Mobile Streams plc (MOS.L) Acquisition of 49% of KrunchData Limited

Mobile Streams plc, the AIM quoted mobile content and data intelligence company, is pleased to announce that it has reached agreement to acquire a 49% interest in KrunchData Limited (“Krunch”) for £735,000, comprising £500,000 cash and 90,384,615 Ordinary Shares issued at 0.26p each (being the closing market price on 24 March), with an option to acquire the remaining 51% at any time in the next two years for £765,000 (together the “Transaction”).

As part of the Transaction, it has been agreed that the revenue share agreement, under which the Company currently receives 100%, reducing to 50% from January 2022, of the revenues from Streams Data, will be terminated immediately.

Background

On 22 November 2019 the then Board of the Company signed a joint venture agreement (the “JV Agreement”), as described in the Circular dated 6 November 2019, with Krunch. The key commercial purpose of the agreement was that Krunch would provide the expertise, software and systems under licence to enable the Company to build a second, complementary, revenue stream and to examine whether value could be extracted from the Company’s existing client data.

The Streams Data business, which comprises the bespoke data insight, intelligence and visualisation service provided under the JV Agreement, achieved first revenues in June 2020, and the Streams SaaS (“Software as a Service”) platform generated initial customer revenues in October. As announced on 15 March, it is estimated that the Streams Data business will generate around £15,000 in monthly revenue for March, with revenues expected to increase to an estimated £25,000 per month, an increase of 178% since December, following the contract with Quanta Media Group Holdings announced on 18 March .

Rationale

The existing JV Agreement commits the Company to pay Krunch for client set up costs, the costs of data clean-up and agreed software development at cost , but leaves the Company vulnerable to Krunch being able to terminate the agreement at 90 days’ notice. Following termination, the Company would retain the rights to customer/client data, but not to the systems, software and IP licensed to it by Krunch and therefore would be unable to continue operating the Streams Data business without significant further investment.

Furthermore, the JV Agreement includes a revenue share agreement, under which 50% of Streams Data revenues are due to be paid to Krunch from January 2022, for as long as the JV Agreement remains in place.

In view of the risks and potential costs of the revenue share arrangement outlined above, the Directors independent of Krunch have negotiated terms with the Krunch shareholders to enable the Company to secure the systems, software and IP required to continue operating the Streams Data business, and to reduce future costs by terminating the revenue share agreement immediately.

Transaction

As noted above, the Company has reached agreement to acquire a 49% interest in Krunch for £735,000, comprising £500,000 cash and 90,384,615 Ordinary Shares issued at 0.26p each (being the closing market price on 24 March), with an option to acquire the remaining 51% at any time in the next two years for £765,000 in cash or Shares, at Krunch’s option. As part of the Transaction, it has been agreed that the revenue share agreement, under which 50% of Streams Data revenues from January 2022 were due to be paid to Krunch, will be terminated immediately. The remainder of the JV agreement, whereby MOS continues to pay Krunch client set up costs and the costs of data clean-up and agreed software development at cost, remains unchanged.

The Company and Krunch have agreed to enter into a Shareholders Agreement under which the Company will retain standard non-dilution and other shareholder protections including the right to nominate a director to the board of Krunch and agree the annual budget.

For the year to December 2020, management accounts provided by Krunch show revenue of £286,782, a net profit of £8,000 and net assets as at 31 December 2020 of £17,542.

Application has been made for admission of the 90,384,615 new Ordinary Shares which will rank pari passu with existing Ordinary Shares to trading on AIM (“Admission”), with Admission expected to be on or around 31 March 2021.

Independent Directors’ Opinion

Mark Epstein, the Company’s CEO, is a 33.5% shareholder and director of Krunch. Therefore, the Directors independent of Krunch, being Nigel Burton and Charles Goodfellow (the “Independent Directors”), consider that the proposed acquisition significantly reduces a principal risk to the Company’s existing relationship with the Streams Data business, and therefore to the Group as a whole, being the Company’s current position of paying for and assisting with the development of the IP within Krunch but not owning or having a right over its ownership, and that the terms were attractive to the Company based on budgeted revenues to be generated by Streams Data from 2022.

In forming this opinion, the Independent Directors have also noted that a) the Krunch shareholders have drawn no salary from Krunch since the signing of the JV Agreement in 2019, b) have agreed not to do so in future, c) will use certain of the cash proceeds to settle amounts owed and incentivise the Krunch team, and d) believe that Krunch has started to demonstrate its potential for strong further growth and therefore owing the IP and forming a closer relationship with Krunch is in the best interests of MOS shareholders as a whole. The Company has sufficient cash currently to fund the initial cash consideration and will still have sufficient funds, including to invest in Krunch and its legacy Mobile business, thereafter.

Related Party Transaction

The shareholders of KrunchData Limited are Mark Epstein (CEO of the Company), Tom Gutteridge and Annabel Jamieson (Employees of the Company).

Accordingly, the Independent Directors consider that, having consulted with the Company’s Nominated Adviser, the terms of the Transaction are fair and reasonable insofar as the Company’s shareholders are concerned.

Nigel Burton, Non-Executive Director, commented:

“The Board is pleased to announce this agreement with KrunchData. It removes a significant risk by securing access to and the rights to full ownership of the Krunch platform and intellectual property, as well as removing the potential future costs of the revenue share arrangement, whilst fully aligning the interests of the Krunch team with the Company. Based on the expected growth of the Streams Data business, the terms agreed are highly attractive to the Company, with the aggregate initial consideration below the level of the revenue share expected to be paid to Krunch under the existing arrangements in 2022 alone.

Further announcements will be made as the Company implements its plans for growth in the coming months.”

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014.


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