##### 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 September 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
(State or other jurisdiction of 
incorporation or organization)
    
    33-0029027
(I.R.S. Employer
Identification No.)
 51 COLUMBIA
ALISO VIEJO, CA 92656
 (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
September 30, 2010
  
 TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheets as of September 30, 2010 and December 31, 2009
    
    
    2Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009
    
    
    3Consolidated Statement of Stockholders Equity for the nine months ended September 30, 2010
    
    
    4Consolidated Statements of Cash Flows for the nine months ended September 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




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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)
 September 30,
    
    
    December 31,2010
    
    
    2009(unaudited)
    
    
    (audited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    12,302
    
    
    $
    14,577Short-term investments
    
    
    45,222
    
    
    
    31,284Accounts receivable, net of allowances for doubtful accounts
and other adjustments of $915 (2010) and $1,045 (2009)
    
    
    32,277
    
    
    
    24,147Income tax receivable
    
    
    980
    
    
    
    980Inventories, net of reserves for excess and obsolete inventory
of $1,341 (2010) and $1,221 (2009)
    
    
    382
    
    
    
    406Prepaid expenses and other current assets
    
    
    1,106
    
    
    
    1,506Deferred tax asset
    
    
    2,693
    
    
    
    2,696Total current assets
    
    
    94,962
    
    
    
    75,596Equipment and improvements, net
    
    
    10,339
    
    
    
    8,193Goodwill
    
    
    94,231
    
    
    
    94,320Intangible assets, net
    
    
    21,537
    
    
    
    27,662Other assets
    
    
    190
    
    
    
    163Total assets
    
    $
    221,259
    
    
    $
    205,934Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    4,140
    
    
    $
    4,215Accrued liabilities
    
    
    11,519
    
    
    
    11,359Deferred revenue
    
    
    2,098
    
    
    
    1,317Total current liabilities
    
    
    17,757
    
    
    
    16,891Non-current liabilities:Deferred rent and other long-term liabilities
    
    
    170
    
    
    
    70Deferred tax liability
    
    
    997
    
    
    
    994Total non-current liabilities
    
    
    1,167
    
    
    
    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;
34,279,087 and 33,380,496 shares issued and outstanding at September 30, 2010
and December 31, 2009, respectively
    
    
    34
    
    
    
    33Additional paid-in capital
    
    
    191,550
    
    
    
    183,756Accumulated other comprehensive loss
    
    
    (12
    )
    
    
    (2
    )Accumulated earnings
    
    
    10,763
    
    
    
    4,192Total stockholders equity
    
    
    202,335
    
    
    
    187,979Total liabilities and stockholders equity
    
    $
    221,259
    
    
    $
    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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(unaudited)
    
    
    (unaudited)
    
    
    (unaudited)
    
    
    (unaudited)Revenues
    
    $
    34,008
    
    
    $
    27,820
    
    
    $
    95,227
    
    
    $
    77,594Cost of revenues
    
    
    3,771
    
    
    
    3,540
    
    
    
    11,468
    
    
    
    11,985Gross profit
    
    
    30,237
    
    
    
    24,280
    
    
    
    83,759
    
    
    
    65,609Operating expenses:Selling and marketing
    
    
    7,344
    
    
    
    5,946
    
    
    
    22,032
    
    
    
    18,371Research and development
    
    
    10,972
    
    
    
    9,229
    
    
    
    31,195
    
    
    
    26,066General and administrative
    
    
    6,059
    
    
    
    4,967
    
    
    
    18,082
    
    
    
    13,962Total operating expenses
    
    
    24,375
    
    
    
    20,142
    
    
    
    71,309
    
    
    
    58,399Operating income
    
    
    5,862
    
    
    
    4,138
    
    
    
    12,450
    
    
    
    7,210Interest and other income
    
    
    82
    
    
    
    121
    
    
    
    115
    
    
    
    495Income before taxes
    
    
    5,944
    
    
    
    4,259
    
    
    
    12,565
    
    
    
    7,705Income tax expense
    
    
    2,850
    
    
    
    2,278
    
    
    
    5,994
    
    
    
    4,169Net income
    
    $
    3,094
    
    
    $
    1,981
    
    
    $
    6,571
    
    
    $
    3,536Net income per share:Basic
    
    $
    0.09
    
    
    $
    0.06
    
    
    $
    0.19
    
    
    $
    0.11Diluted
    
    $
    0.09
    
    
    $
    0.06
    
    
    $
    0.19
    
    
    $
    0.11Weighted average shares outstanding:Basic
    
    
    34,274
    
    
    
    32,523
    
    
    
    34,091
    
    
    
    32,182Diluted
    
    
    34,736
    
    
    
    33,145
    
    
    
    34,560
    
    
    
    32,641
  3




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##### Table of Contents



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
    
    
    69
    
    
    
    
    
    
    
    349
    
    
    
    
    
    
    
    
    
    
    
    349Non cash compensation recognized on stock
options
    
    
    
    
    
    
    
    
    
    
    3,387
    
    
    
    
    
    
    
    
    
    
    
    3,387Restricted stock grants
    
    
    854
    
    
    
    1
    
    
    
    3,624
    
    
    
    
    
    
    
    
    
    
    
    3,625Cancellation of shares for payment of
withholding tax
    
    
    (24
    )
    
    
    
    
    
    
    (212
    )
    
    
    
    
    
    
    
    
    
    
    (212
    )Excess tax benefit related to stock compensation
    
    
    
    
    
    
    
    
    
    
    648
    
    
    
    
    
    
    
    
    
    
    
    648Tax deficiencies related to stock compensation
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )Other comprehensive income:Unrealized loss on short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,571
    
    
    
    6,571Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,561BALANCE, September 30, 2010 (unaudited)
    
    
    34,279
    
    
    $
    34
    
    
    $
    191,550
    
    
    $
    (12
    )
    
    $
    10,763
    
    
    $
    202,335
  4




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##### Table of Contents



SMITH MICRO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Nine Months Ended September 30,2010
    
    
    2009(unaudited)
    
    
    (unaudited)Operating activities:Net income
    
    $
    6,571
    
    
    $
    3,536Adjustments to reconcile net income to net cash provided byoperating activities, net of the effect of acquisitions:Depreciation and amortization
    
    
    8,911
    
    
    
    7,645Loss on disposal of assets
    
    
    
    
    
    
    20Provision for doubtful accounts and other adjustments to accounts receivable
    
    
    908
    
    
    
    1,190Provision for excess and obsolete inventory
    
    
    167
    
    
    
    896Tax benefits from stock-based compensation
    
    
    (648
    )
    
    
    (779
    )Non cash compensation related to stock options & restricted stock
    
    
    7,012
    
    
    
    6,660Change in operating accounts, net of effect from acquisitions:Accounts receivable
    
    
    (9,038
    )
    
    
    (6,059
    )Deferred income taxes
    
    
    4
    
    
    
    Inventories
    
    
    (143
    )
    
    
    (305
    )Prepaid expenses and other assets
    
    
    373
    
    
    
    68Accounts payable and accrued liabilities
    
    
    1,301
    
    
    
    709Net cash provided by operating activities
    
    
    15,418
    
    
    
    13,581Investing activities:Adjustments made to the acquisition of Core Mobility
    
    
    143
    
    
    
    Acquisition of Avot Media, net of cash received
    
    
    (675
    )
    
    
    Capital expenditures
    
    
    (4,210
    )
    
    
    (4,006
    )Purchase of short-term investments
    
    
    (13,948
    )
    
    
    (9,762
    )Net cash used in investing activities
    
    
    (18,690
    )
    
    
    (13,768
    )Financing activities:Tax benefits from stock-based compensation
    
    
    648
    
    
    
    779Cash received from exercise of stock options
    
    
    349
    
    
    
    1,617Net cash provided by financing activities
    
    
    997
    
    
    
    2,396Net increase (decrease) in cash and cash equivalents
    
    
    (2,275
    )
    
    
    2,209Cash and cash equivalents, beginning of period
    
    
    14,577
    
    
    
    13,966Cash and cash equivalents, end of period
    
    $
    12,302
    
    
    $
    16,175Supplemental disclosures of cash flow information:Cash paid for income taxes
    
    $
    3,389
    
    
    $
    5,189
  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 September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(unaudited, in thousands, except per share amounts)Numerator:Net income available to common stockholders
    
    $
    3,094
    
    
    $
    1,981
    
    
    $
    6,571
    
    
    $
    3,536Denominator:Weighted average shares outstanding  basic
    
    
    34,274
    
    
    
    32,523
    
    
    
    34,091
    
    
    
    32,182Potential common shares  options (treasury stock method)
    
    
    462
    
    
    
    622
    
    
    
    469
    
    
    
    459Weighted average shares outstanding  diluted
    
    
    34,736
    
    
    
    33,145
    
    
    
    34,560
    
    
    
    32,641Shares excluded due to an exercise price greater thanweighted average stock price for the period
    
    
    2,410
    
    
    
    2,462
    
    
    
    2,410
    
    
    
    2,501Net income per common share:Basic
    
    $
    0.09
    
    
    $
    0.06
    
    
    $
    0.19
    
    
    $
    0.11Diluted
    
    $
    0.09
    
    
    $
    0.06
    
    
    $
    0.19
    
    
    $
    0.11
 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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(unaudited)
    
    
    (unaudited)2010
    
    
    2009
    
    
    2010
    
    
    2009Cost of revenues
    
    $
    23
    
    
    $
    28
    
    
    $
    76
    
    
    $
    157Selling and marketing
    
    
    627
    
    
    
    592
    
    
    
    1,890
    
    
    
    1,898Research and development
    
    
    615
    
    
    
    643
    
    
    
    1,817
    
    
    
    1,899General and administrative
    
    
    1,079
    
    
    
    782
    
    
    
    3,229
    
    
    
    2,706Total non-cash stock compensation expense
    
    $
    2,344
    
    
    $
    2,045
    
    
    $
    7,012
    
    
    $
    6,660
  Stock Options
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2010
    
    2009
    
    2010
    
    2009(unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)Employee Stock OptionsRisk-free interest rate
    
    
    
    
    
    
    0.5
    %
    
    
    0.32
    %
    
    
    0.5
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average expected life (years)
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    1Volatility
    
    
    
    
    
    
    71.0
    %
    
    
    72.0
    %
    
    
    71.0
    %Forfeiture rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   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)
    
    
    (69
    )
    
    $
    5.04Cancelled (unaudited)
    
    
    (80
    )
    
    $
    13.51Outstanding as of September 30, 2010 (unaudited)
    
    
    3,407
    
    
    $
    11.36
    
    
    $
    Exercisable as of September 30, 2010 (unaudited)
    
    
    3,097
    
    
    $
    11.10
    
    
    $
    
 9




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##### Table of Contents



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
    
    
    177
    
    
    
    3.4
    
    
    $
    1.55
    
    
    
    177
    
    
    $
    1.55$4.01  $6.00
    
    
    643
    
    
    
    4.8
    
    
    $
    4.95
    
    
    
    643
    
    
    $
    4.95$6.01  $12.00
    
    
    299
    
    
    
    6.5
    
    
    $
    9.16
    
    
    
    273
    
    
    $
    9.28$12.01  $14.00
    
    
    1,271
    
    
    
    6.4
    
    
    $
    12.67
    
    
    
    1,136
    
    
    $
    12.67$14.01  $16.00
    
    
    637
    
    
    
    6.5
    
    
    $
    15.18
    
    
    
    557
    
    
    $
    15.18$16.01  $19.00
    
    
    380
    
    
    
    6.7
    
    
    $
    17.73
    
    
    
    311
    
    
    $
    17.793,407
    
    
    
    6.0
    
    
    $
    11.36
    
    
    
    3,097
    
    
    $
    11.10
 Restricted Stock Awards
   SharesUnvested at December 31, 2009
    
    
    1,415Granted (unaudited)
    
    
    902Cancelled/forfeited (unaudited)
    
    
    (48
    )Vested (unaudited)
    
    
    (517
    )Unvested at September 30, 2010 (unaudited)
    
    
    1,752
 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.
 10




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##### Table of Contents



7. Cash and Cash Equivalents
  8. Short-Term Investments
  September 30, 2010
    
    
    December 31, 2009(unaudited)
    
    
    (audited)Fair value
    
    
    Unrealized (loss)
    
    
    Fair value
    
    
    Unrealized (loss)Corporate bonds and notes
    
    $
    22,946
    
    
    $
    (12
    )
    
    $
    3,499
    
    
    $
    Government-backed securities
    
    
    22,276
    
    
    
    
    
    
    
    27,785
    
    
    
    (2
    )Total
    
    $
    45,222
    
    
    $
    (12
    )
    
    $
    31,284
    
    
    $
    (2
    )
 9. Accounts Receivable
  10. Inventories
  11




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##### Table of Contents



11. Equipment and Improvements
  12. Goodwill
   13. Intangible Assets
  Useful
    
    
    September 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
    
    
    $
    (4,830
    )
    
    $
    2,517
    
    
    $
    6,667
    
    
    $
    (3,349
    )
    
    $
    3,318In process R&D
    
    
    2
    
    
    
    990
    
    
    
    
    
    
    
    990
    
    
    
    990
    
    
    
    
    
    
    
    990Capitalized software
    
    
    1-7
    
    
    
    23,846
    
    
    
    (14,546
    )
    
    
    9,300
    
    
    
    23,846
    
    
    
    (11,485
    )
    
    
    12,361Distribution rights
    
    
    5
    
    
    
    482
    
    
    
    (482
    )
    
    
    
    
    
    
    482
    
    
    
    (447
    )
    
    
    35Customer lists
    
    
    3-5
    
    
    
    1,484
    
    
    
    (1,281
    )
    
    
    203
    
    
    
    1,484
    
    
    
    (1,048
    )
    
    
    436Database
    
    
    10
    
    
    
    182
    
    
    
    (52
    )
    
    
    130
    
    
    
    182
    
    
    
    (38
    )
    
    
    144Trademarks
    
    
    5-10
    
    
    
    926
    
    
    
    (514
    )
    
    
    412
    
    
    
    926
    
    
    
    (445
    )
    
    
    481Trade names
    
    
    1-7
    
    
    
    2,121
    
    
    
    (1,108
    )
    
    
    1,013
    
    
    
    2,121
    
    
    
    (807
    )
    
    
    1,314Non-compete
    
    
    2
    
    
    
    21
    
    
    
    (10
    )
    
    
    11
    
    
    
    21
    
    
    
    (2
    )
    
    
    19Customer agreements
    
    
    1-2
    
    
    
    1,135
    
    
    
    (1,135
    )
    
    
    
    
    
    
    1,135
    
    
    
    (1,135
    )
    
    
    Customer relationships
    
    
    4-7
    
    
    
    11,130
    
    
    
    (4,169
    )
    
    
    6,961
    
    
    
    11,130
    
    
    
    (2,566
    )
    
    
    8,564Totals
    
    
    
    
    
    $
    49,664
    
    
    $
    (28,127
    )
    
    $
    21,537
    
    
    $
    48,984
    
    
    $
    (21,322
    )
    
    $
    27,662
  12




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14. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(unaudited)
    
    
    (unaudited)2010
    
    
    2009
    
    
    2010
    
    
    2009Net income
    
    $
    3,094
    
    
    $
    1,981
    
    
    $
    6,571
    
    
    $
    3,536Change in unrealized gain (loss) on investments, net
    
    
    2
    
    
    
    (13
    )
    
    
    (10
    )
    
    
    (50
    )Total comprehensive income
    
    $
    3,096
    
    
    $
    1,968
    
    
    $
    6,561
    
    
    $
    3,486
 15. Segment and Geographical Information
 Segment Information
 Wireless Productivity & Graphics
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(unaudited)
    
    
    (unaudited)2010
    
    
    2009
    
    
    2010
    
    
    2009Wireless
    
    $
    31,340
    
    
    $
    22,665
    
    
    $
    86,631
    
    
    $
    63,295Productivity & Graphics
    
    
    2,615
    
    
    
    4,986
    
    
    
    8,296
    
    
    
    13,569Corporate/Other
    
    
    53
    
    
    
    169
    
    
    
    300
    
    
    
    730Total Revenues
    
    $
    34,008
    
    
    $
    27,820
    
    
    $
    95,227
    
    
    $
    77,594
  13




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##### Table of Contents



Geographical Information
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(unaudited)
    
    
    (unaudited)2010
    
    
    2009
    
    
    2010
    
    
    2009Americas
    
    $
    32,384
    
    
    $
    25,496
    
    
    $
    88,169
    
    
    $
    70,881Asia Pacific
    
    
    398
    
    
    
    1,198
    
    
    
    1,231
    
    
    
    3,183EMEA
    
    
    1,226
    
    
    
    1,126
    
    
    
    5,827
    
    
    
    3,530Total Revenues
    
    $
    34,008
    
    
    $
    27,820
    
    
    $
    95,227
    
    
    $
    77,594
  16. Recent Accounting Pronouncements
 Subsequent
Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements.
 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.
 Software (Topic 985): Certain Revenue
Arrangements That Include Software Elements (a consensus of the FASB Emerging Issues Task Force).
 14




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##### Table of Contents



Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements
 17. Commitments and Contingencies
 Leases
  Year Ending December 31,
    
    Operating2010-3 months
    
    $
    5632011
    
    
    2,1302012
    
    
    1,8852013
    
    
    1,6022014
    
    
    1,2592015
    
    
    1,216Beyond
    
    
    3,294Total
    
    $
    11,949
  18. Income Taxes
   15




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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
    
    Nine Months EndedSeptember 30,
    
    September 30,2010
    
    2009
    
    2010
    
    2009Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    11.1
    
    
    
    12.7
    
    
    
    12.0
    
    
    
    15.4Gross profit
    
    
    88.9
    
    
    
    87.3
    
    
    
    88.0
    
    
    
    84.6Operating expenses:Selling and marketing
    
    
    21.6
    
    
    
    21.4
    
    
    
    23.1
    
    
    
    23.7Research and development
    
    
    32.3
    
    
    
    33.2
    
    
    
    32.8
    
    
    
    33.6General and administrative
    
    
    17.8
    
    
    
    17.8
    
    
    
    19.0
    
    
    
    18.0Total operating expenses
    
    
    71.7
    
    
    
    72.4
    
    
    
    74.9
    
    
    
    75.3Operating income
    
    
    17.2
    
    
    
    14.9
    
    
    
    13.1
    
    
    
    9.3Interest and other income
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.1
    
    
    
    0.6Income before taxes
    
    
    17.5
    
    
    
    15.3
    
    
    
    13.2
    
    
    
    9.9Income tax expense
    
    
    8.4
    
    
    
    8.2
    
    
    
    6.3
    
    
    
    5.3Net income
    
    
    9.1
    %
    
    
    7.1
    %
    
    
    6.9
    %
    
    
    4.6
    %
 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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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Wireless
    
    $
    31,340
    
    
    $
    22,665
    
    
    $
    86,631
    
    
    $
    63,295Productivity &
Graphics
    
    
    2,615
    
    
    
    4,986
    
    
    
    8,296
    
    
    
    13,569Corporate/Other
    
    
    53
    
    
    
    169
    
    
    
    300
    
    
    
    730Total Revenues
    
    
    34,008
    
    
    
    27,820
    
    
    
    95,227
    
    
    
    77,594Cost of revenues
    
    
    3,771
    
    
    
    3,540
    
    
    
    11,468
    
    
    
    11,985Gross Profit
    
    $
    30,237
    
    
    $
    24,280
    
    
    $
    83,759
    
    
    $
    65,609
  Cost of revenues.
 Selling and marketing.
 Research and development.
 General and administrative.
 Interest and other income
 Income tax expense.
   Three Months Ended September 30, 2010 Compared to the Three Months Ended September 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.
 Income tax expense.
 Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 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.
 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
    
    $
    11,949
    
    
    $
    2,191
    
    
    $
    3,585
    
    
    $
    2,571
    
    
    $
    3,602Purchase obligations
    
    
    1,407
    
    
    
    1,407
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    13,356
    
    
    $
    3,598
    
    
    $
    3,585
    
    
    $
    2,571
    
    
    $
    3,602
  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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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.November 4, 2010
    By

    /s/ William W. Smith, Jr.William W. Smith, Jr.President and Chief Executive Officer(Principal Executive Officer) November 4, 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 Index31.1
    
    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