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 GTI adjusted to give effect to
certain transactions and events. The unaudited pro forma combined statements 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 GTI 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 GTI 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 financial
statements of GTI 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.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
Pro Forma
Historical Historical Adjustments
SmarTalk GTI for the
Teleservices, Telecom Acquisition Pro Forma
Inc. Inc. (Note 1) Combined
------------- ------------ ----------------- ------------
Revenue $15,021,060 $21,168,508 $(2,138,692)(a) $ 34,050,876
Cost of revenue 10,198,971 18,226,789 - 28,425,760
----------- ----------- ----------- ------------
Gross profit (loss) 4,822,089 2,941,719 (2,138,692) 5,625,116
Sales and marketing 4,511,291 6,575,261 - 11,086,552
General and administrative 3,615,070 773,727 4,026,365 (b) 8,415,162
----------- ----------- ----------- ------------
Operating loss (3,304,272) (4,407,269) (6,165,057) (13,876,598)
Other income - 133,908 - 133,908
Interest income 443,352 - - 443,352
Interest expense (251,628) (559,362) (2,650,000)(c) (3,460,990)
----------- ----------- ----------- ------------
Loss before income taxes (3,112,548) (4,832,723) (8,815,057) (16,760,328)
Provision for income taxes - - - -
----------- ----------- ----------- ------------
Net loss $(3,112,548) $(4,832,723) $(8,815,057) $(16,760,328)
=========== =========== =========== ============
Net loss per share $ (1.32)
============
Weighted average number of shares outstanding 12,680,375
============
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1997
Pro Forma
Adjustments
Historical Historical for the
SmarTalk GTI Acquisition Pro Forma
Teleservices, Inc. Telecom, Inc. (Note 1) Combined
------------------ --------------- ------------ -----------
Revenue $ 7,368,333 $ 6,124,597 $ (146,955)(a) $13,345,975
Cost of revenue 4,760,748 4,906,033 - 9,666,781
----------- ------------ ----------- -----------
Gross profit (loss) 2,607,585 1,218,564 (146,955) 3,679,194
Sales and marketing 2,545,414 1,428,843 - 3,974,257
General and administrative 901,231 773,666 1,006,591 (b) 2,681,488
----------- ------------ ----------- -----------
Operating loss (839,060) (983,945) (1,153,546) (2,976,551)
Other income - 40,399 - 40,399
Interest income 528,763 - - 528,763
Interest expense - (222,973) (662,500)(c) (885,473)
----------- ------------ ----------- -----------
Loss before income taxes (310,297) (1,166,519) (1,816,046) (3,292,862)
Provision for income taxes - - - -
----------- ------------ ----------- -----------
Net loss $ (310,297) $ (1,166,519) $(1,816,046) $(3,292,862)
=========== ============ =========== ===========
Net loss per share $ (0.21)
===========
Weighted average number of shares outstanding 15,477,674
===========
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
March 31, 1997
Pro Forma
Adjustments
Historical Historical for the
SmarTalk GTI Acquisition Pro Forma
Teleservices, Inc. Telecom, Inc. (Note 1) Combined
--------------------- ---------------- -------------- --------------
ASSETS
Current assets:
Cash $42,355,298 $ 2,686,764 $ - $ 45,042,062
Trade accounts receivable, net 2,904,465 2,109,088 - 5,013,553
Inventories 809,237 707,512 (400,000)(a) 1,116,749
Prepaid expenses 460,892 1,500,823 - 1,961,715
Other current assets 1,931,611 - - 1,931,611
Note receivable from shareholder - 1,291,983 (1,291,983)(a) -
----------- ----------- ----------- ------------
Total current assets 48,461,503 8,296,170 (1,691,983) 55,065,690
Non-current assets:
Property and equipment, net 1,123,626 2,078,567 3,202,193
Other non-current assets 157,456 320,621 - 478,077
Goodwill, net of amortization - - 80,527,305 (d) 80,527,305
----------- ----------- ----------- ------------
Total assets $49,742,585 $10,695,358 $78,835,322 $139,273,265
=========== =========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,766,633 $ 1,879,037 $ - $ 4,645,670
Deferred revenue 2,638,091 5,524,379 3,285,647 (a) 11,448,117
Other accrued expenses 258,431 2,182,925 4,138,424 (a),(c) 6,579,780
Customer deposits - 4,490,240 - 4,490,240
Current portion of long-term obligations - 5,890,635 - 5,890,635
Current portion of capital lease obligations - 147,324 - 147,324
----------- ----------- ----------- ------------
Total current liabilities 5,663,155 20,114,540 7,424,071 33,201,766
Long-term debt - 662,069 26,500,000 (b) 27,162,069
----------- ----------- ----------- ------------
Commitments
Total liabilities 5,663,155 20,776,609 33,924,071 60,363,835
----------- ----------- ----------- ------------
Shareholders' equity (deficit):
Preferred stock - 3,500,000 (3,500,000)(b) -
Common stock 51,361,077 83,708 34,746,292 (b) 86,191,077
Accumulated deficit (7,281,647) (11,054,647) 11,054,647 (7,281,647)
Treasury stock, at cost - (2,610,312) 2,610,312 (b) -
----------- ----------- ----------- ------------
Total shareholders' equity (deficit) 44,079,430 (10,081,251) 44,911,251 78,909,430
----------- ----------- ----------- ------------
Total liabilities and shareholders'
equity (deficit) $49,742,585 $10,695,358 $78,835,322 $139,273,265
=========== =========== =========== ============
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
- ---------------------------------------------------
Note 1 - The Unaudited Pro Forma Balance Sheet has been prepared to reflect the
acquisition of GTI by SmarTalk for an aggregate purchase price of
$61,330,000 and estimated acquisition costs of approximately
$3,138,424. 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, as follows:
(b) The elimination of the equity of GTI on acquisition and the issuance of
2,580,000 shares of common stock and $26,500,000 subordinated note.
(c) Estimated acquisition costs.
(d) The excess of acquisition costs over the fair value of net assets
acquired.
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 accounting policy of recognition based on expiration of the
card or proportionately over the life of the card (based on estimated
usage).
(b) Amortization of goodwill on a straight line basis over 20 years.
(c) To record interest expense on the $26,500,000 subordinated note, issued
on acquisition with 10% interest payable quarterly.