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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 
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    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from __________ to __________
 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 Number)51 Columbia, Aliso Viejo, CA
(Address of principal executive offices)
    
    92656
(Zip Code)
 (949) 362-5800
 Common Stock, $.001 par value
(Title of each class)
    
    The NASDAQ Stock Market LLC
(NASDAQ Global Market)
(Name of each exchange on which registered)
 
 Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.001 par value
Securities registered pursuant to Section 12(g) of the Act: None
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  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company 
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   DOCUMENTS INCORPORATED BY REFERENCE




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SMITH MICRO SOFTWARE, INC.  2010 ANNUAL REPORT ON FORM 10-K  TABLE OF CONTENTS
 PART IItem 1.
    

BUSINESS
    
    
    4Item 1A.
    

RISK
FACTORS
    
    
    11Item 1B.
    
    UNRESOLVED STAFF COMMENTS
    
    
    18Item 2.
    
    PROPERTIES
    
    
    18Item 3.
    
    LEGAL PROCEEDINGS
    
    
    19Item 4.
    
    RESERVED
    
    
    19PART IIItem 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    20Item 6.
    
    SELECTED CONSOLIDATED FINANCIAL DATA
    
    
    23Item 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    24Item 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    36Item 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    36Item 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
    
    
    36Item 9A.
    
    CONTROLS AND PROCEDURES
    
    
    37Item 9B.
    
    OTHER INFORMATION
    
    
    38PART IIIItem 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    39Item 11.
    
    EXECUTIVE COMPENSATION
    
    
    40Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
    
    
    41Item 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
    
    
    41Item 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    41PART IVItem 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    42SIGNATURES
    
    
    45EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
 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 continued economic slowdown and uncertainty 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 1A. Risk Factors
beginning on page 11 of this report.
 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 Securities and Exchange Commission (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.
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PART I
 
 Item 1. BUSINESS
 General
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Business Segments
  Wireless
       Productivity & Graphics
  5




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Industry Background
  Wireless and mobility 
  connected digital lifestyle
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Productivity and graphic software 
 Products and Services
  Product Groups
    
    Products
    
    DescriptionWireless
    
    QuickLink® Mobile
    
    Centralized connection management application to
control, customize and automate wireless connections of
all types.QuickLink® Mobility
    
    A mobile VPN and connection management solution
delivering network session persistence.QuickLink® Media
    
    Media and content management solution to synchronize
and manage access to digital content from mobile
devices, personal computers and the Cloud.SendStuffNow
    
    Secure Cloud-based large file delivery solution.Device Management
Suite
    
    Provides intelligent, automated mobile device
provisioning and configuration.Push-To-Talk
    
    A data service that uses a mobile Internet connection
to send and receive walkie-talkie style calls.Visual Voicemail
    
    Voicemail is delivered directly to your mobile phone
and stored in a visual inbox and also includes
voicemail translation to text.Vidio
    
    Video content delivery and optimization system for
streaming to personal computers, tablets and mobile
devices.Productivity &
Graphics
    
    StuffIt Deluxe®
    
    Patented, lossless compression solution for documents
and media.CheckIt® Diagnostics &
CheckIt® Netbook Suite
    
    A diagnosis and troubleshooting solution for many
hardware and system problems.Poser®
    
    A solution for creating 3D character art and animations.Anime Studio
    
    An animation tool for professionals and digital artists.Manga Studio
    
    A solution for creating manga and comic art.
 Marketing and Sales Strategy
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Leverage Carrier and OEM Relationships.
 Focus on Multiple High-Growth Markets.
 Expand our Customer Base.
 Selectively Pursue Acquisitions of Complementary Products and Services.
    Integration Initiatives
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Customer Service and Technical Support
  Product Development
  Manufacturing
   Competition
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Proprietary Rights and Licenses
    Employees
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Item 1A. RISK FACTORS
  Our operating results may be adversely impacted by the continued worldwide economic slowdown
and uncertainties in the marketplace.
  Our quarterly revenues and operating results are difficult to predict and could fall below
analyst or investor expectations, which could cause the price of our common stock to fall.
  
    
    the gain or loss of a key customer;
    
    the size and timing of orders from and shipments to our major customers;
    
    the size and timing of any return product requests for our products;
    
    our ability to maintain or increase gross margins;
    
    variations in our sales channels or the mix of our product sales;
    
    our ability to anticipate market needs and to identify, develop, complete,
introduce, market and produce new products and technologies in a timely manner to
address those needs;
    
    the availability and pricing of competing products and technologies and the
resulting effect on sales and pricing of our products;
    
    acquisitions;
    
    the effect of new and emerging technologies;
    
    the timing of acceptance of new mobile services by users of our customers
services;
    
    deferrals of orders by our customers in anticipation of new products,
applications, product enhancements or operating systems; and
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
    
    general economic and market conditions.
 We have difficulty predicting the volume and timing of orders. In any given quarter, our
sales have involved, and we expect will continue to involve, large financial commitments
from a relatively small number of customers. As a result, the cancellation or deferral of
even a small number of orders would reduce our revenues, which would adversely affect our
quarterly financial performance. Also, we have often booked a large amount of our sales in
the last month of the quarter and often in the last week of that month. Accordingly, delays
in the closing of sales near the end of a quarter could cause quarterly revenues to fall
substantially short of anticipated levels. Significant sales may also occur earlier than
expected, which could cause operating results for later quarters to compare unfavorably with
operating results from earlier quarters.
 A large portion of our operating expenses, including rent, depreciation and amortization is
fixed and difficult to reduce or change. Accordingly, if our total revenue does not meet our
expectations, we may not be able to adjust our expenses quickly enough to compensate for the
shortfall in revenue. In that event, our business, financial condition and results of
operations would be materially and adversely affected.
 Due to all of the foregoing factors, and the other risks discussed in this report, you
should not rely on quarter-to-quarter comparisons of our operating results as an indication
of future performance.
 Our total revenues currently depend on a small number of products and customers, so our
operating results are vulnerable to unexpected shifts in demand.
 A substantial majority of our total revenue is derived from sales of our wireless
connectivity and security software products. Although our strategy is to continue to
introduce new products, these efforts may not reduce the extent to which our total revenues
are dependent on a small number of products in these market sectors. Rapid shifts in the
markets for these products and consumer habits, changes in demand by end-users and changes
in underlying technology present both opportunities and risks for our business. Factors
which could affect our business include the rate of adoption of the 4G networking standard
by wireless carriers and handset manufacturers, and changes in consumer demand for PC
networking due to the adoption of Smartphones and tablet computing. If our products fail to
remain current with and useful to new and emerging markets, our business, financial
condition and results of operations would be materially and adversely affected.
 We also derive a significant portion of our revenues from a few vertical markets, such as
wireless carriers and handset manufacturers. In order to sustain and grow our business, we
must continue to sell our software products into these vertical markets. Shifts in the
dynamics of these vertical markets, such as new product introductions by our competitors,
could seriously harm our results of operations, financial condition and prospects. To
increase our sales outside our core vertical markets, for example to large enterprises,
requires us to devote time and resources to hire and train sales employees familiar with
those industries. Even if we are successful in hiring and training sales teams, customers in
other vertical markets may not need or sufficiently value our current products or new
product introductions.
 In addition, because we sell primarily to large carriers and OEMs, there are a limited
number of actual and potential customers for our products, resulting in customer
concentration for sales of our products and services. For the year ended December 31, 2010,
one customer, Verizon Wireless, comprised 40.1% of our total revenues. Two other customers
(Sprint and AT&T) individually comprised of at least 10% of our total revenues. Because of
our customer concentration, our largest customers may have significant pricing power over
us. Furthermore, a substantial decrease in sales to any of our largest customers could
materially affect our revenues and profitability. Additionally, these customers are not the
end-users of our products. If any of these customers efforts to market their products which
incorporate our software are unsuccessful in the marketplace, our revenues and profitability
could be adversely affected.
 Competition within our target markets is intense and includes numerous established
competitors and new entrants, which could negatively affect our revenues and results of
operations.
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We operate in markets that are extremely competitive and subject to rapid changes in
technology. A number of established software companies, such as Microsoft Corporation,
Google Inc. and Apple Inc. pose a significant competitive threat to us because their handset
operating systems may include some capabilities now provided by certain of our OEM and
retail software products. If handset manufacturers and carriers are satisfied relying on the
capabilities of systems using Windows, Android or iPhone OS, or other hardware or operating
systems, sales of our products are likely to decline. In addition, because there are low
barriers to entry into the software markets in which we participate and may participate in
the future, we expect significant competition from both established and emerging software
companies in the future, both domestic and international. In fact, our growth opportunities
in new product markets could be limited to the extent established and emerging software
companies enter or have entered those markets. Furthermore, our existing and potential OEM
customers may acquire or develop products that compete directly with our products.
 Many of our other current and prospective competitors have significantly greater financial,
marketing, service, support, technical and other resources than we do. As a result, they may
be able to adapt more quickly than we to new or emerging technologies and changes in
customer requirements or to devote greater resources to the promotion and sale of their
products. Announcements of competing products by competitors could result in the
cancellation of orders by customers in anticipation of the introduction of such new
products. In addition, some of our competitors currently make complementary products that
are sold separately. Such competitors could decide to enhance their competitive position by
bundling their products to attract customers seeking integrated, cost-effective software
applications. Some competitors have a retail emphasis and offer OEM products with a reduced
set of features. The opportunity for retail upgrade sales may induce these and other
competitors to make OEM products available at their own cost or even at a loss. We also
expect competition to increase as a result of software industry consolidations, which may
lead to the creation of additional large and well-financed competitors. Increased
competition is likely to result in price reductions, fewer customer orders, reduced margins
and loss of market share.
 Acquisitions of companies or technologies may disrupt our business and divert management
attention and cause our current operations to suffer.
 We have historically made targeted acquisitions of smaller companies with important
technology and expect to continue to do so in the future. As part of any acquisition, we
will be required to assimilate the operations, products and personnel of the acquired
businesses and train, retain and motivate key personnel from the acquired businesses. We may
not be able to maintain uniform standards, controls, procedures and policies if we fail in
these efforts. Similarly, acquisitions may cause disruptions in our operations and divert
managements attention from our companys day-to-day operations, which could impair our
relationships with our current employees, customers and strategic partners. Acquisitions may
also subject us to liabilities and risks that are not known or identifiable at the time of
the acquisition.
 We may also have to incur debt or issue equity securities in order to finance future
acquisitions. Our financial condition could be harmed to the extent we incur substantial
debt or use significant amounts of our cash resources in acquisitions. The issuance of
equity securities for any acquisition could be substantially dilutive to our existing
stockholders. In addition, we expect our profitability could be adversely affected because
of acquisition-related accounting costs, write offs, amortization expenses, and charges
related to acquired intangible assets. In consummating acquisitions, we are also subject to
risks of entering geographic and business markets in which we have had limited or no prior
experience. If we are unable to fully integrate acquired businesses, products or
technologies within existing operations, we may not receive the intended benefits of
acquisitions.
 We are entering new, emerging markets in which we have limited experience; if these markets
do not develop or we are unable to otherwise succeed in them, our revenues will suffer and
the price of our common stock will likely decline.
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Our recent and planned product introductions to support new higher speed networking and 4G
technologies such as HSPA+, LTE and WiMAX network protocols have allowed us to enter new
markets. A viable market for these products may not develop or be sustainable, and we may
face intense competition in these markets. In addition, our success in these markets
depends on our carrier customers ability to successfully introduce new mobile services
enabled by our products and our ability to broaden our carrier customer base, which we
believe will be difficult and time-consuming. If the expected benefits from entering new
markets do not materialize our revenues will suffer and the price of our common stock would
likely decline. In addition, to the extent we enter new markets through acquisitions of
companies or technologies, our financial condition could be harmed or our stockholders could
suffer dilution without a corresponding benefit to our company if we do not realize expected
benefits of entering such new markets.
 If the adoption of and investments in new technologies and services grows more slowly than
anticipated in our product planning and development, our operating results, financial
condition and prospects may be negatively affected.
 If the adoption of and investments in new networking and 4G technologies and services does
not grow or grows more slowly than anticipated, we will not obtain the anticipated returns
from our planning and development investments. For example, our Device Management Suite of
products allows our customers to update mobile devices from a home office and incorporates
technology that provides a mechanism to allow for efficient firmware updates for mobile
devices. In addition, we have introduced new high-speed networking and 4G products, but the
pace of the market introduction of such technologies is uncertain. Future sales and any
future profits from these and related products are substantially dependent upon the
acceptance and use of these new technologies, and on the continued adoption and use of
mobile data services by end-users.
 Many of our customers and other communications service providers have made and continue to
make major investments in next generation networks that are intended to support more complex
applications. If communications service providers delay their deployment of networks or
fail to deploy such networks successfully, demand for our products could decline, which
would adversely affect our revenues. Also, to the extent we devote substantial resources
and incur significant expenses to enable our products to be interoperable with new networks
that have failed or have been delayed or not deployed, our operating results, financial
condition and prospects may be negatively affected.
 Our growth depends in part on our customers ability and willingness to promote services and
attract and retain new customers or achieve other goals outside of our control.
 We sell our products for use on handheld devices primarily through our carrier customers.
Losing the support of these customers may limit our ability to compete in existing and
potential markets and could negatively affect our revenues. In addition, the success of
these customers and their ability and willingness to market services supported by our
products are critical to our future success. Our ability to generate revenues from sales of
our software is also constrained by our carrier customers ability to attract and retain
customers. We have no input into or influence upon their marketing efforts and sales and
customer retention activities. If our carrier customers, particularly our largest customer,
Verizon Wireless, fail to maintain or grow demand for their services, revenues or revenue
growth from our products designed for use on mobile devices will decline and our results of
operations will suffer.
 Our operating income may continue to change due to shifts in our sales mix and increased
spending on our research and development and infrastructure.
 Our operating income can change quarter to quarter and year to year due to a change in our
sales mix and the timing of our continued investments in research and development and
infrastructure. Operating income as a percentage of revenues has ranged from 2.8% in 2008 to
10.4% in 2009 to 14.1% in 2010. We continue to invest in research and development which is
the lifeline of our technology portfolio. In addition we continue to invest in our
infrastructure with facility expansions in Aliso Viejo, California and a
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new engineering
design and data center in Pittsburgh, Pennsylvania. The timing of these additional expenses
can vary significantly quarter to quarter and even from year to year.
 Our products may contain undetected software defects, which could negatively affect our
revenues.
 Our software products are complex and may contain undetected defects. In the past, we have
discovered software defects in certain of our products and have experienced delayed or lost
revenues during the period it took to correct these problems. Although we and our OEM
customers test our products, it is possible that errors may be found or occur in our new or
existing products after we have commenced commercial shipment of those products. Defects,
whether actual or perceived, could result in adverse publicity, loss of revenues, product
returns, a delay in market acceptance of our products, loss of competitive position or
claims against us by customers. Any such problems could be costly to remedy and could cause
interruptions, delays, or cessation of our product sales, which could cause us to lose
existing or prospective customers and could negatively affect our results of operations. In
addition, some of our software contains open source components that are licensed under the
GNU General Public License and similar open source licenses. These components may contain
undetected defects or incompatibilities, may cause us to lose control over the development
of portions of our software code, and may expose us to claims of infringement if these
components are, or incorporate, infringing materials, the licenses are not enforceable or
are modified to become incompatible with other open source licenses, or exposure to
misappropriation claims if these components include unauthorized materials from a third
party.
 Technology and customer needs change rapidly in our market, which could render our products
obsolete and negatively affect our business, financial condition and results of operations.
 Our success depends on our ability to anticipate and adapt to changes in technology and
industry standards. We will also need to continue to develop and introduce new and enhanced
products to meet our target markets changing demands, keep up with evolving industry
standards, including changes in the Microsoft and Google operating systems with which our
products are designed to be compatible, and to promote those products successfully. The
communications and utilities software markets in which we operate are characterized by rapid
technological change, changing customer needs, frequent new product introductions, evolving
industry standards and short product life cycles. Any of these factors could render our
existing products obsolete and unmarketable. In addition, new products and product
enhancements can require long development and testing periods as a result of the
complexities inherent in todays computing environments and the performance demanded by
customers and called for by evolving wireless networking technologies. If our target markets
do not develop as we anticipate, our products do not gain widespread acceptance in these
markets, or we are unable to develop new versions of our software products that can operate
on future wireless networks and PC and mobile device operating systems and interoperate with
other popular applications, our business, financial condition and results of operations
could be materially and adversely affected.
 Regulations affecting our customers and us and future regulations, to which they or we may
become subject to, may harm our business.
 Certain of our customers in the communications industry are subject to regulation by the
Federal Communications Commission, which could have an indirect effect on our business. In
addition, the United States telecommunications industry has been subject to continuing
deregulation since 1984. We cannot predict when, or upon what terms and conditions, further
regulation or deregulation might occur or the effect regulation or deregulation may have on
demand for our products from customers in the
communications industry. Demand for our products may be indirectly affected by regulations
imposed upon potential users of those products, which may increase our costs and expenses.
 We may be unable to adequately protect our intellectual property and other proprietary
rights, which could negatively impact our revenues.
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Our success is dependent upon our software code base, our programming methodologies and
other intellectual properties and proprietary rights. In order to protect our proprietary
technology, we rely on a combination of trade secrets, nondisclosure agreements, patents,
and copyright and trademark law. We currently own U.S. trademark registrations for certain
of our trademarks and U.S. patents for certain of our technologies. However, these measures
afford us only limited protection. Furthermore, we rely primarily on shrink wrap licenses
that are not signed by the end user and, therefore, may be unenforceable under the laws of
certain jurisdictions. Accordingly, it is possible that third parties may copy or otherwise
obtain our rights without our authorization. It is also possible that third parties may
independently develop technologies similar to ours. It may be difficult for us to detect
unauthorized use of our intellectual property and proprietary rights.
 We may be subject to claims of intellectual property infringement as the number of
trademarks, patents, copyrights and other intellectual property rights asserted by companies
in our industry grows and the coverage of these patents and other rights and the
functionality of software products increasingly overlap. From time to time, we have received
communications from third parties asserting that our trade name or features, content, or
trademarks of certain of our products infringe upon intellectual property rights held by
such third parties. We have also received correspondence from third parties separately
asserting that our products may infringe on certain patents held by each of the parties.
Although we are not aware that any of our products infringe on the proprietary rights of
others, third parties may claim infringement by us with respect to our current or future
products. Additionally, our customer agreements require that we indemnify our customers for
infringement claims made by third parties involving our intellectual property embedded in
their products. Infringement claims, whether with or without merit, could result in
time-consuming and costly litigation, divert the attention of our management, cause product
shipment delays or require us to enter into royalty or licensing agreements with third
parties. If we are required to enter into royalty or licensing agreements, they may not be
on terms that are acceptable to us. Unfavorable royalty or licensing agreements could
seriously impair our ability to market our products.
 If we are unable to retain key personnel, the loss of their services could materially and
adversely affect our business, financial condition and results of operations.
 Our future performance depends in significant part upon the continued service of our senior
management and other key technical and consulting personnel. We do not have employment
agreements with our key employees that govern the length of their service. The loss of the
services of our key employees would materially and adversely affect our business, financial
condition and results of operations. Our future success also depends on our ability to
continue to attract, retain and motivate qualified personnel, particularly highly skilled
engineers involved in the ongoing research and development required to develop and enhance
our products. Competition for these employees remains high and employee retention is a
common problem in our industry. Our inability to attract and retain the highly trained
technical personnel that are essential to our product development, marketing, service and
support teams may limit the rate at which we can generate revenue, develop new products or
product enhancements and generally would have an adverse effect on our business, financial
condition and results of operations.
 If we fail to continue to establish and maintain strategic relationships with mobile device
manufacturers, market acceptance of our products and our profitability, may suffer.
 Most of our strategic relationships with mobile device manufacturers are not subject to
written contract, but rather are in the form of informal working relationships. We believe
these relationships are valuable to our
success. In particular, these relationships provide us with insights into product
development and emerging technologies, which allows us to keep abreast of, or anticipate,
market trends and helps us serve our current and prospective customers. Because these
relationships are not typically governed by written agreements, there is no obligation for
many of our partners to continue working with us. If we are unable to maintain our existing
strategic relationships with mobile device manufacturers or if we fail to enter into
additional strategic relationships or the parties with whom we have strategic relationships
favor one of our competitors, our ability to provide products that meet our current and
prospective customers needs could
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be compromised and our reputation and future revenue
prospects could suffer. For example, if our software does not function well with a popular
mobile device because we have not maintained a relationship with its manufacturer, carriers
seeking to provide that device to their respective customers could choose a competitors
software over ours or develop their own. Even if we succeed in establishing these
relationships, they may not result in additional customers or revenues.
 We may raise additional capital through the issuance of additional equity or convertible
debt securities or by borrowing money, in order to meet our capital needs. Additional funds
may not be available on terms acceptable to us to allow us to meet our capital needs.
 We believe that the cash, cash equivalents and short-term investments on hand and the cash
we expect to generate from operations will be sufficient to meet our capital needs for at
least the next twelve months. However, it is possible that we may need or choose to obtain
additional financing to fund our activities in the future. We could raise these funds by
selling more stock to the public or to selected investors, or by borrowing money. We may not
be able to obtain additional funds on favorable terms, or at all. If adequate funds are not
available, we may be required to curtail our operations or other business activities
significantly or to obtain funds through arrangements with strategic partners or others that
may require us to relinquish rights to certain technologies or potential markets.
 We have on file with the SEC a shelf Form S-3 to sell from time to time up to 4,000,000
shares of our common stock in one or more offerings in amounts, at prices and on the terms
that we will determine at the time of offering. In addition, we have on file with the SEC a
shelf Form S-4 to sell from time to time up to 1,000,000 shares of our common stock in
connection with our future acquisitions of other businesses, assets or securities. If we
raise additional funds by issuing additional equity or convertible debt securities (whether
in a public offering or private placement), the ownership percentages of existing
stockholders would be reduced. In addition, the equity or debt securities that we issue may
have rights, preferences or privileges senior to those of the holders of our common stock.
We currently have no established line of credit or other business borrowing facility in
place.
 It is possible that our future capital requirements may vary materially from those now
planned. The amount of capital that we will need in the future will depend on many factors,
including:
 
    
    the market acceptance of our products;
    
    the levels of promotion and advertising that will be required to launch our
products and achieve and maintain a competitive position in the marketplace;
    
    our business, product, capital expenditure and research and development plans
and product and technology roadmaps;
    
    the levels of inventory and accounts receivable that we maintain;
    
    capital improvements to new and existing facilities;
    
    technological advances;
    
    our competitors response to our products; and
    
    our relationships with suppliers and customers.
 In addition, we may raise additional capital to accommodate planned growth, hiring,
infrastructure and facility needs or to consummate acquisitions of other businesses,
products or technologies.
 Our business, financial condition and operating results could be adversely affected as a
result of legal, business and economic risks specific to international operations.
 In recent years, our revenues derived from sales to customers outside the U.S. have not been
material. Our revenues derived from such sales can vary from quarter to quarter and from
year to year. We also frequently ship products to our domestic customers international
manufacturing divisions and
 17




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##### Table of Contents



subcontractors.
In the future, we may expand these international
business activities. International operations are subject to many inherent risks, including:
 
    
    general political, social and economic instability;
    
    trade restrictions;
    
    the imposition of governmental controls;
    
    exposure to different legal standards, particularly with respect to
intellectual property;
    
    burdens of complying with a variety of foreign laws;
    
    import and export license requirements and restrictions of the United States
and any other country in which we operate;
    
    unexpected changes in regulatory requirements;
    
    foreign technical standards;
    
    changes in tariffs;
    
    difficulties in staffing and managing international operations;
    
    difficulties in securing and servicing international customers;
    
    difficulties in collecting receivables from foreign entities;
    
    fluctuations in currency exchange rates and any imposition of currency
exchange controls; and
    
    potentially adverse tax consequences.
 These conditions may increase our cost of doing business. Moreover, as our customers are
adversely affected by these conditions, our business with them may be disrupted and our
results of operations could be adversely affected.
 
 Item 1B. UNRESOLVED STAFF COMMENTS
  
 Item 2. PROPERTIES
     18




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Item 3. LEGAL PROCEEDINGS
  
 Item 4. RESERVED
 19




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PART II
 
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 Market Information
  High
    
    LowYEAR ENDED DECEMBER 31, 2010:First Quarter
    
    $
    9.59
    
    
    $
    7.37Second Quarter
    
    
    11.20
    
    
    
    8.51Third Quarter
    
    
    10.63
    
    
    
    7.61Fourth Quarter
    
    
    16.35
    
    
    
    9.74YEAR ENDED DECEMBER 31, 2009:First Quarter
    
    $
    6.17
    
    
    $
    3.64Second Quarter
    
    
    10.62
    
    
    
    5.19Third Quarter
    
    
    12.87
    
    
    
    8.96Fourth Quarter
    
    
    12.37
    
    
    
    6.26
   Stock Performance Graph
   20




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##### Table of Contents



COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
 
 
 *
    
    $100 invested on 12/31/05 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31. ©
 12/05
    
    12/06
    
    12/07
    
    12/08
    
    12/09
    
    12/10Smith
Micro
Software,
Inc.
    
    
    100.00
    
    
    
    242.56
    
    
    
    144.79
    
    
    
    95.04
    
    
    
    156.41
    
    
    
    269.06S&P Midcap 400
    
    
    100.00
    
    
    
    110.32
    
    
    
    119.12
    
    
    
    75.96
    
    
    
    104.36
    
    
    
    132.16S&P MidCap
Application
Software
    
    
    100.00
    
    
    
    115.74
    
    
    
    121.75
    
    
    
    76.56
    
    
    
    113.21
    
    
    
    158.72
 Holders
  21




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Dividends
  Recent Sales of Unregistered Securities
  Purchases of Equity Securities by the Company
  22




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Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
  Year Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Consolidated Statement of Operations Data (in thousands, except per share data):Revenues
    
    $
    130,501
    
    
    $
    107,279
    
    
    $
    98,424
    
    
    $
    73,377
    
    
    $
    54,469Cost of revenues
    
    
    15,507
    
    
    
    15,486
    
    
    
    20,108
    
    
    
    20,644
    
    
    
    20,259Gross profit
    
    
    114,994
    
    
    
    91,793
    
    
    
    78,316
    
    
    
    52,733
    
    
    
    34,210Operating expenses:Selling and marketing
    
    
    29,708
    
    
    
    24,999
    
    
    
    24,814
    
    
    
    18,394
    
    
    
    9,057Research and development
    
    
    42,759
    
    
    
    36,530
    
    
    
    30,811
    
    
    
    14,772
    
    
    
    7,899General and administrative
    
    
    24,146
    
    
    
    19,155
    
    
    
    19,990
    
    
    
    15,318
    
    
    
    8,467Total operating expenses
    
    
    96,613
    
    
    
    80,684
    
    
    
    75,615
    
    
    
    48,484
    
    
    
    25,423Operating income
    
    
    18,381
    
    
    
    11,109
    
    
    
    2,701
    
    
    
    4,249
    
    
    
    8,787Interest and other income
    
    
    130
    
    
    
    381
    
    
    
    739
    
    
    
    4,254
    
    
    
    1,403Income before taxes
    
    
    18,511
    
    
    
    11,490
    
    
    
    3,440
    
    
    
    8,503
    
    
    
    10,190Income tax expense
    
    
    6,165
    
    
    
    6,738
    
    
    
    4,172
    
    
    
    5,342
    
    
    
    1,234Net income (loss)
    
    $
    12,346
    
    
    $
    4,752
    
    
    $
    (732
    )
    
    $
    3,161
    
    
    $
    8,956Net income (loss) per share:Basic
    
    $
    0.36
    
    
    $
    0.15
    
    
    $
    (0.02
    )
    
    $
    0.11
    
    
    $
    0.38Diluted
    
    $
    0.36
    
    
    $
    0.14
    
    
    $
    (0.02
    )
    
    $
    0.10
    
    
    $
    0.35Weighted average shares:Basic
    
    
    34,204
    
    
    
    32,438
    
    
    
    30,978
    
    
    
    29,768
    
    
    
    23,753Diluted
    
    
    34,615
    
    
    
    32,897
    
    
    
    30,978
    
    
    
    30,998
    
    
    
    25,330
 As of December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Consolidated Balance Sheet Data (in thousands):Total assets
    
    $
    234,892
    
    
    $
    205,934
    
    
    $
    176,995
    
    
    $
    162,421
    
    
    $
    131,026Total liabilities
    
    
    16,627
    
    
    
    17,955
    
    
    
    11,591
    
    
    
    7,907
    
    
    
    4,969Accumulated earnings (deficit)
    
    
    16,538
    
    
    
    4,192
    
    
    
    (560
    )
    
    
    172
    
    
    
    (2,989
    )Total stockholders equity
    
    $
    218,265
    
    
    $
    187,979
    
    
    $
    165,404
    
    
    $
    154,514
    
    
    $
    126,057
 23




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Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
   Introduction and Overview
 ®
     24




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Results of Operations
  Year Ended December 31,2010
    
    
    2009
    
    
    2008Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    11.9
    %
    
    
    14.4
    %
    
    
    20.4
    %Gross profit
    
    
    88.1
    %
    
    
    85.6
    %
    
    
    79.6
    %Operating expenses:Selling and marketing
    
    
    22.8
    %
    
    
    23.3
    %
    
    
    25.2
    %Research and development
    
    
    32.8
    %
    
    
    34.0
    %
    
    
    31.3
    %General and administrative
    
    
    18.4
    %
    
    
    17.9
    %
    
    
    20.3
    %Total operating expenses
    
    
    74.0
    %
    
    
    75.2
    %
    
    
    76.8
    %Operating income
    
    
    14.1
    %
    
    
    10.4
    %
    
    
    2.8
    %Interest and other income
    
    
    0.1
    %
    
    
    0.3
    %
    
    
    0.7
    %Income before taxes
    
    
    14.2
    %
    
    
    10.7
    %
    
    
    3.5
    %Income tax expense
    
    
    4.7
    %
    
    
    6.3
    %
    
    
    4.2
    %Net income (loss)
    
    
    9.5
    %
    
    
    4.4
    %
    
    
    -0.7
    %
 Revenues and Expense Components
  Revenues.
 
    
    Wireless, which includes our connectivity and security
management, mobile VPN, media and content management, device management,
Push-To-Talk, Visual Voicemail, contact and calendar syncing and video
content delivery and optimization solutions; and
    
    Productivity & Graphics, which includes retail and direct sales
of our compression and broad consumer-based software.
 25




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##### Table of Contents



Year Ended December 31,2010
    
    
    2009
    
    
    2008Wireless
    
    $
    118,684
    
    
    $
    89,420
    
    
    $
    73,219Productivity & Graphics
    
    
    11,399
    
    
    
    17,014
    
    
    
    23,925Corporate/Other
    
    
    418
    
    
    
    845
    
    
    
    1,280Total revenues
    
    
    130,501
    
    
    
    107,279
    
    
    
    98,424Cost of revenues
    
    
    15,507
    
    
    
    15,486
    
    
    
    20,108Gross profit
    
    $
    114,994
    
    
    $
    91,793
    
    
    $
    78,316
  Cost of revenues.
 Selling and marketing.
 Research and development.
 General and administrative.
 Interest and other income
 Income tax expense.
   26




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##### Table of Contents



Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009
 Revenues.
 Cost of revenues
 Gross profit.
 Selling and marketing.
 Research and development.
 General and administrative.
 Interest and other income.
 Income tax expense.
 27




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Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
 Revenues.
 Cost of revenues
 Gross profit.
 Selling and marketing.
 Research and development.
 General and administrative.
 28




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Interest and other income.
 Income tax expense.
 Liquidity and Capital Resources
    Operating Activities
    29




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##### Table of Contents



Investing Activities
    Financing Activities
    Contractual Obligations and Commercial Commitments
  Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More thanContractual obligations:
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsOperating lease obligations
    
    $
    23,048
    
    
    $
    3,049
    
    
    $
    5,823
    
    
    $
    4,809
    
    
    $
    9,367Purchase obligations
    
    
    897
    
    
    
    897
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    23,945
    
    
    $
    3,946
    
    
    $
    5,823
    
    
    $
    4,809
    
    
    $
    9,367
  30




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Real Property Leases
  Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
   Revenue Recognition
  31




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Sales Incentives
  Accounts Receivable and Allowance for Doubtful Accounts
  Internal Software Development Costs
  In-Process Research and Development
   32




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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.
   33




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##### Table of Contents



Income Taxes
    Stock-Based Compensation
  Recent Accounting Pronouncements
 Subsequent Events (Topic 855): Amendments to Certain Recognition and
Disclosure Requirements.
 34




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##### Table of Contents



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).
 35




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##### Table of Contents



Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements
 
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Foreign Currency Risk
  
 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  36




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##### Table of Contents



Item 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Responsibility for Financial Statements
   Changes in Internal Control over Financial Reporting
  Report of Management on Internal Control Over Financial Reporting
   37




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Item 9B. OTHER INFORMATION
  38




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PART III
 
 Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  Name
    
    Age
    
    PositionWilliam W. Smith, Jr.
    
    
    63
    
    
    Chairman of the Board, President and Chief Executive OfficerAndrew C. Schmidt
    
    
    49
    
    
    Vice President and Chief Financial OfficerVon Cameron
    
    
    47
    
    
    Executive Vice President  Worldwide SalesRick Carpenter
    
    
    48
    
    
    Vice President and General Manager  WirelessRobert E. Elliott
    
    
    59
    
    
    Vice President and Chief Marketing OfficerJonathan Kahn
    
    
    53
    
    
    Executive Vice President  Productivity & GraphicsChris G. Lippincott
    
    
    39
    
    
    Vice President  Worldwide OperationsThomas P Matthews
    
    
    53
    
    
    Senior Vice President and Chief Strategy OfficerDavid P. Sperling
    
    
    42
    
    
    Vice President and Chief Technology OfficerSteven M. Yasbek
    
    
    57
    
    
    Chief Accounting Officer
 Mr. Smith
 Mr. Schmidt
 Mr. Cameron
 Mr. Carpenter
 Mr. Elliott
 Mr. Kahn
 Mr. Lippincott ,
 Mr. Matthews
 Mr. Sperling
 Mr. Yasbek
 39




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##### Table of Contents



Audit Committee; Audit Committee Financial Expert
  Section 16(a) Beneficial Ownership Reporting Compliance
   Code of Ethics
  
 Item 11. EXECUTIVE COMPENSATION
  40




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##### Table of Contents



Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  Securities Authorized for Issuance Under An Equity Compensation Plan
  Number of shares to be
    
    Weighted average
    
    Number of sharesissued upon exercise of
    
    exercise price of
    
    remaining available(in thousands, except per share amounts)
    
    outstanding options
    
    outstanding options
    
    for future issuanceEquity compensation plan approved by
shareholders (1)
    
    
    2,706
    
    
    $
    11.69
    
    
    
    1,466Equity compensation plan not approved by
shareholders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,706
    
    
    $
    11.69
    
    
    
    1,466
 
 (1)
    
    The number of shares to be issued upon exercise includes options granted under both the 1995 Stock Option/Stock
Issuance Plan and the 2005 Stock Option/Stock Issuance Plan. The number of shares remaining available for future
issuance consists only of the 2005 Plan. 
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  41




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##### Table of Contents



PART IV
 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a) (1) Financial Statements
  PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    F-1CONSOLIDATED BALANCE SHEETS
    
    F-3CONSOLIDATED STATEMENTS OF OPERATIONS
    
    F-4CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
    
    F-5CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    F-6NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    F-7
 (2) Financial Statement Schedule
  PageSCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
    
    S-1
 (3) Exhibits
 Exhibit No.
    
    Title
    
    Method of Filing3.1
    
    Amended and Restated Certificate
of Incorporation of the
Registrant.
    
    Incorporated by
reference to
Exhibit 3.1 to the
Registrants
Registration
Statement No.
33-95096.3.1.1
    
    Amendment to the Amended and
Restated Certificate of
Incorporation of the Registrant.
    
    Incorporated by
reference to
Exhibit 3.1.1 to
the Registrants
Quarterly Report on
Form 10-Q for the
period ended June
30, 2000.3.1.2
    
    Certificate of Amendment to
Amended and Restated Certificate
of Incorporation of Registrant as
filed August 18, 2005 with
Delaware Secretary of State.
    
    Incorporated by
reference to
Exhibit 3.1.2 to
the Registrants
Annual Report on
Form 10-K for the
period ended
December 31, 2005.3.2
    
    Amended and Restated Bylaws of
the Registrant.
    
    Incorporated by
reference to
Exhibit 3.2 to the
Registrants
Registration
Statement No.
33-95096.3.3
    
    Certificate of Amendment of
Amended and Restated Bylaws of
Smith Micro
    
    Incorporated by
reference to
Exhibit 3.3 to the
Registrants
Current Report on
 42




---



##### Table of Contents



Exhibit No.
    
    Title
    
    Method of FilingSoftware, Inc.
    
    Form 8-K filed on
October 31, 2007.4.1
    
    Specimen certificate representing
shares of Common Stock of the
Registrant.
    
    Incorporated by
reference to
Exhibit 4.1 to the
Registrants
Registration
Statement No.
33-95096.10.1
    
    Form of Indemnification Agreement.
    
    Incorporated by
reference to
Exhibit 10.1 to the
Registrants
Registration
Statement No.
33-95096.10.2
    
    1995 Stock Option/Stock Issuance
Plan as Amended and Restated
through February 7, 2001.
    
    Incorporated by
reference to the
Appendix attached
to the Definitive
Proxy Statement for
the 2001 Annual
Meeting of
Stockholders filed
on April 27, 2001.10.3
    
    Amended and Restated 2005 Stock
Option / Stock Issuance Plan.
    
    Incorporated by
reference to
Exhibit 10.7 to the
Registrants
Registration
Statement on Form
S-8 (Reg. No.
333-149222).10.4 
    
    Master Software License and
Distribution Agreement (Contract
No. 220-00-0134) effective as of
December 1, 2000, between Cellco
Partnership (d/b/a Verizon
Wireless) and the Registrant.
    
    Incorporated by
reference to
Exhibit 10.1 to the
Registrants
Quarterly Report on
Form 10-Q for the
quarter ended June
30, 2003.10.4.1
    
    Amendment of Master Software
License and Distribution
Agreement (Contract No.
220-00-0134).
    
    Incorporated by
reference to
Exhibit 10.1.1 to
the Registrants
Quarterly Report on
Form 10-Q for the
quarter ended June
30, 2003.10.4.2
    
    Amendment No. 2 to the Master
Software License and Distribution
Agreement (Contract No.
220-00-0134).
    
    Incorporated by
reference to
Exhibit 10.1.2 to
the Registrants
Quarterly Report on
Form 10-Q for the
quarter ended June
30, 2003.10.4.3
    
    Amendment No. 6 to the Master
Software License and Distribution
Agreement (Contract No.
220-00-0134).
    
    Incorporated by
reference to
Exhibit 10.4.3 to
the Registrants
Annual Report on
Form 10-K for the
year ended December
31, 2009.10.4.4
    
    Amendment No. 7 to the Master
Software License and Distribution
Agreement (Contract No.
220-00-0134).
    
    Incorporated by
reference to
Exhibit 10.4.4 to
the Registrants
Annual Report on
Form 10-K for the
year ended December
31, 2009.10.4.5
    
    Amendment No. 9 to the Master
Software License and Distribution
Agreement (Contract No.
220-00-0134).
    
    Incorporated by
reference to
Exhibit 10.4.5 to
the Registrants
Annual Report on
Form 10-K for the
year ended December
31, 2009.10.5
    
    Letter Agreement, dated June 13,
2005, by and between Smith Micro
Software, Inc. and Andrew
Schmidt.
    
    Incorporated by
reference to
Exhibit 10.5 to the
Registrants
Current Report on
Form 8-K filed on
November 30, 2006.10.6
    
    Employment Agreement dated April
9, 1999 by and between Smith
Micro Software, Inc. and William
Wyand.
    
    Incorporated by
reference to
Exhibit 10.6 to the
Registrants
Current Report on
Form 8-K filed on
November 30, 2006.10.7
    
    Executive Employment Agreement
dated July 1, 2005 by and between
Smith Micro Software, Inc. and
Jonathan Kahn.
    
    Incorporated by
reference to
Exhibit 10.9 to the
Registrants Annual
Report on Form
10-K/A for the year
ended December 31,
2007, filed on
April 29, 2008.10.8
    
    Summary of oral agreement dated
June 2005 by and between William
W.
    
    Incorporated by
reference to
Exhibit 10.10 to
the Registrants
Quarterly
 43




---



##### Table of Contents



Exhibit No.
    
    Title
    
    Method of FilingSmith, Jr. and the Registrant.
    
    Report on
Form 10-Q for the
quarter ended June
30, 2009.10.9
    
    Amended & Restated Employee Stock
Purchase Plan.
    
    Incorporated by
reference to
Exhibit 10.11 to
the Registrants
Registration
Statement on Form
S-8 (No.
333-169671) filed
on September 30,
2010.14.1
    
    Code of Ethics.
    
    Incorporated by
reference to
Exhibit 14.1 to the
Registrants Annual
Report on Form 10-K
for the year ended
December 31, 2003.14.1.1
    
    Attachment 1 to Code of Ethics.
    
    Incorporated by
reference to
Exhibit 14.1 to the
Registrants Annual
Report on Form 10-K
for the year ended
December 31, 2003.21.1
    
    Subsidiaries.
    
    Filed herewith.23.1
    
    Consent of Independent Registered
Public Accounting Firm.
    
    Filed herewith.31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
    
    Filed herewith.31.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
    
    Filed herewith.32.1
    
    Certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    
    Furnished herewith.
 
 
    
    Confidential treatment has been granted with respect to certain confidential portions
of this exhibit
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, which confidential
portions have been omitted from the exhibit and filed separately with the Securities and
Exchange Commission. (b) Exhibits
  (c) Financial Statement Schedule
  44




---



##### Table of Contents



SIGNATURES
  SMITH MICRO SOFTWARE, INC.Date: February 25, 2011
    By:
    /s/ William W. Smith, Jr.William W. Smith, Jr.Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)Date: February 25, 2011
    By:
    /s/ Andrew C. SchmidtAndrew C. Schmidt,Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)  Signature
    
    Title
    
    Date/s/ William W. Smith, Jr.
William W. Smith, Jr.
    
    Chairman of the Board,
President and Chief
Executive Officer
(Principal Executive
Officer)
    
    February 25, 2011/s/ Andrew C. Schmidt
Andrew C. Schmidt
    
    Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
    
    February 25, 2011/s/ Thomas G. Campbell
Thomas G. Campbell
    
    Director
    
    February 25, 2011/s/ Samuel Gulko
Samuel Gulko
    
    Director
    
    February 25, 2011/s/ Ted L. Hoffman
Ted L. Hoffman
    
    Director
    
    February 25, 2011/s/ William C. Keiper
William C. Keiper
    
    Director
    
    February 25, 2011/s/ James Straight
James Straight
    
    Director
    
    February 25, 2011
 45




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     /s/ SINGERLEWAK LLPLos Angeles, CaliforniaFebruary 25, 2011 F-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       /s/ SINGERLEWAK LLPLos Angeles, CaliforniaFebruary 25, 2011 F-2




---



##### Table of Contents



SMITH MICRO SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value data)
 December 31,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    17,856
    
    
    $
    14,577Short-term investments
    
    
    54,694
    
    
    
    31,284Accounts receivable, net of allowances for doubtful accounts
and other adjustments of $855 (2010) and $1,045 (2009)
    
    
    29,812
    
    
    
    24,147Income tax receivable
    
    
    2,872
    
    
    
    980Inventories, net of reserves for excess and obsolete inventory
of $558 (2010) and $1,221 (2009)
    
    
    370
    
    
    
    406Prepaid expenses and other current assets
    
    
    1,167
    
    
    
    1,506Deferred tax asset
    
    
    2,565
    
    
    
    2,696Total current assets
    
    
    109,336
    
    
    
    75,596Equipment and improvements, net
    
    
    11,623
    
    
    
    8,193Goodwill
    
    
    94,231
    
    
    
    94,320Intangible assets, net
    
    
    19,459
    
    
    
    27,662Other assets
    
    
    243
    
    
    
    163Total assets
    
    $
    234,892
    
    
    $
    205,934Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    4,592
    
    
    $
    4,215Accrued liabilities
    
    
    8,444
    
    
    
    11,359Deferred revenue
    
    
    1,667
    
    
    
    1,317Total current liabilities
    
    
    14,703
    
    
    
    16,891Non-current liabilities:Deferred rent and other long term liabilities
    
    
    197
    
    
    
    70Deferred tax liability
    
    
    1,727
    
    
    
    994Total non-current liabilities
    
    
    1,924
    
    
    
    1,064Commitments and contingencies (Note 5)Stockholders 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;
34,971,108 and 33,380,496 shares issued and outstanding at December
31,
2010 and December 31, 2009, respectively
    
    
    35
    
    
    
    33Additional paid-in capital
    
    
    201,702
    
    
    
    183,756Accumulated other comprehensive loss
    
    
    (10
    )
    
    
    (2
    )Accumulated earnings
    
    
    16,538
    
    
    
    4,192Total stockholders equity
    
    
    218,265
    
    
    
    187,979Total liabilities and stockholders equity
    
    $
    234,892
    
    
    $
    205,934
  F-3




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##### Table of Contents



SMITH MICRO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amount)
 Year ended December 31,2010
    
    
    2009
    
    
    2008Revenues
    
    $
    130,501
    
    
    $
    107,279
    
    
    $
    98,424Cost of revenues
    
    
    15,507
    
    
    
    15,486
    
    
    
    20,108Gross profit
    
    
    114,994
    
    
    
    91,793
    
    
    
    78,316Operating expenses:Selling and marketing
    
    
    29,708
    
    
    
    24,999
    
    
    
    24,814Research and development
    
    
    42,759
    
    
    
    36,530
    
    
    
    30,811General and administrative
    
    
    24,146
    
    
    
    19,155
    
    
    
    19,990Total operating expenses
    
    
    96,613
    
    
    
    80,684
    
    
    
    75,615Operating income
    
    
    18,381
    
    
    
    11,109
    
    
    
    2,701Interest and other income
    
    
    130
    
    
    
    381
    
    
    
    739Income before taxes
    
    
    18,511
    
    
    
    11,490
    
    
    
    3,440Income tax expense
    
    
    6,165
    
    
    
    6,738
    
    
    
    4,172Net income (loss)
    
    $
    12,346
    
    
    $
    4,752
    
    
    $
    (732
    )Net income (loss) per share:Basic
    
    $
    0.36
    
    
    $
    0.15
    
    
    $
    (0.02
    )Diluted
    
    $
    0.36
    
    
    $
    0.14
    
    
    $
    (0.02
    )Weighted average shares outstanding:Basic
    
    
    34,204
    
    
    
    32,438
    
    
    
    30,978Diluted
    
    
    34,615
    
    
    
    32,897
    
    
    
    30,978
  F-4




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##### Table of Contents



SMITH MICRO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands)
 AccumulatedAdditional
    
    
    other
    
    
    AccumulatedCommon stock
    
    
    paid-in
    
    
    comprehensive
    
    
    incomeShares
    
    
    Amount
    
    
    capital
    
    
    income (loss)
    
    
    (deficit)
    
    
    TotalBALANCE, December 31, 2007
    
    
    30,258
    
    
    
    30
    
    
    
    154,312
    
    
    
    
    
    
    
    172
    
    
    
    154,514Exercise of common stock options
    
    
    49
    
    
    
    
    
    
    
    129
    
    
    
    
    
    
    
    
    
    
    
    129Non cash compensation recognized
on stock options
    
    
    
    
    
    
    
    
    
    
    6,935
    
    
    
    
    
    
    
    
    
    
    
    6,935Restricted stock grants
    
    
    1,093
    
    
    
    1
    
    
    
    5,041
    
    
    
    
    
    
    
    
    
    
    
    5,042Tax benefit related to the exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    72Tax benefit deficiencies related to
restricted stock expense
    
    
    
    
    
    
    
    
    
    
    (625
    )
    
    
    
    
    
    
    
    
    
    
    (625
    )Other comprehensive income:Unrealized gain on short-term
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    
    
    
    
    69Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (732
    )
    
    
    (732
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (663
    )BALANCE, December 31, 2008
    
    
    31,400
    
    
    
    31
    
    
    
    165,864
    
    
    
    69
    
    
    
    (560
    )
    
    
    165,404Issuance of common stock for
acquisition
    
    
    700
    
    
    
    1
    
    
    
    6,880
    
    
    
    
    
    
    
    
    
    
    
    6,881Exercise of common stock options
    
    
    414
    
    
    
    
    
    
    
    1,664
    
    
    
    
    
    
    
    
    
    
    
    1,664Non cash compensation recognized
on stock options
    
    
    
    
    
    
    
    
    
    
    5,266
    
    
    
    
    
    
    
    
    
    
    
    5,266Restricted stock grants, net of
cancellations
    
    
    888
    
    
    
    1
    
    
    
    3,457
    
    
    
    
    
    
    
    
    
    
    
    3,458Cancellation of shares for payment
of withholding tax
    
    
    (22
    )
    
    
    
    
    
    
    (180
    )
    
    
    
    
    
    
    
    
    
    
    (180
    )Tax benefit related to the exercise ofstock options
    
    
    
    
    
    
    
    
    
    
    871
    
    
    
    
    
    
    
    
    
    
    
    871Tax benefit deficiencies related to
restricted stock expense
    
    
    
    
    
    
    
    
    
    
    (66
    )
    
    
    
    
    
    
    
    
    
    
    (66
    )Other comprehensive income:Unrealized loss on short-term
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71
    )
    
    
    
    
    
    
    (71
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,752
    
    
    
    4,752Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,681BALANCE, December 31, 2009
    
    
    33,380
    
    
    $
    33
    
    
    $
    183,756
    
    
    $
    (2
    )
    
    $
    4,192
    
    
    $
    187,979Exercise of common stock options
    
    
    760
    
    
    
    1
    
    
    
    7,254
    
    
    
    
    
    
    
    
    
    
    
    7,255Non cash compensation recognized
on stock options
    
    
    
    
    
    
    
    
    
    
    4,477
    
    
    
    
    
    
    
    
    
    
    
    4,477Restricted stock grants, net of
cancellations
    
    
    868
    
    
    
    1
    
    
    
    4,936
    
    
    
    
    
    
    
    
    
    
    
    4,937Cancellation of shares for payment
of withholding tax
    
    
    (37
    )
    
    
    
    
    
    
    (331
    )
    
    
    
    
    
    
    
    
    
    
    (331
    )Employee stock purchase plan
    
    
    
    
    
    
    
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    82Tax benefit related to the exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    1,543
    
    
    
    
    
    
    
    
    
    
    
    1,543Tax benefit deficiencies related to
restricted stock expense
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (15
    )Other comprehensive income:Unrealized loss on short-term
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,346
    
    
    
    12,346Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,338BALANCE, December 31, 2010
    
    
    34,971
    
    
    $
    35
    
    
    $
    201,702
    
    
    $
    (10
    )
    
    $
    16,538
    
    
    $
    218,265
  F-5




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##### Table of Contents



SMITH MICRO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Year ended December 31,2010
    
    
    2009
    
    
    2008Operating activities:Net income (loss)
    
    $
    12,346
    
    
    $
    4,752
    
    
    $
    (732
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities, net of the effect of acquisitions:Depreciation and amortization
    
    
    11,778
    
    
    
    10,540
    
    
    
    8,446Loss (gain) on disposal of fixed assets
    
    
    29
    
    
    
    (11
    )
    
    
    Provision for adjustments to accounts receivable and doubtful accounts
    
    
    851
    
    
    
    1,596
    
    
    
    1,170Provision for excess and obsolete inventory
    
    
    203
    
    
    
    1,063
    
    
    
    435Tax benefits from stock-based compensation
    
    
    (1,543
    )
    
    
    (871
    )
    
    
    (72
    )Non cash compensation related to stock options & restricted stock
    
    
    9,496
    
    
    
    8,724
    
    
    
    11,977Change in operating accounts, net of effect from acquisitions:Accounts receivable
    
    
    (6,516
    )
    
    
    (5,998
    )
    
    
    (6,625
    )Deferred income taxes
    
    
    849
    
    
    
    914
    
    
    
    2,000Income tax receivable
    
    
    (1,892
    )
    
    
    (980
    )
    
    
    180Inventories
    
    
    (167
    )
    
    
    (372
    )
    
    
    473Prepaid expenses and other assets
    
    
    259
    
    
    
    (507
    )
    
    
    (19
    )Accounts payable and accrued liabilities
    
    
    (949
    )
    
    
    (384
    )
    
    
    (784
    )Net cash provided by operating activities
    
    
    24,744
    
    
    
    18,466
    
    
    
    16,449Investing activities:Acquisition of eFrontier America, net of cash received
    
    
    
    
    
    
    
    
    
    
    (623
    )Acquisition of Avot Media, net of cash received
    
    
    (675
    )
    
    
    
    
    
    
    Acquisition of Insignia Solutions, net of cash received
    
    
    
    
    
    
    
    
    
    
    245Acquisition of PCTels Mobile Solutions Group, net of cash received
    
    
    
    
    
    
    
    
    
    
    (60,931
    )Acquisition of Core Mobility, Inc., net of cash received
    
    
    143
    
    
    
    (6,907
    )
    
    
    Acquisitions  other
    
    
    
    
    
    
    
    
    
    
    (2,306
    )Other intangibles
    
    
    
    
    
    
    
    
    
    
    (500
    )Capital expenditures
    
    
    (6,312
    )
    
    
    (4,809
    )
    
    
    (3,538
    )Cash proceeds from the disposal of fixed assets
    
    
    
    
    
    
    31
    
    
    
    Purchase of short-term investments
    
    
    (23,418
    )
    
    
    (8,706
    )
    
    
    (22,580
    )Net cash used in investing activities
    
    
    (30,262
    )
    
    
    (20,391
    )
    
    
    (90,233
    )Financing activities:Tax benefits from stock-based compensation
    
    
    1,543
    
    
    
    871
    
    
    
    72Cash received from exercise of stock options
    
    
    7,254
    
    
    
    1,665
    
    
    
    129Net cash provided by financing activities
    
    
    8,797
    
    
    
    2,536
    
    
    
    201Net increase (decrease) in cash and cash equivalents
    
    
    3,279
    
    
    
    611
    
    
    
    (73,583
    )Cash and cash equivalents, beginning of period
    
    
    14,577
    
    
    
    13,966
    
    
    
    87,549Cash and cash equivalents, end of period
    
    $
    17,856
    
    
    $
    14,577
    
    
    $
    13,966Supplemental disclosures of cash flow information:Cash paid for income taxes
    
    $
    5,776
    
    
    $
    6,612
    
    
    $
    1,308
  F-6




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##### Table of Contents



SMITH MICRO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
 The Company
 ®
       F-7




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##### Table of Contents



Basis of Presentation
  Foreign Currency Transactions
  Use of Estimates
  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.
   F-8




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##### Table of Contents



Significant Concentrations
  Cash and Cash Equivalents
  Short-Term Investments
  Accounts Receivable and Allowance for Doubtful Accounts
  F-9




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##### Table of Contents



Inventories
  Equipment and Improvements
  In-Process Research and Development
   Intangible Assets and Amortization
  Impairment or Disposal of Long Lived Assets
  Valuation of Goodwill and Intangible Assets
  F-10




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##### Table of Contents




    
    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
    F-11




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##### Table of Contents



Deferred Rent and Other Long-Term Liabilities
 The long-term liabilities are for deferred rent to account for the difference
between straight-line and bargain rents and an earn-out accrual that extended beyond
one year for one of our prior year acquisitions.
 Revenue Recognition
  Sales Incentives
  Internal Software Development Costs
  F-12




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##### Table of Contents



Capitalized Software and Amortization
  Advertising Expense
  Income Taxes
    Stock-Based Compensation
  F-13




---



##### Table of Contents



Net Income (Loss) Per Share
  Year Ended December 31,2010
    
    
    2009
    
    
    2008(in thousands, except per share amounts)Numerator:Net income (loss) available to common stockholders
    
    $
    12,346
    
    
    $
    4,752
    
    
    
    ($732
    )Denominator:Weighted average shares outstanding  basic
    
    
    34,204
    
    
    
    32,438
    
    
    
    30,978Potential common shares  options (treasury stock method)
    
    
    411
    
    
    
    459
    
    
    
    Weighted average shares outstanding  diluted
    
    
    34,615
    
    
    
    32,897
    
    
    
    30,978Shares excluded (anti-dilutive)
    
    
    
    
    
    
    
    
    
    
    4,289Shares excluded due to an exercise price greater than
weighted average stock price for the period
    
    
    1,950
    
    
    
    2,496
    
    
    
    Net income (loss) per common share:Basic
    
    $
    0.36
    
    
    $
    0.15
    
    
    
    ($0.02
    )Diluted
    
    $
    0.36
    
    
    $
    0.14
    
    
    
    ($0.02
    )
 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
 F-14




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##### Table of Contents



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).
 Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements
 F-15




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##### Table of Contents



2. 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
  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
  F-16




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##### Table of Contents



PCTELS Mobility Solutions Group
    Cash consideration
    
    $
    59,700Acquisition related costs
    
    
    1,231Total purchase price
    
    $
    60,931
  Assets:Property & equipment
    
    $
    718Intangible assets
    
    
    13,050Goodwill
    
    
    50,319Total assets
    
    
    64,087Liabilities:Deferred revenue
    
    
    3,156Total liabilities
    
    
    3,156Total purchase price
    
    $
    60,931
 3. Balance Sheet Details
 Short-Term Investments
  December 31, 2010
    
    
    December 31, 2009Fair value
    
    
Amortized
Cost basis
    
    

Net
Unrealized (loss)
    
    
    Fair value
    
    
Amortized
Cost basis

    
    

Net
Unrealized (loss)Corporate notes, bonds and commerical paper
    
    $
    39,691
    
    
39,704
    
    
    $
    (8
    )
    
    $
    3,499
    
    
    3,498
    
    
    
    Government securities
    
    
    15,003
    
    
15,007
    
    
    
    (2
    )
    
    
    27,785
    
    
    27,789
    
    
    
    (2
    )Total
    
    $
    54,694
    
    
    54,711
    
    
    $
    (10
    )
    
    $
    31,284
    
    
31,287
    
    
    $
    (2
    )
  F-17




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##### Table of Contents



Equipment and Improvements
  December 31,2010
    
    
    2009Computer hardware, software, and equipment
    
    $
    10,368
    
    
    $
    6,551Leasehold improvements
    
    
    6,237
    
    
    
    4,081Office furniture and fixtures
    
    
    1,055
    
    
    
    73717,660
    
    
    
    11,369Less accumulated depreciation and amortization
    
    
    (6,037
    )
    
    
    (3,176
    )Equipment and improvements, net
    
    $
    11,623
    
    
    $
    8,193
  Intangible Assets
  Useful
    
    
    December 31, 2010
    
    
    December 31, 2009life
    
    
    
    
    
    
    Accumulated
    
    
    Net book
    
    
    
    
    
    
    Accumulated
    
    
    Net book(years)
    
    
    Gross
    
    
    amortization
    
    
    value
    
    
    Gross
    
    
    amortization
    
    
    valueAmortizing:Purchased technology
    
    
    1-3
    
    
    $
    7,347
    
    
    $
    (5,344
    )
    
    $
    2,003
    
    
    $
    6,667
    
    
    $
    (3,349
    )
    
    $
    3,318In process R&D
    
    
    2
    
    
    
    990
    
    
    
    (62
    )
    
    
    928
    
    
    
    990
    
    
    
    
    
    
    
    990Capitalized software
    
    
    1-7
    
    
    
    23,846
    
    
    
    (15,336
    )
    
    
    8,510
    
    
    
    23,846
    
    
    
    (11,485
    )
    
    
    12,361Distribution rights
    
    
    5
    
    
    
    482
    
    
    
    (482
    )
    
    
    
    
    
    
    482
    
    
    
    (447
    )
    
    
    35Customer lists
    
    
    3-5
    
    
    
    1,484
    
    
    
    (1,328
    )
    
    
    156
    
    
    
    1,484
    
    
    
    (1,048
    )
    
    
    436Database
    
    
    10
    
    
    
    182
    
    
    
    (56
    )
    
    
    126
    
    
    
    182
    
    
    
    (38
    )
    
    
    144Trademarks
    
    
    5-10
    
    
    
    926
    
    
    
    (537
    )
    
    
    389
    
    
    
    926
    
    
    
    (445
    )
    
    
    481Trade names
    
    
    1-7
    
    
    
    2,121
    
    
    
    (1,208
    )
    
    
    913
    
    
    
    2,121
    
    
    
    (807
    )
    
    
    1,314Non-compete
    
    
    2
    
    
    
    21
    
    
    
    (13
    )
    
    
    8
    
    
    
    21
    
    
    
    (2
    )
    
    
    19Customer agreements
    
    
    1-2
    
    
    
    1,135
    
    
    
    (1,135
    )
    
    
    
    
    
    
    1,135
    
    
    
    (1,135
    )
    
    
    Customer relationships
    
    
    4-7
    
    
    
    11,130
    
    
    
    (4,704
    )
    
    
    6,426
    
    
    
    11,130
    
    
    
    (2,566
    )
    
    
    8,564Totals
    
    
    
    
    
    $
    49,664
    
    
    $
    (30,205
    )
    
    $
    19,459
    
    
    $
    48,984
    
    
    $
    (21,322
    )
    
    $
    27,662
  Goodwill
    F-18




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##### Table of Contents



Other Assets
  Accrued Liabilities
  December 31,2010
    
    
    2009Salaries and benefits
    
    $
    6,731
    
    
    $
    5,390Income taxes payable
    
    
    37
    
    
    
    106Royalties and revenue sharing
    
    
    416
    
    
    
    239Earnouts/holdbacks
    
    
    1,210
    
    
    
    5,220Marketing expenses, rebates and other
    
    
    50
    
    
    
    404Total accrued liabilities
    
    $
    8,444
    
    
    $
    11,359
 4. Income Taxes
  Year Ended December 31,2010
    
    
    2009
    
    
    2008Current:Federal
    
    $
    3,071
    
    
    $
    3,662
    
    
    $
    855State
    
    
    652
    
    
    
    1,215
    
    
    
    1,255Foreign
    
    
    54
    
    
    
    65
    
    
    
    101Total current
    
    
    3,777
    
    
    
    4,942
    
    
    
    2,211Deferred:Federal
    
    
    943
    
    
    
    2,734
    
    
    
    2,784State
    
    
    (82
    )
    
    
    22
    
    
    
    (230
    )Foreign
    
    
    
    
    
    
    
    
    
    
    (148
    )Excess tax benefits related to stock based compensation
    
    
    1,543
    
    
    
    871
    
    
    
    72Tax deficiencies related to restricted stock expense
    
    
    (15
    )
    
    
    (66
    )
    
    
    (625
    )Purchase accounting adjustment  Core Mobility
    
    
    
    
    
    
    (1,765
    )
    
    
    Other adjustments
    
    
    (1
    )
    
    
    
    
    
    
    (40
    )Change in valuation allowance
    
    
    
    
    
    
    
    
    
    
    148Total deferred
    
    
    2,388
    
    
    
    1,796
    
    
    
    1,961Total provision
    
    $
    6,165
    
    
    $
    6,738
    
    
    $
    4,172
  F-19




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##### Table of Contents



Year Ended December 31,2010
    
    2009
    
    2008Federal statutory rate
    
    
    35
    %
    
    
    35
    %
    
    
    34
    %State tax, net of federal benefit
    
    
    5
    
    
    
    7
    
    
    
    17Equity compensation
    
    
    3
    
    
    
    13
    
    
    
    69R&D tax credit
    
    
    (5
    )
    
    
    (4
    )
    
    
    (1
    )Other
    
    
    (5
    )
    
    
    8
    
    
    
    (2
    )Change in valuation allowance
    
    
    
    
    
    
    
    
    
    
    433
    %
    
    
    59
    %
    
    
    121
    %
  Year Ended December 31,2010
    
    
    2009CurrentVarious reserves
    
    $
    366
    
    
    $
    660Nondeductible accruals
    
    
    1,208
    
    
    
    1,193Deferred state taxes
    
    
    228
    
    
    
    542Prepaid expenses
    
    
    (127
    )
    
    
    (246
    )Other
    
    
    (27
    )
    
    
    59Equity compensation
    
    
    917
    
    
    
    488Total Current
    
    $
    2,565
    
    
    $
    2,696Non- currentCredit carryforwards
    
    
    1,201
    
    
    
    1,583Net operating loss carryforwards
    
    
    659
    
    
    
    1,178State tax
    
    
    (591
    )
    
    
    (563
    )Fixed assets
    
    
    (850
    )
    
    
    (512
    )Amortization
    
    
    (53
    )
    
    
    710Identifiable intangibles acquired
    
    
    (2,258
    )
    
    
    (3,585
    )Equity based compensation
    
    
    165
    
    
    
    192Other
    
    
    
    
    
    
    3Total Non-current
    
    $
    (1,727
    )
    
    $
    (994
    )
    F-20




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##### Table of Contents



5. Commitments and Contingencies
 Leases
  Year Ending December 31,
    
    Operating2011
    
    $
    3,0492012
    
    
    3,0542013
    
    
    2,7692014
    
    
    2,4262015
    
    
    2,383Beyond
    
    
    9,367Total
    
    $
    23,048
  Litigation
  Other Contingent Contractual Obligations
  F-21




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##### Table of Contents



6. Segment and Geographical Information
 Segment Information
 Wireless Productivity & Graphics
   Year Ended December 31,2010
    
    
    2009
    
    
    2008Wireless
    
    $
    118,684
    
    
    $
    89,420
    
    
    $
    73,219Productivity & Graphics
    
    
    11,399
    
    
    
    17,014
    
    
    
    23,925Corporate/Other
    
    
    418
    
    
    
    845
    
    
    
    1,280Total revenues
    
    
    130,501
    
    
    
    107,279
    
    
    
    98,424Cost of revenues
    
    
    15,507
    
    
    
    15,486
    
    
    
    20,108Gross profit
    
    $
    114,994
    
    
    $
    91,793
    
    
    $
    78,316
  Geographical Information
  F-22




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##### Table of Contents



Year ended December 31,2010
    
    
    2009
    
    
    2008Americas
    
    $
    121,495
    
    
    $
    99,172
    
    
    $
    88,350Asia Pacific
    
    
    1,889
    
    
    
    3,705
    
    
    
    5,011EMEA
    
    
    7,117
    
    
    
    4,402
    
    
    
    5,063Total revenues
    
    $
    130,501
    
    
    $
    107,279
    
    
    $
    98,424
  7. Profit Sharing
  8. Stock-Based Compensation
 Stock Plans
 On July 28, 2005, our Shareholders approved the 2005 Stock Option / Stock
Issuance Plan (2005 Plan). The 2005 Plan, which became effective the same date,
replaced the 1995 Stock Option / Stock Issuance Plan (1995 Plan), which expired on
May 24, 2005. All outstanding options under the 1995 Plan remained outstanding, but no
further grants will be made under that Plan.
  Employee Stock Purchase Plan
 The Company has a shareholder approved employee stock purchase plan (ESPP), under which
substantially all employees may purchase the Companys common stock through payroll deductions at a
price equal to 85% of the lower of the fair market values of the stock as of the beginning and end
of six-month offering periods. An employees payroll deductions under the ESPP are limited to 10%
of the employees compensation and employees may not purchase more than the lesser of $25,000 of
stock, or 1,000 shares, for any calendar year. Additionally, no more than 1,000,000 shares may be
purchased under the plan.
 Rule 10b5-1 Trading Plans
 On September 16, 2010, William W. Smith, Jr., the President and Chief Executive Officer of the
Company entered into a pre-arranged stock trading plan to sell a maximum of 200,000 shares of
Company common stock on behalf of The William W. Smith, Jr. Revocable Trust, a trust for which Mr.
Smith serves as trustee. The plan was established as part of Mr. Smiths individual long-term
strategy for asset diversification and liquidity. All of the shares had been sold as of October 7,
2010. The plan was adopted in accordance with guidelines specified under Rule 10b5-1 of the
Securities Exchange Act of 1934, as amended, and the Companys policies regarding stock
transactions. The transactions under the plan were disclosed publicly with the Securities and
Exchange Commission as required by applicable securities laws.
 Stock Compensation Expense
 The Company accounts for all stock-based payment awards made to employees and
directors based on their fair values and recognized as compensation expense over the
vesting period using the straight-line method over the requisite service period for
each award as required by FASB ASC Topic No. 718, Compensation-Stock Compensation.
 F-23




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##### Table of Contents



Valuation of Stock Option and Restricted Stock Awards
 The weighted average grant-date fair value of stock options granted during the
years ended December 31, 2010, 2009 and 2008 was $2.97, $3.23 and $3.74, respectively.
The assumptions used to compute the share-based compensation costs for the stock
options granted during the years ended December 31, 2010, 2009 and 2008, respectively,
using the Black-Scholes option pricing model, were as follows:
 Year Ended December 31,2010
    
    2009
    
    2008AssumptionsRisk-free interest
rate (average)
    
    
    0.3
    %
    
    
    0.5
    %
    
    
    2.8
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Weighted average expected life (years)
    
    
    1
    
    
    
    1
    
    
    
    4Volatility (average)
    
    
    72.0
    %
    
    
    71.0
    %
    
    
    71.0
    %Forfeiture rate
    
    
    
    
    
    
    
    
    
    
    3.5
    %
 The risk-free interest rate assumption was based on the United States Treasurys
rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the
expected term of the award being valued. The Company assumed no dividend yield because
it does not expect to pay dividends for the foreseeable future. The weighted average
expected life is the vesting period for those options granted during that period. The
average volatility is based on the actual historical volatility of our common stock.
 Grants of restricted stock are valued using the closing stock price on the date
of grant. In the year ended December 31, 2010, a total of 55,000 shares of restricted
stock, with a total value of $0.5 million, were granted to non-employee members of the
Board of Directors. This cost will be amortized over a period of 12 months. In
addition, 0.9 million shares of restricted stock, with a total value of $7.3 million,
were granted to key officers and employees of the Company. This cost will be amortized
over a period of 48 months.
 Valuation of ESPP
 The Companys initial six-month offering period began on October 1, 2010. The fair value of the
offering is $3.98 and was estimated on the date of grant using a Black-Scholes valuation model that
uses the assumptions noted in the following table. The risk-free rate is based on the U.S. treasury
yield curve in effect at the time of grant. Expected volatility was based on the historical
volatility on the day of grant.
 Year EndedDecember 31, 2010AssumptionsRisk-free interest rate (average)
    
    
    .18
    %Expected dividend yield
    
    
    Weighted average expected life (years)
    
    
    .5Volatility (average)
    
    
    72.0
    %
 Compensation Costs
 Stock-based non-cash compensation expenses related to stock options and
restricted stock grants were recorded in the financial statements as follows (in
thousands):
 Year Ended December 31,2010
    
    
    2009
    
    
    2008Cost of revenues
    
    $
    101
    
    
    $
    184
    
    
    $
    430Selling and marketing
    
    
    2,529
    
    
    
    2,498
    
    
    
    3,460Research and development
    
    
    2,505
    
    
    
    2,514
    
    
    
    3,201General and administrative
    
    
    4,361
    
    
    
    3,528
    
    
    
    4,886Total non-cash stock compensation expense
    
    $
    9,496
    
    
    $
    8,724
    
    
    $
    11,977
 Total share-based compensation for each year includes cash payment of income
taxes related to grants of restricted stock in the amounts of $2.1 million, $1.1
million and $1.2 million for the years ended December 31, 2010, 2009 and 2008,
respectively.
 Stock Options
 A summary of the Companys stock options outstanding under the 2005 Plan as of
December 31, 2010 and the activity during the years ended herein are as follows (in
thousands except per share amounts):
 F-24




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##### Table of Contents



Weighted Ave.
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    Intrinsic ValueOutstanding as of December 31, 2007
    
    
    4,654
    
    
    $
    11.33(911 options exercisable at a weighted average exercise
price of $4.93)Granted (weighted average fair value of $3.74)
    
    
    135
    
    
    $
    7.51Exercised
    
    
    (49
    )
    
    $
    2.64Cancelled
    
    
    (451
    )
    
    $
    14.28Outstanding as of December 31, 2008
    
    
    4,289
    
    
    $
    10.94(2,481 options exercisable at a weighted average exercise
price of $9.31)Granted (weighted average fair value of $3.23)
    
    
    25
    
    
    $
    11.59Exercised
    
    
    (414
    )
    
    $
    4.02Cancelled
    
    
    (364
    )
    
    $
    14.56Outstanding as of December 31, 2009
    
    
    3,536
    
    
    $
    11.29(2,754 options exercisable at a weighted average exercise
price of $10.55)Granted (weighted average fair value of $2.97)
    
    
    20
    
    
    $
    10.51Exercised
    
    
    (760
    )
    
    $
    9.55Cancelled
    
    
    (90
    )
    
    $
    13.80Outstanding as of December 31, 2010
    
    
    2,706
    
    
    $
    11.69
    
    
    $
    Exercisable as of December 31, 2010
    
    
    2,545
    
    
    $
    11.54
    
    
    $
    10,700Vested and expected to vest at December 31, 2010
    
    
    2,706
    
    
    $
    11.69
    
    
    $
    11,000
 During the year ended December 31, 2010, options to acquire 760,000 shares were
exercised with an intrinsic value of $4.7 million, resulting in cash proceeds to the
Company of $7.3 million. The weighted-average grant-date fair value of options granted
during the year ended December 31, 2010 was $2.97. For the year ended December 31,
2010, there were $0.8 million of total unrecognized compensation costs related to
non-vested stock options granted under the Plan, which will be recognized over next
year. At December 31, 2010, there were 1.5 million shares available for future grants
under the 2005 Stock Issuance / Stock Option Plan.
 Additional information regarding options outstanding as of December 31, 2010 is as
follows:
 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
    
    
    162
    
    
    
    3.2
    
    
    $
    1.58
    
    
    
    162
    
    
    $
    1.58$4.01 - $6.00
    
    
    469
    
    
    
    4.9
    
    
    $
    4.95
    
    
    
    469
    
    
    $
    4.95$6.01 - $12.00
    
    
    181
    
    
    
    6.8
    
    
    $
    8.81
    
    
    
    160
    
    
    $
    8.93$12.01 - $14.00
    
    
    895
    
    
    
    6.1
    
    
    $
    12.65
    
    
    
    838
    
    
    $
    12.65$14.01 - $16.00
    
    
    630
    
    
    
    6.2
    
    
    $
    15.18
    
    
    
    589
    
    
    $
    15.18$16.01 - $19.00
    
    
    369
    
    
    
    6.4
    
    
    $
    17.77
    
    
    
    327
    
    
    $
    17.822,706
    
    
    
    5.8
    
    
    $
    11.69
    
    
    
    2,545
    
    
    $
    11.54
 F-25




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##### Table of Contents



Restricted Stock Awards
 A summary of the Companys restricted stock awards outstanding under the 2005
Plan as of December 31, 2010, and the activity during years ended therein, are as
follows (in thousands):
 Number
    
    Weighted averageof shares
    
    grant date fair valueUnvested at December 31, 2007
    
    
    350
    
    
    $
    12.32Granted
    
    
    1,164
    
    
    $
    7.73Vested
    
    
    (444
    )
    
    $
    10.59Cancelled
    
    
    (72
    )
    
    $
    11.16Unvested at December 31, 2008
    
    
    998
    
    
    $
    7.82Granted
    
    
    1,031
    
    
    $
    5.06Vested
    
    
    (472
    )
    
    $
    7.17Cancelled
    
    
    (142
    )
    
    $
    5.26Unvested at December 31, 2009
    
    
    1,415
    
    
    $
    6.28Granted
    
    
    933
    
    
    $
    8.27Vested
    
    
    (679
    )
    
    $
    6.50Cancelled and forfeited
    
    
    (65
    )
    
    $
    9.25Unvested at December 31, 2010
    
    
    1,604
    
    
    $
    7.23
 9. Comprehensive Income
  Year Ended December 31,2010
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    12,346
    
    
    $
    4,752
    
    
    $
    (732
    )Change in unrealized gain (loss) on investments, after tax
    
    
    (8
    )
    
    
    (71
    )
    
    
    69Total comprehensive income (loss)
    
    $
    12,338
    
    
    $
    4,681
    
    
    $
    (663
    )
 10. Subsequent Events
  F-26




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##### Table of Contents



11. Quarterly Financial Data (Unaudited)
  Year ended December 31, 20101st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th QuarterSelected quarterly financial data:Revenues
    
    $
    29,862
    
    
    $
    31,357
    
    
    $
    34,008
    
    
    $
    35,274Gross profit
    
    $
    26,130
    
    
    $
    27,392
    
    
    $
    30,237
    
    
    $
    31,235Operating income
    
    $
    2,906
    
    
    $
    3,682
    
    
    $
    5,862
    
    
    $
    5,931Net income
    
    $
    1,592
    
    
    $
    1,885
    
    
    $
    3,094
    
    
    $
    5,775Net income per share, basic (1)
    
    $
    0.05
    
    
    $
    0.06
    
    
    $
    0.09
    
    
    $
    0.17Weighted average shares outstanding, basic
    
    
    33,730
    
    
    
    34,264
    
    
    
    34,274
    
    
    
    34,540Net income per share, diluted (1)
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.09
    
    
    $
    0.16Weighted average shares outstanding, diluted
    
    
    34,176
    
    
    
    34,781
    
    
    
    34,736
    
    
    
    35,111
 Year ended December 31, 20091st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th QuarterSelected quarterly financial data:Revenues
    
    $
    23,788
    
    
    $
    25,986
    
    
    $
    27,820
    
    
    $
    29,685Gross profit
    
    $
    19,265
    
    
    $
    22,064
    
    
    $
    24,280
    
    
    $
    26,184Operating income
    
    $
    389
    
    
    $
    2,683
    
    
    $
    4,138
    
    
    $
    3,899Net income
    
    $
    278
    
    
    $
    1,277
    
    
    $
    1,981
    
    
    $
    1,216Net income per share, basic (1)
    
    $
    0.01
    
    
    $
    0.04
    
    
    $
    0.06
    
    
    $
    0.04Weighted average shares outstanding, basic
    
    
    31,675
    
    
    
    32,338
    
    
    
    32,523
    
    
    
    33,200Net income per share, diluted (1)
    
    $
    0.01
    
    
    $
    0.04
    
    
    $
    0.06
    
    
    $
    0.04Weighted average shares outstanding, diluted
    
    
    31,904
    
    
    
    32,955
    
    
    
    33,145
    
    
    
    33,675
 
 (1)
    
    Basic and diluted net income per share is computed independently for each of
the quarters presented. Therefore, the sum of the quarterly per share amounts will not
necessarily equal the total for the year. F-27




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##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 2010
 AdditionsBalance at
    
    charged to
    
    
    
    
    
    Balance atbeginning of
    
    costs and
    
    
    
    
    
    end ofperiod
    
    expenses
    
    Deductions
    
    periodAllowance for accounts receivable (1):2010
    
    $
    1,045
    
    
    $
    851
    
    
    $
    (1,041
    )
    
    $
    8552009
    
    
    1,204
    
    
    
    1,596
    
    
    
    (1,755
    )
    
    
    1,0452008
    
    
    684
    
    
    
    1,170
    
    
    
    (650
    )
    
    
    1,204Allowance for excess and obsolete inventory:2010
    
    $
    1,221
    
    
    $
    203
    
    
    $
    (866
    )
    
    $
    5582009
    
    
    404
    
    
    
    1,063
    
    
    
    (246
    )
    
    
    1,2212008
    
    
    102
    
    
    
    435
    
    
    
    (133
    )
    
    
    404
 
 (1)
    
    Allowances are for retail return reserves, marketing development funds and doubtful
accounts. S-1