Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Real Goods Solar, Inc. (“Real Goods Solar” or “RGS”) has prepared the following unaudited pro forma condensed combined financial statements to reflect the purchase business combination of Elemental Energy LLC, doing business as Sunetric (“Sunetric”), on May 14, 2014, which is accounted for in accordance with Financial Accounting Standards Board (“FASB”) Topic 805, Business Combinations. The unaudited pro forma condensed combined balance sheet combines the historical balance sheets of Real Goods Solar and Sunetric as of March 31, 2014, giving effect to the acquisition as if it occurred on March 31, 2014. The unaudited pro forma condensed combined statements of operations consolidates the historical statements of operations of Real Goods Solar and Sunetric for the three months ended March 31, 2014 and for the year ended December 31, 2013, giving effect to the acquisition as if it occurred on January 1, 2013. Since Real Goods Solar consummated another significant purchase business combination, Mercury Energy, Inc. (“Mercury”), on January 14, 2014, prior to the acquisition of Sunetric, the Real Goods Solar and Mercury unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013 is first presented to reflect the pro forma effect of the Mercury acquisition, which is then carried forward as the beginning point for Real Goods Solar and Sunetric unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013. Real Goods Solar’s historical balance sheet at March 31, 2014 and its historical statement of operations for the three months ended March 31, 2014 already reflect Mercury. Certain reclassifications have been made to Sunetric’s and Mercury’s historical financial statements in order to present them on a basis consistent with those of Real Goods Solar.
These unaudited pro forma condensed combined financial statements are for informational purposes only. They do not purport to present the results that Real Goods Solar would have reported if Real Goods Solar completed the acquisitions on the assumed dates or for the periods presented, or which Real Goods Solar may realize in the future. To produce the pro forma financial information, Real Goods Solar allocated the purchase prices of Sunetric and Mercury using its best estimates of the provisional purchase consideration transferred and fair values of the assets acquired and liabilities assumed, based on the most recently available information. These assumptions and estimates could change significantly in the future. Accordingly, the purchase business combination accounting adjustments reflected in the unaudited pro forma condensed combined financial statements included herein are preliminary and subject to change. The unaudited pro forma condensed combined financial statements are based on the assumptions and adjustments that give effect to events that are: (i) directly attributable to the transaction; (ii) factually supportable; and (iii) expected to have a continuing impact, as described in the accompanying notes and do not reflect any potential operating efficiencies. It is recommended that the unaudited pro forma condensed combined financial statements be read in conjunction with the historical financial statements, including the notes thereto, for each of Real Goods Solar, Sunetric, and Mercury.
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Real Goods Solar and Sunetric
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Three Months Ended March 31, 2014
(in thousands, except per share data)
RGS Historical | Sunetric Historical | Pro Forma Adjustments | RGS Pro Forma | |||||||||||||||||
Net revenue | $ | 22,143 | $ | 5,299 | $ | — | $ | 27,442 | ||||||||||||
Cost of goods sold | 18,852 | 4,320 | — | 23,172 | ||||||||||||||||
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Gross profit | 3,291 | 979 | — | 4,270 | ||||||||||||||||
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Expenses: | ||||||||||||||||||||
Selling and operating | 8,168 | 1,436 | 62 | a | 9,666 | |||||||||||||||
General and administrative | 2,756 | — | 14 | b | 2,770 | |||||||||||||||
Acquisition and other costs | 2,301 | — | (2,281 | ) | c | 20 | ||||||||||||||
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Total expenses | 13,225 | 1,436 | (2,205 | ) | 12,456 | |||||||||||||||
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Loss from operations | (9,934 | ) | (457 | ) | 2,205 | (8,186 | ) | |||||||||||||
Interest expense | (221 | ) | — | — | (221 | ) | ||||||||||||||
Change from valuation of warrants | (4,667 | ) | — | — | (4,667 | ) | ||||||||||||||
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Loss before income taxes | (14,822 | ) | (457 | ) | 2,205 | (13,074 | ) | |||||||||||||
Income tax expense | 6 | — | — | 6 | ||||||||||||||||
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Net loss | $ | (14,828 | ) | $ | (457 | ) | $ | 2,205 | $ | (13,080 | ) | |||||||||
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Net loss per share: | ||||||||||||||||||||
Basic and diluted | $ | (0.34 | ) | $ | (0.27 | ) | ||||||||||||||
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Weighted-average shares outstanding: | ||||||||||||||||||||
Basic and diluted | 43,600 | 4,030 | d | 47,630 | ||||||||||||||||
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See the accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
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Real Goods Solar and Mercury
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2013
(in thousands, except per share data)
RGS Historical | Mercury Historical | Pro Forma Adjustments | RGS and Mercury Pro Forma | |||||||||||||||||
Net revenue | $ | 101,342 | $ | 16,490 | $ | — | $ | 117,832 | ||||||||||||
Cost of goods sold | 79,032 | 10,638 | — | 89,670 | ||||||||||||||||
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Gross profit | 22,310 | 5,852 | — | 28,162 | ||||||||||||||||
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Expenses: | ||||||||||||||||||||
Selling and operating | 25,667 | 4,201 | — | 29,868 | ||||||||||||||||
General and administrative | 6,973 | 2,431 | 191 | b | 9,595 | |||||||||||||||
Acquisition and other costs | 2,010 | 1,154 | (2,354 | ) | c | 810 | ||||||||||||||
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Total expenses | 34,650 | 7,786 | (2,163 | ) | 40,273 | |||||||||||||||
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Loss from operations | (12,340 | ) | (1,934 | ) | 2,163 | (12,111 | ) | |||||||||||||
Interest income | 1,098 | (15 | ) | — | 1,083 | |||||||||||||||
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Loss before income taxes | (11,242 | ) | (1,949 | ) | 2,163 | (11,028 | ) | |||||||||||||
Income tax expense | 58 | 4,410 | (4,410 | ) | e | 58 | ||||||||||||||
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Net loss | $ | (11,300 | ) | $ | (6,359 | ) | $ | 6,573 | $ | (11,086 | ) | |||||||||
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Net loss per share: | ||||||||||||||||||||
Basic and diluted | $ | (0.38 | ) | $ | (0.30 | ) | ||||||||||||||
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Weighted-average shares outstanding: | ||||||||||||||||||||
Basic and diluted | 29,486 | 7,604 | d | 37,090 | ||||||||||||||||
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See the accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
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Real Goods Solar, Mercury, and Sunetric
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2013
(in thousands, except per share data)
RGS and Mercury Pro Forma | Sunetric Historical | Pro Forma Adjustments | RGS Pro Forma | |||||||||||||||||
Net revenue | $ | 117,832 | $ | 38,331 | $ | — | $ | 156,163 | ||||||||||||
Cost of goods sold | 89,670 | 31,277 | — | 120,947 | ||||||||||||||||
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Gross profit | 28,162 | 7,054 | — | 35,216 | ||||||||||||||||
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Expenses: | ||||||||||||||||||||
Selling and operating | 29,868 | 7,621 | 3,483 | a | 40,972 | |||||||||||||||
General and administrative | 9,595 | — | 56 | b | 9,651 | |||||||||||||||
Acquisition and other costs | 810 | — | — | 810 | ||||||||||||||||
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Total expenses | 40,273 | 7,621 | 3,539 | 51,433 | ||||||||||||||||
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Loss from operations | (12,111 | ) | (567 | ) | (3,539 | ) | (16,217 | ) | ||||||||||||
Interest income | 1,083 | (2 | ) | — | 1,081 | |||||||||||||||
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Loss before income taxes | (11,028 | ) | (569 | ) | (3,539 | ) | (15,136 | ) | ||||||||||||
Income tax expense | 58 | — | — | 58 | ||||||||||||||||
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Net loss | $ | (11,086 | ) | $ | (569 | ) | $ | (3,539 | ) | $ | (15,194 | ) | ||||||||
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Net loss per share: | ||||||||||||||||||||
Basic and diluted | $ | (0.30 | ) | $ | (0.37 | ) | ||||||||||||||
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Weighted-average shares outstanding: | ||||||||||||||||||||
Basic and diluted | 37,090 | 4,030 | d | 41,120 | ||||||||||||||||
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See the accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
4
Real Goods Solar and Sunetric
Unaudited Pro Forma Condensed Combined Balance Sheet
March 31, 2014
(in thousands)
RGS Historical | Sunetric Historical | Pro Forma Adjustments | RGS Pro Forma | |||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash | $ | 11,111 | $ | 260 | $ | (755 | ) | f | $ | 10,616 | ||||||||||
Accounts receivable, net | 15,441 | 3,054 | — | 18,495 | ||||||||||||||||
Costs in excess of billings on uncompleted contracts | 6,001 | 689 | — | 6,690 | ||||||||||||||||
Inventory, net | 6,740 | 1,986 | — | 8,726 | ||||||||||||||||
Deferred costs on uncompleted contracts | 2,072 | — | — | 2,072 | ||||||||||||||||
Other current assets | 1,528 | 128 | — | 1,656 | ||||||||||||||||
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Total current assets | 42,893 | 6,117 | (755 | ) | 48,255 | |||||||||||||||
Property and equipment, net | 3,541 | 175 | — | 3,716 | ||||||||||||||||
Intangibles, net | 22,496 | — | 4,630 | g | 27,126 | |||||||||||||||
Goodwill | 1,867 | — | 8,754 | h | 10,621 | |||||||||||||||
Other assets | 1,455 | 14 | — | 1,469 | ||||||||||||||||
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Total assets | $ | 72,252 | $ | 6,306 | $ | 12,629 | $ | 91,187 | ||||||||||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | 16,516 | $ | 3,654 | $ | — | $ | 20,170 | ||||||||||||
Accrued liabilities | 5,212 | 580 | 519 | g | 6,311 | |||||||||||||||
Billings in excess of costs on uncompleted contracts | 1,730 | 1,911 | — | 3,641 | ||||||||||||||||
Term loan | 2,000 | — | — | 2,000 | ||||||||||||||||
Related party debt | 4,150 | — | — | 4,150 | ||||||||||||||||
Deferred revenue and other current liabilities | 886 | 80 | — | 966 | ||||||||||||||||
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Total current liabilities | 30,494 | 6,225 | 519 | 37,238 | ||||||||||||||||
Accrued liabilities | 989 | 1,445 | (92 | ) | g | 2,342 | ||||||||||||||
Common stock warrant liability | 19,117 | — | — | 19,117 | ||||||||||||||||
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Total liabilities | 50,600 | 7,670 | 427 | 58,697 | ||||||||||||||||
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Commitments and contingencies | ||||||||||||||||||||
Shareholders’ equity: | ||||||||||||||||||||
Common stock | 5 | — | — | 5 | ||||||||||||||||
Members’ deficit | — | (1,364 | ) | 1,364 | i | — | ||||||||||||||
Additional paid-in capital | 126,038 | — | 9,420 | j | 135,458 | |||||||||||||||
Business combination consideration to be transferred | — | — | 2,173 | j | 2,173 | |||||||||||||||
Accumulated deficit | (104,391 | ) | — | (755 | ) | f | (105,146 | ) | ||||||||||||
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Total shareholders’ equity | 21,652 | (1,364 | ) | 12,202 | 32,490 | |||||||||||||||
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Total liabilities and shareholders’ equity | $ | 72,252 | $ | 6,306 | $ | 12,629 | $ | 91,187 | ||||||||||||
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See the accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
5
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
1. Description of Transaction
Sunetric
On May 14, 2014, Real Goods Solar acquired 100% of the equity interests of Sunetric, pursuant to the terms of a Membership Interest Purchase Agreement entered into on March 26, 2014 and amended on May 14, 2014 (“Sunetric Purchase Agreement”). The provisional purchase consideration transferred totaled $11.6 million and consisted of 4.0 million unregistered shares of Real Goods Solar’s Class A common stock with an estimated fair value of $11.1 million based on the closing price of $2.75 per share for Real Goods Solar’s Class A common stock on May 14, 2014 and $0.5 million of estimated probable contingent consideration. The provisional purchase consideration transferred is subject to a working capital true-up adjustment based on the determined final closing balances. The contingent consideration gives the sellers the potential to earn up to $3.0 million in additional earn-out payments, to be paid in unregistered shares of Real Goods Solar’s Class A common stock, upon the achievement of certain revenue and income earn-out targets for 2014 and 2015. The provisional purchase consideration transferred is preliminary and subject to further revisions. Also, under the terms of the Sunetric Purchase Agreement, Real Goods Solar was required to issue on May 28, 2014 an additional 217,076 registered shares of its Class A common stock in satisfaction of employee retention obligations through the closing date of the transaction.
Mercury
On January 14, 2014, Real Goods Solar acquired 100% of the voting equity interests of Mercury through a merger. The provisional purchase consideration transferred was comprised of 7.6 million shares of Real Goods Solar’s Class A common stock with an estimated fair value of $29.1 million based on the closing price of $3.83 per share for Real Goods Solar’s Class A common stock on January 13, 2014. The provisional purchase consideration transferred is preliminary and is subject to a working capital true-up adjustment based on the determined final closing balances and other revisions. Also, upon closing of the acquisition, Real Goods Solar placed an additional 744,019 shares of its Class A common stock into escrow for the periodic distribution to certain employees in satisfaction of their continued employment with Real Goods Solar through October 2014.
2. Provisional Purchase Consideration Transferred
The following are estimates of the provisional purchase consideration transferred for each of the purchase business combinations.
Sunetric
Real Goods Solar Class A common shares issued | 3,425,393 | |||
Real Goods Solar Class A common shares to be transferred | 604,711 | |||
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Total Real Goods Solar Class A common shares | 4,030,104 | |||
Real Goods Solar’s closing stock price on May 13, 2014 | $ | 2.75 | ||
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Estimated fair value of shares | $ | 11,082,786 | ||
Estimated fair value of probable contingent consideration | 510,000 | |||
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Total estimated provisional purchase consideration transferred | $ | 11,592,786 | ||
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Mercury
Real Goods Solar Class A common shares issued | 7,136,878 | |||
Real Goods Solar Class A common shares in escrow | 467,249 | |||
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Total Real Goods Solar Class A common shares | 7,604,127 | |||
Real Goods Solar’s closing stock price on January 13, 2014 | $ | 3.83 | ||
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Total estimated provisional purchase consideration transferred | $ | 29,123,806 | ||
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3. Preliminary Purchase Consideration Transferred Allocation
The acquisitions of Sunetric and Mercury have been accounted for in accordance with the acquisition method of accounting. The amounts in the tables below represent the preliminary allocation of the provisional purchase consideration transferred and are allocated to Sunetric’s assets and liabilities based on their estimated fair value as of March 31, 2014 and to Mercury’s assets and liabilities based on their estimated fair value as of January 14, 2014. The final determinations of the purchase consideration transferred allocations may be significantly different from the preliminary estimates used in these unaudited pro forma condensed combined financial statements. Changes to separately identified tangible and intangible assets and liabilities may result in corresponding adjustments to goodwill. Real Goods Solar is in the process of obtaining third-party valuation studies of these acquired assets and assumed liabilities. Real Goods Solar believes the separately identifiable intangibles may eventually include non-compete agreements, production backlogs, and trademarks. Since the valuations of these intangibles have not been finalized, the amortization expense recorded for these intangibles was estimated for all periods presented in the unaudited pro forma condensed combined financial statements.
Sunetric
In thousands | Amount | |||
Assets: | ||||
Cash | $ | 260 | ||
Accounts receivable | 3,054 | |||
Costs in excess of billings on uncompleted contracts | 689 | |||
Inventory | 1,986 | |||
Other current assets | 128 | |||
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Total current assets | 6,117 | |||
Property and equipment | 175 | |||
Intangibles | 4,630 | |||
Goodwill | 8,754 | |||
Other assets | 14 | |||
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Total assets acquired | $ | 19,690 | ||
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Liabilities: | ||||
Accounts payable | $ | 3,654 | ||
Accrued liabilities | 1,099 | |||
Billings in excess of costs on uncompleted contracts | 1,911 | |||
Other current liabilities | 80 | |||
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Total current liabilities | 6,744 | |||
Other liabilities | 1,353 | |||
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Total liabilities assumed | 8,097 | |||
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Total provisional purchase consideration transferred | $ | 11,593 | ||
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The estimated acquired intangibles, based on preliminary third-party valuation studies, are comprised of customer-related intangibles, such as production backlog of $3.26 million, and marketing-related intangibles, such as trademarks of $1.24 million and a non-compete agreement of $0.13 million, the fair values of which were preliminarily estimated using traditional discounted future cash flow models. The preliminary estimated useful lives assigned to these intangibles are as follows: production backlog – 12 months; trademarks – 120 months; and non-compete agreement – 24 months. The production backlog and non-compete agreement intangibles are amortized on a straight-line basis and the trademarks are amortized as their benefits are realized based on discounted future cash flow analyses.
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Mercury
In thousands | Amount | |||
Assets: | ||||
Cash | $ | 11,773 | ||
Accounts receivable | 1,817 | |||
Costs in excess of billings on uncompleted contracts | 2,513 | |||
Inventory | 1,496 | |||
Deferred costs on uncompleted contracts | 253 | |||
Other current assets | 315 | |||
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Total current assets | 18,167 | |||
Property and equipment | 399 | |||
Goodwill and other intangibles | 18,572 | |||
Other assets | 554 | |||
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Total assets acquired | $ | 37,692 | ||
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Liabilities: | ||||
Accounts payable | $ | 5,499 | ||
Accrued liabilities | 670 | |||
Billings in excess of costs on uncompleted contracts | 1,728 | |||
Deferred revenue and other current liabilities | 70 | |||
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Total current liabilities | 7,967 | |||
Other liabilities | 601 | |||
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Total liabilities assumed | 8,568 | |||
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Total provisional purchase consideration transferred | $ | 29,124 | ||
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As of the date of this Current Report on Form 8-K, Real Goods Solar was unable to reasonably estimate preliminary fair values for Mercury’s separate intangibles. Consequently, no adjustment to amortization expense has been made for such intangibles in the unaudited pro forma condensed combined financial statements.
5. Pro Forma Financial Statement Adjustments
The following unaudited pro forma adjustments have been reflected in the unaudited pro forma condensed combined financial statements. These adjustments give effect to pro forma events that are (i) directly attributable to the acquisitions, (ii) factually supportable, and (iii) expected to have a continuing impact on the combined company. As of the date of this Current Report on Form 8-K, Real Goods Solar has not completed the detailed valuation studies necessary to arrive at the required final estimates of the fair value of assets acquired, liabilities assumed, and the related allocations of purchase consideration transferred, nor has it identified to date any material adjustments necessary to conform the acquired company’s policies to Real Goods Solar’s accounting policies. The pro forma adjustments included in the unaudited pro forma condensed combined financial statements are as follows:
a) To record estimated amortization expense.
b) To record estimated incentive compensation expense.
c) To remove historical acquisition-related costs of $1.2 million for each of Real Goods Solar and Mercury.
d) Reflects the issuance of shares to effect the purchase business combination.
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e) To adjust the acquired business’ income tax provision to zero as a result of establishing valuation allowances against generated net deferred tax assets.
f) To record estimated Sunetric acquisition-related costs not yet reflected in the historical balance sheets.
g) To adjusted Sunetric’s historical asset and liability balances to their estimated fair values at March 31, 2014.
h) To record the estimated excess of the preliminary fair value of assets acquired and liabilities assumed over the provisional purchase consideration transferred.
i) To remove Sunetric’s historical members’ deficit.
j) To record the issuance of shares to effect the acquisition and the estimated probable contingent consideration.
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