-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OcLPZHH8bY7zRrdobN9NgvHhxwEsV8jqUOgQ/0l0KTgx3gqCdtB8SM15P+3MZmog kVT9+y+X60rTGshR+qCYug== 0000950150-98-000480.txt : 19980401 0000950150-98-000480.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950150-98-000480 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971222 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMARTALK TELESERVICES INC CENTRAL INDEX KEY: 0001018730 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 954502740 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-21579 FILM NUMBER: 98580379 BUSINESS ADDRESS: STREET 1: 1640 S SEPULVEDA BLVD STREET 2: SUITE 500 CITY: LOS ANGELES STATE: CA ZIP: 90025 BUSINESS PHONE: 3104448800 MAIL ADDRESS: STREET 1: 1640 S SEPULVEDA BLVD STREET 2: SUITE 500 CITY: LOS ANGELES STATE: CA ZIP: 90025 8-K/A 1 AMENDMENT NO. 1 TO FORM 8-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 8-K/A ------------------------ AMENDMENT NO. 1 CURRENT REPORT ------------------------ PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): DECEMBER 22, 1997 ------------------------ SMARTALK TELESERVICES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ CALIFORNIA (STATE OR JURISDICTION OF INCORPORATION) 0-21579 95-4502740 (COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.) 1640 SOUTH SEPULVEDA BOULEVARD, SUITE 500, LOS ANGELES, CA 90025 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(310) 444-8800 (REGISTRANT'S TELEPHONE NUMBER) ================================================================================ 2 ITEM 5. OTHER EVENTS. As previously reported, SmarTalk TeleServices, Inc., a California corporation ("SmarTalk") has agreed to acquire all of the issued and outstanding common stock, $0.01 par value per share (the "Shares"), of American Express Telecom, Inc., a Delaware corporation (the "Company"), from American Express Travel Related Services Company, Inc., a New York corporation and sole stockholder of the Company (the "Stockholder"), pursuant to a Stock Purchase Agreement, dated as of December 22, 1997 (the "Agreement"), by and among SmarTalk, the Company and the Stockholder. As previously reported, SmarTalk has consummated the initial acquisition of a portion of the Shares. Consummation of the acquisition of the remaining Shares is subject only to receipt of certain regulatory approvals, all of which SmarTalk expects to occur during the second quarter of 1998. Pursuant to the Agreement, all profits and losses related to the Company are for the account of SmarTalk from and after December 31, 1997. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED The Company's audited financial statements required by this Item 7(a) are filed as exhibit 99.1. (b) PRO FORMA FINANCIAL INFORMATION The Company's pro forma financial statements required by this Item 7(b) are filed as exhibit 99.2. (c) EXHIBITS *5.1 Stock Purchase Agreement, dated as of December 22, 1997, by and among SmarTalk TeleServices, Inc., American Express Telecom, Inc. and American Express Travel Related Services Company, Inc. (without schedules).(1) 99.1 Financial Statements of American Express Telecom, Inc. 99.2 Pro Forma Financial Statements.
- --------------- * Filed previously. (1) SmarTalk shall supplementally furnish a copy of any omitted schedule to the Securities and Exchange Commission upon request. 2 3 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SMARTALK TELESERVICES, INC. (Registrant) By /s/ GLEN ANDREW FOLCK ------------------------------------ Glen Andrew Folck Chief Financial Officer Date: March 30, 1998 3 4 EXHIBIT INDEX
NUMBER SUBJECT MATTER ------ -------------- *5.1 Stock Purchase Agreement, dated as of December 22, 1997, by and among SmarTalk TeleServices, Inc., American Express Telecom, Inc. and American Express Travel Related Services Company, Inc. (without schedules).(1) 99.1 Financial Statements of American Express Telecom, Inc. 99.2 Pro Forma Financial Statements.
- --------------- * Filed previously. (1) SmarTalk shall supplementally furnish a copy of any omitted schedule to the Securities and Exchange Commission upon request. EX-99.1 2 AUDITED YEAR END FINANCIAL STATEMENTS 1 EXHIBIT 99.1 FINANCIAL STATEMENTS AMERICAN EXPRESS TELECOM, INC. (A WHOLLY-OWNED SUBSIDIARY OF AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., A WHOLLY-OWNED SUBSIDIARY OF THE AMERICAN EXPRESS COMPANY) DECEMBER 31, 1997 AND DECEMBER 31, 1996 2 AMERICAN EXPRESS TELECOM, INC. (A WHOLLY-OWNED SUBSIDIARY OF AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., A WHOLLY-OWNED SUBSIDIARY OF THE AMERICAN EXPRESS COMPANY) FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 CONTENTS
PAGE ---- Report of Independent Auditors.............................. F-2 Audited financial Statements Balance Sheets.............................................. F-3 Statements of Operations.................................... F-4 Statements of Stockholder's Deficit......................... F-5 Statements of Cash Flows.................................... F-6 Notes to Financial Statements............................... F-7
F-1 3 REPORT OF INDEPENDENT AUDITORS The Board of Directors American Express Telecom, Inc. We have audited the accompanying balance sheets of American Express Telecom, Inc. (a wholly-owned subsidiary of American Express Travel Related Services Company, Inc., a wholly-owned subsidiary of The American Express Company) as of December 31, 1997 and December 31, 1996, and the related statements of operations, stockholder's deficit, and cash flows for the years ended December 31, 1997 and December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Express Telecom, Inc. (a wholly-owned subsidiary of American Express Travel Related Services Company, Inc., a wholly-owned subsidiary of The American Express Company) at December 31, 1997 and December 31, 1996, and the results of its operations and its cash flows for the years ended December 31, 1997 and December 31, 1996 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP February 2, 1998 F-2 4 AMERICAN EXPRESS TELECOM, INC. (A WHOLLY-OWNED SUBSIDIARY OF AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., A WHOLLY-OWNED SUBSIDIARY OF THE AMERICAN EXPRESS COMPANY) BALANCE SHEETS ASSETS
DECEMBER 31 ---------------------------- 1997 1996 ------------ ------------ Current assets: Cash and cash equivalents................................. $ -- $ 360,302 Accounts receivable, net of allowance of $0 and $13,895 in 1997 and 1996, respectively............................ 2,396,629 1,948,730 Accounts receivable from parent........................... -- 143,228 Inventories............................................... 1,195,713 461,978 Joint venturer's share of unearned revenues............... 2,439,443 2,219,859 Deferred card costs....................................... 135,486 227,624 Prepaid expenses.......................................... 79,264 94,285 ------------ ------------ Total current assets........................................ 6,246,535 5,456,006 Equipment, furniture and fixtures........................... 1,713,521 1,327,577 Accumulated Depreciation.................................... (966,310) (413,861) ------------ ------------ 747,211 913,716 ------------ ------------ $ 6,993,746 $ 6,369,722 ============ ============ LIABILITIES AND STOCKHOLDER'S DEFICIT Current liabilities: Accounts payable.......................................... $ 1,077,537 $ 888,889 Accounts payable to parent................................ 476,410 810,076 Due to USPS............................................... -- 1,960,319 Accrued liabilities....................................... 1,315,238 690,550 Deferred revenues......................................... 5,506,514 6,189,748 ------------ ------------ Total current liabilities................................... 8,375,699 10,539,582 Loan payable to parent...................................... 10,055,481 5,973,242 Common stock of $.10 par value, 100 shares authorized and outstanding............................................... 10 10 Paid-in capital............................................. 99,990 99,990 Accumulated deficit......................................... (11,537,434) (10,243,102) ------------ ------------ Total stockholder's deficit................................. (11,437,434) (10,143,102) ------------ ------------ Total liabilities and stockholder's deficit................. $ 6,993,746 $ 6,369,722 ============ ============
See accompanying notes. F-3 5 AMERICAN EXPRESS TELECOM, INC. (A WHOLLY-OWNED SUBSIDIARY OF AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., A WHOLLY-OWNED SUBSIDIARY OF THE AMERICAN EXPRESS COMPANY) STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31 -------------------------- 1997 1996 ----------- ----------- Revenues.................................................... $21,361,685 $ 4,705,377 Joint venturer's share of revenues.......................... (10,009,124) (1,996,297) ----------- ----------- Net revenue................................................. 11,352,561 2,709,080 Cost of goods sold.......................................... 9,784,420 4,077,104 Joint venturer's share of cost of goods sold................ (4,843,153) (1,201,253) ----------- ----------- Gross profit (loss)......................................... 6,411,294 (166,771) Costs and expenses: Salaries and benefits..................................... 2,877,040 2,058,145 Depreciation.............................................. 552,449 381,605 Advertising............................................... 443,590 1,093,688 Marketing................................................. 2,995,297 6,386,069 General and administrative................................ 2,181,867 1,726,727 Joint venturer's share of costs and expenses.............. (1,935,722) (3,224,497) ----------- ----------- 7,114,521 8,421,737 ----------- ----------- Loss from operations........................................ (703,227) (8,588,508) Interest expense............................................ 591,105 261,421 ----------- ----------- Net loss.................................................... $(1,294,332) $(8,849,929) =========== ===========
See accompanying notes. F-4 6 AMERICAN EXPRESS TELECOM, INC. (A WHOLLY-OWNED SUBSIDIARY OF AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., A WHOLLY-OWNED SUBSIDIARY OF THE AMERICAN EXPRESS COMPANY) STATEMENTS OF STOCKHOLDER'S DEFICIT
COMMON PAID-IN ACCUMULATED STOCK CAPITAL DEFICIT TOTAL ------ ------- ------------ ------------ Balance at December 31, 1995............... $10 $99,990 $ (1,393,173) $ (1,293,173) Net loss................................. -- (8,849,929) (8,849,929) --- ------- ------------ ------------ Balance at December 31, 1996............... 10 99,990 (10,243,102) (10,143,102) Net loss................................. -- (1,294,332) (1,294,332) --- ------- ------------ ------------ Balance at December 31, 1997............... $10 $99,990 $(11,537,434) $(11,437,434) === ======= ============ ============
See accompanying notes. F-5 7 AMERICAN EXPRESS TELECOM, INC. (A WHOLLY-OWNED SUBSIDIARY OF AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., A WHOLLY-OWNED SUBSIDIARY OF THE AMERICAN EXPRESS COMPANY) STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 -------------------------- 1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................. $(1,294,332) $(8,849,929) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation........................................... 552,449 381,605 (Increase) decrease in current assets: Accounts receivable.................................. (447,899) (1,718,132) Accounts receivable from parent...................... 143,228 (124,680) Inventories.......................................... (733,735) 105,739 Prepaid expenses..................................... 15,021 (77,964) Joint venturer's share of unearned revenues.......... (219,584) (2,219,859) Deferred card costs.................................. 92,138 (227,624) Increase (decrease) in current liabilities: Accounts payable..................................... 188,648 848,873 Accounts payable to parent........................... (333,666) 556,852 Due to USPS.......................................... (1,960,319) 1,960,319 Accrued liabilities.................................. 624,688 (112,151) Deferred revenue..................................... (683,234) 5,814,245 ----------- ----------- Total adjustments...................................... (2,762,265) 5,187,223 ----------- ----------- Net cash used in operating activities.................. (4,056,597) (3,662,706) CASH FLOWS FROM INVESTING ACTIVITIES: Expended for property, plant and equipment................ (385,944) (790,116) CASH FLOWS FROM FINANCING ACTIVITIES: Increase in loan payable to parent........................ 4,082,239 4,780,858 ----------- ----------- Net increase (decrease) in cash and cash equivalents........ (360,302) 328,036 Cash and cash equivalents: Beginning of year......................................... 360,302 32,266 ----------- ----------- End of year............................................... $ -- $ 360,302 =========== ===========
See accompanying notes. F-6 8 AMERICAN EXPRESS TELECOM, INC. (A WHOLLY-OWNED SUBSIDIARY OF AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., A WHOLLY-OWNED SUBSIDIARY OF THE AMERICAN EXPRESS COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND DECEMBER 31, 1996 1. NATURE OF OPERATIONS American Express Telecom, Inc. ("the Company" or "AETI") is a wholly-owned subsidiary of American Express Travel Related Services Company, Inc., a wholly-owned subsidiary of The American Express Company ("AMEX" or "Parent"). The Company operates in a single industry segment and its principal activities are selling domestic and international long distance telecommunications services via a prepaid phone card product. The Company purchases all of their telephone time from a single supplier and the Company purchases all of its card inventory from a single supplier. The majority of operations involved in the selling of the phone cards are under a joint venture arrangement with the United States Postal Service ("USPS"), whereas the USPS sells, among other functions, phone cards through its outlets. Under the arrangement in effect from May 25, 1996 to December 31, 1997 ("Arrangement"), revenues and costs are shared pursuant to the Arrangement with the USPS functioning as the principal distribution or selling agent. Under the arrangement in effect from August 17, 1995 to May 24, 1996, net income, if any, generated by the Company was to be shared equally. There was no net income shared under that arrangement. Sales are reported to the Company by the USPS. As a result, various reporting captions in the accompanying financial statements reflect certain aspects of the Arrangement as follows: Accounts receivable represent those phone cards sold for which USPS has not remitted net funds to the Company and amounts due to AETI under the cost sharing arrangement. Inventories represent the costs, on the weighted average basis, incurred to produce the phone cards, excluding any telecommunications services, for cards not sold. Joint venturer's share of unearned revenues is a deferred cost which represents USPS' share of unearned revenues for cards sold to the customer. Revenues, including the joint venturer's share, are earned pro rata with customer usage. Deferred card costs represent the remaining unamortized costs of card inventories for those cards which have been sold. Upon sale, such inventory costs are amortized as costs of goods sold, pro rata with estimated customer usage. Deferred revenues represent the unearned portion of phone card revenues for those cards sold to the customer. Revenues are earned pro rata with customer usage. Joint venturer's share of cost of goods sold and costs and expenses, primarily related to cost of goods sold and marketing costs, represent the USPS calculated portion of specified costs and expenses pursuant to the terms of the Arrangement for which the costs have been previously incurred by the Company. 2. SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. F-7 9 AMERICAN EXPRESS TELECOM, INC. (A WHOLLY-OWNED SUBSIDIARY OF AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., A WHOLLY-OWNED SUBSIDIARY OF THE AMERICAN EXPRESS COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. The carrying amounts reported in the balance sheet for cash and cash equivalents approximates those assets' fair value. BREAKAGE REVENUE Breakage represents units of unused calling time remaining at the expiration date of individual cards sold or, for certain series of cards, the last expiration date within that series of cards for which no utilization of a card within the series has occurred. Revenues are recognized for breakage at the individual card's expiration date or the latest expiration date of cards in a series. The last expiration dates for unused cards within series being 1998 and 2000. DEPRECIATION Depreciation is provided on a straight-line basis over the estimated useful lives of owned assets. The depreciable lives are primarily five years for telecommunications equipment, eight years for furniture and fixtures and three years for computer equipment. ADVERTISING EXPENSE The Company expenses advertising costs as costs are incurred. Total advertising expense amounted to $443,590 and $1,093,688 for the years ended December 31, 1997 and December 31, 1996, respectively. INCOME TAXES The Company reports income taxes as part of a consolidated group. For financial reporting purposes, income taxes are presented on a stand alone basis. No income tax expense was recorded for the years ended December 31, 1997 and December 31, 1996. The Company provides for deferred taxes as temporary differences arise in recording income and expenses between financial reporting and tax reporting. 3. RELATED PARTY TRANSACTIONS AETI personnel are employees of AMEX. Salaries and benefits for these employees were $2,877,040 and $2,058,145 for the years ended December 31, 1997 and December 31, 1996, respectively. Certain corporate expenses incurred by AMEX were allocated to the Company. These expenses, consisting of occupancy and legal costs were, $277,002 and $162,438 for the years ended December 31, 1997 and December 31, 1996, respectively. Certain corporate vendor credits received by AMEX were allocated to the Company. These credits were $692,559 and $0 for the years ended December 31, 1997 and December 31, 1996, respectively. Accounts payable to AMEX related to salaries and benefits, occupancy and legal costs were $476,410 and $810,076 at December 31, 1997 and December 31, 1996, respectively. The Company sells phone cards to AMEX. Revenues from sales to AMEX units were $998,907 and $151,473 for the years ended December 31, 1997 and December 31, 1996, respectively. Accounts receivable F-8 10 AMERICAN EXPRESS TELECOM, INC. (A WHOLLY-OWNED SUBSIDIARY OF AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., A WHOLLY-OWNED SUBSIDIARY OF THE AMERICAN EXPRESS COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. RELATED PARTY TRANSACTIONS (CONTINUED) from AMEX related to such purchases were $0 and $143,228 at December 31, 1997 and December 31, 1996, respectively. Interest is charged on the intercompany loan payable at an average rate of 6.05%, which approximates the Parent's cost of debt. 4. INCOME TAXES Deferred tax assets as of December 31, 1997 and 1996 related to the following temporary differences:
1997 1996 --------- --------- Reserves............................................ $ 377,138 $ 315,112 Other............................................... 71,524 46,109 --------- --------- Deferred tax assets................................. 448,662 361,221 Valuation allowance................................. (448,662) (361,221) --------- --------- Deferred balance at December 31..................... $ -- $ -- ========= =========
There was an increase in the valuation allowance of $87,441 from December 31, 1996 to December 31, 1997. 5. RETIREMENT PLANS Company personnel are employees of AMEX and are therefore eligible to participate in the retirement plans sponsored by AMEX. These plans include a Defined Contribution Pension Plan and an Incentive Savings Plan, which is qualified under section 401(k) of the Internal Revenue Code. Under the Pension Plan, employees are credited each pay period with additions equal to a percentage of their base pay based on age plus service, overtime, commissions and bonuses. Employees' balances are also credited annually with a fixed rate of interest based on the daily average of published five-year Treasury Note yields. Participation in the Pension Plan requires one year of service and vesting occurs after four years of service. Lump sum payout is available at termination or retirement. Employees participating in the Incentive Savings Plan (ISP) may contribute up to 15 percent of their annual base salary (up to IRS limits). In addition, AMEX contributes to the ISP on behalf of all eligible employees with company matching contributions and discretionary profit sharing contributions based on AMEX's operating results. Participation in the ISP requires one year of service and vesting occurs after four years of service. AMEX also sponsors postretirement benefits that provide health care, life insurance and other benefits to retired U.S. employees. There are no retired AETI employees, therefore, no such benefits were allocated to the Company. AMEX allocated the cost of these retirement plans back to its subsidiaries as part of the employee benefits allocation. The total costs for benefits charged by AMEX to the Company were $602,037 and $422,521 for the years ended December 31, 1997 and December 31, 1996, respectively. 6. SALE OF STOCK On December 22, 1997, a stock purchase agreement between SmarTalk Teleservices, Inc. and the American Express Company was signed in which SmarTalk Teleservices, Inc. purchased all of the Company's shares effective December 30, 1997. Entries, if any, reflecting this stock purchase were not included in the accompanying financial statements. F-9 EX-99.2 3 PRO FORMA FINANCIAL STATEMENTS 1 EXHIBIT 99.2 UNAUDITED PRO FORMA COMBINED BALANCE SHEET DECEMBER 31, 1997 ASSETS
(NOTE 3) HISTORICAL SMARTALK TELESERVICES ------------ Current Assets: Cash and cash equivalents................................. $ 62,900,673 Trade accounts receivable, net............................ 32,699,249 Receivable from American Express Company.................. 2,570,000 Inventories............................................... 4,301,487 Prepaid expenses.......................................... 1,377,844 Other current assets...................................... 7,637,849 ------------ Total current assets.............................. 111,487,102 Non-current assets: Note Receivable from ACMI................................. 2,234,763 Property and equipment, net............................... 13,805,984 Intangibles, net.......................................... 222,536,934 Other non-current assets.................................. 10,438,043 ------------ Total assets...................................... $360,502,826 ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... 15,081,532 Deferred revenue.......................................... 40,248,400 Accrued marketing costs................................... 1,811,817 Accrued interest payable.................................. 2,615,480 Other accrued expenses.................................... 5,571,728 Excise and sales tax payable.............................. 5,565,072 Restructure reserve....................................... 23,943,070 Accrued litigation settlement............................. 4,500,003 Current portion of long term debt......................... 7,285,401 ------------ Total current liabilities......................... 106,622,503 Long-term debt, less current portion...................... 150,874,753 ------------ Total liabilities................................. 257,497,256 ------------ Shareholders' equity: Preferred stock........................................... Common stock.............................................. 171,732,584 Accumulated deficit....................................... (68,870,824) Cumulative translation adjustment......................... 143,810 ------------ Total shareholders' equity........................ 103,005,570 ------------ Total liabilities and shareholders' equity........ $360,502,826 ============
F-10 2 NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET NOTE 1 Historical SmarTalk amounts include the following Company amounts as of December 31, 1997: Accounts receivable, net.............................. $ 2,396,629 Inventory............................................. 1,195,713 Prepaid expenses...................................... 79,264 Other current assets.................................. 135,486 Property, plant and equipment, net.................... 747,211 Goodwill.............................................. 43,716,324 ----------- Total Assets................................ $48,270,627 =========== Accounts payable...................................... $ 1,077,537 Deferred revenue...................................... 2,317,071 Other accrued expenses................................ 1,315,238 ----------- Total Liabilities........................... $ 4,709,846 ===========
NOTE 2 The components of Company goodwill at December 31, 1997 are as follows: Purchase price........................................ $44,000,000 Transaction costs..................................... 1,014,225 Acquired receivable................................... (2,570,000) ----------- Total purchase price.................................. 42,444,225 Less: Net assets acquired............................. (1,272,099) ----------- Goodwill.............................................. $43,716,324 ===========
NOTE 3 Historical SmarTalk amounts include the balance sheet amounts for the acquisition of SmarTel Communications, Inc. ("SmarTel"), GTI Telecom, Inc. ("GTI"), Cardinal Voicecard Limited ("Cardinal"), ConQuest Telecommunication Services Corp. ("ConQuest") and the Company. F-11 3 UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
AS ADJUSTED PRO FORMA HISTORICAL AS ADJUSTED COMBINED AMEX PRO FORMA PRO FORMA SMARTALK TELECOM ADJUSTMENTS COMBINED ------------ ----------- ----------- ------------ Revenue............................ $146,054,088 $12,652,561 -- $158,706,649 Cost of revenue.................... 99,862,096 5,085,710 -- 104,947,806 ------------ ----------- ----------- ------------ Gross profit............. 46,191,992 7,566,851 -- 53,758,843 Sales and marketing................ 20,932,268 4,419,205 -- 25,351,473 General and administrative......... 38,154,568 2,734,316 2,840,911(a) 43,729,795 Restructuring expense.............. 25,000,000 -- -- 25,000,000 Acquired research and development 39,186,000 -- -- 39,186,000 in process....................... ------------ ----------- ----------- ------------ Operating loss........... (77,080,844) 413,330 (2,840,911) (79,508,425) Interest income.................... 3,183,585 -- -- 3,183,585 Interest expense................... (4,475,658) (591,105) -- (5,066,763) ------------ ----------- ----------- ------------ Loss before income (78,372,917) (177,775) (2,840,911) (81,391,603) taxes.................. Provision for income taxes......... -- -- -- -- ------------ ----------- ----------- ------------ Net loss................. $(78,372,917) $ (177,775) $(2,840,911) $(81,391,603) ============ =========== =========== ============ Net loss per share................. $ (5.24) $ (5.44) ============ ============ Weighted average number of common 14,951,454 14,951,454 shares outstanding............... ============ ============
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS NOTE 1 The Unaudited Pro Forma Combined Statement of Operations gives effect to the following pro forma adjustments necessary to reflect the acquisition of the Company as if the transaction had occurred on January 1, 1997: (a) To record amortization of goodwill on the Company on a straight line basis over 20 years. NOTE 2 As adjusted Pro Forma Combined SmarTalk includes the actual results for SmarTalk and the pro forma results for SmarTel, GTI, Cardinal and Conquest. F-12 -----END PRIVACY-ENHANCED MESSAGE-----