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, 2009
 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




---



##### 



SMITH MICRO SOFTWARE, INC.
QUARTERLY REPORT ON FORM 10-Q
September 30, 2009
 TABLE OF CONTENTS
 PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheets as of September 30, 2009 and December 31, 2008
    
    
    2Consolidated Statements of Operations for the three and nine months ended September 30,
2009 and 2008
    
    
    3Consolidated Statement of Stockholders Equity for the nine months ended September 30, 2009
    
    
    4Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    24PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    25Item 1A.
    
    Risk Factors
    
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25Item 6.
    
    Exhibits
    
    
    25SIGNATURES
    
    
    26EXHIBIT 2.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
 1




---



##### 



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 31,2009
    
    
    2008(unaudited)
    
    
    (audited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    16,175
    
    
    $
    13,966Short-term investments
    
    
    32,361
    
    
    
    22,649Accounts receivable, net of allowances for doubtful accounts
and other adjustments of $1,479 (2009) and $1,204 (2008)
    
    
    23,293
    
    
    
    18,424Inventories, net of reserves for obsolete inventory
of $1,118 (2009) and $404 (2008)
    
    
    506
    
    
    
    1,097Prepaid expenses and other current assets
    
    
    798
    
    
    
    869Deferred tax asset
    
    
    1,658
    
    
    
    1,698Total current assets
    
    
    74,791
    
    
    
    58,703Equipment and improvements, net
    
    
    7,046
    
    
    
    4,289Goodwill
    
    
    83,483
    
    
    
    83,483Intangible assets, net
    
    
    21,187
    
    
    
    27,603Other assets
    
    
    160
    
    
    
    157Deferred tax asset
    
    
    2,760
    
    
    
    2,760Total assets
    
    $
    189,427
    
    
    $
    176,995Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    4,162
    
    
    $
    3,492Accrued liabilities
    
    
    4,936
    
    
    
    6,710Deferred revenue
    
    
    2,331
    
    
    
    923Total current liabilities
    
    
    11,429
    
    
    
    11,125Long-term liabilities
    
    
    211
    
    
    
    466Commitments 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;
32,662,000 and 31,400,000 shares issued and outstanding at September 30, 2009
and December 31, 2008, respectively
    
    
    33
    
    
    
    31Additional paid-in capital
    
    
    174,759
    
    
    
    165,864Accumulated other comprehensive income
    
    
    19
    
    
    
    69Accumulated earnings (deficit)
    
    
    2,976
    
    
    
    (560
    )Total stockholders equity
    
    
    177,787
    
    
    
    165,404Total liabilities and stockholders equity
    
    $
    189,427
    
    
    $
    176,995
  2




---



##### 



SMITH MICRO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(unaudited)
    
    
    (unaudited)
    
    
    (unaudited)
    
    
    (unaudited)Revenues
    
    $
    27,820
    
    
    $
    26,641
    
    
    $
    77,594
    
    
    $
    71,973Cost of revenues
    
    
    3,540
    
    
    
    5,197
    
    
    
    11,985
    
    
    
    15,776Gross profit
    
    
    24,280
    
    
    
    21,444
    
    
    
    65,609
    
    
    
    56,197Operating expenses:Selling and marketing
    
    
    5,946
    
    
    
    6,255
    
    
    
    18,371
    
    
    
    18,829Research and development
    
    
    9,229
    
    
    
    8,199
    
    
    
    26,066
    
    
    
    23,121General and administrative
    
    
    4,967
    
    
    
    4,941
    
    
    
    13,962
    
    
    
    14,555Total operating expenses
    
    
    20,142
    
    
    
    19,395
    
    
    
    58,399
    
    
    
    56,505Operating income (loss)
    
    
    4,138
    
    
    
    2,049
    
    
    
    7,210
    
    
    
    (308
    )Interest and other income
    
    
    121
    
    
    
    104
    
    
    
    495
    
    
    
    520Profit before taxes
    
    
    4,259
    
    
    
    2,153
    
    
    
    7,705
    
    
    
    212Income tax expense
    
    
    2,278
    
    
    
    3,729
    
    
    
    4,169
    
    
    
    2,263Net income (loss)
    
    $
    1,981
    
    
    $
    (1,576
    )
    
    $
    3,536
    
    
    $
    (2,051
    )Net income (loss) per share:Basic
    
    $
    0.06
    
    
    $
    (0.05
    )
    
    $
    0.11
    
    
    $
    (0.07
    )Diluted
    
    $
    0.06
    
    
    $
    (0.05
    )
    
    $
    0.11
    
    
    $
    (0.07
    )Weighted average shares outstanding:Basic
    
    
    32,523
    
    
    
    31,289
    
    
    
    32,182
    
    
    
    30,856Diluted
    
    
    33,145
    
    
    
    31,289
    
    
    
    32,641
    
    
    
    30,856
  3




---



##### 



SMITH MICRO SOFTWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(in thousands)
 AccumulatedAdditional
    
    
    otherCommon stock
    
    
    paid-in
    
    
    comprehensive
    
    
    AccumulatedShares
    
    
    Amount
    
    
    capital
    
    
    income (loss)
    
    
    income (deficit)
    
    
    TotalBALANCE, December 31, 2008
    
    
    31,400
    
    
    $
    31
    
    
    $
    165,864
    
    
    $
    69
    
    
    $
    (560
    )
    
    $
    165,404Exercise of common stock options
    
    
    404
    
    
    
    1
    
    
    
    1,615
    
    
    
    
    
    
    
    
    
    
    
    1,616Non cash compensation recognized on stock options
    
    
    
    
    
    
    
    
    
    
    4,053
    
    
    
    
    
    
    
    
    
    
    
    4,053Restricted stock grants
    
    
    875
    
    
    
    1
    
    
    
    2,606
    
    
    
    
    
    
    
    
    
    
    
    2,607Cancellation of shares for payment of
withholding tax
    
    
    (17
    )
    
    
    
    
    
    
    (118
    )
    
    
    
    
    
    
    
    
    
    
    (118
    )Excess tax benefit related to stock compensation
    
    
    
    
    
    
    
    
    
    
    779
    
    
    
    
    
    
    
    
    
    
    
    779Tax deficiencies related to stock compensation
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    
    
    
    
    
    
    
    
    (40
    )Other comprehensive income:Change in unrealized loss on short-term
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    
    
    
    
    (50
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,536
    
    
    
    3,536Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,486BALANCE, September 30, 2009
    
    
    32,662
    
    
    $
    33
    
    
    $
    174,759
    
    
    $
    19
    
    
    $
    2,976
    
    
    $
    177,787
  4




---



##### 



SMITH MICRO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Nine Months Ended September 30,2009
    
    
    2008(unaudited)
    
    
    (unaudited)Operating activities:Net income (loss)
    
    $
    3,536
    
    
    $
    (2,051
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities, net of the effect of acquisitions:Depreciation and amortization
    
    
    7,645
    
    
    
    6,459Loss on disposal of assets
    
    
    20
    
    
    
    Provision for doubtful accounts and other adjustments to accounts
receivable
    
    
    1,190
    
    
    
    637Provision for excess and obsolete inventory
    
    
    896
    
    
    
    270Tax benefits from stock-based compensation
    
    
    (779
    )
    
    
    (78
    )Non cash compensation related to stock options & restricted stock
    
    
    6,541
    
    
    
    9,177Change in operating accounts, net of effect from acquisitions:Accounts receivable
    
    
    (6,059
    )
    
    
    (8,030
    )Deferred income taxes
    
    
    
    
    
    
    1,394Income tax receivable
    
    
    
    
    
    
    (82
    )Inventories
    
    
    (305
    )
    
    
    472Prepaid expenses and other assets
    
    
    68
    
    
    
    151Accounts payable and accrued liabilities
    
    
    828
    
    
    
    196Net cash provided by operating activities
    
    
    13,581
    
    
    
    8,515Investing activities:Adjustments made to the acquisition of eFrontier America
    
    
    
    
    
    
    (686
    )Adjustments made to the acquisition of Insignia Solutions
    
    
    
    
    
    
    245Acquisition of PCTels Mobility Solutions Group, net of cash received
    
    
    
    
    
    
    (60,911
    )Other intangibles
    
    
    
    
    
    
    (500
    )Capital expenditures
    
    
    (4,006
    )
    
    
    (3,161
    )Purchase of short-term investments
    
    
    (9,762
    )
    
    
    (6,301
    )Net cash used in investing activities
    
    
    (13,768
    )
    
    
    (71,314
    )Financing activities:Tax benefits from stock-based compensation
    
    
    779
    
    
    
    78Cash received from exercise of stock options
    
    
    1,617
    
    
    
    129Net cash provided by financing activities
    
    
    2,396
    
    
    
    207Net increase (decrease) in cash and cash equivalents
    
    
    2,209
    
    
    
    (62,592
    )Cash and cash equivalents, beginning of period
    
    
    13,966
    
    
    
    87,549Cash and cash equivalents, end of period
    
    $
    16,175
    
    
    $
    24,957Supplemental disclosures of cash flow information:Cash paid for income taxes
    
    $
    5,189
    
    
    $
    417
  5




---



##### 



SMITH MICRO SOFTWARE, INC.
Notes to the Consolidated Financial Statements
 1. The Company
   2. Basis of Presentation
 The TM and
the Hierarchy of Generally Accepted Accounting Principlesa replacement of FASB Statement No. 162
      3. Net Income (Loss) Per Share
  6




---



##### 



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(unaudited, in thousands, except per share amounts)Numerator:Net income (loss) available to common stockholders
    
    $
    1,981
    
    
    $
    (1,576
    )
    
    $
    3,536
    
    
    $
    (2,051
    )Denominator:Weighted average shares outstanding  basic
    
    
    32,523
    
    
    
    31,289
    
    
    
    32,182
    
    
    
    30,856Potential common shares  options (treasury stock
method)
    
    
    622
    
    
    
    
    
    
    
    459
    
    
    
    Weighted average shares outstanding  diluted
    
    
    33,145
    
    
    
    31,289
    
    
    
    32,641
    
    
    
    30,856Shares excluded (anti-dilutive)
    
    
    
    
    
    
    3,111
    
    
    
    
    
    
    
    3,110Shares excluded due to an exercise price greater than weighted average stock price for the period
    
    
    2,462
    
    
    
    
    
    
    
    2,501
    
    
    
    Net income (loss) per common share:Basic
    
    $
    0.06
    
    
    
    ($0.05
    )
    
    $
    0.11
    
    
    
    ($0.07
    )Diluted
    
    $
    0.06
    
    
    
    ($0.05
    )
    
    $
    0.11
    
    
    
    ($0.07
    )
 4. Stock-Based Compensation
 Stock Plans
   Stock Compensation
   7




---



##### 



Valuation of Stock Option and Restricted Stock Awards
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2009
    
    2008
    
    2009
    
    2008(unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)Employee Stock OptionsRisk-free interest rate
    
    
    0.5
    %
    
    
    2.2
    %
    
    
    0.5
    %
    
    
    2.8
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average
expected life (years)
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    4Volatility
    
    
    71.0
    %
    
    
    72.0
    %
    
    
    71.0
    %
    
    
    71.0
    %Forfeiture rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.5
    %
   Compensation Costs
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(unaudited)
    
    
    (unaudited)2009
    
    
    2008
    
    
    2009
    
    
    2008Cost of revenues
    
    $
    28
    
    
    $
    99
    
    
    $
    157
    
    
    $
    331Selling and marketing
    
    
    592
    
    
    
    760
    
    
    
    1,898
    
    
    
    2,727Research and development
    
    
    643
    
    
    
    835
    
    
    
    1,899
    
    
    
    2,483General and administrative
    
    
    782
    
    
    
    1,306
    
    
    
    2,706
    
    
    
    3,636Total non-cash stock compensation expense
    
    $
    2,045
    
    
    $
    3,000
    
    
    $
    6,660
    
    
    $
    9,177
  Stock Options
  8




---



##### 



Weighted Ave.
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    Intrinsic Value(in thousands except per share amounts)Outstanding as of December 31, 2008
    
    
    4,289
    
    
    $
    10.94Granted (unaudited)
    
    
    25
    
    
    $
    11.59Exercised (unaudited)
    
    
    (404
    )
    
    $
    4.00Cancelled (unaudited)
    
    
    (359
    )
    
    $
    14.58Outstanding as of September 30, 2009
(unaudited)
    
    
    3,551
    
    
    $
    11.27
    
    
    $
    Exercisable as of September 30, 2009
(unaudited)
    
    
    2,606
    
    
    $
    10.33
    
    
    $
    5,277
   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
    
    
    188
    
    
    
    4.4
    
    
    $
    1.56
    
    
    
    188
    
    
    $
    1.56$4.01 - $6.00
    
    
    695
    
    
    
    5.8
    
    
    $
    4.95
    
    
    
    694
    
    
    $
    4.95$6.01 - $12.00
    
    
    306
    
    
    
    7.4
    
    
    $
    8.99
    
    
    
    231
    
    
    $
    9.08$12.01 - $14.00
    
    
    1,309
    
    
    
    7.4
    
    
    $
    12.68
    
    
    
    851
    
    
    $
    12.69$14.01 - $16.00
    
    
    673
    
    
    
    7.5
    
    
    $
    15.18
    
    
    
    425
    
    
    $
    15.18$16.01 - $19.00
    
    
    380
    
    
    
    7.7
    
    
    $
    17.73
    
    
    
    217
    
    
    $
    17.813,551
    
    
    
    7.0
    
    
    $
    11.27
    
    
    
    2,606
    
    
    $
    10.33
 Restricted Stock Awards
  SharesUnvested at December 31, 2008
    
    
    998Granted (unaudited)
    
    
    963Vested (unaudited)
    
    
    (353
    )Cancelled (unaudited)
    
    
    (88
    )Unvested at September 30, 2009 (unaudited)
    
    
    1,520
 5. Fair Value of Financial Instruments
  9




---



##### 



6. Cash and Cash Equivalents
  7. Short-Term Investments
  (unaudited)Fair value
    
    
    Unrealized gainHolding period of less than 12 months:Corporate bonds and notes
    
    $
    7,047
    
    
    $
    3Government securities
    
    
    25,314
    
    
    
    16Total
    
    $
    32,361
    
    
    $
    19
  
    
    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




---



##### 



8. Accounts Receivable
  9. Inventories
  10. Equipment and Improvements
  11. Goodwill
   12. Intangible Assets
  Useful
    
    
    September 30, 2009 (unaudited)
    
    
    December 31, 2008Life
    
    
    
    
    
    
    Accumulated
    
    
    Net Book
    
    
    
    
    
    
    Accumulated
    
    
    Net Book(Years)
    
    
    Gross
    
    
    Amortization
    
    
    Value
    
    
    Gross
    
    
    Amortization
    
    
    ValueAmortizing:Purchased Technology
    
    
    1
    
    
    $
    3,047
    
    
    $
    (2,827
    )
    
    $
    220
    
    
    $
    3,047
    
    
    $
    (1,836
    )
    
    $
    1,211Capitalized Software
    
    
    5-7
    
    
    
    23,846
    
    
    
    (10,432
    )
    
    
    13,414
    
    
    
    23,846
    
    
    
    (6,899
    )
    
    
    16,947Distribution Rights
    
    
    5
    
    
    
    482
    
    
    
    (430
    )
    
    
    52
    
    
    
    482
    
    
    
    (377
    )
    
    
    105Customer Lists
    
    
    5
    
    
    
    1,484
    
    
    
    (955
    )
    
    
    529
    
    
    
    1,484
    
    
    
    (676
    )
    
    
    808Database
    
    
    10
    
    
    
    182
    
    
    
    (33
    )
    
    
    149
    
    
    
    182
    
    
    
    (20
    )
    
    
    162Trademarks
    
    
    10
    
    
    
    809
    
    
    
    (425
    )
    
    
    384
    
    
    
    809
    
    
    
    (375
    )
    
    
    434Trade Names
    
    
    1-2
    
    
    
    2,121
    
    
    
    (706
    )
    
    
    1,415
    
    
    
    2,121
    
    
    
    (406
    )
    
    
    1,715Customer Agreements
    
    
    4-7
    
    
    
    1,135
    
    
    
    (1,014
    )
    
    
    121
    
    
    
    1,135
    
    
    
    (650
    )
    
    
    485Customer
Relationships
    
    
    1-9
    
    
    
    7,020
    
    
    
    (2,117
    )
    
    
    4,903
    
    
    
    7,020
    
    
    
    (1,284
    )
    
    
    5,736Totals
    
    
    
    
    
    $
    40,126
    
    
    $
    (18,939
    )
    
    $
    21,187
    
    
    $
    40,126
    
    
    $
    (12,523
    )
    
    $
    27,603
 11




---



##### 



13. Other Assets
  14. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(unaudited)
    
    
    (unaudited)2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    1,981
    
    
    $
    (1,576
    )
    
    $
    3,536
    
    
    $
    (2,051
    )Change in unrealized gain on
investments, net
    
    
    (13
    )
    
    
    (30
    )
    
    
    (50
    )
    
    
    (30
    )Total comprehensive income (loss)
    
    $
    1,968
    
    
    $
    (1,606
    )
    
    $
    3,486
    
    
    $
    (2,081
    )
 15. Segment and Geographical Information
 Segment Information
 Wireless Productivity &
Graphics
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(unaudited)
    
    
    (unaudited)2009
    
    
    2008
    
    
    2009
    
    
    2008Wireless
    
    $
    22,665
    
    
    $
    19,919
    
    
    $
    63,295
    
    
    $
    52,911Productivity & Graphics
    
    
    4,986
    
    
    
    6,396
    
    
    
    13,569
    
    
    
    18,101Corporate/Other
    
    
    169
    
    
    
    326
    
    
    
    730
    
    
    
    961Total Revenues
    
    $
    27,820
    
    
    $
    26,641
    
    
    $
    77,594
    
    
    $
    71,973
  12




---



##### 



Geographical Information
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(unaudited)
    
    
    (unaudited)2009
    
    
    2008
    
    
    2009
    
    
    2008Americas
    
    $
    25,496
    
    
    $
    24,008
    
    
    $
    70,881
    
    
    $
    64,521Asia Pacific
    
    
    1,198
    
    
    
    1,314
    
    
    
    3,183
    
    
    
    3,921EMEA
    
    
    1,126
    
    
    
    1,319
    
    
    
    3,530
    
    
    
    3,531Total Revenues
    
    $
    27,820
    
    
    $
    26,641
    
    
    $
    77,594
    
    
    $
    71,973
  16. Recent Accounting Pronouncements
 The TM and the Hierarchy of Generally Accepted Accounting Principlesa
replacement of FASB Statement No. 162
 Amendments to FASB Interpretation No. 46(R). Consolidation of Variable Interest Entities, Accounting for Transfers of Financial Assets,
 Accounting for Transfers of Financial Assetsan
amendment of FASB Statement No. 140.
 Business Combinations
 13




---



##### 



Non-controlling Interests in Consolidated
Financial Statements
 17. Commitments and Contingencies
 Leases
  Year Ending December 31,
    
    Operating2009-3 months
    
    $
    4342010
    
    
    1,6892011
    
    
    1,6062012
    
    
    1,3932013
    
    
    9232014
    
    
    737Beyond
    
    
    1,081Total
    
    $
    7,863
  18. Income Taxes
      19. Subsequent Events
 Subsequent Events
 14




---



##### 



15




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This report contains
forward-looking statements regarding Smith Micro Software, Inc. (we,
us, our, Smith Micro, or the Company) 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, 2008.
 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
  ®
  16




---



##### 



Results of Operations
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    12.7
    
    
    
    19.5
    
    
    
    15.4
    
    
    
    21.9Gross profit
    
    
    87.3
    
    
    
    80.5
    
    
    
    84.6
    
    
    
    78.1Operating expenses:Selling and marketing
    
    
    21.4
    
    
    
    23.5
    
    
    
    23.7
    
    
    
    26.2Research and development
    
    
    33.2
    
    
    
    30.8
    
    
    
    33.6
    
    
    
    32.1General and administrative
    
    
    17.8
    
    
    
    18.5
    
    
    
    18.0
    
    
    
    20.2Total operating expenses
    
    
    72.4
    
    
    
    72.8
    
    
    
    75.3
    
    
    
    78.5Operating income (loss)
    
    
    14.9
    
    
    
    7.7
    
    
    
    9.3
    
    
    
    (0.4
    )Interest and other income
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.6
    
    
    
    0.7Profit before taxes
    
    
    15.3
    
    
    
    8.1
    
    
    
    9.9
    
    
    
    0.3Income tax expense
    
    
    8.2
    
    
    
    14.0
    
    
    
    5.3
    
    
    
    3.1Net income (loss)
    
    
    7.1
    %
    
    
    (5.9
    )%
    
    
    4.6
    %
    
    
    (2.8
    )%
 Revenues and Expense Components
  Revenues.
 
    
    Wireless, which includes our connection manager solutions for the OEM and
Enterprise channels, music, photo and video content management, and device
management; and
 
    
    Productivity & Graphics, which includes retail sales of our compression
and broad consumer-based software.
 17




---



##### 



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Wireless
    
    $
    22,665
    
    
    $
    19,919
    
    
    $
    63,295
    
    
    $
    52,911Productivity &
Graphics
    
    
    4,986
    
    
    
    6,396
    
    
    
    13,569
    
    
    
    18,101Corporate/Other
    
    
    169
    
    
    
    326
    
    
    
    730
    
    
    
    961Total Revenues
    
    
    27,820
    
    
    
    26,641
    
    
    
    77,594
    
    
    
    71,973Cost of revenues
    
    
    3,540
    
    
    
    5,197
    
    
    
    11,985
    
    
    
    15,776Gross profit
    
    $
    24,280
    
    
    $
    21,444
    
    
    $
    65,609
    
    
    $
    56,197
  Cost of revenues.
 Selling and marketing.
 Research and development.
 General and administrative.
 Interest and other income
 Income tax expense.
 Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008
 Revenues.
 Cost of revenues
 18




---



##### 



Gross profit.
 Selling and marketing.
 Research and development.
 General and administrative.
 Interest and other income.
 Income tax provision.
 Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008
 Revenues.
 Cost of revenues
 Gross profit.
 19




---



##### 



Selling and marketing.
 Research and development.
 General and administrative.
 Interest and other income.
 Income tax provision.
 Liquidity and Capital Resources
  Operating activities
  20




---



##### 



Investing activities
  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
    
    $
    7,863
    
    
    $
    1,699
    
    
    $
    3,180
    
    
    $
    1,718
    
    
    $
    1,266Purchase Obligations
    
    
    1,342
    
    
    
    1,342
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    9,205
    
    
    $
    3,041
    
    
    $
    3,180
    
    
    $
    1,718
    
    
    $
    1,266
  Real Property Leases
  Critical Accounting Policies and Estimates
  21




---



##### 



Revenue Recognition
  Sales Incentives
  Accounts Receivable and Allowance for Doubtful Accounts
  Internal Software Development Costs
  Capitalized Software and Amortization
  22




---



##### 



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
  Stock Compensation
  23




---



##### 



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
   Changes in internal control over financial reporting
  24




---



##### 



PART II. OTHER INFORMATION
 Item 1. Legal Proceedings
  Item 1A. Risk Factors
  Item 4. Submission of Matters to a Vote of Security Holders
     Item 6. Exhibits
 2.1
    
    Agreement and Plan of Merger, dated September 9, 2009, by and among Smith Micro Software, Inc., Mobility
Acquisition Corp., Core Mobility, Inc., Konstantin Othmer, as stockholders agent, and the founders of Core Mobility.

Certain schedules and exhibits referenced in the Agreement  and Plan
of Merger have been  omitted in accordance with Item 601(b)(2) of
Regulation S-K. A copy of any omitted schedule and/or  exhibit will
be furnished supplementally to the Securities and Exchange Commission
upon request.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.
 25




---



##### 



SIGNATURES
  SMITH MICRO SOFTWARE, INC.November 5, 2009
    By /s/ William W. Smith, Jr.William W. Smith, Jr.President and
Chief Executive Officer(Principal Executive Officer) November 5, 2009
    By /s/ Andrew C. SchmidtAndrew C. SchmidtVice President and

Chief Financial Officer(Principal Financial Officer) 26




---



##### 



Index to Exhibits
 Item 6. Exhibits
 2.1
    
    Agreement and Plan of Merger, dated September 9, 2009, by and among Smith Micro Software, Inc., Mobility
Acquisition Corp., Core Mobility, Inc., Konstantin Othmer, as stockholders agent, and the founders of Core Mobility.

Certain schedules and exhibits referenced in the Agreement  and Plan
of Merger have been  omitted in accordance with Item 601(b)(2) of
Regulation S-K. A copy of any omitted schedule and/or  exhibit will
be furnished supplementally to the Securities and Exchange Commission
upon request.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