Exhibit 99.1
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
INTRODUCTION
The merger agreement required PlanetCAD to issue to the Avatech stockholders
three shares of PlanetCAD common stock for each share of PlanetCAD common stock
outstanding at the closing date of November 19, 2002. The following tables set
forth certain historical financial information of PlanetCAD and Avatech on an
unaudited pro forma basis after giving effect to the merger as a "reverse
acquisition" (i.e., with Avatech as the acquiror of PlanetCAD for accounting
purposes).
The accompanying unaudited pro forma combined condensed balance sheet assumes
the merger took place on September 30, 2002. The unaudited pro forma combined
condensed balance sheet combines the unaudited consolidated balance sheets of
Avatech and PlanetCAD as of September 30, 2002.
PlanetCAD's fiscal year ended on December 31. For purposes of the pro forma
information, Avatech's consolidated statement of operations for the year ended
June 30, 2002 and three months ended September 30, 2002 have been combined with
PlanetCAD's unaudited consolidated statement of operations for the twelve months
ended June 30, 2002 and three months ended September 30, 2002. The unaudited pro
forma combined condensed statement of operations gives effect to the PlanetCAD
merger as if it had occurred on July 1, 2001.
The unaudited pro forma combined condensed financial information is presented
for illustrative purposes only and is not necessarily indicative of the future
financial position or future results of operations of Avatech after the merger
or of the financial position or results of operations of Avatech that would have
actually occurred had the merger been effected as of the date described above.
The allocation of the purchase price reflected in the unaudited pro forma
combined condensed financial information is preliminary as it assumes the merger
took place on September 30, 2002. Avatech obtained a formal independent
valuation of PlanetCAD and the allocation of the purchase price to the
intangible assets as of October 31, 2002 or the effective closing date of the
merger. For purposes of recording the acquisition in the pro forma financial
statements, Avatech established an estimated value of $1.2 million for
PlanetCAD's common stock based on the fair value of PlanetCAD established by the
independent appraiser. The assumed purchase price allocation has been adjusted
to reflect the fair values of assets acquired and liabilities assumed as of
September 30, 2002. Accordingly, certain adjustments included here have changed
based upon the final purchase price allocation at October 31, 2002. The actual
allocation does not differ significantly from the preliminary allocation
included in these pro forma financial statements.
In contemplation of the proposed merger, in August 2002, Avatech borrowed
$500,000 from each of PlanetCAD and James Hindman, an Avatech director.
Collectively, this $1.0 million in bridge loans was used to satisfy Avatech's
$3.0 million obligation owed to its junior lender. This arrangement has been
reflected in the pro forma consolidated statements as the extinguishment of
approximately $3.0 million of subordinated debt for a $1.0 million cash payment
and compliance with certain non-financial covenants. As a result, Avatech
recorded a one-time pre-tax gain in an amount of approximately $2.0 million in
August 2002.
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PlanetCAD, as a condition precedent to the merger, is required to make
appropriate arrangements for investors in the February 2000 private placement of
PlanetCAD common stock (PIPE Investors) to accept PlanetCAD common stock or
convertible preferred stock in exchange for their outstanding claims of $432,888
relating to the registration rights of PlanetCAD common stock they acquired in
such a placement. In connection with the merger, these outstanding claims were
converted into common stock; therefore, no additional liabilities have been
recorded in the consolidated financial statements as of September 30, 2002.
The pro forma statements of operations do not reflect any effect of the
contemplated operating efficiencies, cost savings and other benefits,
anticipated by Avatech's management as a result of the merger.
The unaudited pro forma combined condensed financial information should be read
in conjunction with the audited consolidated financial statements and related
notes of PlanetCAD and the audited consolidated financial statements of Avatech
included within this document.
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AVATECH SOLUTIONS, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
As of September 30, 2002
Historical Historical Pro Forma Combined
Avatech PlanetCAD Adjustments Note Pro Forma
-----------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 325,858 $ 1,314,000 $ (706,443) d $ 933,415
Accounts receivable, net 3,472,362 207,000 - 3,679,362
Inventory 545,597 - - 545,597
Prepaid expenses and other current assets 149,014 632,000 - 781,014
---------------------------------------- -------------
Total current assets 4,492,831 2,153,000 (706,443) 5,939,388
Property and equipment, net 684,772 433,000 - 1,117,772
Goodwill, and other intangible assets, net 752,920 473,000 (234,000) a,g,i 991,920
Other assets 554,208 99,000 (240,557) c 412,651
---------------------------------------- -------------
Total assets $ 6,484,731 $ 3,158,000 $ (1,181,000) $ 8,461,731
======================================== =============
Liabilities and stockholders' equity (deficiency)
Current liabilities:
Accounts payable and accrued expenses $ 4,137,598 $ 545,000 $ - $ 4,682,598
Borrowings under lines-of-credit 1,284,880 - - 1,284,880
Note payable to related party 500,000 - - 500,000
Current portion of long-term debt 750,000 - (500,000) g 250,000
Deferred revenue 848,482 490,000 (245,000) i 1,093,482
Other current liabilities 307,131 - - 307,131
---------------------------------------- -------------
Total current liabilities 7,828,091 1,035,000 (745,000) 8,118,091
Short-term debt subject to refinancing 1,422,426 - (1,422,426) f -
Stockholders' equity (deficiency):
Common stock 59,954 124,000 410,757 b 594,711
Preferred stock - 420,000 14,250 f 434,250
Additional paid-in capital 1,661,229 36,067,000 (33,798,581) b,f 3,929,648
Accumulated deficit (4,486,969) (34,488,000) 34,360,000 b,h (4,614,969)
---------------------------------------- --------------
Total stockholders' equity (deficiency) (2,765,786) 2,123,000 986,426 343,640
---------------------------------------- -------------
Total liabilities and stockholders' equity (deficiency) $ 6,484,731 $ 3,158,000 $ (1,181,000) $ 8,461,731
======================================== =============
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AVATECH SOLUTIONS, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
For the year ended of June 30, 2002
Historical Historical Pro Forma Combined
Avatech PlanetCAD Adjustments Note Pro Forma
-------------------------------------------------------------------
Revenue:
Product sales $ 18,486,676 $ 456,262 $ - $ 18,942,938
Service revenue 6,482,160 1,311,442 - 7,793,602
Commission revenue 4,843,751 - - 4,843,751
---------------------------------------- -------------
Total revenue 29,812,587 1,767,704 - 31,580,291
Cost of revenue:
Cost of product sales 12,464,965 289,129 - 12,754,094
Cost of service revenue 3,773,041 652,360 - 4,425,401
---------------------------------------- -------------
Total cost of revenue 16,238,006 941,489 - 17,179,495
---------------------------------------- -------------
Gross margin 13,574,581 826,215 - 14,400,796
Other expenses:
Selling, general and administrative 12,806,324 5,801,719 - 18,608,043
Research and development - 2,584,716 - 2,584,716
Depreciation and amortization 589,306 - 79,667 a 668,973
Goodwill impairment 285,374 - - 285,374
---------------------------------------- -------------
Total other expenses 13,681,004 8,386,435 79,667 22,147,106
Income/(loss) from operations (106,423) (7,560,220) (79,667) (7,746,310)
Other income/(expense):
Interest and other income/(expense) 61,510 - - 61,510
Interest expense (487,582) (265,688) 334,942 e,f (418,328)
---------------------------------------- -------------
(426,072) (265,688) 334,942 (356,818)
Income (loss) before income taxes (532,495) (7,825,908) 255,275 (8,103,128)
Income tax expense (benefit) (285,000) - - (285,000)
---------------------------------------- -------------
Net income (loss) $ (247,495) $ (7,825,908) $ 255,275 $ (7,818,128)
======================================== =============
Earnings (loss) per common share--basic and diluted $ (0.04) $ (12.56) $ (2.63)
======================================== =============
Weighted average number of common shares
outstanding--basic and diluted 6,007,074 623,143 2,968,237
======================================== =============
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AVATECH SOLUTIONS, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
For the three months ended of September 30, 2002
Historical Historical Pro Forma Combined
Avatech PlanetCAD Adjustments Note Pro Forma
-----------------------------------------------------------------
Revenue:
Product sales $ 3,366,703 $ 50,000 $ - $ 3,416,703
Service revenue 1,506,269 262,000 - 1,768,269
Commission revenue 985,765 - - 985,765
--------------------------------------- ------------
Total revenue 5,858,737 312,000 - 6,170,737
Cost of revenue:
Cost of product sales 2,244,466 26,000 - 2,270,466
Cost of service revenue 932,636 84,000 - 1,016,636
--------------------------------------- ------------
Total cost of revenue 3,177,102 110,000 - 3,287,102
--------------------------------------- ------------
Gross margin 2,681,635 202,000 2,883,635
Other expenses:
Selling, general and administrative 3,081,340 1,054,000 - 4,135,340
Research and development - 410,000 - 410,000
Depreciation and amortization 118,645 - 19,917 a 138,562
--------------------------------------- ------------
Total other expenses 3,199,985 1,464,000 19,917 4,683,902
Income/(loss) from operations (518,350) (1,262,000) (19,917) (1,800,267)
Other income/(expense):
Gain on the extinguishment of debt 1,960,646 - - 1,960,646
Interest and other income/(expense) 5,183 12,000 - 17,183
Interest expense (82,403) - 59,351 e,f (23,052)
--------------------------------------- ------------
1,883,426 12,000 59,351 1,954,777
Income (loss) before income taxes 1,365,076 (1,250,000) 39,434 154,510
Income tax expense (benefit) 393,000 - - 393,000
--------------------------------------- ------------
Net income (loss) $ 972,076 $ (1,250,000) $ 39,434 $ (238,490)
======================================= ============
Earnings (loss) per common share--basic and diluted $ 0.16 $ (2.01) $ (0.08)
========================== ============
Weighted average number of common shares
outstanding--basic and diluted 5,995,402 623,143 2,968,237
========================== ============
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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
1. The Merger
The merger is a reverse acquisition purchase in which Avatech is treated as the
acquiror of PlanetCAD for financial accounting purposes. Under that method, the
purchase price for accounting purposes is established using the fair market
value of the outstanding PlanetCAD common stock, determined by an independent
appraiser, plus the value of PlanetCAD's stock options and estimated acquisition
related costs, as follows:
Estimated fair value of PlanetCAD's common stock $1,170,000
Estimated fair value of PlanetCAD's stock options 115,000
Estimated acquisition related costs 947,000
--------------
$2,232,000
==============
The estimated fair value of PlanetCAD's common stock was determined based on the
fair value of PlanetCAD as estimated by an independent appraiser in connection
with their valuation report on the acquired intangible assets, which was issued
to Avatech in January 2003. At that time, the value assigned to PlanetCAD
approximated $1.2 million, which represented the equity value of the business.
The stock options to be issued in conjunction with the merger with PlanetCAD
were valued using the Black-Scholes Option Pricing model, a generally accepted
warrant valuation methodology, with the following assumptions:
Stock price on date of grant $ 1.57
Expected price volatility 1.73
Risk free interest rate 4.55%
Weighted-average exercise price $ 33.80
Expected dividend yield 0%
Expected life 4 Years
Additionally, the stock price on the date of grant was calculated based on the
$1.2 million estimated fair value of PlanetCAD. An equity value of $4.7 million
was assigned to the combined company as PlanetCAD represented 25% of the equity
value of the combined businesses. This equity value was divided by 2,973,557
shares or the expected number of shares to be outstanding upon consummation of
the merger, to derive the stock price on date of grant of approximately $1.57
per share.
Avatech assumed that the most conservative and best estimate of the expected
price volatility would be the historical price volatility of PlanetCAD.
Therefore, the price volatility of 1.73 was obtained from the most recent Form
10-KSB of PlanetCAD. Additionally, the weighted-average exercise price and
expected life of the options were obtained from the most recent Form 10-KSB of
PlanetCAD. The Black-Scholes option pricing model with these assumption
determined a value of $1.13 per share. This value was assigned to the 101,427
stock options outstanding as of September 30, 2002 to determine a fair value of
approximately $115,000.
The unaudited pro forma combined condensed balance sheet and statements of
operations are not necessarily indicative of the financial position and
operating results that would have been
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achieved had the merger been completed as of the beginning of the earliest
periods presented. They should not be construed as being a representation of
financial position or future operating results of the combined companies.
Management does not expect significant changes to the preliminary valuation of
the transaction. However, the final purchase price allocation could be
significantly different from the amounts reflected in the unaudited pro forma
combined condensed information. In addition, the unaudited pro forma combined
condensed financial information gives effect only to the adjustments set forth
in the accompanying notes and does not reflect any restructuring or merger
related costs, or any potential cost savings or other synergies that management
expects to realize as a result of the merger.
2. Adjustments to Unaudited Pro Forma Combined Condensed Financial Statements
The adjustments to the unaudited pro forma combined condensed balance sheet as
of September 30, 2002 and the pro forma combined condensed statement of
operations for the year ended June 30, 2002 and the three months ended September
30, 2002 in connection with the proposed merger are presented below:
(a) The fair values of PlanetCAD's net assets have been estimated for the
purpose of allocating the purchase price of the acquisition of PlanetCAD and
determining the pro forma effect of the acquisition on the combined financial
statements. The estimated purchase price of $2,232,000 has been assigned to the
tangible and intangible assets acquired and liabilities assumed as follows:
Current and other assets at September 30, 2002 $ 2,685,000
Fair value adjustments:
Developed technology--3 year life 143,000
In-process research and development--expensed at closing 98,000
Customer relationships--3 year life 96,000
------------
3,022,000
Less liabilities assumed at September 30, 2002 (790,000)
------------
$ 2,232,000
============
(see Note 1 for the fair value of PlanetCAD common stock and options.)
(b) This adjustment is to eliminate the common stock, additional paid in
capital, accumulated other comprehensive loss and accumulated deficit of
PlanetCAD.
(c) This adjustment is to allocate $240,557 of acquisition related costs paid
and deferred at September 30, 2002 to acquired assets.
(d) This adjustment is to reduce cash by the estimated unpaid merger expenses of
$706,443.
(e) This adjustment is to reduce interest from the $2.96 million extinguishment
of debt at an interest rate of 6.50%.
(f) This adjustment is for the dollar-for-dollar exchange of a total of $1.4
million of subordinated debt for preferred stock with a total par value of
$14,250 and the associated reduction in interest expense at an interest rate of
10.0%.
(g) This adjustment is to eliminate the $500,000 subordinated note to PlanetCAD,
as Avatech became a subsidiary of PlanetCAD upon consummation of the merger.
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(h) This adjustment is to expense in-process research and development costs of
$98,000.
(i) This adjustment is to adjust deferred revenue to its estimated fair value.
3. Items Not Adjusted
The pro forma statements do not reflect any effect of operating efficiencies,
cost savings and other benefits anticipated by Avatech's management as a result
of the merger.
4. Pro Forma Net Loss Per Share
The pro forma basic and diluted net loss per share is computed by dividing the
pro forma net loss by the pro forma basic and diluted weighted average number of
shares outstanding, assuming PlanetCAD and Avatech had merged at the beginning
of the earliest period presented. The pro forma basic and diluted weighted
average number of shares outstanding includes the assumed conversion of
PlanetCAD's convertible preferred stock to common stock upon the completion of
the merger. Prior to the merger with Avatech, PlanetCAD effected a 20 for 1
reverse stock split, which has been reflected in the pro forma net loss per
share calculations below. The pro forma weighted average basic and diluted
number of shares outstanding, and pro forma adjustment to the weighted shares
outstanding, are calculated as follows for the year ended June 30, 2002 and the
three months ended September 30, 2002:
The adjustment to common shares outstanding at June 30, 2002 and September 30,
2002, is calculated as follows:
Basic and
Diluted
----------------
PlanetCAD's weighted average common shares 621,813
Estimated common shares issued to PIPE Investors 120,246
----------------
PlanetCAD adjusted shares 742,059
Multiplied by 3.00
Equivalent PlanetCAD shares issued to Avatech stockholders 2,226,177
Add PlanetCAD weighted average shares 742,060
----------------
Pro forma combined weighted average shares outstanding 2,968,237
================
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The adjustment to common shares outstanding is calculated as follows:
As of June 30, 2002:
PlanetCAD's common shares outstanding 623,143
Estimated common shares issued to PIPE Investors 120,246
----------------
PlanetCAD adjusted shares 743,389
Multiplied by 3.00
Equivalent PlanetCAD shares outstanding 2,230,167
Add PlanetCAD shares outstanding 743,389
----------------
Pro forma combined average shares outstanding 2,973,556
Less combined shares outstanding before common stock
issued to PIPE Investors and exchange ratio effect (922,913)
----------------
Pro forma adjustment to shares outstanding 2,050,643
================
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