##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 0-26536
 SMITH MICRO SOFTWARE, INC.
 (Exact name of registrant as specified in its charter)
 DELAWARE
    
    33-0029027(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 51 COLUMBIA
ALISO VIEJO, CA92656
 (949) 362-5800
  þ o
  o o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o  o þ




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##### 



SMITH MICRO SOFTWARE, INC.
QUARTERLY REPORT ON FORM 10-Q
June 30, 2010
  
 TABLE OF CONTENTS
 PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheets as of June 30, 2010 and December 31, 2009
    
    
    2Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009
    
    
    3Consolidated Statement of Stockholders Equity for the six months ended June 30, 2010
    
    
    4Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009
    
    
    5Notes
to the Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    25PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    27Item 1A.
    
    Risk Factors
    
    
    27Item 6.
    
    Exhibits
    
    
    27SIGNATURES
    
    
    28EX-31.1EX-31.2EX-32.1
  1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 SMITH MICRO SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share, and par value data)
 June 30,
    
    
    December 31,2010
    
    
    2009(unaudited)
    
    
    (audited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    13,248
    
    
    $
    14,577Short-term investments
    
    
    41,599
    
    
    
    31,284Accounts receivable, net of allowances for doubtful accounts
and other adjustments of $1,062 (2010) and $1,045 (2009)
    
    
    25,321
    
    
    
    24,147Income tax receivable
    
    
    980
    
    
    
    980Inventories, net of reserves for excess and obsolete inventory
of $1,275 (2010) and $1,221 (2009)
    
    
    400
    
    
    
    406Prepaid expenses and other current assets
    
    
    1,332
    
    
    
    1,506Deferred tax asset
    
    
    2,694
    
    
    
    2,696Total current assets
    
    
    85,574
    
    
    
    75,596Equipment and improvements, net
    
    
    10,221
    
    
    
    8,193Goodwill
    
    
    94,231
    
    
    
    94,320Intangible assets, net
    
    
    23,794
    
    
    
    27,662Other assets
    
    
    191
    
    
    
    163Total assets
    
    $
    214,011
    
    
    $
    205,934Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    3,651
    
    
    $
    4,215Accrued liabilities
    
    
    9,690
    
    
    
    11,359Deferred revenue
    
    
    2,736
    
    
    
    1,317Total current liabilities
    
    
    16,077
    
    
    
    16,891Non-current liabilities:Deferred
rent and other long-term liabilities
    
    
    129
    
    
    
    70Deferred tax liability
    
    
    997
    
    
    
    994Total non-current liabilities
    
    
    1,126
    
    
    
    1,064Commitments and contingenciesStockholders equity:Preferred stock, par value $0.001 per share; 5,000,000 shares
authorized; none issued or outstanding
    
    
    
    
    
    
    Common stock, par value $0.001 per share; 50,000,000 shares authorized;
34,266,588 and 33,380,496 shares issued and outstanding at June 30,
2010 and December 31, 2009, respectively
    
    
    34
    
    
    
    33Additional paid-in capital
    
    
    189,119
    
    
    
    183,756Accumulated other comprehensive loss
    
    
    (14
    )
    
    
    (2
    )Accumulated earnings
    
    
    7,669
    
    
    
    4,192Total stockholders equity
    
    
    196,808
    
    
    
    187,979Total liabilities and stockholders equity
    
    $
    214,011
    
    
    $
    205,934
  2




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##### Table of Contents



SMITH MICRO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(unaudited)
    
    
    (unaudited)
    
    
    (unaudited)
    
    
    (unaudited)Revenues
    
    $
    31,357
    
    
    $
    25,986
    
    
    $
    61,219
    
    
    $
    49,774Cost of revenues
    
    
    3,965
    
    
    
    3,922
    
    
    
    7,697
    
    
    
    8,445Gross profit
    
    
    27,392
    
    
    
    22,064
    
    
    
    53,522
    
    
    
    41,329Operating expenses:Selling and marketing
    
    
    7,398
    
    
    
    6,148
    
    
    
    14,688
    
    
    
    12,425Research and development
    
    
    10,095
    
    
    
    8,725
    
    
    
    20,223
    
    
    
    16,837General and administrative
    
    
    6,217
    
    
    
    4,508
    
    
    
    12,023
    
    
    
    8,995Total operating expenses
    
    
    23,710
    
    
    
    19,381
    
    
    
    46,934
    
    
    
    38,257Operating income
    
    
    3,682
    
    
    
    2,683
    
    
    
    6,588
    
    
    
    3,072Interest and other income (expense)
    
    
    (7
    )
    
    
    119
    
    
    
    33
    
    
    
    374Profit before taxes
    
    
    3,675
    
    
    
    2,802
    
    
    
    6,621
    
    
    
    3,446Income tax expense
    
    
    1,790
    
    
    
    1,525
    
    
    
    3,144
    
    
    
    1,891Net income
    
    $
    1,885
    
    
    $
    1,277
    
    
    $
    3,477
    
    
    $
    1,555Net income per share:Basic
    
    $
    0.06
    
    
    $
    0.04
    
    
    $
    0.10
    
    
    $
    0.05Diluted
    
    $
    0.05
    
    
    $
    0.04
    
    
    $
    0.10
    
    
    $
    0.05Weighted average shares outstanding:Basic
    
    
    34,264
    
    
    
    32,338
    
    
    
    33,999
    
    
    
    32,008Diluted
    
    
    34,781
    
    
    
    32,955
    
    
    
    34,480
    
    
    
    32,464
  3




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SMITH MICRO SOFTWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(in thousands)
 AccumulatedAdditional
    
    
    otherCommon stock
    
    
    paid-in
    
    
    comprehensive
    
    
    AccumulatedShares
    
    
    Amount
    
    
    capital
    
    
    loss
    
    

earnings
    
    
    TotalBALANCE, December 31, 2009
    
    
    33,380
    
    
    $
    33
    
    
    $
    183,756
    
    
    $
    (2
    )
    
    $
    4,192
    
    
    $
    187,979Exercise of common stock options
    
    
    51
    
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    260Non cash compensation recognized on stock
options
    
    
    
    
    
    
    
    
    
    
    2,288
    
    
    
    
    
    
    
    
    
    
    
    2,288Restricted stock grants
    
    
    852
    
    
    
    1
    
    
    
    2,379
    
    
    
    
    
    
    
    
    
    
    
    2,380Cancellation of shares for payment of
withholding tax
    
    
    (16
    )
    
    
    
    
    
    
    (136
    )
    
    
    
    
    
    
    
    
    
    
    (136
    )Excess tax benefit related to stock compensation
    
    
    
    
    
    
    
    
    
    
    574
    
    
    
    
    
    
    
    
    
    
    
    574Tax deficiencies related to stock compensation
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )Other comprehensive income:Unrealized loss on short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,477
    
    
    
    3,477Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,465BALANCE, June 30, 2010 (unaudited)
    
    
    34,267
    
    
    $
    34
    
    
    $
    189,119
    
    
    $
    (14
    )
    
    $
    7,669
    
    
    $
    196,808
  4




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##### Table of Contents



SMITH MICRO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Six Months Ended June 30,2010
    
    
    2009(unaudited)
    
    
    (unaudited)Operating activities:Net income
    
    $
    3,477
    
    
    $
    1,555Adjustments to reconcile net income to net cash provided by operating activities, net of the effect of acquisitions:Depreciation and amortization
    
    
    5,867
    
    
    
    5,030Loss on disposal of assets
    
    
    
    
    
    
    20Provision for doubtful accounts and other adjustments to
accounts receivable
    
    
    705
    
    
    
    623Provision for excess and obsolete inventory
    
    
    93
    
    
    
    511Tax benefits from stock-based compensation
    
    
    (574
    )
    
    
    (121
    )Non cash compensation related to stock options & restricted stock
    
    
    4,668
    
    
    
    4,615Change in operating accounts, net of effect from acquisitions:Accounts receivable
    
    
    (1,879
    )
    
    
    (4,325
    )Deferred income taxes
    
    
    3
    
    
    
    Inventories
    
    
    (87
    )
    
    
    (23
    )Prepaid expenses and other assets
    
    
    146
    
    
    
    (101
    )Accounts payable and accrued liabilities
    
    
    (418
    )
    
    
    2,045Net cash provided by operating activities
    
    
    12,001
    
    
    
    9,829Investing activities:Adjustments made to the acquisition of Core Mobility
    
    
    143
    
    
    
    Acquisition of Avot Media, net of cash received
    
    
    (675
    )
    
    
    Capital expenditures
    
    
    (3,305
    )
    
    
    (3,289
    )Purchase of short-term investments
    
    
    (10,327
    )
    
    
    (7,172
    )Net cash used in investing activities
    
    
    (14,164
    )
    
    
    (10,461
    )Financing activities:Tax benefits from stock-based compensation
    
    
    574
    
    
    
    121Cash received from exercise of stock options
    
    
    260
    
    
    
    593Net cash provided by financing activities
    
    
    834
    
    
    
    714Net increase (decrease) in cash and cash equivalents
    
    
    (1,329
    )
    
    
    82Cash and cash equivalents, beginning of period
    
    
    14,577
    
    
    
    13,966Cash and cash equivalents, end of period
    
    $
    13,248
    
    
    $
    14,048Supplemental disclosures of cash flow information:Cash paid for income taxes
    
    $
    2,591
    
    
    $
    2,177
  5




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##### Table of Contents



SMITH MICRO SOFTWARE, INC.
Notes to the Consolidated Financial Statements
 1. The Company
 ®
 2. Basis of Presentation
     3. Net Income Per Share
  6




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##### Table of Contents



Three Months Ended June 30,
    
    
    
    
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    
    
    
    
    2010
    
    
    2009(unaudited, in thousands, except per share amounts)Numerator:Net income available to common stockholders
    
    $
    1,885
    
    
    $
    1,277
    
    
    
    
    
    
    $
    3,477
    
    
    $
    1,555Denominator:Weighted average shares outstanding  basic
    
    
    34,264
    
    
    
    32,338
    
    
    
    
    
    
    
    33,999
    
    
    
    32,008Potential common shares  options (treasury
stock method)
    
    
    517
    
    
    
    617
    
    
    
    
    
    
    
    481
    
    
    
    456Weighted average shares outstanding  diluted
    
    
    34,781
    
    
    
    32,955
    
    
    
    
    
    
    
    34,480
    
    
    
    32,464Shares excluded due to an exercise price
greater than
weighted average stock price for the period
    
    
    2,440
    
    
    
    2,475
    
    
    
    
    
    
    
    2,440
    
    
    
    2,624Net income per common share:Basic
    
    $
    0.06
    
    
    $
    0.04
    
    
    
    
    
    
    $
    0.10
    
    
    $
    0.05Diluted
    
    $
    0.05
    
    
    $
    0.04
    
    
    
    
    
    
    $
    0.10
    
    
    $
    0.05
 4. Acquisitions
 Core Mobility, Inc.
   Cash paid at closing
    
    $
    6,970Holdback (including interest)
    
    
    3,041Common stock issued
    
    
    6,881Milestone payments
    
    
    1,839Total purchase price
    
    $
    18,731
 7




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##### Table of Contents



Assets:Cash
    
    $
    63Accounts receivable
    
    
    997Unbilled receivable
    
    
    324Prepaid and other assets
    
    
    279Fixed assets
    
    
    856Deferred tax assets
    
    
    1,735Intangible assets
    
    
    8,858Goodwill
    
    
    10,694Total assets
    
    
    23,806Liabilities:Accounts payable
    
    
    26Accrued expenses
    
    
    258Deferred revenue
    
    
    1,280Deferred tax liability
    
    
    3,511Total liabilities
    
    
    5,075Total purchase price
    
    $
    18,731
  5. Stock-Based Compensation
 Stock Plans
   Stock Compensation Expense
   8




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(unaudited)
    
    
    (unaudited)2010
    
    
    2009
    
    
    2010
    
    
    2009Cost of revenues
    
    $
    25
    
    
    $
    56
    
    
    $
    53
    
    
    $
    129Selling and marketing
    
    
    631
    
    
    
    627
    
    
    
    1,263
    
    
    
    1,306Research and development
    
    
    616
    
    
    
    649
    
    
    
    1,202
    
    
    
    1,256General and administrative
    
    
    1,139
    
    
    
    909
    
    
    
    2,150
    
    
    
    1,924Total non-cash stock compensation expense
    
    $
    2,411
    
    
    $
    2,241
    
    
    $
    4,668
    
    
    $
    4,615
  Stock Options
  Three and Six Months EndedJune 30, 2010(unaudited)Employee Stock OptionsRisk-free interest rate
    
    
    0.32
    %Expected dividend yield
    
    
    Weighted average expected life (years)
    
    
    1Volatility
    
    
    72.0
    %Forfeiture rate
    
    
    0.0
    %
   9




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##### Table of Contents



Weighted Ave.
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    Intrinsic Value(in thousands except per share amounts)Outstanding as of December 31, 2009
    
    
    3,536
    
    
    $
    11.29Granted (unaudited)
    
    
    20
    
    
    $
    10.51Exercised (unaudited)
    
    
    (51
    )
    
    $
    5.07Cancelled (unaudited)
    
    
    (50
    )
    
    $
    12.96Outstanding as of June 30, 2010
(unaudited)
    
    
    3,455
    
    
    $
    11.35
    
    
    $
    Exercisable as of June 30, 2010
(unaudited)
    
    
    2,996
    
    
    $
    10.95
    
    
    $
    
   Options outstanding
    
    
    Options exercisableWeighted average
    
    
    Weighted
    
    
    
    
    
    
    WeightedRange of
    
    Number
    
    
    remaining
    
    
    average
    
    
    Number
    
    
    averageexercise
    
    outstanding
    
    
    contractual
    
    
    exercise
    
    
    exercisable
    
    
    exerciseprices
    
    (in thousands)
    
    
    life (years)
    
    
    price
    
    
    (in thousands)
    
    
    price$0.24 - $4.00
    
    
    182
    
    
    
    3.7
    
    
    $
    1.56
    
    
    
    182
    
    
    $
    1.56$4.01 - $6.00
    
    
    651
    
    
    
    5.1
    
    
    $
    4.95
    
    
    
    651
    
    
    $
    4.95$6.01 - $12.00
    
    
    309
    
    
    
    6.8
    
    
    $
    9.18
    
    
    
    277
    
    
    $
    9.32$12.01 - $14.00
    
    
    1,276
    
    
    
    6.6
    
    
    $
    12.67
    
    
    
    1,064
    
    
    $
    12.67$14.01 - $16.00
    
    
    657
    
    
    
    6.7
    
    
    $
    15.18
    
    
    
    534
    
    
    $
    15.18$16.01 - $19.00
    
    
    380
    
    
    
    6.9
    
    
    $
    17.73
    
    
    
    288
    
    
    $
    17.793,455
    
    
    
    6.3
    
    
    $
    11.35
    
    
    
    2,996
    
    
    $
    10.95
 Restricted Stock Awards
   SharesUnvested at December 31, 2009
    
    
    1,415Granted (unaudited)
    
    
    899Cancelled (unaudited)
    
    
    (47
    )Vested (unaudited)
    
    
    (360
    )Unvested at June 30, 2010 (unaudited)
    
    
    1,907
 10




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##### Table of Contents



6. Fair Value of Financial Instruments
    
    
    Level 1  Observable inputs that reflect quoted prices (unadjusted) for identical
assets or liabilities in active markets.
 
    
    Level 2  Include other inputs that are directly or indirectly observable in the
marketplace.
 
    
    Level 3  Unobservable inputs which are supported by little or no market activity.
    7. Cash and Cash Equivalents
  8. Short-Term Investments
  11




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##### Table of Contents



June 30, 2010
    
    
    December 31, 2009(unaudited)
    
    
    (audited)Fair value
    
    
    Unrealized gain (loss)
    
    
    Fair value
    
    
    Unrealized (loss)Corporate bonds and notes
    
    $
    10,257
    
    
    $
    (18
    )
    
    $
    3,499
    
    
    $
    Government-backed securities
    
    
    31,342
    
    
    
    4
    
    
    
    27,785
    
    
    
    (2
    )Total
    
    $
    41,599
    
    
    $
    (14
    )
    
    $
    31,284
    
    
    $
    (2
    )
 9. Accounts Receivable
  10. Inventories
  11. Equipment and Improvements
  12. Goodwill
   13. Intangible Assets
  12




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##### Table of Contents



Useful
    
    
    June 30, 2010 (unaudited)
    
    
    December 31, 2009life
    
    
    
    
    
    
    Accumulated
    
    
    Net book
    
    
    
    
    
    
    Accumulated
    
    
    Net book(years)
    
    
    Gross
    
    
    amortization
    
    
    value
    
    
    Gross
    
    
    amortization
    
    
    valueAmortizing:Purchased technology
    
    
    1-3
    
    
    $
    7,347
    
    
    $
    (4,316
    )
    
    $
    3,031
    
    
    $
    6,667
    
    
    $
    (3,349
    )
    
    $
    3,318In process R&D
    
    
    2
    
    
    
    990
    
    
    
    
    
    
    
    990
    
    
    
    990
    
    
    
    
    
    
    
    990Capitalized software
    
    
    1-7
    
    
    
    23,846
    
    
    
    (13,524
    )
    
    
    10,322
    
    
    
    23,846
    
    
    
    (11,485
    )
    
    
    12,361Distribution rights
    
    
    5
    
    
    
    482
    
    
    
    (482
    )
    
    
    
    
    
    
    482
    
    
    
    (447
    )
    
    
    35Customer lists
    
    
    3-5
    
    
    
    1,484
    
    
    
    (1,225
    )
    
    
    259
    
    
    
    1,484
    
    
    
    (1,048
    )
    
    
    436Database
    
    
    10
    
    
    
    182
    
    
    
    (47
    )
    
    
    135
    
    
    
    182
    
    
    
    (38
    )
    
    
    144Trademarks
    
    
    5-10
    
    
    
    926
    
    
    
    (491
    )
    
    
    435
    
    
    
    926
    
    
    
    (445
    )
    
    
    481Trade names
    
    
    1-7
    
    
    
    2,121
    
    
    
    (1,008
    )
    
    
    1,113
    
    
    
    2,121
    
    
    
    (807
    )
    
    
    1,314Non-compete
    
    
    2
    
    
    
    21
    
    
    
    (7
    )
    
    
    14
    
    
    
    21
    
    
    
    (2
    )
    
    
    19Customer agreements
    
    
    1-2
    
    
    
    1,135
    
    
    
    (1,135
    )
    
    
    
    
    
    
    1,135
    
    
    
    (1,135
    )
    
    
    Customer
relationships
    
    
    4-7
    
    
    
    11,130
    
    
    
    (3,635
    )
    
    
    7,495
    
    
    
    11,130
    
    
    
    (2,566
    )
    
    
    8,564Totals
    
    
    
    
    
    $
    49,664
    
    
    $
    (25,870
    )
    
    $
    23,794
    
    
    $
    48,984
    
    
    $
    (21,322
    )
    
    $
    27,662
  14. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(unaudited)
    
    
    (unaudited)2010
    
    
    2009
    
    
    2010
    
    
    2009Net income
    
    $
    1,885
    
    
    $
    1,277
    
    
    $
    3,477
    
    
    $
    1,555Change in unrealized gain (loss) on investments, net
    
    
    7
    
    
    
    8
    
    
    
    (12
    )
    
    
    (37
    )Total comprehensive income
    
    $
    1,892
    
    
    $
    1,285
    
    
    $
    3,465
    
    
    $
    1,518
 15. Segment and Geographical Information
 Segment Information
 Wireless Productivity & Graphics
  13




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(unaudited)
    
    
    (unaudited)2010
    
    
    2009
    
    
    2010
    
    
    2009Wireless
    
    $
    28,329
    
    
    $
    21,373
    
    
    $
    55,291
    
    
    $
    40,630Productivity & Graphics
    
    
    2,907
    
    
    
    4,332
    
    
    
    5,681
    
    
    
    8,583Corporate/Other
    
    
    121
    
    
    
    281
    
    
    
    247
    
    
    
    561Total Revenues
    
    $
    31,357
    
    
    $
    25,986
    
    
    $
    61,219
    
    
    $
    49,774
  Geographical Information
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30(unaudited)
    
    
    (unaudited)2010
    
    
    2009
    
    
    2010
    
    
    2009Americas
    
    $
    27,770
    
    
    $
    24,434
    
    
    $
    55,785
    
    
    $
    45,385Asia Pacific
    
    
    469
    
    
    
    666
    
    
    
    833
    
    
    
    1,985EMEA
    
    
    3,118
    
    
    
    886
    
    
    
    4,601
    
    
    
    2,404Total Revenues
    
    $
    31,357
    
    
    $
    25,986
    
    
    $
    61,219
    
    
    $
    49,774
  16. Recent Accounting Pronouncements
 Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements
 Consolidations
(Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities. Consolidation of Variable Interest Entities, Accounting for Transfers of Financial Assets,
 Transfers and Servicing (Topic 860): Accounting for Transfers of
Financial Assets.
 14




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##### Table of Contents



Software (Topic 985): Certain
Revenue Arrangements That Include Software Elements (a consensus of the FASB Emerging Issues Task
Force).
 Revenue Recognition (Topic
605):Multiple-Deliverable Revenue Arrangements
 17. Commitments and Contingencies
 Leases
  Year Ending December 31,
    
    Operating2010-6 months
    
    $
    1,1392011
    
    
    2,1632012
    
    
    1,9192013
    
    
    1,6362014
    
    
    1,2942015
    
    
    1,251Beyond
    
    
    3,396Total
    
    $
    12,798
  15




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##### Table of Contents



18. Income Taxes
    19. Subsequent Events
   16




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 In this document, the terms Smith Micro, Company, we, us, and our refer to Smith
Micro Software, Inc. and, where appropriate, its subsidiaries.
 This report contains forward-looking statements regarding Smith Micro which include, but are
not limited to, statements concerning projected revenues, expenses, gross profit and income, the
competitive factors affecting our business, market acceptance of products, customer concentration,
the success and timing of new product introductions and the protection of our intellectual
property. These forward-looking statements are based on our current expectations, estimates and
projections about our industry, managements beliefs, and certain assumptions made by us. Words
such as anticipates, expects, intends, plans, predicts, potential, believes, seeks,
estimates, should, may, will and variations of these words or similar expressions are
intended to identify forward-looking statements. Forward-looking statements also include the
assumptions underlying or relating to any of the foregoing statements. These statements are not
guarantees of future performance and are subject to risks, uncertainties and assumptions that are
difficult to predict. Therefore, our actual results could differ materially and adversely from
those expressed or implied in any forward-looking statements as a result of various factors. Such
factors include, but are not limited to, the following:
 
    
    the duration and depth of the current economic slowdown and its effects on
capital expenditures by our customers and their end users;
    
    our ability to predict consumer needs, introduce new products, gain broad market
acceptance for such products and ramp up manufacturing in a timely manner;
    
    changes in demand for our products from our customers and their end-users;
    
    the intensity of the competition and our ability to successfully compete;
    
    the pace at which the market for new products develop;
    
    the response of competitors, many of whom are bigger and better financed than us;
    
    our ability to successfully execute our business plan and control costs and
expenses;
    
    our ability to protect our intellectual property and our ability to not infringe
on the rights of others; and
    
    those additional factors which are listed under the section Risk Factors in our
Annual Report onForm 10-Kfor the year ended December 31, 2009.
 The forward-looking statements contained in this report are made on the basis of the views and
assumptions of management regarding future events and business performance as of the date this
report is filed with the SEC. We do not undertake any obligation to update these statements to
reflect events or circumstances occurring after the date this report is filed.
 Overview
 ®
   17




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Results of Operations
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2010
    
    2009
    
    2010
    
    2009Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    12.6
    
    
    
    15.1
    
    
    
    12.6
    
    
    
    17.0Gross profit
    
    
    87.4
    
    
    
    84.9
    
    
    
    87.4
    
    
    
    83.0Operating expenses:Selling and marketing
    
    
    23.6
    
    
    
    23.7
    
    
    
    24.0
    
    
    
    24.9Research and development
    
    
    32.2
    
    
    
    33.6
    
    
    
    33.0
    
    
    
    33.8General and administrative
    
    
    19.9
    
    
    
    17.3
    
    
    
    19.6
    
    
    
    18.1Total operating expenses
    
    
    75.7
    
    
    
    74.6
    
    
    
    76.6
    
    
    
    76.8Operating income
    
    
    11.7
    
    
    
    10.3
    
    
    
    10.8
    
    
    
    6.2Interest and other income
    
    
    0.0
    
    
    
    0.5
    
    
    
    0.0
    
    
    
    0.7Profit before taxes
    
    
    11.7
    
    
    
    10.8
    
    
    
    10.8
    
    
    
    6.9Income tax expense
    
    
    5.7
    
    
    
    5.9
    
    
    
    5.1
    
    
    
    3.8Net income
    
    
    6.0
    %
    
    
    4.9
    %
    
    
    5.7
    %
    
    
    3.1
    %
 Revenues and Expense Components
  Revenues.
 
    
    Wireless, which includes our connectivity and security management
solutions, mobile VPN, music and multimedia management, device management,
Push-To-Talk, Visual Voicemail and contact and calendar syncing solutions; and
    
    Productivity & Graphics, which includes retail and direct sales of our
compression and broad consumer-based software.
 18




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Wireless
    
    $
    28,329
    
    
    $
    21,373
    
    
    $
    55,291
    
    
    $
    40,630Productivity &
Graphics
    
    
    2,907
    
    
    
    4,332
    
    
    
    5,681
    
    
    
    8,583Corporate/Other
    
    
    121
    
    
    
    281
    
    
    
    247
    
    
    
    561Total Revenues
    
    
    31,357
    
    
    
    25,986
    
    
    
    61,219
    
    
    
    49,774Cost of revenues
    
    
    3,965
    
    
    
    3,922
    
    
    
    7,697
    
    
    
    8,445Gross Profit
    
    $
    27,392
    
    
    $
    22,064
    
    
    $
    53,522
    
    
    $
    41,329
  Cost of revenues.
 Selling and marketing.
 Research and development.
 General
and administrative.
 Interest
and other income (expense)
 Income tax expense.
   Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009
 Revenues.
 19




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Cost of revenues
 Gross profit.
 Selling and marketing.
 Research and development.
 General and administrative.
 Interest and other income (expense).
 Income tax expense.
 Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009
 Revenues.
 Cost of revenues
 Gross profit.
 20




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Selling and marketing.
 Research and development.
 General and administrative.
 Interest and other income (expense).
 Income tax expense.
 Liquidity and Capital Resources
  Operating activities
  Investing activities
  21




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Financing activities
  Contractual obligations and commercial commitments
  Payments due by period1 year
    
    
    
    
    
    
    
    
    
    
    More thanContractual obligations:
    
    Total
    
    
    or less
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsOperating Lease
Obligations
    
    $
    12,798
    
    
    $
    2,278
    
    
    $
    3,755
    
    
    $
    2,738
    
    
    $
    4,027Purchase Obligations
    
    
    1,229
    
    
    
    1,229
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    14,027
    
    
    $
    3,507
    
    
    $
    3,755
    
    
    $
    2,738
    
    
    $
    4,027
  Real Property Leases
  Critical Accounting Policies and Estimates
   22




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Revenue Recognition
  Sales Incentives
  Accounts Receivable and Allowance for Doubtful Accounts
  Internal Software Development Costs
  In-Process Research and Development
   23




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##### Table of Contents



Capitalized Software and Amortization
  Intangible Assets and Amortization
  Impairment or Disposal of Long Lived Assets
  Valuation of Goodwill and Intangible Assets
  
    
    a determination that the carrying value of such assets cannot be recovered through undiscounted cash flows;
    
    loss of legal ownership or title to the assets;
    
    significant changes in our strategic business objectives and utilization of the assets; or
    
    the impact of significant negative industry or economic trends.
  Deferred
Income Taxes
  24




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##### Table of Contents



Stock-Based Compensation
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Interest Rate Risk
  Foreign Currency Risk
  
 Item 4. Controls and Procedures.
 Evaluation of disclosure controls and procedures
  Managements responsibility for financial statements
   25




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Changes in internal control over financial reporting
  26




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits.
 31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 27




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##### Table of Contents



SIGNATURES
  SMITH MICRO SOFTWARE, INC.August 5, 2010
    By:
    /s/ William W. Smith, Jr.William W. Smith, Jr.President and Chief Executive Officer(Principal Executive Officer)August 5, 2010
    By:
    /s/ Andrew C. SchmidtAndrew C. SchmidtVice President and Chief Financial Officer(Principal Financial Officer) 28




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##### Table of Contents



Exhibit Index
 31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 29