8-K
SMITH MICRO SOFTWARE, INC. (SMSI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
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 8, 2021
Smith Micro Software, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 001-35525 | 33-0029027 |
|---|---|---|
| (State or Other Jurisdiction<br> <br>of Incorporation) | (Commission<br> <br>File Number) | (IRS Employer<br> <br>Identification No.) |
5800 Corporate Drive, Pittsburgh, PA 15237
(Address of Principal Executive Offices)
Registrant’s Telephone Number, Including Area Code: (412) 837-5300
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br> <br>Symbol(s) | Name of each exchange<br> <br>on which registered |
|---|---|---|
| Common Stock, $0.001 par value per share | SMSI | NASDAQ |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter)
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 1.01 | Entry into a Material Definitive Agreement. |
|---|
Avast Acquisition
Smith Micro Software, Inc. (the “Company” or “Smith Micro”) (NASDAQ: SMSI) and Avast plc (“Avast”) (LSE: AVST) today announced that they have entered into a Membership Interest and Asset Purchase agreement (the “Purchase Agreement”), whereby Smith Micro will acquire substantially all of the assets of Avast and its subsidiaries related to its Family Safety Mobile Software business (including application source code, license rights to shared source code, and both ownership and license rights to a patent portfolio) and certain specified assumed liabilities with respect thereto, along with all of the outstanding membership interests of Location Labs, LLC, which comprises Avast’s U.S. carrier business (collectively the “Avast Family Safety Mobile Business”).
The acquisition encompasses Avast’s portfolio of mobile parental controls services including location features, content filtering and screen time management, and will include five mobile operator contracts, a number of which are US tier-one contracts, and a commercial partnership with Avast to provide further service to current and potential customers. The US tier-one contracts are comprised of one large, recently renewed contract and several legacy product contracts with declining revenue.
Pursuant to the terms of the transaction, Smith Micro will pay Avast total consideration of approximately $66 million, subject to (i) customary purchase price adjustments, (ii) an escrow holdback equal to $4.95 million for a period of at least twelve months, pending resolution of certain outstanding claims, to secure performance of indemnification and other post-closing obligations, and (iii) additional potential earn-out consideration and/or revenue sharing based on the outcome of contract renewal efforts with one particular US tier-one customer of the acquired business. The purchase price may be comprised of both cash and Smith Micro common stock (at an effective price of $6.85 per share). Smith Micro has agreed to register for resale with the Securities and Exchange Commission any common stock issued to Avast pursuant to customary registration rights.
With respect to the earn-out consideration, if Smith Micro renews or extends the term of the existing contract, or initiates a substantially similar business relationship, with such customer prior to the one-year anniversary of the closing of the transaction (the “Anniversary Date”), Smith Micro shall pay Avast an earn-out payment of up to $14.0 million, with such amount being reduced by $2.0 million each month following the six-month anniversary of the closing of the transaction. During the period beginning with the closing of the transaction and ending on the earlier of the Anniversary Date or the occurrence of the circumstances described in the preceding sentence, Smith Micro shall share 75 percent of the gross revenues received under the existing contract with such customer with Avast.
The obligations of the parties to consummate the transactions contemplated by the Purchase Agreement are subject to the satisfaction or waiver of customary closing conditions with respect to the accuracy of disclosures, continued operation of the business by the sellers in the ordinary course up until closing and delivery of other customary closing deliverables by the parties. The consummation of the acquisition is expected to occur in mid-April, 2021. At the same time, the parties intend to enter into a preferred partner agreement in which they will collaborate to respond to future carrier tenders which require both family mobile safety and IoT or digital security services.
In order to service these new customer contracts and separate product offerings, Smith Micro will acquire approximately 160 employees from Avast and its subsidiaries. Those employees are located in (i) the United States and Serbia, which are existing locations for Smith Micro, and (ii) the Czech Republic and Slovakia, which will become two new strategic European locations for Smith Micro. All of Smith Micro’s markets provide an impressive talent population necessary to continue Smith Micro’s product development and growth.
The foregoing description of the terms and conditions of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Purchase Agreement, a copy of which will be filed by amendment as Exhibit 2.1 to this Current Report on Form 8-K and incorporated herein by reference.
The Purchase Agreement governs the contractual rights between the parties in relation to the purchase and sale of the assets. The Purchase Agreement is being filed as an exhibit to this Current Report on Form 8-K to provide information regarding its terms and is not intended to provide, modify or supplement any information about the Company, Avast or any of their respective subsidiaries or affiliates, or their respective businesses. In particular, the Purchase Agreement is not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to the Company or Avast. The representations and warranties contained in the Purchase Agreement have been negotiated with the principal purpose of allocating risk between the parties, rather than establishing matters as facts. The representations and warranties may also be subject to contractual standards of materiality that may be different from those generally applicable under the securities laws. For the foregoing reasons, the representations and warranties should not be relied upon as statements of factual information.
| Item 3.02 | Unregistered Sales of Equity Securities |
|---|
The matters described in Section 1.01 of this Current Report on Form 8-K are incorporated herein by reference.
| Item 7.01 | Regulation FD Disclosure. |
|---|
On March 8, 2021, Smith Micro Software, Inc. (the “Company”) issued two press releases: one announcing the launch of an underwritten public offering of the Company’s common stock, par value $0.001 per share, and a second announcing the signing of the Purchase Agreement with Avast discussed in Item 1.01. Copies of the press releases are attached hereto as Exhibits 99.1 and 99.2.
The information presented in Item 7.01 of this Current Report on Form 8-K and the accompanying press release shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, unless the Company specifically states that the information is to be considered “filed” under the Exchange Act or specifically incorporates it by reference into a filing under the Securities Act or the Exchange Act.
| Item 9.01. | Financial Statements and Exhibits. |
|---|
(a) Financial Statements of Business Acquired.
The audited abbreviated statement of assets acquired and liabilities assumed and abbreviated statement of revenue and direct expenses for the years ended December 31, 2020 and 2019 for the Avast Family Safety Mobile Business, and related notes thereto and the related report of SingerLewak LLP, are filed herewith as Exhibit 99.3 and incorporated herein by reference.
(d) Exhibits
| Exhibit<br>No. | Description |
|---|---|
| 2.1 | Membership Interest and Asset Purchase Agreement by and among Smith Micro, Avast and certain subsidiaries of Avast, dated March 8, 2021.* |
| 23.1 | Consent of SingerLewak LLP, independent registered public accounting firm. |
| 99.1 | Press Release dated March 8, 2021. |
| 99.2 | Press Release dated March 8, 2021. |
| 99.3 | The audited abbreviated statement of assets acquired and liabilities assumed and abbreviated statement of revenue and direct expenses for the years ended December 31, 2020 and 2019 for the Avast Family Safety Mobile Business, and related notes thereto and the related report of SingerLewak LLP |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | To be filed by amendment. |
| --- | --- |
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 hereunto duly authorized.
| SMITH MICRO SOFTWARE, INC. | ||
|---|---|---|
| Date: March 8, 2021 | /s/ Timothy C. Huffmyer | |
| Name: | Timothy C. Huffmyer | |
| Title: | Vice President and Chief Financial Officer |
EX-23.1
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements (Nos. 333-129132, 333-149222, 333-169671, 333-179764, 333-202964, 333-205924, and 333-226914) on Form S-8 and Registration Statements (Nos. 333-134611, 333-198728, 333-213194, 333-213778, 333-224143, 333-225389, 333-226918, 333-228519, 333-230154, and 333-238053) on Form S-3 of Smith Micro Software, Inc. and its subsidiaries (collectively, the “Company”) of our report dated March 5, 2021, relating to the abbreviated financial statements of the Avast Family Safety Mobile Business appearing in this current report on Form 8-K of the Company.
/s/ SingerLewak LLP
Los Angeles, California
March 8, 2021
EX-99.1
Exhibit 99.1
Smith Micro Software & Avast Announce Purchase Agreement;
Enters into Strategic Partnership
Smith Micro announces intention to acquire Avast’s Family Safety Mobile Business and establish reciprocal preferred partner status
PITTSBURGH, PA, USA and LONDON, UNITED KINGDOM, March 08, 2021 – Smith Micro Software, Inc. (the “Company” or “Smith Micro”) (NASDAQ: SMSI) and Avast plc (“Avast”) (LSE: AVST) today announced a definitive agreement under which Smith Micro will acquire Avast’s Family Safety Mobile Business. The acquisition encompasses Avast’s portfolio of mobile parental controls services including location features, content filtering and screen time management, and will cement Smith Micro as a market leader in delivering family mobile software solutions to the carrier industry.
“Acquiring the Family Safety Mobile Business from Avast will present a significant opportunity for Smith Micro to transform the global market for carrier-grade digital family mobile software,” said William W. Smith, Jr., President and CEO of Smith Micro Software. “The acquisition will create one of the leading family safety software solutions providers for wireless carriers and will blend two highly experienced and talented development teams.”
With this acquisition, Smith Micro intends to further expand its white-label digital safety solutions, strengthening its position as a leading family safety software-as-a-service (SaaS) provider on a global basis while allowing Smith Micro to add critical headcount in the U.S. and Europe. Avast will retain its carrier IoT security and in-home protection services, such as those provisioned through the Avast Smart Life platform and the award-winning Avast Omni product, and continue to serve its existing non-family customer base with these solutions.
“Forecasts indicate there will be 24.1 billion active IoT devices by 2030^1^ so we see great potential for our core digital security solutions as people’s lives become increasingly connected,” said Nick Viney, Senior Vice President, Avast Partner. “This agreement gives Avast’s Partner team the opportunity to focus on building out our priority cybersecurity and privacy offerings and to expand into new vertical markets as well as the telecommunications space by partnering with Smith Micro to deliver our products and services to their customers as well as ours.”
The deal is expected to close mid-April 2021. Under the terms of the agreement, Smith Micro will pay $66 million, subject to a potential additional earn-out upon certain performance criteria being satisfied. At the same time, both parties intend to enter a preferred partner arrangement in which they will collaborate to respond to future carrier tenders which require both family mobile safety and IoT or digital security services.
“Just as important, the intended go-forward collaboration both parties will gain as a result of the deal will combine Smith Micro’s expertise in providing mobile family safety solutions to wireless carriers with Avast’s expertise in consumer cybersecurity and digital privacy,” Smith continued. “This strategic partnership represents definitive growth potential for both businesses as we would be positioned to combine our complementary solution portfolios and coordinate our sales and marketing efforts to further penetrate wireless carrier accounts on a global scale.”
| ^1^ | The Internet of Things (IoT) Market 2019 – 2030, Transforma Insights |
|---|
About Smith Micro Software, Inc.
Smith Micro develops software to simplify and enhance the mobile experience, providing solutions to some of the leading wireless service providers and cable MSOs around the world. From enabling the family digital lifestyle to providing powerful voice messaging capabilities, our solutions enrich today’s connected lifestyles while creating new opportunities to engage consumers via smartphones and consumer IoT devices. The Smith Micro portfolio also includes a wide range of products for creating, sharing and monetizing rich content, such as visual voice messaging, optimizing retail content display and performing analytics on any product set. For more information, visit www.smithmicro.com.
About Avast
Avast (LSE:AVST), a FTSE 100 company, is a global leader in digital security and privacy products. With over 435 million users online, Avast offers products under the Avast and AVG brands that protect people from threats on the internet and the evolving IoT threat landscape. The company’s threat detection network is among the most advanced in the world, using machine learning and artificial intelligence technologies to detect and stop threats in real time. Avast digital security products for Mobile, PC or Mac are top-ranked and certified by VB100, AV-Comparatives, AV-Test, SE Labs and others. Avast is a member of Coalition Against Stalkerware, No More Ransom and Internet Watch Foundation. Visit: www.avast.com.
Media Contacts
| At Smith Micro: | At Avast: |
|---|---|
| Charles Messman | Stephanie Kane |
| +1 949.362.2306 | +44 7817 631016 |
| IR@smithmicro.com | Stephanie.Kane@Avast.com |
| Margo Fischgrund | Whitney Glockner Black |
| +1 412.414.9960 | +1 650.740.9337 |
| Margo@MindfulKreative.com | Whitney.Glocknerblack@Avast.com |
B. Riley Securities, Inc. acted as financial advisor to Smith Micro in connection with the acquisition, and Roth Capital Partners provided a fairness opinion to the Smith Micro board of directors with respect to the acquisition.
Morgan Stanley & Co. International plc (“Morgan Stanley”) is acting as financial advisor to Avast Plc (“Avast”). and to no one else. Morgan Stanley is authorised by the Prudential Regulation Authority (“PRA”) and regulated by the Financial Conduct Authority and the PRA. In connection with such matters, Morgan Stanley’s and its affiliates’ respective directors, officers, employees and agents will not regard any other person as its client, nor will Morgan Stanley be responsible to anyone other than Avast. for providing the protections afforded to their clients or for providing advice in connection with the matters described in this announcement or any matter referred to herein.
Forward-Looking Statements
Certain statementsin this release are forward-looking statements regarding future events or results, including statements related to our financial prospects, the anticipated impact of our announced acquisition of the Family Safety Mobile Business from Avast, thesuccessful launch of our underwritten public offering of common stock, the proceeds of which will be used to fund the acquisition from Avast, the benefits that we believe our products will offer to our customers, and other statements using suchwords as “expect,” “anticipate,” “believe,” “plan,” “intend,” “could,” “may,” “will” and other similar expressions. Forward-looking statements involve risks anduncertainties, which could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Among the important factors that could cause or contribute to such differences are: our continued customerconcentration and ability to establish and maintain strategic relationships with customers and manufacturers; our ability to retain key personnel; possible harm to our business from future security and privacy breaches; effective operation withoperating systems; devices and networks that we do not control; the existence of undetected software defects in our products; competition in our industry and the core vertical markets in which we operate; changes resulting from or relating to theongoing COVID-19 pandemic; the rapid technological evolution in our market; risks inherent with international operations; compliance with applicable laws and regulations; our ability to protect ourintellectual property and operate without infringing on the intellectual property of others; any failure to meet the continued listing requirements of NASDAQ; our ability to continue to raise adequate capital; maintaining ongoing profitability;ability to continue as a going concern; changes in operating income due to shifts in our sales mix and variability in our operating expenses; our reliance on third-party intellectual property and licenses; the difficulty of predicting our quarterlyrevenues and operating results; fluctuation in our stock price, including as a result of the announcement of the Avast acquisition and/or our announced public offering; the dilutive impact of potential equity offerings; potential non-accretive impacts of the Avast acquisition; unexpected changes in our financial position or results of operations following the Avast acquisition; and a failure to consummate the Avast acquisition. These andother factors discussed in our filings with the Securities and Exchange Commission, including our filings on Forms 10-K and 10-Q, and the preliminary prospectus withrespect to our public offering, could cause actual results to differ materially from those expressed or implied in any forward-looking statements. The forward-looking statements contained in this release are made on the basis of the views andassumptions of management, and we do not undertake any obligation to update these statements to reflect events or circumstances occurring after the date of this release.
EX-99.2
Exhibit 99.2
PR INQUIRIES:
Charles Messman
Investor Relations
+1 949-362-2306
IR@smithmicro.com
Smith Micro Announces Launch of Follow-on Public Offering
PITTSBURGH, PA, March 8, 2021 –Smith Micro Software, Inc. (the “Company” or “Smith Micro”) (NASDAQ: SMSI), a software development company that sells proven solutions to wireless carriers and Cable MSOs, today announced the launch of a $62 million underwritten public offering of the Company’s common stock pursuant to a registration statement filed with the Securities and Exchange Commission (“SEC”). In addition, Smith Micro expects to grant the underwriters of the offering a 30-day option to purchase up to an additional 15% of its shares of the Company’s common stock at the public offering price, less underwriting discounts and commissions, to cover over-allotments.
Smith Micro intends to use the net proceeds from this offering to fund the purchase price payable to Avast plc (“Avast”) pursuant to the Company’s planned acquisition of Avast’s Family Safety Mobile Software Business and for general corporate purposes.
B. Riley Securities and Roth Capital Partners are acting as joint book-running managers for the offering, with Lake Street Capital Markets and The Benchmark Company acting as Co-Managers. SEG Group, a division of Bradley Woods & Company, is acting as a Financial Advisor.
A shelf registration statement on Form S-3, File No. 333-238053, relating to the public offering of the shares of common stock described above was filed with the Securities and Exchange Commission (“SEC”) and declared effective on May 13, 2020. A preliminary prospectus supplement describing the terms of the offering and the accompanying base prospectus have been filed with the SEC and are available for free on the SEC’s website located at www.sec.gov.
The offering of these securities may be made only by means of a prospectus. Copies of the preliminary prospectus supplement and the accompanying prospectus relating to the offering may be obtained by contacting: B. Riley Securities, Attention: Prospectus Department, 1300 17th St. North, Ste. 1300, Arlington, VA 22209, or by email at prospectuses@brileyfin.com, or by telephone at (703) 312-9580.
This press release is not an offer to sell, or a solicitation of an offer to buy, nor shall there be any sale of these securities in any state or jurisdiction in which such an offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
About Smith Micro Software, Inc.
Smith Micro develops software to simplify and enhance the mobile experience, providing solutions to some of the leading wireless service providers and cable MSOs around the world. From enabling the family digital lifestyle to providing powerful voice messaging capabilities, our solutions enrich today’s connected lifestyles while creating new opportunities to engage consumers via smartphones and consumer IoT devices. The Smith Micro portfolio also includes a wide range of products for creating, sharing and monetizing rich content, such as visual voice messaging, optimizing retail content display and performing analytics on any product set. For more information, visit www.smithmicro.com.
| Smith Micro Announces Launch of Follow-on Public Offering | Page<br> 2 |
|---|
Forward-LookingStatements
Certain statements in this release are forward-looking statements regarding future events or results, including statements relatedto our financial prospects, the anticipated impact of our announced acquisition of the Family Safety Mobile Business from Avast, the successful launch of our underwritten public offering of common stock, the proceeds of which will be used to fundthe acquisition from Avast, the benefits that we believe our products will offer to our customers, and other statements using such words as “expect,” “anticipate,” “believe,” “plan,” “intend,”“could,” “may,” “will” and other similar expressions. Forward-looking statements involve risks and uncertainties, which could cause actual results to differ materially from those expressed or implied in theforward-looking statements. Among the important factors that could cause or contribute to such differences are: our continued customer concentration and ability to establish and maintain strategic relationships with customers and manufacturers; ourability to retain key personnel; possible harm to our business from future security and privacy breaches; effective operation with operating systems; devices and networks that we do not control; the existence of undetected software defects in ourproducts; competition in our industry and the core vertical markets in which we operate; changes resulting from or relating to the ongoing COVID-19 pandemic; the rapid technological evolution in our market;risks inherent with international operations; compliance with applicable laws and regulations; our ability to protect our intellectual property and operate without infringing on the intellectual property of others; any failure to meet the continuedlisting requirements of NASDAQ; our ability to continue to raise adequate capital; maintaining ongoing profitability; ability to continue as a going concern; changes in operating income due to shifts in our sales mix and variability in our operatingexpenses; our reliance on third-party intellectual property and licenses; the difficulty of predicting our quarterly revenues and operating results; fluctuation in our stock price, including as a result of the announcement of the Avast acquisitionand/or our announced public offering; the dilutive impact of potential equity offerings; potential non-accretive impacts of the Avast acquisition; unexpected changes in our financial position or results ofoperations following the Avast acquisition; and a failure to consummate the Avast acquisition. These and other factors discussed in our filings with the Securities and Exchange Commission, including our filings on Forms 10-K and 10-Q, and the preliminary prospectus with respect to our public offering, could cause actual results to differ materially from those expressed or implied in anyforward-looking statements. The forward-looking statements contained in this release are made on the basis of the views and assumptions of management, and we do not undertake any obligation to update these statements to reflect events orcircumstances occurring after the date of this release.
EX-99.3
Exhibit 99.3
Family Safety Mobile Software Business
Abbreviated Financial Statements
Table of Contents
| Page | ||
|---|---|---|
| Independent Auditors’ Report | 1 | |
| Statements of Assets Acquired and Liabilities Assumed as of December 31, 2020 and<br>2019 | 2 | |
| Statements of Revenue and Direct Expenses for the Years ended December 31, 2020 and<br>2019 | 3 | |
| Notes to Abbreviated Financial Statements | 4 |
REPORT OF INDEPENDENT
AUDITORS
To Family Safety Mobile Business
We have audited the accompanying abbreviated financial statements of Family Safety Mobile Business, which comprise the statement of assets acquired and liabilities assumed as of December 31, 2020 and 2019, and the related statement of revenue and direct operating expenses for the years then ended, and the related notes to the abbreviated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these abbreviated financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these abbreviated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the abbreviated financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the abbreviated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the abbreviated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the abbreviated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the abbreviated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the abbreviated financial statements referred to above present fairly, in all material respects, the statement of assets acquired and liabilities assumed as of December 31, 2020 and 2019, and the related statement of revenue and direct operating expenses for the years then ended in conformity with U.S. generally accepted accounting principles.
Basis of Accounting
As described in Note 1, the abbreviated financial statements have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of Family Safety Mobile Business’ financial position, revenue and expenses. Our opinion is not modified with respect to this matter.
Los Angeles, California
March 5, 2021
Family Safety Mobile Software Business
Statements of Assets Acquired and Liabilities Assumed
| As of December 31, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| ASSETS | ||||
| Current assets | ||||
| Account receivables, net | $ | 3,150,819 | $ | 6,468,396 |
| Unbilled receivables | 3,093,874 | 3,896,529 | ||
| Prepaid expenses | 365,376 | 400,310 | ||
| Total current assets | 6,610,070 | 10,765,235 | ||
| Property and equipment, net | 1,078,389 | 1,407,617 | ||
| Total assets | $ | 7,688,459 | $ | 12,172,852 |
| LIABILITIES | ||||
| Current liabilities | ||||
| Accounts payable | $ | 81,131 | $ | 3,794 |
| Accrued expenses and other current liabilities | 2,808,138 | 1,767,654 | ||
| Deferred revenue | 198,290 | 202,208 | ||
| Restructuring expenses | 1,208,712 | — | ||
| Payroll liabilities | 1,485,316 | 1,694,125 | ||
| Total current liabilities | 5,781,588 | 3,667,781 | ||
| Net assets acquired | $ | 1,906,871 | $ | 8,505,071 |
The accompany notes are integral part of these abbreviated financial statements.
2
Family Safety Mobile Software Business
Statements of Revenue and Direct Expenses
| Year Ended December 31, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Revenue | ||||
| Direct expenses: | $ | 36,608,029 | $ | 44,158,564 |
| Personnel costs | 23,454,732 | 21,842,552 | ||
| General and administrative | 8,062,416 | 8,515,848 | ||
| Depreciation | 569,629 | 409,807 | ||
| Total direct expense | 32,086,777 | 30,768,207 | ||
| Revenue in excess of direct expenses | $ | 4,521,252 | $ | 13,390,357 |
The accompany notes are integral part of these abbreviated financial statements.
3
Family Safety Mobile Software Business
Notes to Abbreviated Financial Statements
Note 1 – Business Overview and Basis of Presentation
Avast Plc, together with its subsidiaries (collectively, “Avast” or “the Company”), is a leading global cybersecurity provider. Avast Plc is a public limited company incorporated and domiciled in the UK, and registered under the laws of England and Wales.
The accompanying abbreviated financial statements were prepared to summarize certain activity of the Family Safety Mobile Software Business (“Business”) owned by Avast, which are comprised of the statements of assets acquired and liabilities assumed as of December 31, 2020 and 2019, and the statements of revenue and direct expenses for the years ended December 31, 2020 and 2019. These statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The statements of revenue and direct expenses include revenue and expenses directly attributable to the Business. Direct expenses include personnel costs, general and administrative costs and depreciation directly associated with the Business’s revenue production activities.
The Business primarily consists of customer agreements with the United States (U.S.) based tier one mobile carriers. Although not one legal entity, the Business also includes direct expenses necessary to perform the primary obligations of the customer contracts.
These abbreviated financial statements have been prepared in preparation for a potential transaction between Avast and Smith Micro Software, Inc. (“Smith Micro”) and for the purpose of assisting Smith Micro in complying with the rules and regulations of the Securities and Exchange Commission (“SEC”) and are not intended to be a complete presentation of Avast’s assets, liabilities, equity, revenues, expenses and cash flows.
Smith Micro believes it is impractical to prepare full stand-alone or carve-out financial statements for the Business due to the following reasons:
| • | The Acquired Business is not comprised of separate legal entities and has not been accounted for as a separate<br>entity, subsidiary or division of the Company’s overall business. |
|---|---|
| • | The Company did not manage the Acquired Business as a stand-alone business. |
| --- | --- |
| • | Stand-alone or carve-out financial statements of the Acquired Business<br>have not previously been prepared. |
| --- | --- |
| • | The Acquired Business was a small, non-strategic product line of the<br>Company’s overall business. |
| --- | --- |
| • | The Company has never allocated corporate expenses to the Acquired Business, including interest expense,<br>corporate overhead expenses and income taxes. Additionally, this information is not readily available and any allocation would be subjective and may not be relevant due to differences in corporate structures between the Company and Smith Micro.<br> |
| --- | --- |
| • | The Company did not separately distinguish cash flow requirements or operating, investing or financing activities<br>of the Acquired Business. |
| --- | --- |
As a result of the foregoing, it is impracticable to prepare full financial statements as required by Regulation S-X. These abbreviated financial statements may not be indicative of what they would have been had the Business been an independent stand-alone entity, nor are they necessarily indicative of future results of the operation going forward due to the omission of various operating expenses.
4
Note 2 – Significant Accounting Policies
Use of estimates – The preparation of the abbreviated financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts in the abbreviated financial statements and accompanying notes. Actual amounts could differ from those estimated amounts. These financial statements include allocations and estimates, such as the direct costs paid by the Business, that are not necessarily indicative of the costs and expenses that would have resulted if the Acquired Business had been operated as a separate entity, or the future results of the Company.
Revenue recognition – The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue From Contracts With Customers. This standard was issued to provide a common revenue recognition model for entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services.
To determine revenue recognition for contracts with customers, the Business performs the following five steps:
| • | Identify the contract with the customer. |
|---|---|
| • | Identify the performance obligations in the contract. |
| --- | --- |
| • | Determine the transaction price. |
| --- | --- |
| • | Allocate the transaction price to the performance obligations in the contract. |
| --- | --- |
| • | Recognize revenue when the Business satisfies a performance obligation. |
| --- | --- |
The Business’s revenues related to cloud based solutions provide locator, phone controls and drive safe solutions to mobile carriers and their subscribers. Once the cloud based solution is developed by the Business based on the customer’s requirements, access to the cloud platform is then provided to the customer’s subscribers. Customer subscribers either purchase subscription plans or the plan is provided with other customer services, which activate their access to the cloud services provided by the Business. The revenue generated by the Business is based on revenue sharing percentages or rate per active subscriber account, as stated in the customer agreements. Revenue is recognized based on the delivery of monthly cloud services to the customer and their subscribers.
Personnel costs – Personnel costs consist primarily of wages and benefits for personnel associated with engineering, operations, product management and design, customer support and account management.
General and administrative – General and administrative expenses consist primarily of costs associated with hosting fees, marketing and other expenses.
Income taxes – The statements of revenue and direct expenses do not include a provision for income taxes.
Concentrations of Credit Risk – Four agreements with U.S.-based carriers account for primarily all the revenues during 2020 and 2019. These agreements account for primarily all the receivable balance and unbilled receivable balance as of December 31, 2020 and 2019. The allowance for doubtful accounts was not material as of December 31, 2020 and 2019.
Property and equipment, net – Property and equipment is stated at cost as of December 31, 2020 and 2019. Property and equipment is depreciated under the straight-line method over the estimated useful lives of the assets ranging from 3 to 5 years.
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Restructuring – During the fourth quarter of 2020, the Business announced and communicated a restructuring plan, which primarily impacted the U.S. operations. The total cost of the restructuring plan incurred in 2020 was $1,208,712. The restructuring costs consist of personnel costs, which are expected to be paid within the first half of 2021.
Foreign Currency Translation – The reporting and functional currency of the Business is the U.S. dollar. Gains or losses arising from transactions denominated in non-U.S. dollar currencies and the effect of remeasuring non-U.S. denominated assets and liabilities are not material for the years ended December 31, 2020 and 2019.
Commitments and contingencies – The Business may be subject to legal proceedings and claims that arise in the ordinary course of business. The Business has received a claim from one customer for over payment of $1,020,708 for the fiscal periods during 2016 to 2020. This claim is recorded within accrued expenses and other current liabilities in the statements of assets acquired and liabilities assumed.
Additionally, one customer had requested indemnification related to a IP Infringement claim filed against the customer. Due to the nature of the claim, the Business has not provided indemnification, however the Business is providing support and cooperating fully with the customer. Consequently there is nothing recorded within the financial statements regarding this matter.
Other than the claims noted above, management is not aware of any asserted or pending litigation or claims against the Business that it expects to have a material adverse effect on its financial condition or results from operations.
Corporate overhead and accounting– Avast performs certain functions for the Business including, but not limited to, corporate management, certain legal services, administration of insurance, regulatory and compliance, treasury, information systems, finance, corporate income tax administration, employee compensation and benefit management, facilities and other corporate expenses. The costs of these functions historically have not been allocated to its products, are not directly attributable or specifically identifiable to the Business, and therefore, are not included in the abbreviated financial statements.
Income taxes and interest expense have not been included in the accompanying statements as these expenses are not specifically attributable to the Business.
Note 3 – Subsequent Events
Subsequent events have been evaluated through March 5, 2021, the date these abbreviated financial statements were available to be issued. During the first quarter of 2021, one U.S. based carrier customer notified the Business that it was terminating the agreement in 2021, which will cause a reduction of revenue in future periods. Other than the transactions discussed above, there were no material subsequent events which would warrant inclusion in the abbreviated financial statements.
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