<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/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
</TABLE>
Page 4 of 5
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Numbered Page 5
<PAGE> 5
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
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.
</TABLE>
______________
* Incorporated by reference from Smith Micro's Form 8-K as filed with
the Securities and Exchange Commission on March 28, 1996.
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<PAGE> 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
<PAGE> 2
PERFORMANCE COMPUTING, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
See notes to financial statements.
2
<PAGE> 3
PERFORMANCE COMPUTING, INC.
STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
See notes to financial statements.
3
<PAGE> 4
PERFORMANCE COMPUTING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
------------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
------- ------- --------- --------
<S> <C> <C> <C> <C>
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
=== ====== ======== ========
</TABLE>
See notes to financial statements.
4
<PAGE> 5
PERFORMANCE COMPUTING, INC.
STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1993 1994 1995
-------- -------- ---------
<S> <C> <C> <C>
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 $ -
========= ======== =========
</TABLE>
See notes to financial statements.
5
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
-------- ---------
<S> <C> <C>
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
======== =========
</TABLE>
7
<PAGE> 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:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
CUSTOMER 1993 1994 1995
-------- ---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995
------- -------- ------
<S> <C> <C> <C>
Current $ 5,700 $ 1,700 $ -
Deferred (9,000) (10,000) 5,000
------- -------- ------
$(3,300) $ (8,300) $5,000
======= ======== ======
</TABLE>
8
<PAGE> 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:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
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
======= ======== ========
</TABLE>
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:
<TABLE>
<S> <C>
Year ending December 31:
1996 $48,991
1997 8,165
-------
$57,156
=======
</TABLE>
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
<PAGE> 1
EXHIBIT 99.3
SMITH MICRO SOFTWARE, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995 (UNAUDITED)
- ------------------------------------------------------------------------------
(IN THOUSANDS)
<TABLE>
<CAPTION>
SMITH PRO FORMA
MICRO PCI ADJUSTMENTS PRO FORMA
------- ----- ----------- ---------
<S> <C> <C> <C> <C>
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
======= ===== ======= =======
</TABLE>
1
<PAGE> 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)
<TABLE>
<CAPTION>
SMITH PRO FORMA
MICRO PCI ADJUSTMENTS PRO FORMA
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
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
======= =======
</TABLE>
2
<PAGE> 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
<PAGE> 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:
<TABLE>
<S> <C>
Cash paid $2,100
Fair value of stock issued 3,265
Accrued purchase obligation 600
------
$5,965
======
</TABLE>
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.
<TABLE>
<S> <C>
Intangible assets:
Value of existing technology $ 154
Covenants not-to-compete 381
Goodwill 16
------
$ 551
======
</TABLE>
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
<PAGE> 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
