Techstep ASA — Interim / Quarterly Report 2016

Apr 28, 2016

QUARTERLY REPORT Q1 2016.

CONTENT

BIRDSTEP TECHNOLOGY ASA INTERIM REPORT	3
CEO UPDATE	4
RESULT OF OPERATION	6
CASH FLOW	7
SUBSEQUENT EVENT	8
FINANCIAL STATEMENTS	9
NOTES	14
DISCONTINUED OPERATIONS	15
RISKS	17
FINANCIAL CALENDAR 2016	18

BIRDSTEP TECHNOLOGY ASA INTERIM REPORT.

HIGHLIGHTS FIRST QUARTER 2016

• > Signed share purchase agreement for sale of all shares in Birdstep Technology AB to Smith Micro Software Inc for USD 2.0 million free of cash and net debt.
• > Letter of intent signed with Middelborg AS to pursue the possibility of a merger between Birdstep and subsidiary of Middelborg into which Middelborg will place its ownership interests in Teki Solutions.
• > Letter of intent signed with Smith Micro Software Inc with the aim to be granted certain rights to distribute and utilize Smith Micro's products, and principle agreement signed with Teki Solutions to be the qualified partner.
• > A share consolidation was carried out in the ratio of 10:1.
• > Private placement of 3,400,000 shares to Middelborg Invest for a consideration of NOK 7.48 million, increasing total number of shares in Birdstep to 13,562,163.
• > Ingrid Leisner and Tore Traaseth was appointed to the Board of Directors.
• > Lonnie Schilling will step down from his position as the Company's CEO after a notice period of six months starting 1 April.

KEY FIGURES JANUARY - MARCH 2016

• > The financial figures presented below are excluding Birdstep Technology AB due to discontinued operations.
• > Revenue was NOK 0.0 (0.1) million.
• > EBITDA ended at NOK -5.0 (-8.9) million, representing a decreased loss of NOK 3.9 million over the same period last year.
• > Continuing operating earnings per share amounted to NOK -0.40 (-0.30).
• > Total net cash flow amounted to NOK 13.4 (-2.3) million.
• > Cash balance was NOK 20.0 (14,4) million after cash and cash equivalents classified as held for sale.

SUBSEQUENT EVENTS

> The sale of all shares in Birdstep Technology AB to Smith Micro Software Inc was finalized 7 April.

CEO UPDATE.

IN THE FIRST QUARTER OF 2016 BIRDSTEP TECHNOLOGY ASA (BIRDSTEP) ENTERED INTO AN AGREEMENT TO SELL ITS WHOLLY OWNED SUBSIDIARY BIRDSTEP TECHNOLOGY AB ("BIRDSTEP AB") TO SMITH MICRO SOFTWARE, INC. (SMSI) FOR USD 2.0 MIL-LION ON CASH FREE NET DEBT BASIS.

I am very pleased that the transaction was approved by the shareholders at the extraordinary general meeting on 31 March followed by the finalization of the sale on 7 April.

It has been a rocky road for Birdstep ever since it was founded 20 years ago. The company has operated in a very exciting, dynamic but also transforming, competitive and sometimes difficult market. Despite our high tech technology and continuing efforts to reach new market opportunities we finally faced challenges that

required rapid adjustments throughout 2015 and into 2016. After we lost our main revenues with Sprint in November 2015, accounting for 87 % of total revenue 2015, the financial outlook became critical. We had no other choice than to intensify our efforts to look for strategic alternatives in order to avoid further difficulties. I believe that the transaction with SMSI can secure a future for both the technology and the majority of Birdstep's employees under the ownership of SMSI.

For Birdstep a number of actions to create value for its shareholders has already started;

Firstly; Concurrently with the entering of the agreement for the sale of Birdstep AB, Birdstep and SMSI entered into a letter of intent with the aim that Birdstep shall be granted certain rights to distribute and utilise SMSI`s products (including the products of Birdstep AB) in the Nordic markets in cooperation with a qualified partner.

Secondly; Birdstep has furthermore entered into a principal terms agreement with Teki Solutions AS, with the aim that Teki Solutions shall be appointed as BIRD's qualified partner in the cooperation with SMSI and that Birdstep and Teki Solutions shall share the profits from the cooperation with SMSI on a 50/50 profit split basis.

Thirdly; On March 8 Birdstep completed a private placement directed at Middelborg Invest AS, the company's single largest shareholder. The Private Placement comprises 3,400,000 shares, each with a nominal value of NOK 1.00, at a subscription price per share of NOK 2.20, resulting in gross cash proceeds to Birdstep of NOK 7.48 million.

Fourthly; On March 8 Birdstep also entered into a letter of intent with Middelborg AS to pursue the possibility of a merger between Birdstep and MergerCo, a subsidiary of Middelborg, to be established. It is the intention to conclude a merger agreement during the second quarter of 2016. This will be subject to the approval of the shareholders at a general meeting.

I am satisfied that we, with the sale of Birdstep AB, managed to avoid financial difficulties and, as part of the deal with SMSI, have good possibilities to create a strong industrial partnership that could create value for Birdstep's shareholders going forward. Teki Solutions has a number of high quality customer and supplier relationships where Birdstep's and SMSI's technology has an interesting potential. Teki Solutions also has access to product development forums which Birdstep, as an independent company, has not been able to achieve. Through Middelborg we secure a solid and long term industrial ownership as well as a strong link to Teki Solutions which we believe will be an important part of the partnership. Furthermore, there is an industrial potential in combing the competence, network, assets and financial resources of Birdstep, Teki Solutions and Middelborg to create new growth opportunities and drive consolidation in the Nordic telecom and IT sector.

Lonnie Schilling Chief Executive Officer

RESULT OF OPERATIONS.

The financial figures presented below are excluding Birdstep Technology AB (Birdstep AB) due to discontinued operation. Assets and liabilities related to that entity were reclassified as held for sale, and its profit as profit from discontinued operations. Detailed information on discontinued operations is presented in the notes section.

FIRST QUARTER

First quarter revenue was NOK 0.0 (0.1) million. Birdstep AB was the operational unit performing all business transactions, and after the sale of Birdstep AB leading to the above mentioned reclassification, there are no revenue reported in the quarter.

Salaries and wages were NOK 3.1 (5.7) million. The number of employees as of 31.03.2016 was 8 (12), whereof 5 employees located in the US have been notified of termination as an effect of the sale of Birdstep AB.

Other operating expenses for the quarter were NOK 1.9 (2.6) million. Costs related to the sale of Birdstep AB which was not success based, are included in the other operating expenses and represent NOK 0.8 million.

EBITDA ended at NOK -5.0 (-8.9) million which represents an decreased loss of NOK 3.9 million compared to the same period last year.

As a result of the above, Income (Loss) from continuing operations before taxes of NOK -5.4 (-4,1) million was recorded in the quarter.

CASH FLOW.

FIRST QUARTER

Cash flow for the first quarter was positive and our net cash balance increased by NOK 13.4 million to NOK 28.5 million, and NOK 20.0 million after cash and cash equivalents classified as held for sale. The first quarter last year showed a cash balance decrease of NOK 2.3 million.

Net cash flow from operating activities for the quarter was NOK 6.2 million. First quarter last year, net cash flow from operating activities was NOK -12.8 million.

Net cash flow from investing activities was NOK 0.0 (13.4) million, and net cash flow from financial activities was NOK 7.5 (0.0) million originating from the private placement to Middelborg Invest. Since the closing of the sale of Birdstep AB was after the end of period, the transaction have not had any material impact of the cash position in the first quarter.

SUBSEQUENT EVENT.

FINALIZED SALE OF BIRDSTEP TECHNOLOGY AB

After end of period, on 7 April, the sale of all shares in Birdstep Technology AB to Smith Micro Software Inc was finalized. The purchase price was USD 2.0 million free of cash and net debt. Transaction costs and transaction related costs was NOK 8.6 million and the total net cash effect from the Transaction is expected to be approximately NOK 15.4 million representing NOK 1.14 per share in value to Birdstep's shareholders.

The complete Transaction will be accounted for in the second quarter, except for the earlier mentioned non succes fee based transaction costs of NOK 0.8 million, which have been accounted for in the first quarter. After the completion of the Transaction Birdstep is expected to have a cash position net of transaction and other related costs of approximately NOK 26.2 million, excluding private placement.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		For the three months ended
	31.03.2016	31.03.2015	2015
OPERATING REVENUES	-	97	-
Cost of Sales	-	(658)	(1,732)
OPERATING EXPENSES	-	-	-
Salaries and wages	(3.095)	(5,676)	(17,844)
Other operating expenses	(1,920)	(2,616)	(7,369)
TOTAL OPERATING EXPENSES	(5.016)	(8,292)	(25,214)
Operating income loss before depreciation and amortization (EBITDA)	(5.016)	(8,853)	(26,946)
Depreciation and amortization	(25)	(86)	(961)
Write down and impairment of intangible assets	-	-	(12,788)
Operating income loss after depreciation and amortization (EBIT)	(5.040)	(8,939)	(40,695)
OTHER INCOME (EXPENSE)
Interest income, net	78	(29)	303
Other financial items, net	(443)	4,865	805
OTHER INCOME, NET	(364)	4,836	1,108
INCOME(LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES	(5,405)	(4,103)	(39,587)
Income taxes	-	-	160
INCOME(LOSS) FROM CONTINUING OPERATIONS	(5,405)	(4,103)	(39,427)
Profit from discontinued operations	(6,322)	16,550	(3,661)
NET INCOME(LOSS)	(11,727)	12,447	(43,088)
Earnings and diluted earnings per share
Continuing operations	(0,40)	(0,30)	(2,91)
Discontinued operations	(0,47)	1,22	(0,27)
Total	(0,86)	0,92	(3,18)

CONDENSED CONSOLIDATION STATEMENTS OF COMPREHENSIVE INCOME

	For the three	For the full
		months ended
	31.03.2016	31.03.2015	2015
Net income (loss) for the period	(11,727)	12,447	(43,088)
OTHER COMPREHENSIVE INCOME
Currency translation effect	(334)	(3,314)	2,029
TOTAL COMPREHENSIVE INCOME	(12,061)	9,133	(41,059)
Attributable to:
Equity holder of the parent company	(12,061)	9,133	(41,059)
TOTAL COMPREHENSIVE INCOME	(12,061)	9,133	(41,059)

CONDENSED CONSOLIDATION BALANCE SHEETS

		As of
	31.03.2016	31.03.2015	2015
NON-CURRENT ASSETS:
Intangible assets	-	48,151	-
Tangible assets	-	1,188	305
Other non-current assets	-	-	-
TOTAL NON-CURRENT ASSETS	-	49,339	305
CURRENT ASSETS:
Accounts receivable	-	4,256	20,309
Other current assets	308	16,882	1,056
Restricted cash	-	1,810	-
Cash & cash equivalents	20,035	12,601	15,090
TOTAL CURRENT ASSETS	20,343	35,549	36,455
Assets of disposal group classified as held for sale	10,136	-	-
TOTAL ASSETS	30,479	84,888	36,760
SHAREHOLDERS' EQUITY:
Share capital	13,562	10,162	10,162
Share premium fund	38,272	38,272	38,272
Retained earnings, including translation reserves	(31,483)	26,689	(23,502)
TOTAL SHAREHOLDERS' EQUITY	20,351	75,124	24,932
NON-CURRENT LIABILITIES
Deferred tax liabilities	-	175	-
Other liabilities	-	-	-
TOTAL NON-CURRENT LIABILITIES	-	175	-
CURRENT LIABILITIES
Accounts payable	156	958	1,319
Deferred revenue	-	489	5,267
Accrued expenses and other liabilities	3,134	8,142	5,242
TOTAL CURRENT LIABILITIES	3,290	9,589	11,828
Liabilities of disposal group classified as held for sale	6,837	-	-
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	30,479	84,888	36,760

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the three
		months ended	year
	31.03.2016	31.03.2015	2015
OPERATING ACTIVITIES
Income (loss) from continuing operations before taxes	(5,405)	(4,103)	(39,427)
Income (loss) from discontinuing operations before taxes	(6,322)	16,550	(3,661)
Depreciation and amortization	25	1,759	(961)
Write down and impairment of intangible assets	-	-	47,283
Profit on sales of discontinued operations	-	(12,863)	(12,863)
Change in receivables and payables	17,921	(14,120)	(12,529)
NET CASH FROM OPERATING ACTIVITIES	6,219	(12,777)	(14,276)
INVESTING ACTIVITIES
Capitalized development	-	(1,096)	(3,238)
Furniture, Machinery and Equipment and leashold improvments	-	-	-
Change in loan balance with affiliated company	-	-	-
Disposal of discontinued operations net of cash disposed off	-	14,462	14,462
NET CASH FROM INVESTING ACTIVITIES	-	13,366	11,224
FINANCIAL ACITIVITIES
New Issue	7,480	-	-
NET CASH FROM FINANCIAL ACTIVITIES	7,480	-	-
Effect of foreign exchange rate changes	(304)	(2,885)	1,435
Net increase(decrease) in cash & cash equivalents	13,395	(2,297)	(1,618)
Cash & cash equivalents, beginning of period	15,090	16,708	16,708
Cash & cash equivalents, classified as held for sale	(8,450)	-	-
Cash & cash equivalents, end of period	20,035	14,411	15,090

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(In thousands of NOK, except share and per share data)

	Birdstep Technology ASA
	Share	Share	Other paid	Other	Translation	Total
	capital	premium	equity	equity	reserves	equity
Equity as at 31 December 2015	10,162	38,272	61,232	(102,064)	17,330	24,932
Net income (loss)	-	-	-	(11,727)	-	(11,727)
Other comprehensive income for the period:
Displacements between restricted and unrestricted reservs	-	-	-	-	-	-
Foreign currency exchange	-	-	-		(334)	(334)
Total comprehensive income	-	-	-	(11,727)	(334)	(12,061)
Transactions with shareholders:
Net issue of ordinary shares	3,400	-	4,080	-	-	7,480
Reduction in share capital and transfer of share premium	-	-		-	-
Total transactions with shareholders	3,400	-	4,080	-	-	7,480
Equity as at 31 March 2016	13,562	38,272	65,312	(113,790)	16,995	20,351

	Birdstep Technology ASA
	Share	Share	Other paid	Other	Translation	Total
	capital	premium	equity	equity	reserves	equity
Equity as at 31 December 2014	10,162	38,272	61,232	(58,976)	15,301	65,991
Net income (loss)	-	-	-	12,447	-	12,447
Other comprehensive income for the period
Displacements between restricted and unrestricted reservs	-	-	-	-	-	-
Foreign currency exchange	-	-	-	-	(3,314)	(3,314)
Total comprehensive income	-	-	-	12,447	(3,314)	9,132
Transactions with shareholders:
Net issue of ordinary shares	-	-	-	-	-	-
Reduction in share capital and transfer of share premium	-	-	-	-	-	-
Total transactions with shareholders	-	-	-	-	-	-
Equity as at 31 March 2015	10,162	38,272	61,232	(46,529)	11,987	75,124

NOTES

ACCOUNTING POLICIES

The accompanying consolidated financial statements are prepared under International Financial Reporting Standards (IFRS). Our fiscal year runs from January 1 to December 31.

The accompanying condensed consolidated statements of operations and cash flows cover the first three months of 2016, and the related information on Birdstep included in these notes to the financial statements is unaudited. In the opinion of management, such interim statements include all adjustments, which consist only of the normally recurring adjustments necessary for a fair presentation of the consolidated results of operations, financial position and cash flows for each period presented. The interim consolidated results are not necessarily indicative of results for the full year.

The same accounting policies and methods of computation are followed in the interim financial statements as those of the most recent annual financial statements.

These interim financial statements are presented in Norwegian crowns (NOK). The functional currency of Birdstep's foreign operations is the currency of the country in which the operations are conducted. The accounts of Birdstep are translated into the reporting currency, NOK, using exchange rates in effect at period-end for assets and liabilities, and at average exchange rates during the period for the results of operations.

EBITDA is equivalent to operating income (loss) excluding both discontinued operations and non-cash charges, such as depreciation and amortization.

Income per share is calculated by dividing net income available to common shareholders for the period by the weighted average number of common shares outstanding during the period.

As of 31 March, 2016, the Company has 13,562,163 shares issued and 13,560,249 shares outstanding, the difference of 1,914 representing treasury shares.

.

DISCONTINUED OPERATIONS

On 8 March 2016 Birdstep signed share purchase agreement for sale of all shares in Birdstep Technology AB to Smith Micro Software Inc for USD 2.0 million free of cash and net debt before account for transaction costs.

The assets and liabilities related to Birdstep Technology AB have been presented as held for sale following the completed sale of 100 % of the shares in the company on April 7th

	For the three
	months ended
	31.03.2016
NON-CURRENT ASSETS:
Intangible assets	-
Tangible assets	250
Other non-current assets	-
TOTAL NON-CURRENT ASSETS	250
CURRENT ASSETS:
Accounts receivable	337
Other current assets	1,099
Cash & cash equivalents	8,450
TOTAL CURRENT ASSETS	9,885
Assets of disposal group classified as held for sale	10,136
NON-CURRENT LIABILITIES
Deffered tax liabilities	-
Other liabilities	-
TOTAL NON-CURRENT LIABILITIES	-
CURRENT LIABILITIES
Accounts payable	787
Deferred revenue	4,057
Accrued expenses and other liabilities	1,993
TOTAL CURRENT LIABILITIES	6,837
Liabilities of disposal group classified as held for sale	6.837

DISCONTINUED OPERATIONS

Analysis of the result of discontinued operations is as follows

		For the three months ended
	31.03.2016	31.03.2015	2015
OPERATING REVENUES	1,693	15,562	56,410
Cost of Sales	(549)	(294)	(1,989)
OPERATING EXPENSES
Salaries and wages	(4,997)	(4,577)	(17,941)
Other operating expenses	(2,540)	(5,079)	(14,679)
TOTAL OPERATING EXPENSES	(7,537)	(9,656)	(32,620)
Operating income loss before depreciation and amortization (EBITDA)	(6,393)	5.612	21,800
Depreciation and amortization	(22)	(1,673)	(6,022)
Write down and impairment of intangible assets	-	-	(34,495)
Operating income loss after depreciation and amortization (EBIT)	(6,415)	3,939	18,716
OTHER INCOME (EXPENSE)
Interest income, net	-	-	-
Other financial items, net	93	(253)	2,192
OTHER INCOME, NET	93	(253)	2,192
PROFIT FROM DISCONTINUED OPERATIONS BEFORE TAXES	(6,322)	3,687	(16,524)
Income taxes Profit from sale of Birdstep OY	- -	- 12,864	- 12,864
PROFIT FROM DISCONTINUED OPERATIONS	(6,322)	16,550	(3,661)

RISKS.

This report contains statements regarding the future in connection with the company's growth expectations, general and specific market outlook and objectives. All statements about the future are subject to inherent risks and uncertainties, and many factors can lead to actual profits and developments deviating substantially from that which has been expressed or implied in such statements.

Birdstep Technology is exposed to various forms of market, operational and financial risk. Birdstep´s business is dependent on the partnerships under

establishment between Smith Micro, Birdstep and Teki solutions. Birdstep is also dependent on the contemplated merger with a subsidiary of Middelborg. Any delay or negative development regarding the partnerships or the contemplated merger, may have negative impact.

The company's various risks have been described in the Annual Report for 2015 in further detail and no other risks has been identified.

January	February	March	April
sun mon tue wed thu fri sat 2 8 g 3 5 6 10 16 5 д 23 17 18 q 26 27 28 29 30 25 24 31	sun mon tue wed thu fri sat 5 Δ 6 $\overline{7}$ 8 12 q 13 14 20 15 6 8 1 Q 25 21 24 26 27 23 29 28	sun mon tue wed thu fri sat 3 5 2 Δ 8 9 10 12 6 7 18 19 13 6 24 25 26 20 23 30 31 27 28 29	sun mon tue wed thu fri sat 2 3 7 8 $\mathbf Q$ 6 16 10 8 9 23 17 つり 25 26 27 28 29 24 30
May	June	July	August
fri tue wed thu sat sun mon $\overline{2}$ 3 4 5 6 7 1 8 g 14 21 16 8 q 20 15 27 25 26 28 22 23 24 29 30 31	sun mon tue wed fri thu sat $\overline{2}$ 3 $\Delta$ 8 9 5 $\cap$ 11 6 12 18 25 19 23 24 20 22 29 30 28 27 26	sun mon tue wed thu fri sat 2 8 9 3 Δ. 6 5 10 4 15 16 17 22 23 27 28 25 26 29 30 24 31	sun mon tue wed thu fri sat 5 3 4 6 7 Я 13 Q 14 5 20 6 g 24 25 26 23 27 21 29 30 31 28
September	October	November	December
sun mon tue wed thu fri sat 3 2 q 10 17 6 18 19 23 24 26 27 28 29 30 25	sun mon tue wed thu fri sat $\overline{2}$ З 8 5 6 9 10 15 16 22 a 27 25 26 28 23 24 29 30 31	sun mon tue wed thu fri sat 3 4 5 2 8 9 6 13 15 16 18 19 25 26 20 24 23 28 29 30 27	sun mon tue wed thu fri sat 3 2 8 10 7 g 6 4 17 18 24 g 28 29 30 31 25 26 27

FINANCIAL CALENDAR 2016.

Preliminary financial calendar, with reservations for changes:

29.07.2016 QUARTERLY REPORT - Q2 03.11.2016 QUARTERLY REPORT - Q3