<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended December 31, 1998
-----------------
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 ID No.)
incorporation or organization)
250 Clearbrook Road, Elmsford, New York 10523
- ----------------------------------------- ------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 592-6100
--------------
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 February
1, 1999.
1
<PAGE>
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 year ended June 30,
1998.
In the opinion of the Company, all adjustments necessary to present fairly the
financial position of AFP Imaging Corporation as of December 31, 1998 and June
30, 1998, and the results of its operations for the three and six month periods
ended December 31, 1998 and 1997, and its cash flows for the six month periods
then ended, have been included.
2
<PAGE>
Item 1: FINANCIAL STATEMENTS
AFP Imaging Corporation and Subsidiaries
Consolidated Balance Sheets - December 31, 1998 and June 30, 1998
-----------------------------------------------------------------
December 31, June 30,
Assets 1998 1998
- ------ ------------ --------
Current Assets:
Cash and cash equivalents $ 506,725 $ 594,992
Accounts receivable, less allowance
for doubtful accounts of $596,700
and $422,200 respectively 4,502,799 4,755,093
Inventories 6,991,555 6,607,441
Prepaid expenses and other 126,141 293,989
------------ ------------
Total current assets 12,127,220 12,251,515
------------ ------------
Property and Equipment, (at cost) 8,244,575 8,112,721
Less accumulated depreciation (6,733,577) (6,474,878)
------------ ------------
1,510,998 1,637,843
------------ ------------
Intangible Assets,
net of accumulated amortization 4,255,095 4,390,461
------------ ------------
Other Assets 317,097 381,090
------------ ------------
$ 18,210,410 $ 18,660,909
============ ============
December 31, June 30,
Liabilities and Stockholders' Equity 1998 1998
- ------------------------------------ ------------ --------
Current Liabilities:
Current portion of long-term debt $ 1,122,067 $ 770,834
Accounts payable 1,734,068 1,266,127
Accrued expenses 1,432,679 1,861,354
------------ ------------
Total current liabilities 4,288,814 3,898,315
------------ ------------
Long Term Debt 7,319,337 6,968,609
------------ ------------
Shareholders' Equity
Common Stock, $.01 par value, 30,000,000
shares authorized, 9,271,054 and
9,767,949 shares issued and
outstanding at December 31, 1998 and
June 30, 1998, respectively 92,710 97,679
Paid-in capital in excess of par 11,491,001 11,858,704
Accumulated deficit (4,967,998) (4,153,889)
Accumulated other comprehensive loss (13,454) (8,509)
------------ ------------
Total shareholders' equity 6,602,259 7,793,985
------------ ------------
$18,210,410 $18,660,909
============ ============
The accompanying notes to financial statements are an integral part of these
consolidated balance sheets.
3
<PAGE>
AFP Imaging Corporation and Subsidiaries
Consolidated Statements of Operations
-------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $7,797,716 $8,871,753 $15,128,825 $17,765,373
Cost of Sales 5,615,428 6,057,905 10,617,078 11,785,780
---------- ---------- ----------- -----------
Gross Profit 2,182,288 2,813,848 4,511,747 5,979,593
---------- ---------- ----------- -----------
Selling, General and
Administrative Expenses 2,353,233 2,289,891 4,386,458 4,701,545
Research and Development 294,706 191,394 592,915 392,719
Special Charges - 1,620,983 - 1,620,983
---------- ---------- ----------- -----------
2,647,939 4,102,268 4,979,373 6,715,247
---------- ---------- ----------- -----------
Operating loss (465,651) (1,288,420) (467,626) (735,654)
---------- ---------- ----------- -----------
Interest, net 163,014 63,949 322,483 158,548
---------- ---------- ----------- -----------
Loss before provision for taxes (628,665) (1,352,369) (790,109) (894,202)
Provision for Income Taxes 12,000 - 24,000 50,480
---------- ---------- ----------- -----------
Net Loss ($640,665) ($1,352,369) ($814,109) ($944,682)
========== ============ =========== ===========
NET LOSS PER SHARE
Basic ($ .07) ($ .14) ($ .09) ($ .11)
====== ===== ===== =====
Diluted ($ .07) ($ .14) ($ .09) ($ .11)
====== ====== ===== =====
Weighted average outstanding
Common stock 9,271,054 9,767,900 9,519,502 8,701,200
Employee stock options --- --- --- ---
---------- ---------- ----------- -----------
Common stock and common
stock equivalents 9,271,054 9,767,900 9,519,502 8,701,200
========= ========= ========= =========
DIVIDENDS PER SHARE None None None None
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
AFP Imaging Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)
For the Six Months Ended December 31, 1998 and 1997
---------------------------------------------------
<TABLE>
<CAPTION>
Convertible Convertible Common
Comprehensive Preferred Preferred Stock Common
Loss Stock (A) Stock (B) Warrants Stock
---- --------- --------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance June 30, 1997 $-- $2,171,071 $854,247 $25,314 $74,327
Issuance of 152,027 shares
of common stock in connection with
the conversion of common stock
warrants --- --- --- (15,000) 1,520
Expiration of 103,138 common
stock warrants --- --- --- (10,314) ---
Issuance of 24,500 shares
of common stock in connection with
the conversion of stock options --- --- --- --- 245
Conversion of 1,396,798 shares of
Preferred Stock, Series A to
1,430,036 shares of common stock --- (2,171,071) --- --- 14,300
Conversion of 711,872 shares of
Preferred Stock, Series B to
728,672 shares of common stock --- --- (854,247) --- 7,287
Foreign currency translation
adjustment (26,717) --- --- --- ---
Net loss for six months
ended December 31, 1997 (944,682) --- --- --- ---
Comprehensive Loss $(971,399) --- --- --- ---
========= ========= ========= ========= =========
Balance December 31, 1997 $--- $--- $--- $97,679
========= ========= ========= =========
Balance June 30, 1998 $--- $--- $--- $--- $97,679
Retirement of 496,895 shares of
common stock at $.75 per share --- --- --- --- (4,969)
Foreign currency translation
adjustment (4,945) --- --- --- ---
Net loss for six months
ended December 31, 1998 $(814,109) --- --- --- ---
Comprehensive Loss $(819,054) --- --- --- ---
--------- -------- -------- -------- --------
Balance December 31, 1998 $--- $--- $--- $92,710
======== ======== ======== ========
<CAPTION>
Accumulated
Paid-in Other
Capital In Accumulated Comprehensive
Excess of Par Deficit Loss Total
------------ ----------- ---- -----
<S> <C> <C> <C> <C>
Balance June 30, 1997 $8,578,549 $(826,324) $(3,800) $10,873,384
Issuance of 152,027 shares
of common stock in connection with
the conversion of common stock
warrants 238,480 --- --- 225,000
Expiration of 103,138 common
stock warrants 10,314 --- --- ---
Issuance of 24,500 shares
of common stock in connection with
the conversion of stock options 27,630 --- --- 27,875
Conversion of 1,396,798 shares of
Preferred Stock, Series A to
1,430,036 shares of common stock 2,156,771 --- --- ---
Conversion of 711,872 shares of
Preferred Stock, Series B to
728,672 shares of common stock 846,960 --- --- ---
Foreign currency translation
adjustment --- --- (26,717) (26,717)
Net loss for six months
ended December 31, 1997 --- (944,682) --- (944,682)
Comprehensive Loss --- --- --- ---
----------- ----------- --------- -----------
Balance December 31, 1997 $11,858,704 $(1,771,006) $(30,517) $10,154,860
=========== =========== ========= ===========
Balance June 30, 1998 $11,858,704 $(4,153,889) $ (8,509) 7,793,985
Retirement of 496,895 shares of
common stock at $.75 per share (367,703) --- --- (372,672)
Foreign currency translation
adjustment --- --- (4,945) (4,945)
Net loss for six months
ended December 31, 1998 --- (814,109) --- (814,109)
Comprehensive Loss --- --- --- ---
----------- ----------- --------- ---------
Balance December 31, 1998 $11,491,001 $(4,967,998) $(13,454) $6,602,259
=========== =========== ======== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
5
<PAGE>
AFP Imaging Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 1998 and 1997
---------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($814,109) ($944,682)
Adjustments to reconcile net loss to net cash (used by) provided
by operating activities-
Non-cash effect of Special Charges --- 1,291,983
Accretion of Imputed interest on note payable 77,466 ---
Depreciation and amortization 426,747 431,180
Change in assets and liabilities:
Decrease in accounts receivable 252,294 1,186,388
(Increase) in inventories (384,114) (574,545)
Decrease (Increase) in prepaid expenses and other assets 199,159 (54,422)
Increase (Decrease) in accounts payable 467,941 (835,153)
(Decrease) in accrued expenses (428,675) (485,882)
--------- ---------
Total adjustments 610,818 959,549
--------- ---------
Net cash (used in) provided by operating activities (203,291) 14,867
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in ProDen Systems, Inc. --- (3,483,229)
Proceeds from collection of Notes Receivable --- 300,000
Capital expenditures (131,854) (191,131)
--------- ---------
Net cash (used by) investing activities (131,854) (3,374,360)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowing of debt 796,115 2,358,277
Repayment of debt (171,620) ---
Exercise of common stock warrants --- 225,000
Exercise of common stock options --- 27,875
Retirement of Company stock (372,672) ---
--------- ---------
Net cash provided by financing activities 251,823 2,611,152
------- ---------
EXCHANGE RATE EFFECTS ON CASH AND CASH EQUIVALENTS (4,945) (26,717)
--------- ---------
Net (decrease) in cash and cash equivalents (88,267) (775,058)
CASH AND CASH EQUIVALENTS, at beginning of period 594,992 1,858,287
--------- ---------
CASH AND CASH EQUIVALENTS, at end of period $506,725 $1,083,229
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
6
<PAGE>
AFP Imaging Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998
(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, 1998.
(2) Net earnings per common share:
The diluted weighted average number of shares outstanding does not include
37,738 and 532,611 of the stock options and warrants in fiscal 1999 and 1998,
respectively, as such amounts are anti-dilutive when there is a loss.
(3) Long and Short Term Debt:
On January 4, 1999, the Company was obligated to make a $500,000 Note payment to
the former owner of a recently acquired business. As per the Asset Purchase
Agreement, dated December 23, 1997, the Company is currently seeking to resolve
certain issues through good faith negotiation, mediation, and arbitration, if
required. Payment of the Note has not been made, subject to the outcome of this
process, which cannot yet be determined.
In July 1997, the Company renewed its $9.85 million revolver and term loan
facility with its senior lender for an additional three years. The interest rate
was reduced to 3/4% above prime and the term loan was increased to $1.45
million. The loan is collateralized by tangible and intangible assets, provides
for restrictions on borrowings and requires that certain financial ratios and
net worth be maintained. The Company is currently in compliance with all the
terms and conditions of its credit facility with the exception of the debt
service coverage ratio covenant. Its senior lender waived compliance with such
coverage ratio for the quarter ended December 31, 1998. Failure to meet such
ratio resulted from the significant operating expenses associated with the new
digital dental product lines.
(4) Inventory:
The Company uses the gross margin method related to labor and overhead costs
during interim periods for inventory valuation.
(5) Income Taxes:
The Company's income tax provision for fiscal 1999 and 1998 relates to state and
foreign income or capital taxes. No income tax benefits related to the losses
reported in fiscal 1999 and 1998 have been recorded, in accordance with
Statement of Financial Accounting Standards Board Statement 109.
(6) Adoption of New Accounting Pronouncement:
Effective July 1, 1998, the Company adopted the provisions of Financial
Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income".
This pronouncement requires the inclusion of a new basic financial statement
which outlines the significant components of the Company's comprehensive income.
Other than net income, foreign currency translation adjustments associated with
the Company's Swedish subsidiary are the only components of the Company's
comprehensive income for all periods presented.
(7) Common Stock Retirement:
On October 16, 1998, Robert Rosen resigned his directorship of the Company.
Effective with such resignation, the term of his one year consulting agreement,
dated September 19, 1997, commenced. On October 19, 1998, the Company agreed to
extend his consulting agreement through October 16, 2001, whereby he would
receive cash compensation of $8,333.33 per month, for a period of three years
and his existing stock options granted pursuant to the consulting agreement were
modified by increasing the term from three years to four years, increasing the
number of shares underlying the option from 150,000 to 300,000 common shares,
and reducing the exercise price from $2.636545 to $0.75 per share. On October
19, 1998, the Company repurchased (and subsequently retired) 496,895 shares of
the Company's common stock owned by the former director for an aggregate
consideration of $372,672.
7
<PAGE>
Item 2: Management's Discussion and Analysis of Fiscal 1999 Financial
Condition and Results of Operation
Capital Resources and Liquidity
The Company's working capital at December 31, 1998, decreased approximately
$515,000 from June 30, 1998. The Company financed the repurchase of its common
stock from a former director through available cash funds. Additionally, the
loss from operations utilized funds during this period.
The Company has a senior credit facility consisting of a $9.85 million revolver
and term loan facility. This credit line is sufficient to finance ongoing
working capital requirements assuming that the Company's losses from operations
do not continue for a material period of time, and, the Company is not required
to make current payments on a Note to the former owner of a recently acquired
business. The revolver loan is secured by available and eligible inventory,
accounts receivable, and specific intangibles. This facility requires that
certain financial ratios and net worth amounts be maintained. The Company is
currently in compliance with all of its covenants and terms, with the exception
of the debt service coverage ratio. Its senior lender has waived compliance with
such coverage ratio for the quarter ended December 31, 1998. The lender granted
this waiver after agreeing that fiscal 1999 operations were negatively impacted
by the significant operating expenses associated with the new digital dental
product lines. This facility was renewed in July 1997 and expires in July 2000.
The Company is dependent upon its existing credit facilities to finance its
overall operations. At December 31, 1998, the Company had available $1.8 million
of unused lines of credit for short-term financing needs plus cash and cash
equivalents of $506,000.
Capital expenditures for fiscal 1999 consisted of computer workstation upgrades,
production tooling, molds and other appropriate replacements in the normal
course of operations. In fiscal 1998, the Company acquired a new Business
Information System including the upgrade and replacement of existing computer
hardware and a new fully integrated manufacturing software package. The Company
committed to a three year lease for the hardware and software costs, which has
been recorded as a capital lease. All implementation costs have been capitalized
and are being amortized over three years. This system was fully implemented
during the third quarter of fiscal year 1998 and fully satisfies all Year 2000
compliance issues.
The Company expects its need for working capital will continue to be financed by
operations and from borrowings on its credit facility. The Company is presently
unaware of any other demands, commitments or contingencies, except as set forth
herein, which are reasonably likely to result in a material increase or decrease
in its liquidity in the foreseeable future. No assurances can be given that the
Company will have favorable cash flow in the near term, or that the senior
lender will grant further waivers if the Company is not in compliance with its
financial covenants in the future.
Year 2000 Compliance
The Company has developed and substantially implemented a plan to ensure its
systems are compliant with the requirements to process transactions in the year
2000. As described above, all of the Company's internal information systems have
been replaced with fully compliant new software and systems. The total cost of
the software, implementation and hardware were capitalized as incurred. The
Company continues to upgrade its internal information systems as part of an
overall operational plan to replace older systems with more efficient current
technology. The Company believes that all significant costs related to the Year
2000 compliance issue have been incurred.
The Company also consulted with its processing banks and payroll service
provider to ensure that their services are Year 2000 compliant. The Company has
been advised by these service providers that all of these external information
services and systems are Year 2000 compliant. The Company is in the process of
contacting its vendors, on whom it relies, to assure that their systems are or
will be Year 2000 compliant. The Company will evaluate these responses and
ensure that critical vendors are Year 2000 compliant, or review alternate
sourcing of these materials to Year 2000 compliant vendors. The Company has
reviewed their own plant equipment and has determined that such equipment is
either Year 2000 compliant or not affected by the Year 2000 issues.
8
<PAGE>
The Company is in the process of developing contingency plans to address the
most reasonably likely worst case scenarios from the potential Year 2000
disruption. The Company's Year 2000 efforts are ongoing and will continue to
evolve as new information becomes available. The Company does not anticipate a
major interruption of its business activities, however, this will be dependent
in part upon the ability of third party vendors to be Year 2000 compliant.
Although the Company has implemented the actions described above to address
these third party issues, it has no direct ability to influence compliance
actions by such parties. Accordingly, while the Company believes its actions
should help reduce the possible effects of the Year 2000 risks, it is unable to
eliminate the ultimate effects on the Company's operating results.
Euro Conversion
A single currency called the euro was introduced in Europe on January 1, 1999.
Eleven of the fifteen member countries of the European Union agreed to adopt the
euro as their common legal currency on that date. Fixed conversion rates between
these participating countries' existing currencies and the euro were established
as of that date, to remain legal tender as denominations until at least January
1, 2002. Beginning in January 2002, new euro-denominated bills and coins will be
issued. The Company has addressed the issues raised by the euro currency
conversion. All third-party computer and financial systems have the ability to
process euro-denominated transactions. The Company has also addressed the issue
of the impact of one common currency on pricing.
Comparison of Six Months Fiscal 1999 Versus Six Months Fiscal 1998
Sales decreased $2,636,500 or 14.8% between the two periods. The Company's
product lines experienced a general decrease in sales volume. The most
significant was in the graphic arts business. The Company continues to explore
and develop potential distribution channels and new products through engineering
efforts, aggressive marketing, as well as repositioning its product pricing in
the marketplace. Fluctuating world markets, combined with the strong US dollar,
continue to adversely effect the Company's export sales. Gross profit as a
percent of sales decreased 3.8 percentage points. There was a slight increase in
material costs due to the product mix, in addition to certain fixed overhead
costs being distributed over the lower sales volume.
Selling, general and administrative costs decreased $315,000 or 6.7% due to
lower sales commissions directly related to the lower sales volumes, and a
general reduction in expenses, based on management cost elimination/reduction
programs. The Swedish facility was shutdown in November 1997 (fiscal 1998),
which eliminated approximately $200,000 of costs directly incurred in Sweden in
the prior year.
Research and development costs increased $200,000 or 51%. The Company has
committed to the continued refinement of its digital dental products in order to
reduce costs and maintain market share. Additionally, the Company continues to
invest in sustaining engineering and related costs for its analog products.
Where applicable, the Company is acting as master import distributors for
products developed by others.
Special charges of $1.6 million incurred in FY 1998 includes the write-down of
$1.3 million of the goodwill associated with the Regam acquisition to its net
realizable value, based on the recognized impairment in the value of the
operations. The remaining goodwill is being amortized over fourteen years on a
straight-line basis. Also included are $329,000 of costs to shutdown and
relocate the manufacturing operations, marketing, technical service and customer
support operations from Sweden to the US. These costs also include severance and
required social tax payments to former employees.
Interest expense net, increased $164,000, or 103% due to the $2.5 million of
debt acquired in December 1997 to finance a digital dental product line
acquisition. Additionally, borrowings on the Company's revolver were
approximately $1.5 million higher in the current fiscal year due to current
production, development and distribution requirements for the digital dental
product lines.
9
<PAGE>
Comparison of Second Quarter Fiscal 1999 Versus Second Quarter Fiscal 1998
Net sales decreased $1,074,000 or 12%. All product lines experienced a decline
in volume as discussed above. Gross profit as a percent of sales decreased 3.7
percentage points due to a shift in product mix towards more distributor goods
this quarter, which have lower associated gross margins than manufactured
products. Excluding the costs included in Special Charges, as previously
explained, the aggregate of the expense items increased $166,600 or 6.7%. Most
of this increase is due to additional research and development costs associated
with the new product lines. Interest expense net, increased $99,000 or 174%, in
this quarter, to fund the required working capital and engineering investment.
Other
On October 29, 1998, the Company received a letter from NASDAQ that the
Company's shares over the past 30 days did not maintain a closing bid price
greater than $1.00. Accordingly, NASDAQ indicated that the Company's common
stock would be delisted from the NASDAQ SmallCap Exchange, and would trade on
the NASDAQ Bulletin Board System. As per NASDAQ rules, on January 27, 1999, the
Company sent a letter to NASDAQ to request an oral hearing in response to such
letter. There is no assurance that the Company will be able to maintain its
listing on the NASDAQ SmallCap Exchange.
This Quarterly Report on Form 10Q contains certain forward-looking statements
within the meaning of the Private Securities Reform Act of 1995. These
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those in any such forward-looking
statements. Such factors include, but are not limited to, adverse changes in
general economic conditions, including changes in the specific markets for the
Company's services, adverse business conditions, increased competition, pricing
pressures, risk associated with foreign operations and other factors.
Part II Other Information
Item 4: Submission of Matters to a Vote of Security Holders
On December 18, 1998, the Company held an Annual Meeting of Shareholders to: (1)
elect four directors for a term of one year or until their successors are duly
elected and; (2) ratify the appointment of Arthur Andersen LLP as the
independent public auditors of the Corporation's accounts for the year ending
June 30, 1999. The nominees for election to the Board of Directors received the
following votes:
For Election Withheld Authority
David Vozick 7,776,491 86,699
Donald Rabinovitch 7,776,491 86,699
Jack Becker 7,775,891 87,299
Robert Blatt 7,776,391 86,799
In connection with the appointment of Arthur Andersen LLP as the independent
public accountants, 7,827,741 shares voted for, 7,200 shares abstained, and
28,249 shares voted against.
Item 6: Exhibits and Reports on Form 8-K.
(a) None
(b) Reports on Form 8-K
None
10
<PAGE>
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
------------------------------
David Vozick
Chairman of the Board
Secretary, Treasurer
Date: February 22, 1999
/s/ Donald Rabinovitch
------------------------------
Donald Rabinovitch
President and Director
Date: February 22, 1999
/s/ Elise Nissen
------------------------------
Elise Nissen
Chief Financial Officer
Date: February 22, 1999
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 506,725
<SECURITIES> 0
<RECEIVABLES> 5,099,499
<ALLOWANCES> 596,700
<INVENTORY> 6,991,555
<CURRENT-ASSETS> 12,127,220
<PP&E> 8,244,575
<DEPRECIATION> 6,733,577
<TOTAL-ASSETS> 18,210,410
<CURRENT-LIABILITIES> 4,288,814
<BONDS> 0
0
0
<COMMON> 92,710
<OTHER-SE> 6,509,549
<TOTAL-LIABILITY-AND-EQUITY> 18,210,410
<SALES> 15,128,825
<TOTAL-REVENUES> 15,128,825
<CGS> 10,617,078
<TOTAL-COSTS> 4,979,373
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 322,483
<INCOME-PRETAX> (790,109)
<INCOME-TAX> 24,000
<INCOME-CONTINUING> (814,109)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (814,109)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
