The Company's executive offices and its
manufacturing facility are located in Elmsford, New York. This property is under
a renegotiated lease expiring on December 31, 2000 at a rental of $598,574
through the lease term for the last three years plus increases in real estate
taxes, utility costs and common area charges. The Company leases a sales and
marketing facility in Springfield, Virginia for $140,000 per annum. This lease
expires on March 31, 1998. The Company leases a small facility in Sweden for
approximately $28,000 per annum. The lease expires December 31, 1997.
Item 3. Legal Proceedings
The Company is currently defending a civil complaint instituted by a former
vendor of Visiplex Instruments Ltd., for breach of Bulk Sales Notice, alleging
that no notice of the bulk transfer of assets was given in July 1995. The
Company did not assume such liability. Visiplex Instrument Ltd. provided the
Company with an Indemnification and Hold Harmless Agreement, which has a
$500,000 limit. The complaint does not specify the amount of damages, however,
at this time, the Company does not believe that the outcome of this matter will
have a material adverse effect on the consolidated financial statements. The
Company is not aware of any other litigation which could have a material adverse
effect on its financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 1997.
<PAGE>
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
a) Market Information
The Common Stock of the Company is traded on the Nasdaq SmallCap Market (Symbol
"AFPC"). The following table shows the high and low bid quotations for the
Company's Common Stock for each quarterly period during the Company's last two
fiscal years. These prices do not represent actual transactions and do not
include retail mark-ups, mark-downs or commissions.
Quarter ended High Low
------------- ---- ---
September 30, 1995 2 1/2 5/8
December 31, 1995 2 1/4 1 1/8
March 31, 1996 1 9/16 7/8
June 30, 1996 1 7/16 15/16
September 30, 1996 1 13/16 1
December 31, 1996 1 7/8 1
March 31, 1997 2 5/16 1 11/16
June 30, 1997 2 1/8 1 1/2
b) Holders
The following table sets forth the approximate number of holders of record of
Common Stock of the Company at September 1, 1997.
Title of Class Number of Holders of Record
---------------------------- ---------------------------
Common Stock, $.01 par value 531
c) Dividends
No cash dividends have been declared on the Company's shares to date and the
Company anticipates that for the foreseeable future any earnings will be
retained for use in its business.
Pursuant to the terms of the Company's 12% Convertible Subordinated Debentures,
repaid in full in June 1997, the Company was not permitted to declare or pay any
dividend on any shares of its capital stock, other than cash dividends on its
Preferred Stock, Series A and Series B, until the entire principal amount of the
Debentures was paid in full or converted into Common Stock.
<PAGE>
Item 6. AFP Imaging Corporation and Subsidiaries Selected Financial Data
as of and for The Years Ended June 30, 1997, 1996, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET SALES $37,048,510 $36,528,879 $26,588,912 $30,505,249 $38,257,479
=========== =========== =========== =========== ===========
OPERATING
INCOME (LOSS) $2,129,295 $1,537,291 $1,524,181 $(3,383,100)(c) $(355,372)(d)
========== ========== ========== ============ ==========
NET INCOME (LOSS) $1,548,597 $700,528 $923,999 $(4,184,156)(c) $(1,255,668)(d)
========== ======== ======== ============ ============
NET PRIMARY EARNINGS
(LOSS) PER COMMON
SHARE AND
EQUIVALENTS $.16(a) $.08(a) $.13(a) $(.71) $(.26)
==== ==== ==== ====== ======
NET FULLY DILUTED
EARNINGS (LOSS) PER
COMMON SHARE AND
EQUIVALENTS $.15(a) $.08(a) $.12(a) $(.71) $(.26)
==== ==== ==== ====== ======
TOTAL ASSETS $20,516,028 $20,258,093 $11,789,582 $15,074,720 $22,547,342
=========== =========== =========== ========== ==========
LONG-TERM DEBT $4,412,116(b) $7,278,072(b) $1,935,638(b) $17,235(e) $48,052(e)
========== ========== ========== ====== =======
SHAREHOLDERS'
EQUITY $10,873,384 $9,316,087 $5,538,068 $4,595,319 $7,675,882
=========== ========== ========== ========= =========
SHAREHOLDERS'
EQUITY PER
COMMON SHARE $1.06 $.83 $.66 $.52 $1.20
===== ==== ==== ==== =====
COMMON SHARES
OUTSTANDING,
at end of period 7,432,698 7,077,767 6,449,394 6,423,074 5,332,036
========= ========= ========= ========= =========
CASH DIVIDENDS
PER COMMON SHARE none none none none none
</TABLE>
(a) In 1997, the weighted average number of common shares used in calculating
primary and fully diluted earnings per share reflects the assumed
conversion of the convertible preferred stock and the assumed exercise of
in-the-money stock options and warrants. In 1996 and 1995, primary and
fully diluted earnings per share reflects the assumed conversion of the
convertible preferred stock. For all years, in calculating fully diluted
earnings per share, the weighted average number of common shares includes
the assumed conversion of the convertible subordinated debentures.
(b) In 1997, 1996 and 1995, the Company has classified revolver borrowings as
long-term as the facility was extended for two years on July 14,1995 and
July 14, 1997.
(c) This amount includes provisions of approximately $1.2 million to
write-down the Company's Virginia facility to its estimated fair value,
$1.0 million to write-down the Company's sales office in Frankfurt,
Germany to its estimated fair value, and $1.3 million to discard inventory
from discontinued product lines.
(d) This amount includes a provision of $1.5 million to write-down the
Company's Virginia facility to its estimated fair value, and a write-off
of $426,096 for receivables from a bankrupt customer.
(e) This amount excludes $3,603,583 and $3,331,830 for fiscal years 1994 and
1993, respectively, of debt classified as short-term.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Capital Resources and Liquidity
The Company's working capital decreased $4.3 million between fiscal 1997 and
fiscal 1996 due to a $1.5 million decrease in inventories, a $1.3 million
decrease in cash and equivalents, and a $1.7 million increase in accounts
payable and other short term accruals. The Company generated net income of $1.55
million in fiscal 1997. The Company acquired a digital dental imaging company in
April 1997. The cash portion of the purchase price was funded from available
cash.
The Company renegotiated its credit facility of a $9.85 million revolver and
term loan facility with its present lender effective July 14, 1997 for a three
year period. The credit line provides working capital for the Company. The
Company believes that this revised credit facility is sufficient to finance its
ongoing operations. The revolver loan is secured by available and eligible
inventory, accounts receivable, equipment, life insurance policies and proceeds
thereof, trademarks, licenses, patents and general intangibles. The Company
renegotiated a lower interest rate and increased availability based on stated
terms and asset amounts. Other terms, conditions and covenants of the new
facility are similar to those of the previous facility See Notes to Consolidated
Financial Statements for further information regarding this credit facility. As
of June 30, 1997, the Company had $3,506,000 of unused credit available and is
in compliance with all financial ratios and covenants as stated in its loan
documents.
During the 1997 fiscal year, the Company loaned an unaffiliated dental
manufacturing company an aggregate of $300,000. The borrower executed notes
evidencing such obligation with an extended maturity date of October 1, 1997.
The notes are secured by the stock and assets of the borrower. The borrower is
currently negotiating with the Company for an extended repayment of such loan.
In August 1993, the Company was required to begin annual sinking fund payments
on its subordinated debentures. The Company repaid in full the Subordinate
Debentures as of June 30, 1997.
The Company's historical operating cash flows have been positive; however, the
Company is dependent upon its existing credit facilities to finance its ongoing
operations. During fiscal 1997, the Company reduced its borrowings on its credit
facility by approximately $4.6 million with internally generated funds from
operations.
Capital expenditures for fiscal 1997 consisted of individual computer
workstation upgrades, production tooling, molds and other appropriate
replacements in the normal course of operations. The Company has committed
approximately $350,000 to the purchase of a new Business Information System
including the upgrade of existing computer hardware and a new fully integrated
manufacturing software package. The Company has committed to a three year lease
for the hardware and software costs, which is recorded as a capital lease. The
Company expects to continue to finance any future capital requirements
principally from internally generated funds. The Company is presently unaware of
any other demands, commitments or contingencies which are reasonably likely to
result in a material increase or decrease in its liquidity in the foreseeable
future.
Results of Operation - Fiscal 1997 vs. Fiscal 1996
On April 17, 1997 the Company acquired the stock of Regam Medical Systems
International AB ("Regam"), a Swedish digital imaging company. The acquisition
was accounted for under the purchase method of accounting and has been fully
consolidated in the Company's consolidated financial statements. Regam's
operations from the date of acquisition through fiscal year end are not
significant to the Company's consolidated results.
Sales increased $520,000 or 1% between the two fiscal years. The Company
experienced a 20% growth in sales of its dental imaging business offset by a 5%
decline in graphic art sales due to changing customer demands and market
technology. Medical imaging sales stayed constant through the two periods. Gross
profit as a percent of sales decreased .5% due to increased sales of exclusive
distributor goods, which sales generally have lower gross margins.
Selling, general and administrative costs decreased $96,000 or 1%. Fiscal 1996
expenses included a provision of $60,000 for the loss incurred on the sale of
the fluoroscopic imaging assets. The composition of
<PAGE>
these expenses shifted slightly with more costs to promote the dental and
medical products worldwide and less administrative overhead costs, due to
ongoing management expense reduction programs.
Research and development costs decreased $497,000 or 39%. The Company completed
several in-house engineering projects and continues to re-evaluate the market
potential of investment in product engineering versus the distribution of
alternative outsourced products. The Company continues to invest in sustaining
engineering and related costs to maintain their technical advantage.
Interest expense net decreased $325,000 or 42%. The Company reduced its
borrowings with its senior secured lender by $4 million, offset by the lost
interest income resulting from the use of available cash to partially fund the
Regam acquisition.
The income tax provision primarily represents nominal state capital taxes due,
as in the prior fiscal year. The Company realized net operating losses
previously subject to valuation allowances to offset any federal and state
income tax provision.
Results of Operation - Fiscal 1996 vs. Fiscal 1995
On July 14, 1995, the Company acquired most of the assets and selected
liabilities of Visiplex Instruments Ltd., a medical diagnostic imaging equipment
manufacturer and distributor. Visiplex had been a tenant in the Company's New
York facility since November 1994. Management felt that this acquisition
presented the Company with an opportunity to broaden its medical diagnostic
market penetration while potentially achieving efficiencies with the
consolidation of the two operations. Visiplex was fully consolidated into the
Company's operations for substantially all of fiscal 1996.
Sales increased approximately $9.9 million or 37.4%. $9.1 million was due to the
sales generated from the newly acquired Visiplex product line. $2.7 million is
due to increased processor sales, offset by a $1.6 million decrease in graphic
art sales due to changing customer demands and market technology. The Company's
dental business had flat sales growth this year. The fluoroscopic imaging
division experienced a decline in sales which resulted in the sale of this
product line on August 6, 1996.
Gross profit as a percent of sales declined 1.3% from the prior fiscal year.
This was due to the acquisition of the Visiplex product line whose products have
a smaller gross margin and a slight change in the product mix towards more
distributed goods, which also have a lower gross margin.
Selling, general, and administrative costs increased $2.4 million or 35%.
Approximately 85% of the increase can be attributed to the Visiplex acquisition,
including approximately $200,000 of additional amortization expense. Also
included is a $60,000 provision for the estimated loss incurred on the sale of
the fluoroscopic imaging assets on August 6, 1996. The balance of this increase
was due to an increase in marketing expenditures for worldwide promotion of all
Company products.
Research and development costs increased $522,000 or 70%, which was primarily
due to the added Visiplex staff. Visiplex has a highly trained engineering
department whose resources were being utilized to research and develop new
digital imaging products. The Company is currently re-evaluating the market
demand for certain new products versus the distribution of alternative
outsourced products with respect to their anticipated return on investment.
Interest expense, net increased $201,000 or 35%. This represented the increased
debt required to finance the Visiplex acquisition, offset by the interest earned
on the private equity placement, and the convertible subordinated debt converted
to equity earlier in the year.
The income tax provision primarily represents nominal state capital taxes due.
The Company realized net operating losses previously subject to valuation
allowances to offset any federal and state income tax provision.
<PAGE>
AFP IMAGING CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants F-1
Consolidated Balance Sheets -- June 30, 1997 and 1996 F-2 to F-3
Consolidated Statements of Operations for the Years
Ended June 30, 1997, 1996 and 1995 F-4
Consolidated Statements of Shareholders' Equity for
the Years Ended June 30, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows
for the Years Ended June 30, 1997, 1996 and 1995 F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-15
Schedule II - Valuation and Qualifying Accounts for the
Years Ended June 30, 1997 and 1996 F-16
All other schedules called for under Regulation S-X are not submitted
because they are not applicable or not required or because the required
information is included in the consolidated financial statements and notes
thereto.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
AFP Imaging Corporation:
We have audited the accompanying consolidated balance sheets of AFP Imaging
Corporation (a New York Corporation) and subsidiaries as of June 30, 1997 and
1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1997. These consolidated financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AFP Imaging
Corporation and subsidiaries as of June 30, 1997 and 1996 and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II, Valuation and
Qualifying Accounts, is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
Arthur Andersen LLP
New York, New York
August 13, 1997
<PAGE>
AFP IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,858,287 $ 3,133,198
Accounts receivable, less allowance for doubtful accounts and sales returns
of $277,926 and $238,000, respectively 5,816,106 6,020,129
Inventories (Note 1) 6,016,528 7,530,128
Prepaid expenses and other 650,095 163,374
------------ ------------
Total current assets 14,341,016 16,846,829
PROPERTY, PLANT AND EQUIPMENT, at cost:
Leasehold improvements 287,474 263,378
Machinery and equipment 7,224,278 6,840,122
------------ ------------
7,511,752 7,103,500
Less - Accumulated depreciation (6,113,123) (5,833,067)
------------ ------------
1,398,629 1,270,433
INTANGIBLE ASSETS, net of accumulated amortization of $681,363 and $666,968
respectively (Note 1) 4,441,453 1,907,112
OTHER ASSETS 334,930 233,719
------------ ------------
$ 20,516,028 $ 20,258,093
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-2
<PAGE>
AFP IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
------------------------------------ ------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt (Note 2) $ 639,314 $ 214,620
Accounts payable 1,801,973 1,364,937
Accrued expenses 2,220,096 1,140,198
Accrued payroll expenses 569,145 544,179
Convertible subordinated debenture - 200,000
------------ ------------
Total current liabilities 5,230,528 3,463,934
LONG-TERM DEBT (Note 2) 4,412,116 7,278,072
CONVERTIBLE SUBORDINATED DEBENTURE - 200,000
COMMITMENTS AND CONTINGENCIES (Note 7) - -
SHAREHOLDERS' EQUITY (Notes 3 and 4):
Convertible Preferred Stock, Series A, 1,750,000 authorized, 1,396,814 and
1,724,984 shares issued and outstanding at June 30, 1997 and
1996, respectively 2,171,071 2,564,876
Convertible Preferred Stock, Series B, 824,844 authorized, 711,872 shares
issued and outstanding at June 30, 1997 and 1996 854,247 854,247
Common Stock warrants 25,314 25,314
Common Stock, $.01 par value, 30,000,000 shares authorized, 7,432,698 and
7,077,751 shares issued and outstanding at June 30, 1997 and
1996, respectively 74,327 70,778
Paid-in capital in excess of par 8,578,549 8,175,793
Accumulated deficit (826,324) (2,374,921)
Cumulative translation adjustment (3,800) -
------------ ------------
Total shareholders' equity 10,873,384 9,316,087
------------ ------------
$ 20,516,028 $ 20,258,093
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-3
<PAGE>
AFP IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $37,048,510 $36,528,879 $26,588,912
COST OF SALES 24,950,627 24,430,698 17,427,070
----------- ----------- -----------
Gross profit 12,097,883 12,098,181 9,161,842
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 9,192,165 9,287,858 6,886,843
RESEARCH AND DEVELOPMENT EXPENSES (Note 1) 776,423 1,273,032 750,818
----------- ----------- -----------
Operating income 2,129,295 1,537,291 1,524,181
INTEREST EXPENSE, net 451,466 776,763 575,182
----------- ----------- -----------
Income before provision for income taxes 1,677,829 760,528 948,999
PROVISION FOR INCOME TAXES (Note 5) 129,232 60,000 25,000
----------- ----------- -----------
NET INCOME $ 1,548,597 $ 700,528 $ 923,999
=========== =========== ===========
NET EARNINGS PER COMMON SHARE (Note 1)
Primary $.16 $.08 $.13
Fully diluted $.15 $.08 $.12
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-4
<PAGE>
AFP IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Convertible Convertible
Preferred Preferred Common
Stock, Stock, Stock Common
Series A Series B Warrants Stock
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance June 30, 1994 $ 1,281,626 $ - $ 25,314 $ 64,230
Conversion of 1,320 shares of
preferred stock to common stock (3,432) - - 13
Issuance of 25,000 shares of
"restricted" common stock - - - 250
Net Income - - - -
------------ ------------ ------------ ------------
Balance June 30, 1995 1,278,194 - 25,314 64,493
Issuance of 2,083,333 shares of
preferred stock 1,645,753 854,247 - -
Conversion of subordinated
debentures into common stock - - - 4,309
Conversion of 138,088 shares of
preferred stock, Series A, to
common stock (359,071) - - 1,381
Issuance of 59,880 shares of
common stock in connection
with the exercise of stock
options - - - 599
Retirement of 444 shares of
common stock - - - (4)
Net Income - - - -
------------ ------------ ------------ ------------
Balance June 30, 1996 2,564,876 854,247 25,314 70,778
Issuance of 15,000 shares of
common stock in connection
with the exercise of stock
options - - - 150
Conversion of 328,170 shares of
preferred stock, Series A, to
339,947 shares of common stock (393,805) - - 3,399
Foreign currency translation
adjustment - - - -
Net Income - - - -
------------ ------------ ------------ ------------
Balance June 30, 1997 $ 2,171,071 $ 854,247 $ 25,314 $ 74,327
============ ============ ============ ============
<CAPTION>
Paid-in Foreign
Capital Currency
In Excess of Accumulated Translation
Par Deficit Adjustment Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance June 30, 1994 $ 7,223,597 $ (3,999,448) $ - $ 4,595,319
Conversion of 1,320 shares of
preferred stock to common stock 3,419 - - -
Issuance of 25,000 shares of
"restricted" common stock 18,500 - - 18,750
Net Income - 923,999 - 923,999
------------ ------------ ------------ ------------