EXHIBIT 99.4
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements are based on the
historical financial statements of SmarTalk and SmarTel adjusted to give effect
to certain transactions and events. The unaudited pro forma combined statement
of operations for the year ended December 31, 1996 and the three month period
ended March 31, 1997 and the unaudited pro forma combined balance sheet as of
March 31, 1997 give effect to the acquisition and the adoption by SmarTel of
SmarTalk accounting policies. References in this document to data presented on a
"pro forma basis" as of any date or for any period shall have the meaning set
forth above with respect to such date or period.
The unaudited pro forma combined financial statements give effect to the
acquisition by SmarTalk of SmarTel in a transaction to be accounted for as a
purchase under the purchase method of accounting and are based upon a
preliminary allocation of the purchase price and upon the assumptions and
adjustments described in the accompanying notes. The unaudited pro forma
combined financial statements should be read in conjunction with the
Consolidated Financial Statements of SmarTalk and SmarTel appearing elsewhere in
this document. The unaudited pro forma combined financial statements are
presented for information purposes only and are not necessarily indicative of
the results that would have been reported or the financial position of the
Company had such events actually occurred on the dates specified, nor is it
indicative of the Company's future results or financial position. The results of
operations for interim periods are not necessarily indicative of the results for
the full year.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
Historical Historical Adjustments
SmarTalk SmarTel for the
Teleservices, Communications, Acquisition Pro Forma
Inc. Inc. (Note 1) Combined
---------------- --------------- -------------- --------------
Revenue $15,021,060 $ 5,496,640 $ (566,071)(a) $19,951,629
Cost of revenue 10,198,971 4,057,265 43,690 (b) 14,299,926
----------- ----------- ----------- -----------
Gross profit 4,822,089 1,439,375 (609,761) 5,651,703
Sales and marketing 4,511,291 2,713,508 - 7,224,799
General and administrative 3,615,070 811,169 602,577 (c) 5,028,816
----------- ----------- ----------- -----------
Operating loss (3,304,272) (2,085,302) (1,212,338) (6,601,912)
Other income (expense) - 12,159 - 12,159
Interest income 443,352 7,241 - 450,593
Interest expense (251,628) - - (251,628)
----------- ----------- ----------- -----------
Loss before income taxes (3,112,548) (2,065,902) (1,212,338) (6,390,788)
Provision for income taxes - - - -
----------- ----------- ----------- -----------
Net loss $(3,112,548) $(2,065,902) $(1,212,338) $(6,390,788)
=========== =========== =========== ===========
Net loss per share $ (0.59)
===========
Weighted average number of shares outstanding 10,814,643
===========
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1997
Pro Forma
Adjustments
Historical Historical for the
SmarTalk SmarTel Acquisition Pro Forma
Teleservices, Inc. Communications, Inc. (Note 1) Combined
-------------------- ----------------------- -------------- --------------
Revenue $ 7,368,333 $ 789,579 $241,916 (a) $ 8,399,828
Cost of revenue 4,760,748 524,224 (6,792)(b) 5,278,180
----------- ---------- -------- -----------
Gross profit (loss) 2,607,585 265,355 248,708 3,121,648
Sales and marketing 2,545,414 772,579 - 3,317,993
General and administrative 901,231 257,526 150,644 (c) 1,309,401
----------- ---------- -------- -----------
Operating loss (839,060) (764,750) 98,064 (1,505,746)
Other income (expense) - - - -
Interest income 528,763 452 - 529,215
Interest expense - - - -
----------- ---------- -------- -----------
Loss before income taxes (310,297) (764,298) 98,064 (976,531)
Provision for income taxes - - - -
----------- ---------- -------- -----------
Net loss $ (310,297) $ (764,298) $ 98,064 $ (976,531)
=========== ========== ======== ===========
Net loss per share $ (0.07)
===========
Weighted average number of shares outstanding 13,611,942
===========
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
March 31, 1997
Pro Forma
Adjustments
Historical Historical for the
SmarTalk SmarTel Acquisition Pro Forma
Teleservices, Inc. Communications, Inc. (Note 1) Combined(d)
------------------ -------------------- --------------- -------------
ASSETS
Current assets:
Cash $42,355,298 $ 394,448 $ - $ 42,749,746
Trade accounts receivable, net 2,904,465 827,539 - 3,732,004
Inventories 809,237 27,353 - 836,590
Prepaid expenses 460,892 - - 460,892
Other current assets 1,931,611 163,904 328,260 (a) 2,423,775
----------- ----------- ----------- ------------
Total current assets 48,461,503 1,413,244 328,260 $ 50,203,007
Non-current assets:
Property and equipment, net 1,123,626 188,829 - 1,312,455
Other non-current assets 157,456 210,794 - 368,250
Goodwill, net of amortization - - 11,298,321 (d) 11,298,321
----------- ----------- ----------- ------------
Total assets $49,742,585 $ 1,812,867 $11,626,581 $ 63,182,033
=========== =========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,766,633 $ 628,313 $ - $ 3,394,946
Deferred revenue 2,638,091 1,596,109 1,443,117 (a) 5,677,317
Other accrued expenses 258,431 608,732 291,572 (c) 1,158,735
Current portion of note payable to shareholder(s) - 157,500 - 157,500
Current portion of long-term obligations - 16,798 - 16,798
Current portion of capital lease obligations - 13,390 - 13,390
----------- ----------- ----------- ------------
Total current liabilities 5,663,155 3,020,842 1,734,689 10,418,686
Long-term debt - 62,134 - 62,134
----------- ----------- ----------- ------------
Commitments
Total liabilities 5,663,155 3,082,976 1,734,689 10,480,820
----------- ----------- ----------- ------------
Preferred stock - 4,051,715 (4,051,715)(b) -
----------- ----------- ----------- ------------
Shareholders' equity (deficit):
Common stock 51,361,077 1,509,438 7,865,566(b),(c) 60,736,081
Accumulated deficit (7,281,647) (6,831,262) 6,078,041 (8,034,868)
Treasury stock, at cost - - - -
----------- ----------- ----------- ------------
Total shareholders' equity (deficit) 44,079,430 (5,321,824) 13,943,607 52,701,213
----------- ----------- ----------- ------------
Total liabilities and shareholders' $49,742,585 $ 1,812,867 $11,626,581 $ 63,182,033
equity (deficit) =========== =========== =========== ============
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
- -------------------------------------------------------------
Note 1 - The Pro Forma Combined Statement of Operations gives effect to the
following pro forma adjustments necessary to reflect the acquisition as
outlined in the Notes to the Unaudited Pro Forma Combined Balance
Sheet:
(a) To adjust revenue recognized on "breakage" in accordance with the SmarTalk
policy of recognition based on expiration of the card or proportionately
over the life of the card (based on estimated usage).
(b) To defer the production and activation costs of cards and amortize the
expense to match the related revenue in accordance with the SmarTalk
accounting policy.
(c) Amortization of goodwill on a straight line basis over 20 years.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
- ---------------------------------------------------
Note 1 - The pro forma balance sheet has been prepared to reflect the
acquisition of SmarTel by SmarTalk for an aggregate purchase price of
$9,666,576 and estimated acquisition costs of approximately $291,572.
Pro forma adjustments are made to reflect:
(a) The preliminary purchase price allocations based on the
estimated fair value of specific assets acquired and liabilities assumed in
connection with the Acquisition.
(b) The elimination of the equity and preferred stock of SmarTel on acquisition
and the issuance of 714,286 shares of common stock and cost incurred for the
acquisition.
(c) Estimated acquisition costs.
(d) The excess of acquisition cost over the fair value of net assets acquired
(goodwill); net of estimated amortization.