UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated statements of operations for the nine months ended April 30, 2008 and for the year ended July 31, 2007 present the Company’s results of operations assuming that the Purchase Agreement had been completed on August 1, 2006, the first day of the fiscal year ended July 31, 2007. The pro forma adjustments and assumptions are based on estimates, evaluations and other data currently available and, in the Company's opinion, provide a reasonable basis for the fair presentation of the estimated effects directly attributable to the Purchase Agreement. The adjustments set forth in the “Pro Forma Adjustments” column are described in the Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
The unaudited pro forma consolidated financial statements are provided for illustrative purposes only and are not necessarily indicative of what the results of operations or financial position would actually have been had the disposition occurred on the respective date indicated, nor do they represent a forecast of the results of operations or financial position for any future period or date.
All information contained herein should be read in conjunction the following:
| · | Historical consolidated financial statements of Commerce as of and for the year ended July 31, 2007, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on October 29, 2007; and |
| · | Historical consolidated financial statements of Commerce as of and for the nine months ended April 30, 2008, included in the Company’s Quarterly Report on Form 10-Q filed with the SEC on June 12, 2008. |
Index to Unaudited Pro Forma Condensed Consolidated Financial Statements
| | Page |
| | |
| Unaudited Pro Forma Condensed Consolidated Balance Sheet as of April 30, 2008 | F-2 |
| Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended April 30, 2008 | F-3 |
| Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended July 31, 2007 | F-4 |
| Unaudited Notes to Pro Forma Condensed Consolidated Financial Statements | F-5 |
COMMERCE ENERGY GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands)
| | | As reported April 30, 2008 | | | Pro Forma Adjustments | | | Footnote | | | Pro Forma April 30, 2008 | |
| ASSETS | | | | | | | | | | | | |
| Current assets: | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 10,370 | | | $ | 10,195 | | | | 2 | | | $ | 20,565 | |
| Accounts receivable, net | | | 56,350 | | | | — | | | | | | | | 56,350 | |
| Natural gas inventory | | | 2,561 | | | | — | | | | | | | | 2,561 | |
| Prepaid expenses and other current assets | | | 10,391 | | | | — | | | | | | | | 10,391 | |
| Total current assets | | | 79,672 | | | | 10,195 | | | | | | | | 89,867 | |
| | | | | | | | | | | | | | | | | |
| Deposits | | | 1,795 | | | | — | | | | | | | | 1,795 | |
| Property and equipment, net | | | 10,755 | | | | (2,342 | ) | | | 2 | | | | 8,413 | |
| Goodwill | | | 3,659 | | | | (489 | ) | | | 2 | | | | 3,170 | |
| Other intangible assets | | | 4,303 | | | | (164 | ) | | | 2 | | | | 4,139 | |
| | | | | | | | | | | | | | | | | |
Total assets | | $ | 100,184 | | | $ | 7,200 | | | | | | | $ | 107,384 | |
| | | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | | | | | | | |
| Energy and accounts payable | | $ | 32,880 | | | $ | 600 | | | | 2 | | | $ | 33,480 | |
| Accrued liabilities | | | 6,815 | | | | (1,005 | ) | | | 2 | | | | 5,810 | |
| Total current liabilities | | | 39,695 | | | | (405 | ) | | | | | | | 39,290 | |
| | | | | | | | | | | | | | | | | |
| Stockholders’ equity: | | | | | | | | | | | | | | | | |
| Common stock $0.001 par value 150,000 shares authorized, 30,875 shares issued and outstanding at April 30, 2008 | | | 61,376 | | | | — | | | | | | | | 61,376 | |
| Other comprehensive loss | | | 198 | | | | — | | | | | | | | 198 | |
| Retained earnings (accumulated deficit) | | | (1,085 | ) | | | 7,605 | | | | 2 | | | | 6,520 | |
| Total stockholders’ equity | | | 60,489 | | | | 7,605 | | | | | | | | 68,094 | |
| | | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 100,184 | | | $ | 7,200 | | | | | | | $ | 107,384 | |
The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.
COMMERCE ENERGY GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| | | As reported Nine Months Ended April 30, 2008 | | | Adjustments | | | Footnote | | | Pro Forma Nine Months Ended April 30, 2008 | |
| | | | | | | | | | | | | |
| Net revenue | | $ | 319,485 | | | $ | (116,820 | ) | | | 3 | (A) | | $ | 202,665 | |
| | | | | | | | | | | | | | | | | |
| Direct energy costs | | | 269,698 | | | $ | (101,080 | ) | | | 3 | (A) | | | 168,618 | |
| | | | | | | | | | | | | | | | | |
| Gross profit | | | 49,787 | | | | (15,740 | ) | | | | | | | 34,047 | |
| | | | | | | | | | | | | | | | | |
| Selling and marketing | | | 11,446 | | | | (6,199 | ) | | | 3 | (B) | | | 5,247 | |
| General and administrative | | | 48,177 | | | | (17,444 | ) | | | 3 | (B) | | | 30,733 | |
| Impairment of intangibles | | | 1,426 | | | | — | | | | | | | | 1,426 | |
| | | | | | | | | | | | | | | | | |
| Loss from operations | | | (11,262 | ) | | | 7,903 | | | | | | | | (3,359 | ) |
| | | | | | | | | | | | | | | | | |
| Other income (expense), net | | | (567 | ) | | | — | | | | | | | | (567 | ) |
| | | | | | | | | | | | | | | | | |
Net loss | | $ | (11,829 | ) | | $ | 7,903 | | | | | | | $ | (3,926 | ) |
Net loss per common share – basic and diluted | | $ | (0.39 | ) | | $ | 0.26 | | | | | | | $ | (0.13 | ) |
Weighted average common shares outstanding – basic and diluted | | $ | 30,537 | | | $ | — | | | | | | | $ | 30,537 | |
The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.
F-3
COMMERCE ENERGY GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| | | As reported Year Ended July 31, 2007 | | | Adjustments | | | Footnote | | | Pro Forma Year Ended July 31, 2007 | |
| | | | | | | | | | | | | |
| Net revenue | | $ | 371,614 | | | $ | (174,333 | ) | | | 3 | (A) | | $ | 197,281 | |
| | | | | | | | | | | | | | | | | |
| Direct energy costs | | | 314,371 | | | $ | (161,379 | ) | | | 3 | (A) | | | 152,992 | |
| | | | | | | | | | | | | | | | | |
| Gross profit | | | 57,243 | | | | (12,954 | ) | | | | | | | 44,289 | |
| | | | | | | | | | | | | | | | | |
| Selling and marketing | | | 10,642 | | | | (7,941 | ) | | | 3 | (B) | | | 2,701 | |
| General and administrative | | | 37,291 | | | | (4,766 | ) | | | 3 | (B) | | | 32,525 | |
| | | | | | | | | | | | | | | | | |
| Income from operations | | | 9,310 | | | | (247 | ) | | | | | | | 9,063 | |
| | | | | | | | | | | | | | | | | |
| Other income (expense), net | | | (3,657 | ) | | | — | | | | | | | | (3,657 | ) |
| | | | | | | | | | | | | | | | | |
| Income before provision for income taxes | | | 5,653 | | | | (247 | ) | | | | | | | 5,406 | |
| | | | | | | | | | | | | | | | | |
| Provision for income taxes | | | 122 | | | | (5 | ) | | | | | | | 117 | |
| | | | | | | | | | | | | | | | | |
Net income | | $ | 5,531 | | | $ | (242 | ) | | | | | | $ | 5,289 | |
Net income per common share – basic | | $ | 0.18 | | | $ | (0.01 | ) | | | | | | $ | 0.18 | |
Net income per common share – diluted | | $ | 0.18 | | | $ | (0.01 | ) | | | | | | $ | 0.18 | |
Weighted average common shares outstanding : | | | | | | | | | | | | | | | | |
| Basic | | $ | 29,906 | | | $ | — | | | | | | | $ | 29,906 | |
| Diluted | | $ | 30,044 | | | $ | — | | | | | | | $ | 30,044 | |
The accompanying notes are an integral part of these pro forma condensed combined financial statements.
COMMERCE ENERGY GROUP, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Pro Forma Presentation
The unaudited pro forma condensed consolidated balance sheet as of April 30, 2008 and the unaudited pro forma condensed combined statements of operations for the nine months ended April 30, 2008 and the year ended July 31, 2007 are based on the historical financial statements of Commerce, after giving effect to the Purchase Agreement.
The unaudited pro forma condensed consolidated balance sheet as of April 30, 2008 presents the financial position of the Company assuming the Purchase Agreement had been completed on April 30, 2008.
The unaudited pro forma condensed consolidated statements of operations for the nine months ended April 30, 2008 and for the year ended July 31, 2007 present the Company’s results of operations assuming that the Purchase Agreement had been completed on August 1, 2006, the first day of the fiscal year ended July 31, 2007. The pro forma adjustments and assumptions are based on estimates, evaluations and other data currently available and, in the Company's opinion, provide a reasonable basis for the fair presentation of the estimated effects directly attributable to the Purchase Agreement.
The unaudited pro forma consolidated financial statements are provided for illustrative purposes only and are not necessarily indicative of what the results of operations or financial position would actually have been had the disposition occurred on the respective date indicated, nor do they represent a forecast of the results of operations or financial position for any future period or date.
All information contained herein should be read in conjunction the following:
| · | Historical consolidated financial statements of Commerce as of and for the year ended July 31, 2007, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on October 29, 2007; and |
| · | Historical consolidated financial statements of Commerce as of and for the nine months ended April 30, 2008, included in the Company’s Quarterly Report on Form 10-Q filed with the SEC on June 12, 2008. |
2. Purchase Agreement
The following table summarizes the total consideration received and the asset allocation of the Purchase Agreement (in thousands):
| Sales price | | $ | 11,200 | |
| Less: customer deposits | | | (1,005 | ) |
| Net cash received | | | 10,195 | |
| Less: net assets sold or written off | | | | |
Goodwill | | | (489 | ) |
Intangible assets | | | (164 | ) |
Property and equipment, net | | | (2,342 | ) |
| Subtotal assets sold or written off | | | (2,995 | ) |
| Short-term liabilities assumed (customer deposits) | | | 1,005 | |
| Total net assets sold or written off | | | (1,990 | ) |
| Less estimated transaction expenses | | | (600 | ) |
| Gain on sale | | $ | 7,605 | |
COMMERCE ENERGY GROUP, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Pro Forma Adjustments
The following pro forma adjustments are included in the unaudited pro forma condensed consolidated financial statements:
(A) To eliminate net revenues and associated cost of net revenues assuming the Purchase Agreement was consummated August 1, 2006.
(B) To eliminate direct operating expenses assuming the Purchase Agreement was consummated August 1, 2006.
