-----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, TU+mtMIKj6Z+PL5GjoBAaC4pfzwi37U0xqjVVBmzctzbsgTvOcVBNE0XXgcS3SYu JSVQKtLInUvxJzh1IbqqdA== 0000892569-96-000828.txt : 19960529 0000892569-96-000828.hdr.sgml : 19960529 ACCESSION NUMBER: 0000892569-96-000828 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960314 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960528 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMITH MICRO SOFTWARE INC CENTRAL INDEX KEY: 0000948708 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 330029027 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26536 FILM NUMBER: 96573067 BUSINESS ADDRESS: STREET 1: 51 COLUMBIA STREET 2: STE 200 CITY: ALISO VIEJO STATE: CA ZIP: 92656 BUSINESS PHONE: 7143625800 MAIL ADDRESS: STREET 1: 51 COLUMBIA STREET 2: STE 200 CITY: ALISO VIEJO STATE: CA ZIP: 92656 8-K/A 1 FORM 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) MARCH 14, 1996 ----------------------------- SMITH MICRO SOFTWARE, INC. - ------------------------------------------------------------------------------ (Exact name of registrant as specified in charter) DELAWARE 0-26536 33-0029027 - ------------------------------------------------------------------------------ (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 51 COLUMBIA, ALISO VIEJO, CA 92656 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (714) 362-5800 --------------------------- NOT APPLICABLE - ------------------------------------------------------------------------------ (Former name or former address, if changed since last report.) Page 1 of 5 Exhibit Index on Sequentially Numbered Page 5 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On March 14, 1996, Smith Micro Software, Inc. ("Smith Micro") acquired Performance Computing Incorporated ("PCI"), an Oregon corporation (the "Acquisition") in a forward-triangular merger. The Acquisition was achieved pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated March 14, 1996, by and among Smith Micro, PCI and PCI Video Products, Inc. ("Sub"), a Delaware corporation and wholly-owned subsidiary of Smith Micro. Pursuant to the Merger Agreement, PCI was merged with and into Sub, with Sub surviving as a wholly-owned subsidiary of Smith Micro. In connection with the Acquisition, the PCI shareholders received an aggregate of 350,000 shares of Smith Micro Common Stock and $2,100,000 in cash. In addition, on March 14, 1997, if certain software development milestones are achieved, Smith Micro will be obligated to (i) issue a number of shares of Smith Micro Common Stock with a value of up to $600,000 to the former shareholders of PCI based on an average of the then-current market prices, and (ii) pay a combination of cash and Smith Micro Common Stock with an aggregate value of $200,000 to the former employees of PCI who are then employees of Smith Micro. In the event that some, but not all, of the software development milestones are met, the former shareholders and employees of PCI will be entitled to receive a certain percentage of the above amounts of Smith Micro Common Stock and cash based on the milestones actually achieved. In determining the aggregate purchase price for PCI, Smith Micro took into account the value of software companies of similar size to PCI, comparable transactions and the market for software companies generally. One hundred thirty five thousand of the total number of shares of Smith Micro Common Stock issued to the former PCI shareholders (the "Escrow Shares") and $180,000 of the cash consideration (the "Escrow Cash") were placed in an escrow account upon the consummation of the Acquisition. Pursuant to the Merger Agreement and the related escrow agreement, subject to certain limitations Smith Micro in general may recover from the escrow up to the entire amount of Escrow Shares and Escrow Cash in the event Smith Micro incurs any loss, expense, liability or other damage (collectively, "Damages") due to, among other things, a breach by PCI of any of its representations, warranties and covenants in the Merger Agreement. If no claim for Damages is made by Smith Micro within one year after the date of the Merger Agreement, the Escrow Shares and Escrow Cash will be released from escrow and distributed to the former PCI shareholders. Page 2 of 5 Exhibit Index on Sequentially Numbered Page 5 3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of PCI (1) Balance sheets as of December 31, 1994, and 1995 and related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995, required to be filed pursuant to this item are filed herewith (Exhibit 99.2). (b) Pro Forma Financial Information of Smith Micro and PCI (1) The pro forma unaudited consolidated financial statements for the year ended December 31, 1995, required to be filed pursuant to this item are filed herewith (Exhibit 99.3). (c) Exhibits Refer to Index to Exhibits. Page 3 of 5 Exhibit Index on Sequentially Numbered Page 5 4 SIGNATURES 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 hereunto duly authorized. SMITH MICRO SOFTWARE, INC.
Signature Title Date --------- ----- ---- /s/ WILLIAM W. SMITH, JR Chairman of the Board, President May 28, 1996 - ------------------------ and Chief Executive Officer William W. Smith, Jr (Principal Executive Officer) /s/ ROBERT E. GRICE, JR Chief Financial Officer May 28, 1996 - ------------------------ (Principal Financial Officer) Robert E. Grice, Jr
Page 4 of 5 Exhibit Index on Sequentially Numbered Page 5 5 INDEX TO EXHIBITS
Exhibit Description - ------- ----------- 2* Agreement and Plan of Merger, dated March 14, 1996, by and among Smith Micro Software, Inc. ("Smith Micro"), PCI Video Products, Inc., and Performance Computing Incorporated ("PCI") and certain exhibits. 99.1* Text of Press Release dated March 14, 1996. 99.2 Financial Statements of PCI. 99.3 Unaudited Pro Forma Financial Information of Smith Micro and PCI.
______________ * Incorporated by reference from Smith Micro's Form 8-K as filed with the Securities and Exchange Commission on March 28, 1996. Page 5 of 5 Exhibit Index on Sequentially Numbered Page 5 EX-99.2 2 FINANCIAL STATEMENTS OF PCI 1 EXHIBIT 99.2 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Performance Computing, Inc.: We have audited the accompanying balance sheets of Performance Computing, Inc. as of December 31, 1994 and 1995, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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 misstatement. 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, such financial statements present fairly, in all material respects, the financial position of Performance Computing, Inc. as of December 31, 1994 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Deloitte & Touche LLP Costa Mesa, California May 1, 1996 1 2 PERFORMANCE COMPUTING, INC. BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995 - -------------------------------------------------------------------------------
1994 1995 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 40,156 $ 45,352 Accounts receivable, net of allowances for doubtful accounts of $178,647 (1994) and $234,857 (1995) 43,732 190,985 Prepaid expenses and other current assets 33,162 18,785 -------- -------- Total current assets 117,050 255,122 EQUIPMENT AND IMPROVEMENTS, net (Note 2) 86,787 73,604 -------- -------- $203,837 $328,726 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 44,876 $ 58,478 Accrued payroll, taxes and benefits 48,765 133,176 Deferred tax liability (Note 4) 2,000 7,000 -------- -------- Total current liabilities 95,641 198,654 COMMITMENTS AND CONTINGENCIES (Note 5) STOCKHOLDERS' EQUITY: Common stock, no par value; 500 shares authorized 150 shares issued and outstanding 3,000 3,000 Retained earnings 105,196 127,072 -------- -------- Total stockholders' equity 108,196 130,072 -------- -------- $203,837 $328,726 ======== ========
See notes to financial statements. 2 3 PERFORMANCE COMPUTING, INC. STATEMENTS OF OPERATIONS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995 - ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1993 1994 1995 ---------- ---------- ---------- NET REVENUES $2,102,125 $2,424,931 $2,067,283 COSTS AND EXPENSES: Cost of sales and services 1,803,312 1,871,789 944,260 Selling and marketing 159,116 218,375 349,374 Research and development 111,381 311,965 449,196 General and administrative 47,734 93,590 306,000 ---------- ---------- ---------- Total costs and expenses 2,121,543 2,495,719 2,048,830 ---------- ---------- ---------- OPERATING INCOME (LOSS) (19,418) (70,788) 18,453 OTHER INCOME, net 1,652 15,189 8,423 ---------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) (17,766) (55,599) 26,876 INCOME TAX EXPENSE (BENEFIT) (Note 4) (3,300) (8,300) 5,000 ----------- ---------- ---------- NET INCOME (LOSS) $ (14,466) $ (47,299) $ 21,876 ========== ========== ==========
See notes to financial statements. 3 4 PERFORMANCE COMPUTING, INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995 - ------------------------------------------------------------------------------
COMMON STOCK ------------------ RETAINED SHARES AMOUNT EARNINGS TOTAL ------- ------- --------- -------- BALANCE, January 1, 1993 150 $3,000 $166,961 $169,961 Net loss (14,466) (14,466) ---- ------ -------- -------- BALANCE, December 31, 1993 150 3,000 152,495 155,495 Net loss (47,299) (47,299) ---- ------ -------- -------- BALANCE, December 31, 1994 150 3,000 105,196 108,196 Net income 21,876 21,876 ---- ------ -------- -------- BALANCE, December 31, 1995 150 $3,000 $127,072 $130,072 === ====== ======== ========
See notes to financial statements. 4 5 PERFORMANCE COMPUTING, INC. STATEMENTS OF CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995 - ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, --------------------------------------- 1993 1994 1995 -------- -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (14,466) $(47,299) $ 21,876 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 21,930 40,022 44,147 Deferred income taxes (9,000) (10,000) 5,000 Provision for doubtful accounts receivable 61,093 74,774 56,210 Change in: Accounts receivable, net (76,383) 54,446 (203,463) Prepaid expenses and other current assets (6,931) (20,512) 14,377 Accounts payable and accrued liabilities 75,914 (18,242) 98,013 --------- -------- --------- Net cash provided by operating activities 52,157 73,189 36,160 CASH FLOWS FROM INVESTING ACTIVITIES - Capital expenditures (51,168) (66,217) (30,964) --------- -------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 989 6,972 5,196 CASH AND CASH EQUIVALENTS, beginning of year 32,195 33,184 40,156 --------- -------- --------- CASH AND CASH EQUIVALENTS, end of year $ 33,184 $ 40,156 $ 45,352 ========= ======== ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION- Cash paid during the year for income taxes $ 8,400 $ 4,000 $ - ========= ======== =========
See notes to financial statements. 5 6 PERFORMANCE COMPUTING, INC. NOTES TO FINANCIAL STATEMENTS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995 - ------------------------------------------------------------------------------ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business - Performance Computing, Inc. (the Company) provides customized software development services on a contract basis. The Company also develops, manufactures and distributes personal computer-based video teleconferencing products. Substantially all of the Company's revenues through December 31, 1995 relate to contract services. Cash Equivalents - Cash equivalents are considered to be highly-liquid investments with initial maturities of three months or less. Accounts Receivable - The Company sells its products and services principally in the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses, and those losses have been within management's expectations. Equipment and Improvements - Equipment and improvements are stated at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the assets, generally ranging from three to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. Revenue Recognition - The Company recognizes revenues from software development contracts as services are performed. The Company recognizes revenues from video teleconferencing products and technology as such products are shipped or as licensing agreements are entered into with customers. Income Taxes - The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. This statement requires the recognition of deferred tax assets and liabilities for the future consequences of events that have been recognized in the Company's financial statements or tax returns. The measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and the tax bases of the Company's assets and liabilities result in a deferred tax asset, SFAS 109 requires an evaluation of the probability of being able to realize the future benefits indicated by such asset. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion or all of the deferred tax asset will not be realized. Software Development Costs - Software development costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. The Company considers technological feasibility to be established when all planning, designing, coding and testing has been completed according to design specifications. 6 7 PERFORMANCE COMPUTING, INC. NOTES TO FINANCIAL STATEMENTS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995 (CONTINUED) - ------------------------------------------------------------------------------ After technological feasibility is established, any additional costs are capitalized. Through December 31, 1995, software has been substantially completed concurrently with the establishment of technological feasibility, and accordingly, no costs have been capitalized to date. Fair Value of Financial Instruments - Pursuant to SFAS No. 107, Disclosures about Fair Value of Financial Instruments, the Company is required to estimate the fair value of all financial instruments included on its balance sheet at December 31, 1995. The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to: (1) the relatively short period of time between origination of the instruments and their expected realization, (2) interest rates which approximate current market rates, or (3) the overall immateriality of the amounts. 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting years. Actual results could differ from those estimates. 2. EQUIPMENT AND IMPROVEMENTS Equipment and improvements consist of the following:
DECEMBER 31, ----------------------- 1994 1995 -------- --------- Machinery and equipment $140,045 $ 171,009 Vehicles 27,270 27,270 Office furniture and fixtures 2,400 2,400 --------- --------- 169,715 200,679 Less accumulated depreciation and amortization (82,928) (127,075) --------- --------- $ 86,787 $ 73,604 ======== =========
7 8 PERFORMANCE COMPUTING, INC. NOTES TO FINANCIAL STATEMENTS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995 (CONTINUED) - ------------------------------------------------------------------------------ 3. MAJOR CUSTOMERS Sales to individual customers or customers under common control which amounted to more than 10% of the Company's net revenues in the year indicated were as follows:
DECEMBER 31, ---------------------------------------- CUSTOMER 1993 1994 1995 -------- ---------- ---------- ---------- 1 $1,164,008 $1,037,239 $ 293,495 2 348,998 574,714 321,206 3 396,436 4 214,963 ---------- ---------- ---------- $1,513,006 $1,611,953 $1,226,100 ========== ========== ==========
The Company has historically derived a significant portion of its revenues from a relatively small number of customers. A decision by a significant customer to substantially decrease or delay purchases from the Company or the Company's inability to collect receivables from these customers could have a material adverse effect on the Company's financial condition and results of operations. 4. INCOME TAXES A summary of income tax expense (benefit) is as follows:
YEAR ENDED DECEMBER 31, -------------------------------------- 1993 1994 1995 ------- -------- ------ Current $ 5,700 $ 1,700 $ - Deferred (9,000) (10,000) 5,000 ------- -------- ------ $(3,300) $ (8,300) $5,000 ======= ======== ======
8 9 PERFORMANCE COMPUTING, INC. NOTES TO FINANCIAL STATEMENTS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995 (CONTINUED) - ------------------------------------------------------------------------------ A reconciliation of the effective tax rate from the federal statutory tax rate (35%) is as follows:
DECEMBER 31, ------------------------------------ 1993 1994 1995 ------- ------- -------- Income tax (benefit) expense at federal statutory rate $(6,200) $(19,500) $ 9,400 Surtax exemption and other 2,900 11,200 (4,400) ------- -------- -------- $(3,300) $ (8,300) $ 5,000 ======= ======== ========
The Company's net deferred tax liability consists primarily of accrual to cash differences at December 31, 1994 and 1995. 5. COMMITMENTS AND CONTINGENCIES Leases - The Company has a noncancelable operating lease for its operating facility. Future minimum rental commitments consist of the following: Year ending December 31: 1996 $48,991 1997 8,165 ------- $57,156 =======
Total rent expense was $19,875, $47,514 and $50,559 for the years ended December 31, 1993, 1994 and 1995, respectively. 6. EMPLOYEE BENEFIT PLAN The Company has a 401(k) Plan (the Plan) for all employees meeting minimum service requirements. There are no Company contributions to the Plan. 7. SUBSEQUENT EVENTS Effective March 14, 1996, the Company's stockholders entered into an agreement to sell all of the outstanding common shares of Performance Computing, Inc. (PCI) to Smith Micro Software, Inc. (Smith Micro). 9 EX-99.3 3 UNAUDITED PRO FORMA FINANCIAL INFORMATION 1 EXHIBIT 99.3 SMITH MICRO SOFTWARE, INC. PRO FORMA CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 (UNAUDITED) - ------------------------------------------------------------------------------ (IN THOUSANDS)
SMITH PRO FORMA MICRO PCI ADJUSTMENTS PRO FORMA ------- ----- ----------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $19,020 $ 45 $(2,100)(a) $16,965 Accounts receivable, net 3,400 191 3,591 Inventories 443 443 Prepaid expenses and other current assets 207 19 226 Deferred tax asset 40 40 ------- ----- ------- ------- Total current assets 23,110 255 (2,100) 21,265 EQUIPMENT AND IMPROVEMENTS, net 552 74 626 INTANGIBLE ASSETS 551 (c) 551 ------- ----- ------- ------- $23,662 $ 329 $(1,549) $22,442 ======= ===== ======= ======= IABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 987 $ 59 $ - $ 1,046 Accrued liabilities 495 133 600 (a) 1,228 Deferred tax liability 7 7 Note payable to stockholders 1,935 1,935 ------- ----- ------- ------- Total current liabilities 3,417 199 600 4,216 STOCKHOLDERS' EQUITY: Common stock, no par value 14 3 3 (a) 14 Additional paid-in capital 18,146 3,265 (a) 21,411 Retained earnings 2,085 127 (5,411)(b) (3,199) ------- ----- ------- ------- Total stockholders' equity 20,245 130 (2,149) 18,226 ------- ----- ------- ------- $23,662 $ 329 $(1,549) $22,442 ======= ===== ======= =======
1 2 SMITH MICRO SOFTWARE, INC. PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED) - ---------------------------------------------------------------------------- (In thousands, except per share data)
SMITH PRO FORMA MICRO PCI ADJUSTMENTS PRO FORMA ------- ------- ----------- --------- NET REVENUES $18,012 $ 2,067 $ - $20,079 COSTS AND EXPENSES: Cost of sales and services 5,887 944 6,831 Selling and marketing 1,995 349 2,344 Research and development 1,621 449 2,070 General and administrative 2,555 307 184 (d) 3,046 ------- ------- ------ ------- Total costs and expenses 12,058 2,049 184 14,291 ------- ------- ------ ------- OPERATING INCOME 5,954 18 (184) 5,788 OTHER INCOME, net 308 9 317 ------- ------- ------ ------- INCOME BEFORE INCOME TAX EXPENSE 6,262 27 (184) 6,105 INCOME TAX EXPENSE 810 5 71 (d) 744 ------- ------- ------ ------- NET INCOME $ 5,452 $ 22 $ (113) $ 5,361 ======= ======= ====== ======= SUPPLEMENTAL PRO FORMA INFORMATION (unaudited) (Note 3): Historical income before income tax expense $ 6,262 $ 27 $ (184) $ 6,105 Pro forma income tax expense 2,505 5 71 2,439 ------- ------- ------ ------- Pro forma net income $ 3,757 $ 22 $ (113) $ 3,666 ======= ======= ====== ======= Pro forma net income per common and common equivalent share $ 0.30 $ 0.28 ======= ======= Weighted average common and common equivalent shares used in pro forma computation 12,627 12,977 ======= =======
2 3 SMITH MICRO SOFTWARE, INC. NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED) - ---------------------------------------------------------------------------- 1. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION On March 14, 1996, Smith Micro Software, Inc. (Smith Micro or the Company) acquired all outstanding shares of Performance Computing, Inc. (PCI) for cash consideration of $2.1 million and 350,000 shares of the Company's common stock. In addition, the Company accrued contingent purchase price obligations of $600,000 as it is highly probable that such amounts will be paid. The aggregate purchase price was allocated based on a fair value appraisal obtained by the Company. The unaudited pro forma consolidated statement of income and unaudited pro forma consolidated balance sheet give effect on a purchase accounting basis to the acquisition of 100% of the outstanding common stock of PCI by Smith Micro. The pro forma consolidated statement of income for the fiscal year ended December 31, 1995 assumes that the acquisition occurred at January 1, 1995. The pro forma consolidated balance sheet as of December 31, 1995 assumes that the acquisition occurred on December 31, 1995. The pro forma consolidated statement of income and balance sheet do not purport to represent the results of operations or financial position of the Company had the transactions and events assumed therein occurred on the dates specified, nor are they necessarily indicative of the results of operations that may be achieved in the future. The pro forma adjustments are based on management's preliminary assumptions regarding purchase accounting adjustments. The actual allocation of the purchase price will be adjusted to the extent that actual amounts differ from management's estimates in accordance with Statement of Financial Accounting Standards No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises. The pro forma consolidated financial information is based upon certain assumptions and adjustments described in the notes to the pro forma financial statements. The pro forma consolidated financial information should be read in conjunction with the historical statements, and related notes, of Smith Micro, included in its previously filed Annual Report on Form 10-K for the year ended December 31, 1995, and PCI, included in this report on Form 8-K. In accordance with FASB Interpretation No. 4, the Company is required to write-off the amount allocated to in-process research and development acquired in the acquisition of $5,169,000. This write-off was reflected in the period in which the acquisition was consummated and has been reflected as a reduction in retained earnings in the pro forma consolidated balance sheet, but has not been reflected in the pro forma consolidated statement of income, as it is a material nonrecurring charge which resulted directly from the acquisition. 3 4 SMITH MICRO SOFTWARE, INC. NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED) - ---------------------------------------------------------------------------- 2. PRO FORMA ADJUSTMENTS a. Record the purchase price of the acquisition as follows: Cash paid $2,100 Fair value of stock issued 3,265 Accrued purchase obligation 600 ------ $5,965 ======
b. Record the effect of the write-off of acquired in-process research and development and eliminate historical stockholders' equity of PCI. c. Allocate excess of purchase price over net tangible assets and acquired in-process research and development. Intangible assets: Value of existing technology $ 154 Covenants not-to-compete 381 Goodwill 16 ------ $ 551 ======
d. To record amortization of the intangible assets and corresponding tax benefit, related to existing technology and covenants not-to-compete, based on the straight-line method over a three-year useful life. 3. SUPPLEMENTAL PRO FORMA INFORMATION From November 1992 through September 18, 1995, the Company was treated as an S corporation pursuant to the Internal Revenue Code. Subsequent to the effective date of the initial public offering, the Company's tax status reverted back to that of a C corporation. The pro forma information presented on the statements of income reflect a provision for income taxes as if the Company had been taxed as a C corporation for the entire year, assuming effective tax rates that would have been in effect at such time. The principal difference between effective pro forma tax rate and the statutory federal tax rate relates to state taxes and research and development tax credits. 4 5 SMITH MICRO SOFTWARE, INC. NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)(CONTINUED) - ---------------------------------------------------------------------------- Pro forma net income per share is based on the weighted average number of shares of common stock and common stock equivalents (stock options) outstanding during the period. The dilutive effect of such common stock equivalents is computed using the treasury stock method. For purposes of such computation, options granted within one year of the initial public offering have been treated as outstanding for the entire year. 5 -----END PRIVACY-ENHANCED MESSAGE-----