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