UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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AFP Imaging Corporation
(Name of Registrant as Specified In Its Charter)
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AFP Imaging Corporation
Notice of Annual Meeting of Shareholders
December 10, 2008
To the Shareholders of
AFP Imaging Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the “Annual Meeting”) of AFP Imaging Corporation (the “Company”) will be held at the offices of the Company, located at 250 Clearbrook Road, Elmsford, New York, on Wednesday, December 10, 2008, commencing at 9:00 a.m. (local time), for the following purposes:
| 1. | To elect four (4) nominees to the Board of Directors of the Company, each to serve until the next annual meeting of shareholders of the Company or until such persons shall resign, be removed or otherwise leave office; |
| 2. | To approve an amendment to the Company’s Certificate of Incorporation increasing the number of authorized shares of common stock from 30,000,000 to 100,000,000; and |
| 3. | To consider and act upon any other proposal as may properly come before the Annual Meeting. |
The foregoing matters are more fully described in the Proxy Statement accompanying this Notice, to which your attention is directed.
Only shareholders of record on the books of the Company at the close of business on October 28, 2008 will be entitled to vote at the Annual Meeting. You are requested to sign, date and return the enclosed proxy card at your earliest convenience in order that your shares may be voted for you as specified.
By Order of the Board of Directors,
David Vozick, Secretary
November 12, 2008
Elmsford, New York
Each shareholder is urged to complete, date, sign and return the accompanying
proxy card to assure that the shareholder’s vote will be counted.
AFP Imaging Corporation
250 Clearbrook Road
Elmsford, New York 10523
Proxy Statement
Annual Meeting of Shareholders
December 10, 2008
The 2008 Annual Meeting of Shareholders of AFP Imaging Corporation, a New York corporation, will be held on Wednesday, December 10, 2008, at our offices, located at 250 Clearbrook Road, Elmsford, New York, commencing at 9:00 a.m., local time, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. This proxy statement is being furnished in connection with the solicitation of proxies by and on behalf of our board of directors for use at the annual meeting, and at any adjournments and postponements of the annual meeting. We will bear the entire cost of such solicitation. The approximate date on which this proxy statement and the enclosed proxy card are being first mailed to our shareholders is November 12, 2008.
If the proxy card in the accompanying form is duly completed, executed, dated and returned, the shares represented by such proxy card will be voted as specified, subject to any applicable voting or irrevocable proxy agreements. Any person executing a proxy card may revoke it prior to its use. You are directed to the section entitled “Procedure for Voting by Proxy” for further information concerning a shareholder’s ability to vote by proxy and to revoke a proxy once given.
Throughout this proxy statement, the terms “we,” “us,” “our” and “our company” refer to AFP Imaging Corporation and, unless the context indicates otherwise, our subsidiaries on a consolidated basis; and “you” and “your” refer to the shareholders of our company.
Record Date
We have established October 28, 2008 as the record date for the annual meeting. Only holders of record of our voting securities at the close of business on such date will be eligible to vote at the annual meeting. Our common stock currently is the only class of our securities entitled to be voted at the annual meeting. A list of shareholders entitled to vote at the annual meeting will be available for examination by any shareholder, for any purpose relating to the annual meeting, at our executive offices during ordinary business hours for the ten days immediately prior to the annual meeting. The shareholder list also will be available for examination at the annual meeting.
Proposals to be Considered at the Meeting
You will be asked to consider and vote at the annual meeting on the matters listed in the accompanying Notice of Annual Meeting of Shareholders and described in this proxy statement.
We do not expect that any other matter will be brought before the annual meeting. If, however, other matters are properly presented, the individuals named on your proxy card will vote on these other matters in accordance with their judgment and to the extent permitted by applicable law.
Vote Required to Approve the Proposals
Holders of our common stock are entitled to one vote per share on each of the proposals scheduled for vote at the annual meeting. We had 17,928,800 issued and outstanding shares of our common stock as of the record date. Accordingly, there are 17,928,800 votes eligible to be cast at the annual meeting.
The election of directors (proposal number 1) is by a plurality of votes cast. Plurality means that the individuals who receive the largest number of votes cast are elected as directors up to the maximum number of directors to be chosen at the meeting.
Abstentions and broker non-votes will be counted in the determination of whether a quorum exists for the purposes of transacting business at the annual meeting. Abstentions will not be included, however, in the vote totals and, in instances where brokers are prohibited from exercising discretionary authority for beneficial owners who have not returned a proxy card to the brokers, so called “broker non-votes,” those votes will not be included in the vote totals for purposes of determining whether proposals have received the requisite number of affirmative votes cast. Therefore, with respect to Proposal 1, abstentions and broker non-votes will have no effect on the vote. However, with respect to Proposal 2, any broker non-votes will have the same effect as a vote against the proposal.
Our directors, director-nominees and executive officers control approximately 19.36% of the voting power entitled to be cast at the annual meeting. We anticipate that these directors and executive officers will cast all of their votes in favor of each of the director-nominees and company proposals being considered at the annual meeting.
Quorum
We must have a quorum in order to carry on business at the annual meeting. Under our bylaws, as amended through the record date, we must have present, in person or by proxy, holders of at least a majority of the entire number of votes entitled to be cast at the annual meeting in order for a quorum to exist. Accordingly, we must have present, in person or by proxy, holders owning of record at least 8,964,401 shares of our common stock in order for any business to be conducted at the annual meeting. Abstentions and broker non-votes will count for quorum purposes.
Procedure for Voting by Proxy
A form of proxy card is enclosed for your use. To vote without attending the annual meeting in person, you should complete, sign, date and return the proxy card in the accompanying envelope, which is postage-paid if mailed in the United States.
If you properly fill in your proxy card in the accompanying form and send it to us in time to be voted, your shares will be voted as you have directed on the proxy card, subject to any applicable voting or irrevocable proxy agreements to which you may be a party. If you sign the proxy card, but do not make specific choices, the individuals named on your proxy card will vote your shares FOR approval of each of the Company proposals scheduled for vote at the annual meeting.
You can still vote in person at the annual meeting, even if you have completed and returned a proxy card. You may revoke your proxy at any time before it is voted by:
| • | submitting a new proxy with a later date; |
| • | by voting in person at the annual meeting; or |
| • | by filing with our corporate secretary a written revocation of the proxy. |
Attendance at the annual meeting will not of itself constitute revocation of a proxy. You must note your appearance with the inspector(s) of election, tell the inspector(s) that you previously granted a proxy with respect to the annual meeting, which you are revoking and request a ballot in order to personally vote at the annual meeting.
If you hold shares through a broker, you should contact your broker to determine the procedures through which you can vote your shares in person.
PROPOSAL 1
ELECTION OF DIRECTORS
Director - - Nominees for the 2008 Annual Meeting
The first proposal is for the election of four (4) directors of our company, each to hold office until the next annual meeting of shareholders, unless he shall resign, become disqualified, disabled or shall otherwise be removed from office. The independent directors, as such term is defined in the Marketplace Rules of the Nasdaq Stock Market, of our board of directors, have nominated each of the following persons for election as directors at the annual meeting:
| Robert A. Blatt | Jack Becker |
| Donald Rabinovitch | David Vozick |
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Shares represented by executed proxy cards in the form enclosed will be voted, if authority to do so is not withheld, for the election as directors of each of the above-stated nominees, unless such nominee shall be unavailable, in which case such shares will be voted for the substitute nominee designated by our board of directors. Our board of directors has no reason to believe that any of these nominees will be unavailable or, if elected, will decline to serve. Only a plurality of votes cast are necessary for the election of directors.
Our board of directors has not established a nominating committee, nor did it adopt a nominating committee charter. Our board believes that its size negates the need for establishing a separate nominating committee. However, all of our board’s nominees for election as directors are approved by our directors who meet the definition of “independent directors” under the Marketplace Rules of The Nasdaq Stock Market. Those independent directors consist of Jack Becker and Robert A. Blatt.
Our independent directors will consider recommendations for election as directors submitted by our shareholders. These recommendations will be discussed at board meetings and appropriate candidates will be invited to meet with our independent directors and entire board to discuss their qualifications for serving on our board. Our board has not established minimum qualifications for candidates recommended by our shareholders. Any determination to include a shareholder-recommended candidate as a board nominee remains a subjective determination to be made by our independent directors.
Information Concerning Director-Nominees and Executive Officers
Set forth below is a brief description of the background of each of our director-nominees and executive officers, based on information provided to us by them.
| Principal Positions and | Principal Position | Director | ||
| Name | Age | Offices with our Company | Outside our Company | Since |
| Robert A. Blatt | 68 | Director | Chairman and majority owner of CRC Group, Inc. | 1995 |
| Jack Becker | 73 | Director | Managing Partner of Snow Becker Krauss | 1997 |
| Daniel Fields | 59 | Executive Vice-President of NewTom Sales | N/A | N/A |
| Brian Jaffe | 48 | Executive Vice-President of Sales and Marketing | N/A | N/A |
| Aida McKinney | 52 | Executive Vice-President of Administration | N/A | N/A |
| Roberto Molteni | 58 | Executive Vice-President of Technology | N/A | N/A |
| Elise Nissen | 54 | Executive Vice-President of Finance, Chief Financial Officer | N/A | N/A |
| Donald Rabinovitch | 62 | President, Co-Chief Executive Officer | N/A | 1978 |
| David Vozick | 68 | Chairman of the Board, Co-Chief Executive Officer, Secretary and Treasurer | N/A | 1978 |
Robert A. Blatt is the chairman and majority owner of CRC Group, Inc., a developer, owner and operator of commercial real estate. Mr. Blatt is a director and vice-chairman, chairman of the finance committee and chairman of the succession committee of MTR Gaming Group, Inc., a Nasdaq-listed company (NASDAQ: MNTG). Mr. Blatt has been a shareholder (formerly a seat-holder) of the New York Stock Exchange, Inc., since 1985. He is a member of the State Bar of California.
Jack Becker has been a practicing attorney in New York State since 1960 and is a principal of Snow Becker Krauss P.C., our outside general counsel.
Daniel Fields has served as our executive vice-president of NewTom Sales since April 2007. From 2005 to 2007 he was vice-president for Syneron Medical, and from 2000 to 2005 he was president of OpusDent, a subsidiary of Lumenis.
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Brian Jaffe has served as our executive vice-president of sales and marketing since July 2008. From 2005 to 2008 he was senior vice-president strategic marketing at Suni Medical Imaging, and from 2003 to 2005 he was vice-president product marketing at Experian.
Aida McKinney has served as our executive vice-president of administration since 2007. From 1980 to 2007, she served as our vice-president of administration and our administrative manager.
Roberto Molteni has served as our executive vice-president of technology since 2005. From 1998 to 2005, he was director, research and development at Gendex Dental Systems.
Elise Nissen has served as our executive vice-president of finance and chief financial officer since 2007. From 1982 to 2007, she served as our vice president of finance, chief financial officer and controller.
Donald Rabinovitch has served as our president and co-chief executive officer, as well as one of our directors, since our formation in 1978. He is one of our original co-founders. Mr. Rabinovitch is a cousin of David Vozick.
David Vozick has served as chairman of our board of directors, secretary, treasurer and co-chief executive officer, as well as one of our directors, since our formation in 1978. He is one of our original co-founders. Mr. Vozick is a cousin of Donald Rabinovitch.
Committees of Our Board of Directors
Our board of directors has not established standing audit, nominating or compensation committees, or committees performing similar functions, to assist it in the discharge of the board’s duties.
Shareholder Communications
Shareholders wishing to communicate to our board, other than to submit proposals for action at meetings of our shareholders pursuant to SEC Rule 14a-8, should do so in writing, addressed to David Vozick, c/o AFP Imaging Corporation, 250 Clearbrook Road, Elmsford, New York 10523. The envelope delivering such written communications should be marked “Shareholder Communication.”
Meetings of the Board of Directors
Our board of directors held eight formal meetings during our fiscal year ended June 30, 2008. Each member of our board of directors attended all meetings of our board held during our fiscal year ended June 30, 2008.
Our board has not established any procedure with respect to director attendance at our annual meetings of shareholders. All of our directors were present at our annual meeting of shareholders held on December 12, 2007.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of our common stock beneficially owned, directly or indirectly, by (i) each person known by us to be the owner of more than 5% of the outstanding shares of our common stock based on filings with the SEC, (ii) each director, (iii) each of our current executive officers identifiable as “Named Executive Officers” as defined by the SEC and (iv) all of our directors and executive officers as a “group” (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of October 28, 2008.
The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Exchange Act, and is not necessarily indicative of beneficial ownership for any other purpose. Shares of our common stock that a person has a right to acquire within 60 days are deemed outstanding for purposes of computing the percentage ownership of that person, but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all directors and executive officers as a group. We based our calculations of the percentage owned of the 17,928,800 shares outstanding on October 28, 2008.
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Except as otherwise indicated in the notes to the following table,
| § | All shares are beneficially owned, and investment and voting power is held by, the persons named as owners and/or voting power with that individual’s spouse. |
| § | The address of each director and Named Executive Officer listed in the table below is c/o AFP Imaging Corporation, 250 Clearbrook Road, Elmsford, New York 10523. |
| Amount and Nature of | Percentage of | ||
| Name of Beneficial Owner | Beneficial Ownership | Outstanding Shares | |
| Directors and Officers | |||
| David Vozick (1) | 1,526,603 | (2) | 8.4 |
| Donald Rabinovitch (3) | 1,407,803 | (4) | 7.8 |
| Robert A. Blatt (5) | 819,963 | (6) | 4.5 |
| Jack Becker (7) | 148,022 | (8) | * |
| Elise Nissen (9) | 106,000 | (10) | * |
| Aida McKinney (11) | 85,000 | (12) | * |
| Roberto Molteni (13) | 100,000 | (14) | * |
| Daniel Fields (15) | 50,000 | (16) | * |
| All executive officers and directors as a group (eight persons) | 4,218,391 | (17) | 22.7 |
| Beneficial owner of more than 5% | |||
| ComVest Capital LLC (18) | 2,909,705 | (19) | 14.0 |
__________
* Represents less than 1% of our outstanding common stock.
| (1) | Mr. Vozick is our chairman of the board, co-chief executive officer, secretary and treasurer. |
| (2) | Includes (a) 180,000 shares which are issuable upon exercise of options granted to Mr. Vozick, which shares are exercisable within the 60 days following the date of this proxy statement and (b) 140,000 shares of our common stock owned of record by Mr. Vozick’s family foundation, of which Mr. Vozick has shared voting and dispositive powers with his spouse. Mr. Vozick disclaims beneficial ownership to the shares owned by Mr. Vozick’s family foundation. |
| (3) | Mr. Rabinovitch is our president, co-chief executive officer and one of our directors. |
| (4) | Includes (a) 180,000 shares which are issuable upon exercise of options granted to Mr. Rabinovitch, which shares are exercisable within the 60 days following the date of this proxy statement and (b) 125,000 shares of our common stock owned of record by Mr. Rabinovitch’s family foundation, of which Mr. Rabinovitch has shared voting and dispositive powers with his spouse. Mr. Rabinovitch disclaims beneficial ownership to the shares owned by Mr. Rabinovitch’s family foundation. |
| (5) | Mr. Blatt is one of our directors. The address for Mr. Blatt is 1890 Palmer Avenue, Larchmont, New York 10538. |
| (6) | Includes 116,000 shares which are issuable upon exercise of options granted to Mr. Blatt, which shares are exercisable within the 60 days following the date of this proxy statement. |
| (7) | Mr. Becker is one of our directors. The address for Mr. Becker c/o Snow Becker Krauss P.C., 605 Third Avenue, 25th Floor, New York, New York 10158. |
| (8) | Includes (a) 25,000 shares owned of record by Snow Becker Krauss P.C., a law firm which acts as our outside general counsel and of which Mr. Becker is a principal, and (b) 116,000 shares of our common stock issuable upon exercise of options granted to Mr. Becker, which shares are exercisable within the 60 days following the date of this proxy statement. |
| (9) | Ms. Nissen is our executive vice-president of finance and chief financial officer. |
| (10) | Includes 15,000 shares which are issuable upon exercise of options granted to Ms. Nissen, which shares are exercisable within the 60 days following the date of this proxy statement. |
| (11) | Ms. McKinney is our executive vice-president of administration. |
| (12) | Includes 15,000 shares of our common stock issuable upon exercise of options granted to Ms. McKinney, which shares are exercisable within the 60 days following the date of this proxy statement. |
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| (13) | Dr. Molteni is our executive vice-president of technology. |
| (14) | Includes 100,000 shares of our common stock issuable upon exercise of options granted to Dr. |
| Molteni, which shares are exercisable within the 60 days following the date of this proxy statement. |
| (15) | Mr. Fields is our executive vice-president of NewTom sales. |
| (16) | Includes 50,000 shares of our common stock issuable upon exercise of options granted to Mr. Fields, which shares are exercisable within the 60 days following the date of this proxy statement. |
| (17) | Includes those shares of our common stock owned by our current executive officers and directors, as set forth in notes (2), (4), (6), (8), (10), (12), (14) and (16). |
| (18) | The address of ComVest Capital, LLC is One North Clematis Street, Suite 300, West Palm Beach, Florida 33401 |
| (19) | Represents shares of our common stock beneficially owned as of April 20, 2007 as indicated on the report on Schedule 13G filed by ComVest Capital, LLC. Includes 800,000 shares of our common stock which are issuable upon exercise of currently exercisable warrants and 2,109,705 shares of our common stock which are issuable upon the conversion of the initial principal amount of a currently exercisable convertible term note. |
| SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE |
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. SEC regulations also require us to identify in this proxy statement any person subject to this requirement who failed to file any such report on a timely basis.
Based solely upon a review of copies of Forms 3, 4 and 5 and amendments to these forms furnished to us, together with written representations received by us from applicable parties that no Form 5 was required to be filed by such parties, we believe that all parties subject to the reporting requirements of Section 16(a) of the Exchange Act filed all such required reports during and with respect to our fiscal year ended June 30, 2008 on a timely basis.
EXECUTIVE COMPENSATION
Our board of directors does not have a compensation committee. Our board believes that its size negates the need for establishing a separate compensation committee. Worldwide executive compensation, including compensation for our co-chief executive officers, is determined by our board in its entirety, based on each executive’s responsibilities and the executive compensation philosophy determined by our board. Donald Rabinovitch and David Vozick, our co-chief executive officers who each serve on our board, participated in the deliberations of our board concerning executive officer compensation. In addition, our board rewards our executives for long-term company performance. The objectives of our compensation program are:
| § | To attract, retain, motivate and incentivize our employees to help us achieve our business objectives, |
| § | To encourage and reward superior individual performance, |
| § | To encourage teamwork, and |
| § | To align the interest of our executives with those of our shareholders by incentivizing increases in the long-term value of our company |
Design of Our Compensation Program
Our executive compensation philosophy is to provide competitive levels of compensation by recognizing the need for multi-discipline management responsibilities, achievement of our overall performance goals, individual initiative and achievement, and allowance of our company to attract and retain management with the skills critical to its long-term success. Management compensation is intended to be set at levels that we believe are consistent with compensation in comparable companies. Our compensation programs are designed to motivate executive officers to meet annual corporate performance goals and to enhance long-term shareholder value. In connection with the development of our annual business and financial plan each May, our executive management team establishes company and individual goals for the ensuing year. Executive management reviews these goals with the board of directors, which adopts a final compensation program to be implemented for the next year.
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In finalizing the annual compensation program, the objective of the board of directors is to make sure that our executives’ salaries are competitive and comparable to those of executives at other manufacturing/distribution companies similar to our size and geographic location. Our executive compensation contains fixed and performance-based elements, with four major components: base salary, performance incentive, incentive stock options and benefits and other compensation.
The components of our executive compensation program are:
Executive Base Salaries
Base salaries are determined by evaluating the various responsibilities for the position held and the experience of the individual as well as comparing compensation levels for similar positions at companies within our principal industry. We review our executives’ base salaries and determine increases based upon an executive’s contribution to corporate performance, current economic trends, and competitive market conditions.
Performance Incentives
We utilize performance incentives based upon criteria relating to performance in special projects undertaken during the past fiscal year, contribution to the development of new products, marketing and technology strategies, manufacturing efficiencies, revenues, income, and other operating and financial goals to augment the base salaries received by executive officers. The annual incentive compensation is based on each executive’s specific individual goals. The amount of any incentive bonus is at the board’s discretion. The performance incentive portion of compensation for the named executive officers is principally based on certain specific non-financial benchmarks, and projected revenue and pre-tax earnings benchmarks, which are usually decided in May of the previous fiscal year. The non-financial benchmarks can vary from year to year based on specific corporate goals, the evolving marketplace and current technological developments. Nevertheless, the board retains the discretionary right to award performance incentive compensation notwithstanding the achievement of such benchmarks.
In fiscal year 2008, we did not meet several of the financial benchmarks which had been projected in May 2007, including revenue and operating income. Therefore, in fiscal year 2008 our board did not award any bonus payments to any named executive officers.
Incentive Stock Options
We use incentive stock options granted under our stock option plans as a means to attract, retain and encourage management and to align the interests of executive officers with the long-term interest of our shareholders. Incentive stock options are typically granted at the commencement of employment of key personnel and have been augmented by subsequent periodic grants. Management recommends all stock option awards to the board of directors, which authorizes all awards. The board sets the exercise price of our stock options at the closing price of our common stock on the OTC Bulletin Board on the date of grant. Options generally have a term of ten years, with a specific vesting schedule. The board generally awards stock options when it approves the annual business and financial plan. The board makes interim awards of stock options to new executive hires as those executives join us. The number of options to be granted is based on (1) the overall annual compensation plan for executives and (2) the Black-Scholes estimate of the value of the options granted. All of our stock option plans have been approved by our shareholders.
In light of the impact that the grant of stock options has on our earnings per share under FAS 123(R), the board of directors is continuing to evaluate the long-term equity component of our compensation program, and accordingly, made no recommendations or other awards of long-term equity compensation for 2008.
Benefits and Other Compensation
We offer life, health and disability benefits, paid vacation, and a 3% contribution of salary to a Safe Harbor 401(k) plan (up to $6,750 per employee) to our executive officers, which are similar to the benefits offered to all of our employees. We also provide supplemental life and/or disability insurance coverage as well as an automobile expense allowance to our senior executive officers as additional compensation. We believe that our benefits are comparable to those of comparable companies.
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Retirement and Post Retirement Benefits
We do not offer a post-retirement health plan to our executive officers or employees. However, we do offer a Section 401(k) retirement savings plan to our executive officers, which is the same plan offered to all employees. In Fiscal 2006, we established a Safe Harbor 401(k) defined contribution plan for all eligible employees, which requires either a specific matching contribution or a 3% contribution to all participants. We also maintain a profit sharing plan and trust pursuant to which participants receive certain benefits upon retirement, death, and disability and, to a limited extent, upon termination of employment for other reasons. This defined contribution plan requires no minimum contribution by us. Allocation among participants’ interests, including officers and directors who are employees, is in accordance with current Internal Revenue Service regulations for both of these plans. The aggregate amount we contribute towards the Safe Harbor 401(k) Plan is determined by us in advance of the following fiscal year, based on a review of financial and market information available at that time. The aggregate amount contributed by us towards the profit sharing plan is determined by us following a review of the operating results and other financial information with respect to such fiscal year. We contributed $145,190 and $143,112, respectively, to the Safe Harbor 401(k) Plan for the fiscal years ended June 30, 2008 and June 30, 2007. There have been no contributions to the profit sharing plan for the past two fiscal years.
Summary Compensation Table
The following table and accompanying footnotes summarize the compensation of our Chief Executive Officers and our two other highest compensated executive officers in 2008 and 2007. We refer to these officers as our Named Executive Officers:
Name and principal position (a) | Year (b) | Salary ($) (c) | Bonus ($) (1) (d) | Option Awards ($) (2) (f) | All Other Compensation ($) (i) | Total ($) (j) | ||||||||||||||||||
David Vozick, Chairman of the Board, Co-Chief Executive Officer, Secretary and Treasurer | 2008 2007 | 317,500 317,500 | -- -- | -- -- | 21,534 (3) 21,295 (4) | 339,034 338,795 | ||||||||||||||||||
Donald Rabinovitch, Co- Chief Executive Officer and President | 2008 2007 | 317,500 317,500 | -- -- | -- -- | 24,095 (5) 25,051 (6) | 341,595 342,551 | ||||||||||||||||||
Elise Nissen, Chief Financial Officer, Executive Vice-President Finance | 2008 2007 | 150,000 150,000 | -- 25,000 | -- -- | 20,388 (7) 28,954 (8) | 170,390 203,956 | ||||||||||||||||||
Daniel Fields, Executive Vice-President NewTom Sales (8) | 2008 2007 | 240,000 46,154 | -- -- | 40,131 40,132 | 27,320 (9) 1,828 (9) | 267,320 88,114 | ||||||||||||||||||
_____________
| (1) | There were no bonuses earned or accrued in fiscal year 2008. The bonus in fiscal year 2007 was accrued and earned in fiscal year 2007, and paid in fiscal year 2008. |
| (2) | The amounts in option awards reflect the dollar amount of expense recognized for financial statement reporting purposes for the fiscal years ended June 30, 2008 and 2007, respectively, in accordance with FAS 123 (R) of option awards pursuant to the company’s 2004 Equity Incentive Plan and includes an amount from option awards granted in fiscal 2007. The assumptions used in the calculation of this amount are included in the footnotes to the company’s audited financial statements for the fiscal year ended June 30, 2008, included in the company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission. |
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| (3) | This amount includes (i) $6,710 for a car allowance and related expenses, (ii) $6,731 for 401(k) Savings Plan matching contribution, (iii) $5,049 for life insurance and long-term disability insurance premiums, and (iv) $3,044 for certain other miscellaneous expenses. |
| (4) | This amount includes (i) $8,448 for a car allowance and related expenses, (ii) $6,750 for 401(k) Savings Plan matching contribution, (iii) $5,049 for life insurance and long-term disability insurance premiums, and (iv) $1,048 for certain other miscellaneous expenses. |
| (5) | This amount includes (i) $4,990 for a car allowance and related expenses, (ii) $6,731 for 401(k) Savings Plan matching contribution, (iii) $9,564 for life insurance and long-term disability insurance premiums, and (iv) $2,810 for certain other miscellaneous expenses. |
| (6) | This amount includes (i) $8,118 for a car allowance and related expenses, (ii) $6,750 for 401(k) Savings Plan matching contribution, (iii) $9,647 for life insurance and long-term disability insurance premiums, and (iv) $536 for certain other miscellaneous expenses. |
| (7) | This amount includes (i) $4,520 for auto related expenses, (ii) $5,552 for 401(k) Savings Plan matching contribution, (iii) $8,654 for payment in lieu of vacation, and (iv) $1,662 for life insurance and long-term disability insurance premiums. |
| (8) | This amount includes (i) $4,292 for auto related expenses, (ii) $5,421 for 401(k) Savings Plan matching contribution, (iii) $17,308 for payment in lieu of vacation, and (iv) $1,933 for life insurance and long-term disability insurance premiums. |
| (9) | This named executive officer joined the company in April 2007. The amount in fiscal year 2008 includes (i) $8,100 for auto related expenses, (ii) $4,015 for 401(k) Savings Plan matching contribution, (iii) $13,846 for payment in lieu of vacation, and (iv) $1,358 for life insurance and long-term disability insurance premiums. |
Grants of Plan-Based Awards
There were no stock awards or options granted to the Named Executive Officers during the fiscal year ended June 30, 2008.
Outstanding Equity Awards at Fiscal Year-End
The following table and accompanying footnotes provide information concerning shares of our common stock covered by exercisable and unexercisable options held by the Named Executive Officers as of June 30, 2008:
| Option Awards | ||||
Name (a) | Number of Securities Underlying Unexercised Options (#) Exercisable (b) | Number of Securities Underlying Unexercised Options (#) Unexercisable (c) | Option Exercise Price ($) (e) | Option Expiration Date (f) |
David Vozick | 150,000 (1) 30,000 (1) | -- -- | .31 1.265 | 9/7/2009 5/13/2009 |
Donald Rabinovitch | 150,000 (1) 30,000 (1) | -- -- | .31 1.265 | 9/7/2009 5/13/2009 |
Elise Nissen | 15,000 (1) | -- | 1.15 | 5/13/2014 |
Daniel Fields | 50,000 (1) | -- | 1.63 | 4/15/2017 |
_____________
(1) All of the stock options granted to these Named Executive Officers are vested as of June 30, 2008.
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Option Exercises and Stock Vested
None of the Named Executive Officers listed in the Summary Compensation Table exercised any options during the fiscal year ended June 30, 2008.
Director Compensation
The following table and explanatory footnotes provide information with respect to compensation for each of our non-employee directors for their service in fiscal year ended June 30, 2008.
Name (a) | Fees earned or paid in cash ($) (b) | Option awards ($) (d) | All other compensation ($) (g) | Total ($) (h) |
| Robert Blatt (1) | 18,000 | -- | 48,000 | 66,000 |
| Jack Becker (2) | 18,000 | -- | -- | 18,000 |
_____________
| (1) | Robert Blatt serves as a paid consultant to our company on various business matters. In our fiscal year ended June 30, 2008, he earned $48,000 in consulting fees. |
| (2) | Jack Becker is a principal of Snow Becker Krauss P.C. We paid Snow Becker Krauss P.C., our outside general counsel, approximately $94,945 during our fiscal year ended June 30, 2008 for services rendered and reimbursement of expenses incurred on our behalf. |
Director Compensation Policies
We compensate our non-employee directors on a per meeting basis. We do not compensate our employee-directors in their capacities as directors. Accordingly, our non-employee directors Robert Blatt and Jack Becker each receive compensation based on each meeting of our board of directors that they attend. We compensate each of our non-employee directors with the payment of $4,500 per meeting, with a mandatory requirement of four meetings per year.
We also reimburse our directors for their reasonable expenses that they may incur for our benefit.
Compensation Committee Interlocks and Insider Participation
Our board of directors does not have a compensation committee. Executive compensation, including compensation for our co-chief executive officers, is determined by our board in its entirety, based on each executive’s responsibilities and the executive compensation philosophy determined by our board. Donald Rabinovitch and David Vozick, our co-chief executive officers who each serve on our board, participated in the deliberations of our board concerning executive officer compensation. During our fiscal year ended June 30, 2008, none of our executive officers served at any time on the board of directors or compensation committee (or committee performing equivalent functions) of any other entity one of whose executive officers served on our board.
Code of Ethics
Our board of directors has established a code of ethics that applies to our principal executive, financial and accounting officer(s). A copy of our code of ethics was filed as Exhibit 14 to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2003. Upon the written request of a shareholder, addressed to David Vozick, Secretary, AFP Imaging Corporation, 250 Clearbrook Road, Elmsford, New York, 10523, we will provide without charge to such shareholder a copy of our code of ethics. A copy of our code of ethics can also be obtained from the SEC’s EDGAR Database at www.sec.gov.
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Recommendation of Our Board of Directors
Our board of directors recommends that shareholders vote FOR the election of directors of the board’s nominees as listed above.
PROPOSAL 2
INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has approved and has recommended that the shareholders of our company approve an amendment to the Certificate of Incorporation providing for an increase from 30,000,000 to 100,000,000 in the number of authorized shares of Common Stock. As of October 10, 2008, the company had a total of 17,928,800 shares of Common Stock outstanding.
The Board of Directors believes that the proposed increase in the authorized shares of Common Stock is in the best interests of our company and our shareholders as the Board believes it is advisable to have additional shares available in connection with possible future transactions, such as financings, strategic alliances, mergers, acquisitions, possible funding of new product programs or businesses and other uses not presently determinable and as may be deemed feasible and in our best interests.
Furthermore, as previously disclosed, the company maintains a senior secured facility (“Revolving Credit and Term Loan“) with ComVest Capital, LLC (“Senior Secured Lender”) for an aggregate of up to $8 million in the form of a $5 million term loan (the “Term Loan”) and a $3 million revolving loan facility. In connection with the Term Loan, our company granted to the Senior Secured Lender an aggregate of 800,000 warrants to purchase shares of our Common Stock.
The company’s aggregate outstanding advances under the revolver presently exceed the maximum revolving credit commitment permissible under the Revolving Credit and Term Loan Agreement. Accordingly, it may be necessary to amend the loan agreements with the Senior Secured Lender, which amendments could include a downward modification to the conversion price in the Term Loan. In such event, a conversion by the Senior Secured Lender could result in the obligation of our company to issue shares of Common Stock in excess of our current authorized capitalization.
As a result of the foregoing, we believe that we currently have insufficient authorized Common Stock. If the amendment is approved, the additional authorized shares of Common Stock would be available for issuance in the event of the conversion of the Term Loan as well as the exercise of warrants.
Although we have no current commitments or plans for the issuance of Common Stock, an increase in our authorized Common Stock would also provide greater flexibility in the future for additional corporate purposes, including, without limitation, stock splits, stock dividends and management incentive and employee benefit plans, as the Board of Directors may deem advisable, without the necessity of further shareholder action.
BOARD RECOMMENDATION
The Board of Directors believes that the approval of the amendment increasing the number of shares of authorized Common Stock is in the best interest of the Company and its shareholders and therefore recommends a vote FOR this proposal.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
Goldstein Golub Kessler LLP (“GGK”) previously served as our principal accountant. In October 2007, certain partners of GGK became partners of McGladrey & Pullen, LLP (“M&P”). As a consequence, GGK resigned as our auditor on January 24, 2008 and M&P was appointed on that date as the Company’s new independent registered public accounting firm for the year ended June 30, 2008.
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GGK had a continuing relationship with RSM McGladrey, Inc. (“RSM”), from which it leased auditing staff who were full-time, permanent employees of RSM and through which its partners provided non-audit services. GGK had no full-time employees and therefore, none of the audit services performed were provided by permanent full-time employees of GGK. GGK managed and supervised the audit and the audit staff, and was exclusively responsible for the opinion rendered in connection with this examination. GGK had served as our independent registered public accounting firm since the fiscal year ended June 30, 2004. GGK had no direct or indirect financial interest in our company.
Our board of directors intends to retain McGladrey & Pullen, LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2009. McGladrey & Pullen, LLP has no direct or indirect financial interest in our company.
One or more representatives of McGladrey & Pullen, LLP are expected to attend the annual meeting, and will have an opportunity to make a statement and respond to appropriate questions from our shareholders.
Principal Accountant Fees and Services
The following table sets forth the fees billed or incurred by our principal accountants for our fiscal years ended June 30, 2008 and 2007 for the categories of services indicated.
| Category | 2008 | 2007 | ||||||
| Audit fees (1) | $ | 125,400 | $ | 120,682 | ||||
| Audit-related fees (2) | 62,958 | 73,547 | ||||||
| Tax fees | 0 | 0 | ||||||
| All other fees | 0 | 0 | ||||||
__________
| (1) | Consists of fees billed or incurred for the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements. |
| (2) | Consists of assurance and related services that are reasonably related to the performance of the audit and reviews of our financial statements and are not included in “audit fees” in this table. Audit related fees for 2007 and 2008 include advisory services related to the acquisition of QR srl in April 2007 and specific consolidation matters. |
In addition, we paid RSM McGladrey, Inc. $8,245 and $11,302 in the fiscal years ended June 30, 2008 and 2007, respectively, for tax consulting services, principally related to the acquisition of QR srl in April 2007 and ongoing international tax matters.
Audit Committee
We do not have an audit committee of our board of directors. We are presently evaluating the steps necessary to establish such committee within the next fiscal year and to designate one of the members of such committee as an “audit committee financial expert.”
Pre-Approval Policy
In addition to retaining McGladrey & Pullen, LLP to audit our consolidated financial statements for our fiscal year ended June 30, 2008, we retained McGladrey & Pullen, LLP to provide other auditing and advisory services to us in our 2008 fiscal year. We understand the need for McGladrey & Pullen LLP to maintain objectivity and independence in its audit of our financial statements. To minimize relationships that could appear to impair the objectivity of McGladrey & Pullen LLP, our board of directors has restricted the non-audit services that McGladrey & Pullen LLP may provide to us primarily to tax services and merger and acquisition due diligence and audit services, and has determined that we would obtain these non-audit services from McGladrey & Pullen LLP only when the services offered thereby are more effective or economical than services available from other service providers.
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Our board of directors also has adopted policies and procedures for pre-approving all non-audit work performed by McGladrey & Pullen LLP and any other accounting firms we may retain. Specifically, our board has pre-approved the use of McGladrey & Pullen LLP for detailed, specific types of services within the following categories of non-audit services: merger and acquisition due diligence and audit services; tax services; and reviews and procedures that we request McGladrey & Pullen LLP to undertake to provide assurances of accuracy on matters not required by laws or regulations. In each case, our board has also set a specific annual limit on the amount of such services which we would obtain from McGladrey & Pullen LLP, and has required management to report the specific engagements to the board on a quarterly basis and to obtain specific pre-approval from the board for all engagements.
Board of Directors Approval of Audit-Related Activities
Management is responsible for the preparation and integrity of our financial statements, as well as establishing appropriate internal controls and financial reporting processes. McGladrey & Pullen LLP is responsible for performing an independent audit of our financial statements and issuing a report on such financial statements. The board’s responsibility is to monitor and oversee these processes.
The board reviewed the audited financial statements of our company for the year ended June 30, 2008 and met with both management and the independent auditors, separately and together, to discuss such financial statements. Our non-employee directors also were given the opportunity to meet separately with the independent auditors. Management and the auditors have represented to us that the financial statements were prepared in accordance with generally accepted accounting principles in the United States. The board also received written disclosures and a letter from our auditors regarding their independence from us, as required by Independence Standards Board Standard No. 1, and discussed with the auditors their independence with respect to all services that our auditors rendered to us. The board also discussed with the auditors any matters required to be discussed by Statement on Auditing Standards No. 61. Based upon these reviews and discussions, the board authorized and directed that the audited financial statements be included in our Annual Report on Form 10-K for the year ended June 30, 2008.
The Board of Directors,
Jack Becker
Robert A. Blatt
Donald Rabinovitch
David Vozick
TRANSACTIONS WITH RELATED PERSONS
Management did not engage in any related party transactions which exceeded $120,000 or one percent of our total assets for the fiscal years ended June 30, 2008 and June 30, 2007.
OTHER MATTERS
As of the date of this proxy statement, our board of directors is not aware of any business to be presented at the annual meeting, other than the matters set forth in the notice of annual meeting and described in this proxy statement. If any other business does lawfully come before the annual meeting, it is the intention of the persons named in the enclosed proxy card to vote on such other business in accordance with their judgment.
EXPENSES OF SOLICITATION
We will pay the cost of soliciting proxies for the annual meeting. In addition to soliciting by mail, our directors, officers and other employees may solicit proxies in person, or by telephone, facsimile transmission or other means of electronic communication. We also will pay brokers, nominees, fiduciaries and other custodians their reasonable fees and expenses for sending proxy materials to beneficial owners and obtaining their voting instructions.
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SHAREHOLDER PROPOSALS
Shareholder Proposals for Inclusion in Next Year’s Proxy Statement
To be considered for inclusion in our next year’s proxy statement, shareholder proposals must be received at our principal executive offices no later than the close of business on July 16, 2009, which is 120 days before the anniversary of this proxy statement. Proposals should be addressed to David Vozick, Secretary, AFP Imaging Corporation, 250 Clearbrook Road, Elmsford, New York 10523.
Other Shareholder Proposals for Presentation at Next Year’s Annual Meeting
For any proposal that is not submitted for inclusion in our next year’s proxy statement, but is instead sought to be presented directly at next year’s annual meeting, SEC rules will permit management to vote proxies in its discretion if we:
| · | receive notice of the proposal before the close of business on September 30, 2009 and advise our shareholders in our proxy statement for next year’s annual meeting about the nature of the matter and how management intends to vote on such matter, or |
| · | do not receive notice of the proposal prior to the close of business on September 30, 2009. |
Notices of intention to present proposals at next year’s annual meeting should be addressed to David Vozick, Secretary, AFP Imaging Corporation, 250 Clearbrook Road, Elmsford, New York 10523.
The notice must set forth as to each matter the shareholder proposes to bring before the annual meeting:
| · | A brief description of the business desired to be brought before the annual meeting, the text of the proposal or business and the reasons for conducting such business at the annual meeting; and |
| · | Any material interest of the shareholder in such business. |
AVAILABILITY OF OUR FORM 10-K
We will provide without charge to any shareholder as of the record date, copies of our Annual Report on Form 10-K, upon written request delivered to David Vozick, Secretary, AFP Imaging Corporation, 250 Clearbrook Road, Elmsford, New York 10523.
By order of the Board of Directors,
David Vozick, Secretary
Elmsford, New York
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ANNUAL MEETING OF SHAREHOLDERS OF
AFP IMAGING CORPORATION
December 10, 2008
Please date, sign and mail your proxy card in the
envelope provided as soon as possible.
Please detach along perforated line and mail in the envelope provided.
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE (X)
| NOMINEES: | |
| 1. Election of Directors: | o David Vozick |
| o Donald Rabinovitch | |
| ( )FOR ALL NOMINEES | o Jack Becker |
| o Robert A. Blatt | |
( ) WITHHOLD AUTHORITY FOR ALL NOMINEES | |
( )FOR ALL EXCEPT (See instructions below) |
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT”
and fill in the circle next to each nominee you wish to withhold, as shown here: (X)
2. To approve an amendment to the Company’s Certificate of Incorporation increasing the number of authorized shares of Common Stock from 30,000,000 to 100,000,000.
3. To consider and act upon any other proposal as may properly come before the meeting or any
adjournment or adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS NOMINATED, FOR THE APPROVAL TO AMEND THE COMPANY’S CERTIFICATE OF INCORPORATION AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE ANNUAL MEETING.
A majority of such attorneys or substitutes as shall be present and shall act at said
Annual Meeting or any adjournment or adjournments thereof (or if only one shall be
present and act, then that one) shall have and may exercise all of the powers of said
attorneys-in-fact, hereunder.
To change the address on your account, please check the box at right and o
indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted via
this method.
Signature of Shareholder __________________ Date: __________
Signature of Shareholder __________________ Date: __________
Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF
AFP IMAGING CORPORATION
The undersigned shareholder of AFP Imaging Corporation, a New York corporation, hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement, each dated November 12, 2008, and hereby appoints David Vozick and Donald Rabinovitch, and each of them with full power of substitution, proxies and attorneys-in-fact, on behalf and in the name of the undersigned, at the 2008 Annual Meeting of Shareholders of AFP Imaging Corporation, to be held on December 10, 2008 at 9:00 a.m., local time, at the Company’s offices, 250 Clearbrook Road, Elmsford, New York 10523, and at any adjournments thereof, and to vote all shares of Common Stock which the undersigned would be entitled to vote if then and there personally present, on the matters set forth on the reverse:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)