Exhibit 99.3
AFP IMAGING CORPORATION
PRO FORMA FINANCIAL INFORMATION
INDEX TO FINANCIAL STATEMENTS
| Pro Forma Balance Sheet as of March 31, 2007 | 2 |
| Pro Forma Statement of Operations for the year ended June 30, 2006 | 3 |
| Pro Forma Statement of Operations for the nine months ended March 31, 2007 | 4 |
| Notes to Pro Forma Financial Statements | 5-6 |
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AFP Imaging Corporation | ||||||||||||||||||||
Pro Forma Combined Balance Sheet | ||||||||||||||||||||
Unaudited | ||||||||||||||||||||
March 31, 2007 | ||||||||||||||||||||
AFP | QR Srl | Pro Forma | AFP | |||||||||||||||||
Adjustments | Pro Forma | |||||||||||||||||||
ASSETS | ||||||||||||||||||||
| Current Assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | 4,057,813 | $ | 1,420,037 | $ | 7,733,000 | (1) | $ | 3,181,062 | |||||||||||
| 6,361,786 | (2) | |||||||||||||||||||
| 352,966 | (3) | |||||||||||||||||||
| (16,744,540 | ) | (4) | ||||||||||||||||||
| Accounts receivable, net | 2,928,864 | 1,233,381 | (163,621 | ) | (5) | 3,998,624 | ||||||||||||||
| Inventories | 4,907,598 | 948,277 | 5,855,875 | |||||||||||||||||
| Prepaid Expenses/other | 220,275 | 80,330 | (137,237 | ) | (3) | 163,368 | ||||||||||||||
| Deferred income taxes | 680,000 | 699,336 | 1,379,336 | |||||||||||||||||
Total current assets | 12,794,550 | 4,381,361 | (2,597,646 | ) | 14,578,265 | |||||||||||||||
| Property and equipment, net | 325,807 | 160,583 | 486,390 | |||||||||||||||||
| Excess of costs over the fair | 16,690,411 | |||||||||||||||||||
| value of the assets acquired | 18,858,525 | (4) | ||||||||||||||||||
| (2,168,114 | ) | (6) | ||||||||||||||||||
| Other Assets | 1,913,916 | 217,500 | (2) | 250,431 | ||||||||||||||||
| (1,880,985 | ) | (4) | ||||||||||||||||||
Total Assets | $ | 15,034,273 | $ | 4,541,944 | $ | 12,429,280 | $ | 32,005,497 | ||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||
| Current Liabilities | ||||||||||||||||||||
| Current portion of long-term debt | $ | 385,618 | $ | $ | 2,145,324 | (2) | $ | 2,530,942 | ||||||||||||
| Accounts payable | 2,431,473 | 865,081 | (163,621 | ) | (5) | 3,132,933 | ||||||||||||||
| Accrued expenses | 1,640,545 | 1,252,094 | 233,000 | (4) | 3,125,639 | |||||||||||||||
Total current liabilities | 4,457,636 | 2,117,175 | 2,214,703 | 8,789,514 | ||||||||||||||||
| Long-term debt | 0 | 3,319,178 | (2) | 3,319,178 | ||||||||||||||||
| Deferred Liabilities | 218,949 | 218,949 | ||||||||||||||||||
| Other Liabilities | 0 | 256,655 | 256,655 | |||||||||||||||||
Total liabilities | 4,676,585 | 2,373,830 | 5,533,881 | 12,584,296 | ||||||||||||||||
| Shareholders' Equity | ||||||||||||||||||||
| Preferred Stock | 0 | 0 | ||||||||||||||||||
| Common Stock | 124,288 | 55,000 | (1) | 179,288 | ||||||||||||||||
| Share capital QR Srl | 13,853 | (13,853 | ) | (6) | 0 | |||||||||||||||
| Common stock warrants | 91,131 | 91,131 | ||||||||||||||||||
| Addiitonal paid-in-capital | 16,571,129 | 7,678,000 | (1) | 25,363,913 | ||||||||||||||||
| 1,114,784 | (2) | |||||||||||||||||||
| Accumulated deficit | (6,428,860 | ) | 2,154,261 | 215,729 | (3) | (6,213,131 | ) | |||||||||||||
| (2,154,261 | ) | (6) | ||||||||||||||||||
Total shareholders' equity | 10,357,688 | 2,168,114 | 6,895,399 | 19,421,201 | ||||||||||||||||
Total Liabilities andStockholders' Equity | $ | 15,034,273 | $ | 4,541,944 | $ | 12,429,280 | $ | 32,005,497 | ||||||||||||
| See Notes to the financial statements | 2 |
AFP Imaging Corporation | ||||||||||||||||||||
Pro Forma Combined Statement of Operations | ||||||||||||||||||||
Year Ended June 30, 2006 | ||||||||||||||||||||
Unaudited | ||||||||||||||||||||
AFP | QR Srl | Pro Forma | AFP | |||||||||||||||||
Adjustments | Pro Forma | |||||||||||||||||||
Net Sales | $ | 24,998,272 | $ | 7,921,491 | $ | (88,200 | ) | (11) | $ | 32,831,563 | ||||||||||
| Cost of Sales | 15,670,428 | 2,666,148 | (88,200 | ) | (11) | 18,248,376 | ||||||||||||||
| Gross profit | 9,327,844 | 5,255,343 | 0 | 14,583,187 | ||||||||||||||||
Selling, general and administrative expenses | 7,594,820 | 2,199,587 | 2,066,000 | (9) | 11,275,407 | |||||||||||||||
| (585,000 | ) | (10) | ||||||||||||||||||
| Research & development expenses | 696,700 | 309,864 | 1,006,564 | |||||||||||||||||
| Interest (income)/expenses, net | 34,457 | (19,403 | ) | 643,000 | (7) | 859,519 | ||||||||||||||
| 201,465 | (8) | |||||||||||||||||||
| Income before income tax benefit | 1,001,867 | 2,765,295 | (2,325,465 | ) | 1,441,697 | |||||||||||||||
| Income tax provision/(benefit) | (3,481 | ) | 1,139,608 | (302,000 | ) | (12) | 834,127 | |||||||||||||
Net income | $ | 1,005,348 | $ | 1,625,687 | $ | (2,023,465 | ) | $ | 607,570 | |||||||||||
| Pro forma net income per common share | ||||||||||||||||||||
| Basic (13) | $ | 0.04 | ||||||||||||||||||
| Diluted (13) | $ | 0.04 | ||||||||||||||||||
| Pro forma weighted average outstanding common stock | ||||||||||||||||||||
| Basic (13) | 15,509,958 | |||||||||||||||||||
| Diluted (13) | 16,076,999 | |||||||||||||||||||
| See Notes to the financial statements | 3 |
AFP Imaging Corporation | ||||||||||||||||||||
Pro Forma Combined Statement of Operations | ||||||||||||||||||||
Nine Months Ended March 31, 2007 | ||||||||||||||||||||
Unaudited | ||||||||||||||||||||
AFP | QR Srl | Pro Forma | AFP | |||||||||||||||||
Adjustments | Pro Forma | |||||||||||||||||||
Net Sales | $ | 20,503,091 | $ | 6,634,288 | $ | (1,548,000 | ) | (11) | $ | 25,589,379 | ||||||||||
| Cost of Sales | 13,164,432 | 3,006,651 | (1,508,000 | ) | (11) | 14,663,083 | ||||||||||||||
| Gross profit | 7,338,659 | 3,627,637 | (40,000 | ) | 10,926,296 | |||||||||||||||
Selling, general and administrative expenses | 7,174,740 | 2,116,643 | 1,550,000 | (9) | 10,316,383 | |||||||||||||||
| (525,000 | ) | (10) | ||||||||||||||||||
| Research & development expenses | 541,090 | 530,894 | 1,071,984 | |||||||||||||||||
| Interest (income)/ expenses, net | (70,442 | ) | (48,106 | ) | 362,000 | (7) | 401,671 | |||||||||||||
| 158,219 | (8) | |||||||||||||||||||
| Income/(loss) before income taxes | (306,729 | ) | 1,028,206 | (1,585,219 | ) | (863,742 | ) | |||||||||||||
| 0 | ||||||||||||||||||||
| Income taxes | 34,412 | 522,871 | (198,250 | ) | (12) | 359,033 | ||||||||||||||
Net income/(loss) | $ | (341,141 | ) | $ | 505,335 | $ | (1,386,969 | ) | $ | (1,222,775 | ) | |||||||||
| Pro forma net income/(loss) per common share | ||||||||||||||||||||
| Basic (13) | $ | (0.07 | ) | |||||||||||||||||
| Diluted (13) | $ | (0.07 | ) | |||||||||||||||||
| Pro forma weighted average outstanding common stock | ||||||||||||||||||||
| Basic (13) | 17,910,604 | |||||||||||||||||||
| Diluted (13) | 17,910,604 | |||||||||||||||||||
| See Notes to the financial statements | 4 |
AFP IMAGING CORPORATION
Notes to Pro Forma Financial Statements
Unaudited
1. BASIS OF PRESENTATION
On April 19, 2007, AFP Imaging Corporation (“AFP”), through a wholly-owned subsidiary, completed the acquisition of Quantitative Radiology Srl, an Italian corporation (“QR”), by acquiring all of the outstanding share capital of QR from the shareholders thereof. The consideration for the acquisition was an aggregate of €13 million (equivalent to $17.3 million), €12 million (equivalent to $16.0M) of which was paid at closing and the remaining €1 million which had previously been paid to the shareholders of QR as a down payment upon the execution and delivery of the definitive acquisition agreement. There was an additional of $1.5 million of additional transaction costs and professional fees related to the purchase of QR. Funding for the acquisition was principally derived from two sources, the first of which was the proceeds raised from a private offering of the Registrant’s common stock to equity investors and the second of which was the loan proceeds from ComVest Capital, LLC in connection with a term loan and revolving credit facility.
The unaudited pro forma combined balance sheet reflects the acquisition of QR as if it had taken place on March 31, 2007. The unaudited pro forma combined statements of operations for the nine months ended March 31, 2007 and the year ended June 30, 2006 reflect the acquisition of QR as if it had taken place at the beginning of the fiscal periods presented. The operating results for QR for the period April 1, 2007 through April 19, 2007 were not material and are not included in these financial statements. The financial statements of QR were converted into US dollars in accordance with the provisions of SFAS 52, Foreign Currency Translation. The Accumulated Translation Adjustment was not significant and has been combined with Retained Earnings in the Pro Forma Balance Sheet.
The pro forma statements of operations are for illustrative purposes only and should be read in conjunction with the separate historical financial statements of AFP and QR, and the notes thereto and with the accompanying notes to the pro forma statements. The pro forma statements of operations may not be indicative of either future results of operations or the results that would have actually occurred if the acquisition had been consummated on July 1, 2005. The pro forma statements are based upon currently available information and upon certain assumptions that AFP believes are reasonable under the circumstances.
The acquisition was accounted for as a purchase pursuant to the provisions of SFAS No. 141, Business Combinations. Estimated goodwill and other intangible items were recognized for the portion of the purchase price that exceeded the fair value of the net assets acquired and the liabilities assumed. The estimated goodwill and other intangibles represent a preliminary valuation that was prepared by an independent valuation company in accordance with SFAS No. 141. These results may need to be modified upon completion of the final valuation of the goodwill and other intangibles acquired as part of the acquisition. The preliminary determination of the amortization of the other intangibles that have useful lives was prepared in accordance with the provisions of SFAS No. 142, Goodwill and Other Intangibles. These results may also need to be modified upon completion of the final valuation of the other intangibles and their respective useful lives.
2. PROFORMA ADJUSTMENTS
The following are brief descriptions of each of the pro forma adjustments included in the unaudited pro forma combined financial statements:
Balance Sheet Adjustments
1. | To record the issuance of 5.5M shares of AFP $.01 par value common stock, valued at $1.48 per share (for $8,140,000) and the payment of $407,000 in associated fees. |
2. | To record the long-term and short-term portions of the $5.0M term loan and the portion ($1,964,904) of the $3.0M revolver facility utilized, to record the payment of $217,500 of related financing costs, and to record the 5-year 800,000 warrants issued along with the debt facility valued at ($1,114,784). |
3. | To record the gain on the close of a Euro hedge contract purchased in anticipation of the payment of the QR acquisition purchase price. |
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| 4. | To record the purchase of QR Srl for 13 million Euro cash and the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed. |
5. | To eliminate the Intercompany payables and receivables as of March 31, 2007. |
6. | To eliminate the pre-acquisition equity balances of QR. |
Statement of Operations adjustments
7. | To record the incremental interest expense on the term loan and revolver facility. |
8. | To amortize the cost of the warrants issued with the term loan over the five year term of the loan using an effective interest based amortization method. |
9. | To amortize the other intangibles over their respective lives. The other intangibles include: technology, in–process-research and development, patent, patent applications, customer relationships, licenses, non-compete contracts and goodwill. All of the other intangibles except for goodwill have been amortized based on their estimated preliminary useful lives ranging from five to ten years. |
10. | To adjust QR officer compensation according to employment agreements entered into with certain executive officers of QR, in connection with the acquisition. |
11. | To eliminate all Intercompany sales and related cost of goods between AFP and QR. |
12. | To increase tax expenses related to the reduction in officer compensation, at an effective rate of 33%, (Note 10 above). To record a tax benefit, at an effective rate of 33%, recognized in Italy for interest expense related to an intercompany loan, entered into in conjunction with the acquisition. |
13. | Pro forma weighted average shares were computed as follows: |
| Year Ended June 30, 2006 | Nine Months Ended March 31, 2007 | |||||||
Primary: | ||||||||
| Historical AFP weighted average shares | 10,009,958 | 12,410,604 | ||||||
| Shares issued in private offering to fund QR acquisition | 5,500,000 | 5,500,000 | ||||||
| 15,509,958 | 17,910,604 | |||||||
Diluted: | ||||||||
| Historical AFP weighted average shares | 10,513,239 | 12,410,604 | ||||||
| Shares issued in private offering to fund QR acquisition | 5,500,000 | 5,500,000 | ||||||
| Effect of warrants issued in debt transaction | 63,760 | 0 | ||||||
| 16,076,999 | 17,910,604 | |||||||
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