EX-99.3 3 v016578_ex99-3.txt EXHIBIT 99.3 INTRODUCTION TO UNADITED PRO FORMA COMBINED FINANCIAL INFORMATION The following unaudited pro forma combined financial information have been prepared to give effect to the combination of RCG Companies Incorporated ("RCG") and Farequest Holdings, Inc. ("Farequest") accounted for in accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations," which is referred to as SFAS 141. The merger consideration has been allocated on a preliminary basis to assets acquired and liabilities assumed based on information that was available to management at the time these pro forma financial statements were prepared. The adjustments to the unaudited pro forma combined financial statements are subject to change pending a final analysis of the total purchase price and the fair value of the assets acquired and liabilities assumed. The impact of these changes could be material. The unaudited pro forma combined balance sheet as of December 31, 2004 combines the historical consolidated balance sheets of RCG and Farequest as of that date and gives effect to the merger as if it had occurred on December 31, 2004. Estimates of acquisition liabilities relating to the integration of RCG and Farequest operations are not reflected in the unaudited pro forma combined balance sheet as the integration plans have not been finalized. The unaudited pro forma combined statements of operations for the six months ended December 31, 2004, and the year ended June 30, 2004 gives pro forma effect to the merger as if the merger had occurred on the first day of the periods presented. Potential cost savings from combining the operations have not been reflected in the unaudited pro forma combined statements of operations as there can be no assurance that any such cost savings will occur. The unaudited pro forma combined financial information is based upon available information and upon certain estimates and assumptions that are believed to be reasonable. These estimates and assumptions are preliminary and have been made solely for the purposes of developing these pro forma combined financial statements. Unaudited pro forma combined financial statements are presented for illustrative purposes only and do not purport to be indicative of the results of operations or financial position of the combined company that would actually have been achieved had the transaction been completed for the period presented, or that may be obtained in the future. These unaudited pro forma combined financial statements are based upon the respective historical consolidated financial statements of RCG and Farequest and notes thereto, which are included in or incorporated into this proxy statement by reference. The pro forma financial information should be read in conjunction with the audited and unaudited historical financial statements of RCG and Farequest and related notes thereto. 1 RCG Companies Incorporated and Subsidiaries UNADITED PRO FORMA COMBINED BALANCE SHEET DATA AT DECEMBER 31, 2004 (In thousands)
RCG Farequest Companies Holdings, Pro Forma RCG Incorporated Inc. Adjustments Pro Forma -------------- -------------- --------------- ------------ ASSETS Cash and cash equivalents ............................ $ 1,163 $ 6 $ 1,169 Restricted cash ...................................... 7,279 -- 7,279 Accounts receivable, net ............................. 1,353 241 1,594 Prepaid expenses ..................................... 1,858 89 1,947 ------------ ------------ ------------ ------------ Total current assets ....................... 11,653 336 11,989 Property and equipment, net .......................... 853 1,007 1,860 Deferred costs and other assets ...................... 49 333 382 Net non-current assets of discontinued operations .... 376 -- 376 Goodwill and other intangible assets ................. 18,005 1,630 $ 30,740 50,375 ------------ ------------ ------------ ------------ Total assets ................................ $ 30,936 $ 3,306 $ 30,740 $ 64,982 ============ ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable and other obligations-current portion .. $ 3,949 $ 536 $ 6,038 $ 10,523 Accounts payable and accrued expenses ................ 11,959 955 1,200 14,114 Net non-current liabilities of discontinued operations 4,478 -- 4,478 Unearned income ...................................... 6,296 35 6,331 ------------ ------------ ------------ ------------ Total current liabilities ................... 26,682 1,526 7,238 35,446 Warrant obligations .................................. 1,593 -- 1,593 Notes payable and other obligations .................. 4,847 1,218 6,065 ------------ ------------ ------------ ------------ Total liabilities ........................... 33,122 2,744 7,238 43,104 Commitments and Contingencies Shareholders' equity: Preferred stock ................................. -- -- 15 15 Common stock .................................... 896 -- 48 944 Additional paid-in capital ...................... 125,461 5,877 18,124 149,462 Accumulated deficit ............................. (127,911) (5,315) 5,315 (127,911) Treasury stock at cost .......................... (632) -- (632) ------------ ------------ ------------ ------------ Total shareholders' equity .................. (2,186) 562 23,502 21,878 Total liabilities and shareholders' equity .. $ 30,936 $ 3,306 $ 30,740 $ 64,982 ============ ============ ============ ============
2 RCG Companies Incorporated and Subsidiaries UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2004 (In thousands, except share data)
RCG Companies Farequest Pro Forma RCG Incorporated Holdings, Inc. Adjustments Pro Forma ------------ ------------ ------------ ------------ Revenue: Services ........................................... $ 41,341 $ 2,394 $ 43,735 Product sales ...................................... 7,369 -- 7,369 ------------ ------------ ------------ ------------ Total revenue ............................. 48,710 2,394 51,104 ------------ ------------ ------------ ------------ Cost of revenue: Services ........................................... 41,349 164 41,513 Product sales ...................................... 6,520 -- 6,520 ------------ ------------ ------------ ------------ Total cost of revenue ..................... 47,869 164 48,033 ------------ ------------ ------------ ------------ Gross profit .............................. 841 2,230 3,071 ------------ ------------ ------------ ------------ Selling, general and administrative expenses ....... 7,598 4,698 12,296 Depreciation and amortization ...................... 221 281 502 ------------ ------------ ------------ ------------ Operating costs and expenses .............. 7,819 4,979 12,798 ------------ ------------ ------------ ------------ Operating loss ............................ (6,978) (2,749) (9,727) Interest expense, net .............................. 335 104 [B1] 121 560 Other expense ...................................... 325 -- 325 ------------ ------------ ------------ ------------ Loss from continuing operations before extraordinary items ............................................. (7,638) (2,853) 121 (10,612) Gain on debt restructuring ...................... 2,257 -- 2,257 ------------ ------------ ------------ ------------ Loss from continuing operations ............ $ (5,381) $ (2,853) 121 $ (8,355) ============ ============ ============ ============ Basic and diluted loss per share: Loss from continuing operations ............... $ (0.25) NA $ (0.32) ============ ============ ============ ============ Weighted average shares outstanding ................ 21,419,404 NA 4,779,196 26,198,600 ============ ============ ============ ============
See Notes to Unaudited Pro Forma Consolidated Financial Information. 3 RCG Companies Incorporated and Subsidiaries UNADITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2004 (In thousands, except share data)
RCG Farequest Companies Holdings, Pro Forma RCG Incorporated Inc. Adjustments Pro Forma ------------ ------------ ------------ ------------ Revenue: Services ................................... $ 165,765 $ 3,033 $ 168,798 Product sales .............................. 15,042 -- 15,042 ------------ ------------ ------------ ------------ Total revenue ..................... 180,807 3,033 183,840 ------------ ------------ ------------ ------------ Cost of revenue: Services ................................... 154,812 643 155,455 Product sales .............................. 13,244 -- 13,244 ------------ ------------ ------------ ------------ Total cost of revenue ............. 168,056 643 168,699 ------------ ------------ ------------ ------------ Gross profit ...................... 12,751 2,390 15,141 ------------ ------------ ------------ ------------ Selling, general and administrative expenses 18,637 4,667 23,304 Depreciation and amortization .............. 810 152 962 Goodwill impairment ........................ 1,199 -- 1,199 ------------ ------------ ------------ ------------ Operating costs and expenses ...... 20,646 4,819 25,465 ------------ ------------ ------------ ------------ Operating loss .................... (7,895) (2,429) (10,324) Interest expense, net ...................... 842 33 242 1,117 Gain on investments, net ................... (120) -- (120) Other income ............................... (95) -- (95) ------------ ------------ ------------ ------------ Loss from continuing operations ... $ (8,522) $ (2,462) 242 $ (11,226) ============ ============ ============ ============ Basic and diluted loss per share: Loss from continuing operations ....... $ (0.51) NA $ (0.52) ============ ============ ============ ============ Weighted average shares outstanding ........ 16,799,540 NA 4,779,196 21,578,736 ============ ============ ============ ============
See Notes to Unaudited Pro Forma Consolidated Financial Information. 4 RCG Companies Incorporated and Subsidiaries NOTES TO UNADITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION RCG has allocated the purchase price to the estimated fair value of the net assets acquired and liabilities assumed as follows:
(In thousands, except share data) RCG Fair Pro Forma Farequest Value Adjustments ------------ ------------ ------------ ------------ ASSETS Cash and cash equivalents ......................... $ 6 $ 6 Accounts receivable, net .......................... 241 241 Prepaid expenses .................................. 89 89 ------------ ------------ ------------ ------------ Total current assets .................... 336 336 Property and equipment, net ....................... 1,007 1,007 Deferred costs and other assets ................... 333 333 Goodwill and other intangible assets .............. 1,630 32,370 [A4] 30,740 ------------ ------------ ------------ ------------ Total assets ............................. $ 3,306 $ 34,046 $ 30,740 ============ ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable and other obligations-current portion $ 536 $ 6,574 [A2] $ 6,038 Accounts payable and accrued expenses ............. 955 2,155 [A3] 1,200 Unearned income ................................... 35 35 ------------ ------------ ------------ ------------ Total current liabilities ................ 1,526 8,764 7,238 Notes payable and other obligations ............... 1,218 1,218 -- ------------ ------------ ------------ ------------ Total liabilities ........................ 2,744 9,982 7,238 Shareholders' equity: Preferred stock .............................. -- 15 [A2] 15 Common stock ................................. -- 48 [A2] 48 Additional paid-in capital ................... 5,877 24,001 [A2] 18,124 Accumulated deficit .......................... (5,315) -- 5,315 ------------ ------------ ------------ ------------ Total shareholders' equity ............... 562 24,064 23,502 Total liabilities and shareholders' equity $ 3,306 $ 34,046 $ 30,740 ============ ============ ============ ============
See Notes to Unaudited Pro Forma Consolidated Financial Information. 5 RCG Companies Incorporated and Subsidiaries NOTES TO UNADITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION A1 The total purchase price, based on a RCG share price of $1.20, which approximates RCG's trading average since the acquisition was announced on November 30, 2004, and the closing of the acquisition are summarized as follows:
(In thousands) Calculation of purchase price: Issuance of 4,779,196 RCG Common Shares $ 5,736 Issuance of 1,527,389 RCG Series B Convertible Preferred Shares; Convertible ratio of 1 preferred Share for 10 RCG Common Share 18,328 Promissory Note payable within one year of the effective time issuance 6,038 -------------- Total consideration 30,102 Assumption of Farequest notes payable 1,754 Assumption of Farequest accounts payable, accrued expenses, And deferred revenue 990 Estimated fees and other expenses related to the acquisition 1,200 -------------- Total purchase price $ 34,046 ============== The following is a calculation of the estimated fees and other expenses related to the merger: (In thousands) Advisory fees $ 900 Legal, accounting and other fees 300 -------------- Total estimated fees and other expenses related to the merger $ 1,200 ==============
A2 Represents adjustment to historical shareholders' equity to reflect the issuance of 4,779,196 RCG Common shares at an estimated $1.20 per share, issuance of 1,527,389 RCG Series B Convertible Preferred shares (convertible to 10 shares of Common for each Preferred) at $1.20 per share assumed conversion to Common, and the issuance of a $6,038,000 Promissory Note in exchange for100% of the outstanding Common Stock of Farequest. 6 RCG Companies Incorporated and Subsidiaries NOTES TO UNADITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION--(Continued) A3 Represents the estimated fees and other expenses related to the acquisition. A4 The acquisition is accounted for under the purchase method of accounting. The allocation of the purchase price is based upon the estimated fair value of assets acquired and liabilities assumed. The Company is in the process of determining the final valuation of these values. Accordingly, certain of the purchase price allocations reflected in the Pro Forma Statements are preliminary and may differ from the final allocation of the purchase price and any such differences may be material. B1 Reflects the recording of interest related to the $6,038,000 Promissory Note. 7