##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 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
 o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



SMITH MICRO SOFTWARE, INC.  2009 ANNUAL REPORT ON FORM 10-K  TABLE OF CONTENTS
 PagePART IItem 1.
    

BUSINESS
    
    
    4Item 1A.
    

RISK FACTORS
    
    
    10Item 1B.
    

UNRESOLVED STAFF COMMENTS
    
    
    17Item 2.
    

PROPERTIES
    
    
    17Item 3.
    

LEGAL PROCEEDINGS
    
    
    18Item 4.
    

RESERVED
    
    
    18PART IIItem 5.
    

MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    19Item 6.
    

SELECTED CONSOLIDATED FINANCIAL DATA
    
    
    22Item 7.
    

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    
    23Item 7A.
    

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    34Item 8.
    

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    35Item 9.
    

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    35Item 9A.
    

CONTROLS AND PROCEDURES
    
    
    35Item 9B.
    

OTHER INFORMATION
    
    
    36PART IIIItem 10.
    

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    37Item 11.
    

EXECUTIVE COMPENSATION
    
    
    39Item 12.
    

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    39Item 13.
    

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    
    
    39Item 14.
    

PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    39PART IVItem 15.
    

EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    40SIGNATURES
    
    
    43EX-10.4.3EX-10.4.4EX-10.4.5EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1
 
  2




---



##### Table of Contents



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 duration and depth of the current economic slowdown and its effects on
capital expenditures by our customers and their end users;
    
    our ability to predict consumer needs, introduce new products, gain broad market
acceptance for such products and ramp up manufacturing in a timely manner;
    
    changes in demand for our products from our customers and their end-users;
    
    the intensity of the competition and our ability to successfully compete;
    
    the pace at which the market for new products develop;
    
    the response of competitors, many of whom are bigger and better financed than
us;
    
    our ability to successfully execute our business plan and control costs and
expenses;
    
    our ability to protect our intellectual property and our ability to not infringe
on the rights of others; and
    
    those additional factors which are listed under the section 1A. Risk Factors
beginning on page 10 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.
 3




---



##### Table of Contents



PART I
 
 Item 1. BUSINESS
 General
 ®
       4




---



##### Table of Contents



Business Segments
  Wireless
 ® ®
  ®
   ® ® ®
 Productivity & Graphics
  5




---



##### Table of Contents



® ®
 ®
 Industry Background
  Wireless and mobility 
 ® ®
 connected digital lifestyle ®
 Productivity and graphic software  ®
 6




---



##### Table of Contents



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® Multimedia
    
    An intuitive music
and multimedia
manager to sync
digital content to
and from mobile
devices.StuffIt® Wireless
    
    Enables compression
of data files to
facilitate storage on
mobile devices and
the Internet.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.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.
 7




---



##### Table of Contents



Marketing and Sales Strategy
     Leverage Carrier and OEM Relationships.
 Focus on Multiple High-Growth Markets.
 Expand our Customer Base.
 Selectively Pursue Acquisitions of Complementary Products and Services.
    8




---



##### Table of Contents



Integration Initiatives
  Customer Service and Technical Support
  Product Development
  Manufacturing
   Competition
   9




---



##### Table of Contents



Proprietary Rights and Licenses
    Employees
  
 Item 1A. RISK FACTORS
 Our future operating results are highly uncertain. Before deciding to invest in our common
stock or to maintain or increase your investment, you should carefully consider the risks described
below, in addition to the other information contained in this report and in our other filings with
the SEC, including our reports on Forms 10-
 10




---



##### Table of Contents



K, 10-Q and 8-K. The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial
may also affect our business operations. If any of these risks actually occur, that could
seriously harm our business, financial condition or results of operations. In that event, the
market price for our common stock could decline and you may lose all or part of your investment.
 Our operating results may be adversely impacted by the current 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
    
    general economic and market conditions.
  11




---



##### Table of Contents



Our total revenues currently depend on a small number of products and customers, so our operating
results are vulnerable to unexpected shifts in demand.
     Competition within our target markets is intense and includes numerous established competitors,
which could negatively affect our revenues and results of operations.
   12




---



##### Table of Contents



Acquisitions of companies or technologies may disrupt our business and divert management attention
and cause our current operations to suffer.
   We have recently entered 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.
  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.
   13




---



##### Table of Contents



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.
  Our gross margins may continue to change due to shifts in our sales mix.
  Our products may contain undetected software defects, which could negatively affect our revenues.
  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.
  14




---



##### Table of Contents



Regulations affecting our customers and us and future regulations, to which they or we may become
subject to, may harm our business.
  We may be unable to adequately protect our intellectual property and other proprietary rights,
which could negatively impact our revenues.
   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.
  15




---



##### Table of Contents



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.
  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.
    
    
    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.
 16




---



##### Table of Contents



Our business, financial condition and operating results could be adversely affected as a result of
legal, business and economic risks specific to international operations.
  
    
    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.
  
 Item 1B. UNRESOLVED STAFF COMMENTS
  
 Item 2. PROPERTIES
    17




---



##### Table of Contents



Item 3. LEGAL PROCEEDINGS
  
 Item 4.
RESERVED
  18




---



##### Table of Contents



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, 2009:First Quarter
    
    $
    6.17
    
    
    $
    3.64Second Quarter
    
    
    10.62
    
    
    
    5.19Third Quarter
    
    
    12.87
    
    
    
    8.96Fourth Quarter
    
    
    12.37
    
    
    
    6.26YEAR ENDED DECEMBER 31, 2008:First Quarter
    
    $
    8.68
    
    
    $
    4.44Second Quarter
    
    
    9.15
    
    
    
    5.68Third Quarter
    
    
    8.44
    
    
    
    5.37Fourth Quarter
    
    
    7.39
    
    
    
    4.00
   Stock Performance Graph
   19




---



##### Table of Contents



12/04
    
    
    12/05
    
    
    12/06
    
    
    12/07
    
    
    12/08
    
    
    12/09Smith Micro Software, Inc.
    
    
    100.00
    
    
    
    65.36
    
    
    
    158.55
    
    
    
    94.64
    
    
    
    62.12
    
    
    
    102.23S&P Midcap 400
    
    
    100.00
    
    
    
    112.55
    
    
    
    124.17
    
    
    
    134.08
    
    
    
    85.50
    
    
    
    117.46S&P MidCap Application Software
    
    
    100.00
    
    
    
    111.49
    
    
    
    127.82
    
    
    
    133.87
    
    
    
    83.85
    
    
    
    121.59
 Holders
  Dividends
  20




---



##### Table of Contents



Recent Sales of Unregistered Securities
  Purchases of Equity Securities by the Company
  21




---



##### Table of Contents



Item 6.
    
    SELECTED CONSOLIDATED FINANCIAL DATA
  Year Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Consolidated Statement of Operations Data 
(in thousands, except per share data):Revenues
    
    $
    107,279
    
    
    $
    98,424
    
    
    $
    73,377
    
    
    $
    54,469
    
    
    $
    20,258Cost of revenues
    
    
    15,486
    
    
    
    20,108
    
    
    
    20,644
    
    
    
    20,259
    
    
    
    4,103Gross profit
    
    
    91,793
    
    
    
    78,316
    
    
    
    52,733
    
    
    
    34,210
    
    
    
    16,155Operating expenses:Selling and marketing
    
    
    24,999
    
    
    
    24,814
    
    
    
    18,394
    
    
    
    9,057
    
    
    
    3,410Research and development
    
    
    36,530
    
    
    
    30,811
    
    
    
    14,772
    
    
    
    7,899
    
    
    
    3,963General and administrative
    
    
    19,155
    
    
    
    19,990
    
    
    
    15,318
    
    
    
    8,467
    
    
    
    4,621Total operating expenses
    
    
    80,684
    
    
    
    75,615
    
    
    
    48,484
    
    
    
    25,423
    
    
    
    11,994Operating income
    
    
    11,109
    
    
    
    2,701
    
    
    
    4,249
    
    
    
    8,787
    
    
    
    4,161Interest and other income
    
    
    381
    
    
    
    739
    
    
    
    4,254
    
    
    
    1,403
    
    
    
    667Profit before taxes
    
    
    11,490
    
    
    
    3,440
    
    
    
    8,503
    
    
    
    10,190
    
    
    
    4,828Income tax expense
    
    
    6,738
    
    
    
    4,172
    
    
    
    5,342
    
    
    
    1,234
    
    
    
    104Net income (loss)
    
    $
    4,752
    
    
    $
    (732
    )
    
    $
    3,161
    
    
    $
    8,956
    
    
    $
    4,724Net income (loss) per share:Basic
    
    $
    0.15
    
    
    $
    (0.02
    )
    
    $
    0.11
    
    
    $
    0.38
    
    
    $
    0.22Diluted
    
    $
    0.14
    
    
    $
    (0.02
    )
    
    $
    0.10
    
    
    $
    0.35
    
    
    $
    0.21Weighted average shares:Basic
    
    
    32,438
    
    
    
    30,978
    
    
    
    29,768
    
    
    
    23,753
    
    
    
    21,351Diluted
    
    
    32,897
    
    
    
    30,978
    
    
    
    30,998
    
    
    
    25,330
    
    
    
    22,806
 As of December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Consolidated Balance Sheet Data (in thousands):Total assets
    
    $
    205,934
    
    
    $
    176,995
    
    
    $
    162,421
    
    
    $
    131,026
    
    
    $
    42,716Total liabilities
    
    
    17,955
    
    
    
    11,591
    
    
    
    7,907
    
    
    
    4,969
    
    
    
    3,759Accumulated earnings (deficit)
    
    
    4,192
    
    
    
    (560
    )
    
    
    172
    
    
    
    (2,989
    )
    
    
    (11,945
    )Total stockholders equity
    
    $
    187,979
    
    
    $
    165,404
    
    
    $
    154,514
    
    
    $
    126,057
    
    
    $
    38,957
 22




---



##### Table of Contents



Item 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion of our financial condition and results of operations should be read
in conjunction with our consolidated financial statements and the related notes and other financial
information appearing elsewhere in this Annual Report. Readers are also urged to carefully review
and consider the various disclosures made by us which attempt to advise interested parties of the
factors which affect our business, including without limitation the disclosures made in Item 1A of
Part I of this Annual Report under the caption Risk Factors.
 Risk factors that could cause actual results to differ from those contained in the
forward-looking statements including but are not limited to: the duration and depth of the current
economic slowdown and its effects on the capital expenditures by our customers and their end users;
our dependence upon a single customer for a significant portion of our revenues; potential
fluctuations in quarterly results; deriving revenues from a small number of products; failure to
successfully compete; failure to successfully integrate acquisitions; entry into new markets;
failure of our customers to adopt new technologies; dependence upon relationships with carrier
customers; declines in gross margins; undetected software defects; changes in technology; delays or
failure in deliveries from component suppliers; failure of our products to achieve broad
acceptance; failure to protect intellectual property; exposure to intellectual property claims; and
loss of key personnel.
 Introduction and Overview
 ®
      23




---



##### Table of Contents



Results of Operations
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    14.4
    %
    
    
    20.4
    %
    
    
    28.1
    %Gross profit
    
    
    85.6
    %
    
    
    79.6
    %
    
    
    71.9
    %Operating expenses:Selling and marketing
    
    
    23.3
    %
    
    
    25.2
    %
    
    
    25.1
    %Research and development
    
    
    34.0
    %
    
    
    31.3
    %
    
    
    20.1
    %General and administrative
    
    
    17.9
    %
    
    
    20.3
    %
    
    
    20.9
    %Total operating expenses
    
    
    75.2
    %
    
    
    76.8
    %
    
    
    66.1
    %Operating income
    
    
    10.4
    %
    
    
    2.8
    %
    
    
    5.8
    %Interest and other income
    
    
    0.3
    %
    
    
    0.7
    %
    
    
    5.8
    %Profit before taxes
    
    
    10.7
    %
    
    
    3.5
    %
    
    
    11.6
    %Income tax expense
    
    
    6.3
    %
    
    
    4.2
    %
    
    
    7.3
    %Net income (loss)
    
    
    4.4
    %
    
    
    -0.7
    %
    
    
    4.3
    %
 Revenues and Expense Components
  Revenues.
 
    
    Wireless, which includes our connection manager solutions, mobile VPN, music and
multimedia manager, device management suite, Push-To-Talk and Visual Voicemail; and
    
    Productivity & Graphics, which includes retail and direct sales of our
compression and broad consumer-based software.
    
    Corporate/Other refers to the consulting portion of our services sector which has been
de-emphasized and is no longer considered a strategic element of our future plans.
  24




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007Wireless
    
    $
    89,420
    
    
    $
    73,219
    
    
    $
    57,819Productivity & Graphics
    
    
    17,014
    
    
    
    23,925
    
    
    
    14,368Corporate/Other
    
    
    845
    
    
    
    1,280
    
    
    
    1,190Total revenues
    
    
    107,279
    
    
    
    98,424
    
    
    
    73,377Cost of revenues
    
    
    15,486
    
    
    
    20,108
    
    
    
    20,644Gross profit
    
    $
    91,793
    
    
    $
    78,316
    
    
    $
    52,733
 Cost of revenues.
 Selling and marketing.
 Research and development.
 General and administrative.
 Interest and other income
 Income tax expense.
   25




---



##### Table of Contents



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.
 Interest and other income.
 Income tax expense.
 26




---



##### Table of Contents



Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
 Revenues.
 Cost of revenues
 Gross profit.
 Selling and marketing.
 Research and development.
 General and administrative.
 Interest and other income.
 27




---



##### Table of Contents



Income tax expense.
 Liquidity and Capital Resources
   Stock offerings
   Operating Activities
    28




---



##### 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
    
    $
    9,402
    
    
    $
    1,838
    
    
    $
    3,116
    
    
    $
    2,094
    
    
    $
    2,354Purchase obligations
    
    
    1,323
    
    
    
    1,323
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    10,725
    
    
    $
    3,161
    
    
    $
    3,116
    
    
    $
    2,094
    
    
    $
    2,354
  Real Property Leases
  29




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
   Revenue Recognition
  Sales Incentives
  30




---



##### Table of Contents



Accounts Receivable and Allowance for Doubtful Accounts
  Internal Software Development Costs
  In-Process Research and Development
   Capitalized Software and Amortization
  Intangible Assets and Amortization
  31




---



##### Table of Contents



Impairment or Disposal of Long Lived Assets
  Valuation of Goodwill and Intangible Assets
  
    
    a determination that the carrying value of such assets cannot be recovered through undiscounted cash flows;
    
    loss of legal ownership or title to the assets;
    
    significant changes in our strategic business objectives and utilization of the assets; or
    
    the impact of significant negative industry or economic trends.
   Deferred Income and Income Taxes
  32




---



##### Table of Contents



Stock-Based Compensation
   Recent Accounting Pronouncements
     The TM and the Hierarchy of Generally Accepted
Accounting Principlesa replacement of FASB Statement No. 162
 33




---



##### Table of Contents



Amendments to FASB Interpretation No. 46(R). Consolidation of Variable Interest Entities, Accounting for Transfers of
Financial Assets,
 Accounting for Transfers of Financial Assetsan
amendment of FASB Statement No. 140.
 Business Combinations
 Non-controlling Interests in Consolidated
Financial Statements
 
 Item 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  34




---



##### Table of Contents



Foreign Currency Risk
  
 Item 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 Item 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 Item 9A.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements responsibility for financial statements
   35




---



##### Table of Contents



Changes in Internal Control over Financial Reporting
  Report of Management on Internal Control Over Financial Reporting
     
 Item 9B.
    
    OTHER INFORMATION
  36




---



##### Table of Contents



PART III
 
 Item 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  Name
    
    Age
    
    PositionWilliam W. Smith, Jr.
    
    
    62
    
    
    Chairman of the Board, President and Chief
Executive OfficerAndrew C. Schmidt
    
    
    48
    
    
    Vice President and Chief Financial OfficerDavid P. Sperling
    
    
    41
    
    
    Vice President and Chief Technical OfficerJonathan Kahn
    
    
    52
    
    
    Executive Vice President  Productivity &
GraphicsRobert E. Elliott
    
    
    58
    
    
    Vice President and Chief Marketing OfficerVon Cameron
    
    
    46
    
    
    Executive Vice President  Worldwide SalesSteven M. Yasbek
    
    
    56
    
    
    Chief Accounting Officer
 Mr. Smith
 Mr. Schmidt
 Mr. Sperling
 Mr. Kahn
 37




---



##### Table of Contents



Mr. Elliott
 Mr. Cameron
 Mr. Yasbek
    Audit Committee; Audit Committee Financial Expert
  Section 16(a) Beneficial Ownership Reporting Compliance
   Code of Ethics
 www.smithmicro.com.
 38




---



##### Table of Contents



Item 11.
    
    EXECUTIVE COMPENSATION
  
 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 for(in thousands, except per share amounts)
    
    outstanding options
    
    
    outstanding options
    
    
    future issuanceEquity compensation plan approved
by shareholders (1)
    
    
    3,536
    
    
    $
    11.29
    
    
    
    1,434Equity compensation plan not approved
by shareholders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    3,536
    
    
    $
    11.29
    
    
    
    1,434
 
 (1)
    
    The number of shares to be issued upson exercise includes options granted under both the1995 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
  39




---



##### 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 as of December 31, 2009 and 2008
    
    F-3Consolidated Statements of Operations for each of the three years in
the period ended December 31, 2009
    
    F-4Consolidated Statements of Stockholders Equity for each of the three
years in the period ended December 31, 2009
    
    F-5Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 2009
    
    F-6Notes to Consolidated Financial Statements for each of the three years
in the period ended December 31, 2009
    
    F-7
 (2) Financial Statement Schedule
  PageSchedule II  Valuation and Qualifying Accounts for each of the three years in
the period ended December 31, 2009
    
    S-1
 (3) Exhibits
 ExhibitNo.
    
    Title
    
    Method of Filing2.1
    
    Agreement and Plan of Merger, dated
September 9, 2009, by and among Smith Micro Software, Inc., Mobility
Acquisition Corp., Core Mobility, Inc., Konstantin Othmer, as
stockholders agent, and the founders of Core Mobility.
    
    Incorporated by reference to
Exhibit 2.1 to the Registrants Quarterly Report on Form 10-Q
filed on November 5, 2009.3.1
    
    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.
 40




---



##### Table of Contents



ExhibitNo.
    
    Title
    
    Method of Filing3.3
    
    Certificate of Amendment of Amended
and Restated Bylaws of Smith Micro Software, Inc.
    
    Incorporated by reference to
Exhibit 3.3 to the Registrants Current Report on 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).
    
    Filed herewith.10.4.4
    
    Amendment No. 7 to the Master
Software License and Distribution Agreement (Contract No. 220-00-0134).
    
    Filed herewith.10.4.5
    
    Amendment No. 9 to the Master
Software License and Distribution Agreement (Contract No. 220-00-0134).
    
    Filed herewith.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
    
    Employment Agreement effective as
of January 4, 2008 by and between Smith Micro Software, Inc. and Biju Nair.
    
    Incorporated by reference to
Exhibit 10.7 to the Registrants Current Report on Form 8-K
filed on January 9, 2008.
 41




---



##### Table of Contents



ExhibitNo.
    
    Title
    
    Method of Filing10.8
    
    Management Retention Agreement effective as of January 4, 2008 by and between Smith Micro Software, Inc. and Biju Nair.
    
    Incorporated by reference to
Exhibit 10.7 to the Registrants Current Report on Form 8-K
filed on January 9, 2008.10.9
    
    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 filed on April 29, 2008.10.10
    
    Summary of oral agreement dated June 2005 by and between William W. Smith, Jr. and the Registrant.
    
    Incorporated by reference to Exhibit 10.10 to the Registrants Quarterly Report on Form 10-Q filed on August 4, 2009.14.1
    
    Code of Ethics.
    
    Incorporated by reference to
Exhibit 14.1 to the Registrants Annual Report on Form 10-K for
the fiscal 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 fiscal 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.
    
    Confidential treatment has been requested 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
  42




---



##### Table of Contents



SIGNATURES
  SMITH MICRO SOFTWARE, INC.Date:  March 2, 2010
    By:
    /s/ William W. Smith, Jr.William W. Smith, Jr.Chairman of the Board,
President and Chief Executive Officer

(Principal Executive Officer)Date:  March 2, 2010
    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)
    
    March 2, 2010/s/ Andrew C. Schmidt
    
    Vice President and Chief Financial Officer
    
    March 2, 2010Andrew C. Schmidt
    
    (Principal Financial and Accounting Officer)/s/ Thomas G. Campbell
    
    Director
    
    March 2, 2010Thomas G. Campbell/s/ Samuel Gulko
    
    Director
    
    March 2, 2010Samuel Gulko/s/ Ted L. Hoffman
    
    Director
    
    March 2, 2010Ted L. Hoffman/s/ William C. Keiper
    
    Director
    
    March 2, 2010William C. Keiper/s/ Gregory J. Szabo
    
    Director
    
    March 2, 2010Gregory J. Szabo
 43




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      /s/ SINGERLEWAK LLPLos Angeles, CaliforniaMarch 2, 2010 F-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       /s/ SINGERLEWAK LLPLos Angeles, CaliforniaMarch 2, 2010 F-2




---



##### Table of Contents



SMITH
MICRO SOFTWARE, INC.
 
 CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value data)
 December 31,2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    14,577
    
    
    $
    13,966Short-term investments
    
    
    31,284
    
    
    
    22,649Accounts receivable, net of allowances for doubtful accounts
and other adjustments of $1,045 (2009) and $1,204 (2008)
    
    
    24,147
    
    
    
    18,424Income tax receivable
    
    
    980
    
    
    
    Inventories, net of reserves for excess and obsolete inventory
of $1,221 (2009) and $404 (2008)
    
    
    406
    
    
    
    1,097Prepaid expenses and other current assets
    
    
    1,506
    
    
    
    869Deferred tax asset
    
    
    2,696
    
    
    
    1,698Total current assets
    
    
    75,596
    
    
    
    58,703Equipment and improvements, net
    
    
    8,193
    
    
    
    4,289Goodwill
    
    
    94,320
    
    
    
    83,483Intangible assets, net
    
    
    27,662
    
    
    
    27,603Other assets
    
    
    163
    
    
    
    157Deferred tax asset
    
    
    
    
    
    
    2,760Total assets
    
    $
    205,934
    
    
    $
    176,995Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    4,215
    
    
    $
    3,492Accrued liabilities
    
    
    11,359
    
    
    
    6,710Deferred revenue
    
    
    1,317
    
    
    
    923Total current liabilities
    
    
    16,891
    
    
    
    11,125Non-current liabilities:Long term liabilities
    
    
    70
    
    
    
    466Deferred tax liability
    
    
    994
    
    
    
    Total non-current liabilities
    
    
    1,064
    
    
    
    466Commitments 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;
33,380,496 and 31,399,593 shares issued and outstanding at December 31, 2009
and December 31, 2008, respectively
    
    
    33
    
    
    
    31Additional paid-in capital
    
    
    183,756
    
    
    
    165,864Accumulated other comprehensive (expense) income
    
    
    (2
    )
    
    
    69Accumulated earnings (deficit)
    
    
    4,192
    
    
    
    (560
    )Total stockholders equity
    
    
    187,979
    
    
    
    165,404Total liabilities and stockholders equity
    
    $
    205,934
    
    
    $
    176,995
  F-3




---



##### Table of Contents



SMITH
MICRO SOFTWARE, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amount)
 Year ended December 31,2009
    
    
    2008
    
    
    2007Revenues
    
    $
    107,279
    
    
    $
    98,424
    
    
    $
    73,377Cost of revenues
    
    
    15,486
    
    
    
    20,108
    
    
    
    20,644Gross profit
    
    
    91,793
    
    
    
    78,316
    
    
    
    52,733Operating expenses:Selling and marketing
    
    
    24,999
    
    
    
    24,814
    
    
    
    18,394Research and development
    
    
    36,530
    
    
    
    30,811
    
    
    
    14,772General and administrative
    
    
    19,155
    
    
    
    19,990
    
    
    
    15,318Total operating expenses
    
    
    80,684
    
    
    
    75,615
    
    
    
    48,484Operating income
    
    
    11,109
    
    
    
    2,701
    
    
    
    4,249Interest and other income
    
    
    381
    
    
    
    739
    
    
    
    4,254Profit before taxes
    
    
    11,490
    
    
    
    3,440
    
    
    
    8,503Income tax expense
    
    
    6,738
    
    
    
    4,172
    
    
    
    5,342Net income (loss)
    
    $
    4,752
    
    
    $
    (732
    )
    
    $
    3,161Net income (loss) per share:Basic
    
    $
    0.15
    
    
    $
    (0.02
    )
    
    $
    0.11Diluted
    
    $
    0.14
    
    
    $
    (0.02
    )
    
    $
    0.10Weighted average shares outstanding:Basic
    
    
    32,438
    
    
    
    30,978
    
    
    
    29,768Diluted
    
    
    32,897
    
    
    
    30,978
    
    
    
    30,998
  F-4




---



##### Table of Contents



SMITH MICRO SOFTWARE, INC.
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 (in thousands)
 AccumulatedAdditional
    
    
    otherCommon stock
    
    
    paid-in
    
    
    comprehensive
    
    
    AccumulatedShares
    
    
    Amount
    
    
    capital
    
    
    income (expense)
    
    
    income (deficit)
    
    
    TotalBALANCE, December 31, 2006
    
    
    28,444
    
    
    
    28
    
    
    
    129,018
    
    
    
    
    
    
    
    (2,989
    )
    
    
    126,057Issuance of common stock in secondary
offering, net of offering costs
    
    
    387
    
    
    
    
    
    
    
    5,341
    
    
    
    
    
    
    
    
    
    
    
    5,341Exercise of common stock options
    
    
    900
    
    
    
    2
    
    
    
    3,806
    
    
    
    
    
    
    
    
    
    
    
    3,808Non cash compensation recognized on stock options
    
    
    
    
    
    
    
    
    
    
    6,929
    
    
    
    
    
    
    
    
    
    
    
    6,929Restricted stock grants
    
    
    527
    
    
    
    
    
    
    
    5,443
    
    
    
    
    
    
    
    
    
    
    
    5,443Tax benefit related to the exercise of stock options
    
    
    
    
    
    
    
    
    
    
    3,775
    
    
    
    
    
    
    
    
    
    
    
    3,775Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,161
    
    
    
    3,161BALANCE, 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 of stock options
    
    
    
    
    
    
    
    
    
    
    871
    
    
    
    
    
    
    
    
    
    
    
    871Tax benefit deficiencies related to restricted stock expense
    
    
    
    
    
    
    
    
    
    
    (66
    )
    
    
    
    
    
    
    
    
    
    
    (66
    )Other comprehensive income:Unrealized gain 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
    
    
    $
    187,979
  F-5




---



##### Table of Contents



SMITH MICRO SOFTWARE, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Year ended December 31,2009
    
    
    2008
    
    
    2007Operating activities:Net income (loss)
    
    $
    4,752
    
    
    $
    (732
    )
    
    $
    3,161Adjustments to reconcile net income (loss) to net cash provided by
operating activities, net of the effect of acquisitions:Depreciation and amortization
    
    
    10,540
    
    
    
    8,446
    
    
    
    3,198Provision for adjustments to accounts receivable and doubtful accounts
    
    
    1,596
    
    
    
    1,170
    
    
    
    574Provision for excess and obsolete inventory
    
    
    1,063
    
    
    
    435
    
    
    
    178Tax benefits from stock-based compensation
    
    
    (871
    )
    
    
    (72
    )
    
    
    (3,775
    )Non cash compensation related to stock options & restricted stock
    
    
    8,724
    
    
    
    11,977
    
    
    
    12,372Change in operating accounts, net of effect from acquisitions:Accounts receivable
    
    
    (5,998
    )
    
    
    (6,625
    )
    
    
    (2,826
    )Deferred income taxes
    
    
    914
    
    
    
    2,000
    
    
    
    5,313Income tax receivable
    
    
    (980
    )
    
    
    180
    
    
    
    (58
    )Inventories
    
    
    (372
    )
    
    
    473
    
    
    
    (912
    )Prepaid expenses and other assets
    
    
    (507
    )
    
    
    (19
    )
    
    
    (642
    )Accounts payable and accrued liabilities
    
    
    (384
    )
    
    
    (784
    )
    
    
    1,673Net cash provided by operating activities
    
    
    18,477
    
    
    
    16,449
    
    
    
    18,256Investing activities:Acquisition of eFrontier America, net of cash received
    
    
    
    
    
    
    (623
    )
    
    
    (5,092
    )Acquisition of Ecutel Systems, Inc., net of cash received
    
    
    
    
    
    
    
    
    
    
    (8,000
    )Acquisition of Insignia Solutions, net of cash received
    
    
    
    
    
    
    245
    
    
    
    (17,379
    )Acquisition of PhoTags, Inc., net of cash received
    
    
    
    
    
    
    
    
    
    
    (3,500
    )Acquisition of PCTels Mobile Solutions Group, net of cash received
    
    
    
    
    
    
    (60,931
    )
    
    
    Acquisition of Core Mobility, Inc., net of cash received
    
    
    (6,907
    )
    
    
    
    
    
    
    Acquisitions  other
    
    
    
    
    
    
    (2,306
    )
    
    
    Other intangibles
    
    
    
    
    
    
    (500
    )
    
    
    (1,227
    )Capital expenditures
    
    
    (4,809
    )
    
    
    (3,538
    )
    
    
    (997
    )Gain on disposal of assets
    
    
    20
    
    
    
    
    
    
    
    Purchase of short-term investments
    
    
    (8,706
    )
    
    
    (22,580
    )
    
    
    Net cash used in investing activities
    
    
    (20,402
    )
    
    
    (90,233
    )
    
    
    (36,195
    )Financing activities:Cash received from issuance of common stock, net of offering costs
    
    
    
    
    
    
    
    
    
    
    5,341Tax benefits from stock-based compensation
    
    
    871
    
    
    
    72
    
    
    
    3,775Cash received from exercise of stock options
    
    
    1,665
    
    
    
    129
    
    
    
    3,808Net cash provided by financing activities
    
    
    2,536
    
    
    
    201
    
    
    
    12,924Net increase (decrease) in cash and cash equivalents
    
    
    611
    
    
    
    (73,583
    )
    
    
    (5,015
    )Cash and cash equivalents, beginning of period
    
    
    13,966
    
    
    
    87,549
    
    
    
    92,564Cash and cash equivalents, end of period
    
    $
    14,577
    
    
    $
    13,966
    
    
    $
    87,549Supplemental disclosures of cash flow information:Cash paid for income taxes
    
    $
    6,612
    
    
    $
    1,308
    
    
    $
    41
  F-6




---



##### Table of Contents



SMITH MICRO SOFTWARE, INC.
 
 Notes to the Consolidated Financial Statements
 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
 The Company
 ®
       Basis of Presentation
 The TM and
the Hierarchy of Generally Accepted Accounting Principlesa replacement of FASB Statement No. 162
 F-7




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



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
  
    
    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.
  F-10




---



##### Table of Contents



Deferred Income Taxes
    Long-Term Liabilities
  Revenue Recognition
  F-11




---



##### Table of Contents



Sales Incentives
  Internal Software Development Costs
  Capitalized Software and Amortization
  Advertising Expense
  Income Taxes
  F-12




---



##### Table of Contents



Stock-Based Compensation
   Net Income (Loss) Per Share
  F-13




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007(in thousands, except per share amounts)Numerator:Net income (loss) available to common stockholders
    
    $
    4,752
    
    
    
    ($732
    )
    
    $
    3,161Denominator:Weighted average shares outstanding  basic
    
    
    32,438
    
    
    
    30,978
    
    
    
    29,768Potential common shares  options (treasury stock method)
    
    
    459
    
    
    
    
    
    
    
    1,230Weighted average shares outstanding  diluted
    
    
    32,897
    
    
    
    30,978
    
    
    
    30,998Shares excluded (anti-dilutive)
    
    
    
    
    
    
    4,289
    
    
    
    Shares excluded due to an exercise price greater than weighted average stock price for the period
    
    
    2,496
    
    
    
    
    
    
    
    1,611Net income (loss) per common share:Basic
    
    $
    0.15
    
    
    
    ($0.02
    )
    
    $
    0.11Diluted
    
    $
    0.14
    
    
    
    ($0.02
    )
    
    $
    0.10
 Recent Accounting Pronouncements
     F-14




---



##### Table of Contents



The TM and the Hierarchy of Generally Accepted Accounting Principlesa
replacement of FASB Statement No. 162
 Amendments to FASB Interpretation No. 46(R). Consolidation of Variable Interest
Entities, Accounting for Transfers of Financial Assets,
 Accounting for Transfers of Financial Assetsan
amendment of FASB Statement No. 140.
 Business Combinations
 Non-controlling Interests in Consolidated
Financial Statements
 F-15




---



##### 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
    
    
    136Fixed assets
    
    
    856Deferred tax assets
    
    
    1,735Intangible assets
    
    
    8,858Goodwill
    
    
    10,837Total assets
    
    
    23,806Liabilities:Accounts payable
    
    
    26Accrued expenses
    
    
    258Deferred revenue
    
    
    1,280Deferred tax liability
    
    
    3,511Total liabilities
    
    
    5,075Total purchase price
    
    $
    18,731
  F-16




---



##### 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
  Year EndedDecember 31, 2007Historical
    
    
    ProformaNet revenues
    
    $
    73,377
    
    
    $
    83,714Net income (loss)
    
    $
    3,161
    
    
    $
    (1,774
    )Net income (loss) per share, basic
    
    $
    0.11
    
    
    $
    (0.06
    )Net income (loss) per share, diluted
    
    $
    0.10
    
    
    $
    (0.06
    )Weighted average shares
outstanding, basic
    
    
    29,768
    
    
    
    29,768Weighted average shares
outstanding, diluted
    
    
    30,998
    
    
    
    29,768
  F-17




---



##### Table of Contents



3. Balance Sheet Details
 Short-Term Investments
  December 31, 2009
    
    
    December 31, 2008Fair value
    
    
    Unrealized (loss)
    
    
    Fair value
    
    
    Unrealized gainCorporate bonds and notes
    
    $
    3,499
    
    
    $
    
    
    
    $
    8,320
    
    
    $
    26Government securities
    
    
    27,785
    
    
    
    (2
    )
    
    
    14,329
    
    
    
    43Total
    
    $
    31,284
    
    
    $
    (2
    )
    
    $
    22,649
    
    
    $
    69
  Equipment and Improvements
  December 31,2009
    
    
    2008Computer hardware, software, and equipment
    
    $
    6,551
    
    
    $
    3,393Leasehold improvements
    
    
    4,081
    
    
    
    3,073Office furniture and fixtures
    
    
    737
    
    
    
    56611,369
    
    
    
    7,032Less accumulated depreciation and amortization
    
    
    (3,176
    )
    
    
    (2,743
    )Equipment and improvements, net
    
    $
    8,193
    
    
    $
    4,289
  Intangible Assets
  F-18




---



##### Table of Contents



Useful
    
    
    December 31, 2009
    
    
    December 31, 2008life
    
    
    
    
    
    
    Accumulated
    
    
    Net book
    
    
    
    
    
    
    Accumulated
    
    
    Net book(years)
    
    
    Gross
    
    
    amortization
    
    
    value
    
    
    Gross
    
    
    amortization
    
    
    valueAmortizing:Purchased technology
    
    
    2
    
    
    $
    6,667
    
    
    $
    (3,349
    )
    
    $
    3,318
    
    
    $
    3,047
    
    
    $
    (1,836
    )
    
    $
    1,211In process R&D
    
    
    2
    
    
    
    990
    
    
    
    
    
    
    
    990
    
    
    
    
    
    
    
    
    
    
    
    Capitalized software
    
    
    5-7
    
    
    
    23,846
    
    
    
    (11,485
    )
    
    
    12,361
    
    
    
    23,846
    
    
    
    (6,899
    )
    
    
    16,947Distribution rights
    
    
    5
    
    
    
    482
    
    
    
    (447
    )
    
    
    35
    
    
    
    482
    
    
    
    (377
    )
    
    
    105Customer lists
    
    
    5
    
    
    
    1,484
    
    
    
    (1,048
    )
    
    
    436
    
    
    
    1,484
    
    
    
    (676
    )
    
    
    808Database
    
    
    10
    
    
    
    182
    
    
    
    (38
    )
    
    
    144
    
    
    
    182
    
    
    
    (20
    )
    
    
    162Trademarks
    
    
    5-10
    
    
    
    926
    
    
    
    (445
    )
    
    
    481
    
    
    
    809
    
    
    
    (375
    )
    
    
    434Trade names
    
    
    1-2
    
    
    
    2,121
    
    
    
    (807
    )
    
    
    1,314
    
    
    
    2,121
    
    
    
    (406
    )
    
    
    1,715Non-compete
    
    
    2
    
    
    
    21
    
    
    
    (2
    )
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    Customer agreements
    
    
    4-7
    
    
    
    1,135
    
    
    
    (1,135
    )
    
    
    
    
    
    
    1,135
    
    
    
    (650
    )
    
    
    485Customer relationships
    
    
    1-9
    
    
    
    11,130
    
    
    
    (2,566
    )
    
    
    8,564
    
    
    
    7,020
    
    
    
    (1,284
    )
    
    
    5,736Totals
    
    
    
    
    
    $
    48,984
    
    
    $
    (21,322
    )
    
    $
    27,662
    
    
    $
    40,126
    
    
    $
    (12,523
    )
    
    $
    27,603
  Goodwill
   Other
Assets
  Accrued Liabilities
  December 31,2009
    
    
    2008Salaries and benefits
    
    $
    5,390
    
    
    $
    4,006Income taxes payable
    
    
    106
    
    
    
    867Royalties and Revenue Sharing
    
    
    239
    
    
    
    606Earnouts/holdbacks
    
    
    5,220
    
    
    
    540Marketing expenses and rebates
    
    
    181
    
    
    
    437Other
    
    
    223
    
    
    
    254Total accrued liabilities
    
    $
    11,359
    
    
    $
    6,710
 F-19




---



##### Table of Contents



4. Income Taxes
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Current:Federal
    
    $
    3,662
    
    
    $
    855
    
    
    $
    State
    
    
    1,215
    
    
    
    1,255
    
    
    
    Foreign
    
    
    65
    
    
    
    101
    
    
    
    Total current
    
    
    4,942
    
    
    
    2,211
    
    
    
    Deferred:Federal
    
    
    2,734
    
    
    
    2,784
    
    
    
    526State
    
    
    22
    
    
    
    (230
    )
    
    
    339Foreign
    
    
    
    
    
    
    (148
    )
    
    
    Excess tax benefits related to stock based compensation
    
    
    871
    
    
    
    72
    
    
    
    3,775Tax deficiencies related to restricted stock expense
    
    
    (66
    )
    
    
    (625
    )
    
    
    Purchase accounting adjustment  Core Mobility
    
    
    (1,765
    )
    
    
    
    
    
    
    Other adjustments
    
    
    
    
    
    
    (40
    )
    
    
    674Change in valuation allowance
    
    
    
    
    
    
    148
    
    
    
    Total deferred
    
    
    1,796
    
    
    
    1,961
    
    
    
    5,314Total provision
    
    $
    6,738
    
    
    $
    4,172
    
    
    $
    5,314
   Year Ended December 31,2009
    
    
    2008
    
    
    2007Federal statutory rate
    
    
    35
    %
    
    
    34
    %
    
    
    34
    %State tax, net of federal benefit
    
    
    7
    
    
    
    17
    
    
    
    9Equity compensation
    
    
    13
    
    
    
    69
    
    
    
    19Other
    
    
    4
    
    
    
    (3
    )
    
    
    Change in valuation allowance
    
    
    
    
    
    
    4
    
    
    
    59
    %
    
    
    121
    %
    
    
    62
    %
 F-20




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008CurrentVarious reserves
    
    $
    660
    
    
    $
    340Nondeductible accruals
    
    
    1,193
    
    
    
    851Deferred state taxes
    
    
    542
    
    
    
    384Prepaid expenses
    
    
    (246
    )
    
    
    (1
    )Other
    
    
    59
    
    
    
    (19
    )Equity compensation
    
    
    488
    
    
    
    171Valuation allowance
    
    
    
    
    
    
    (28
    )Total Current
    
    
    2,696
    
    
    
    1,698Non- currentCredit carryforwards
    
    
    1,583
    
    
    
    1,718Net operating loss carryforwards
    
    
    1,178
    
    
    
    1,107State tax
    
    
    (563
    )
    
    
    (554
    )Fixed assets
    
    
    (512
    )
    
    
    (95
    )Amortization
    
    
    710
    
    
    
    602Identifiable intangibles acquired
    
    
    (3,585
    )
    
    
    (189
    )Equity based compensation
    
    
    192
    
    
    
    161Other
    
    
    3
    
    
    
    129Valuation allowance
    
    
    
    
    
    
    (119
    )Total Non-current
    
    
    (994
    )
    
    
    2,760$
    1,702
    
    
    $
    4,458
      5. Commitments and Contingencies
 Leases
  F-21




---



##### Table of Contents



Year Ending December 31,
    
    Operating2010
    
    $
    1,8382011
    
    
    1,6842012
    
    
    1,4322013
    
    
    1,0332014
    
    
    1,061Beyond
    
    
    2,354Total
    
    $
    9,402
  Litigation
  Other Contingent Contractual Obligations
  6. Segment and Geographical Information
 Segment Information
 Wireless Productivity & Graphics
 F-22




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007Wireless
    
    $
    89,420
    
    
    $
    73,219
    
    
    $
    57,819Productivity & Graphics
    
    
    17,014
    
    
    
    23,925
    
    
    
    14,368Corporate/Other
    
    
    845
    
    
    
    1,280
    
    
    
    1,190Total revenues
    
    
    107,279
    
    
    
    98,424
    
    
    
    73,377Cost of revenues
    
    
    15,486
    
    
    
    20,108
    
    
    
    20,644Gross profit
    
    $
    91,793
    
    
    $
    78,316
    
    
    $
    52,733
  Geographical Information
  Year ended December 31,2009
    
    
    2008
    
    
    2007Americas
    
    $
    99,172
    
    
    $
    88,350
    
    
    $
    68,974Asia Pacific
    
    
    3,705
    
    
    
    5,011
    
    
    
    2,151EMEA
    
    
    4,402
    
    
    
    5,063
    
    
    
    2,252Total revenues
    
    $
    107,279
    
    
    $
    98,424
    
    
    $
    73,377
  7. Profit Sharing
  8. Stock-Based Compensation
 Stock Plans
   F-23




---



##### Table of Contents



SFAS 123(R)
   Valuation of Stock Option and Restricted Stock Awards
  Year Ended December 31,2009
    
    2008
    
    2007AssumptionsRisk-free interest rate (average)
    
    
    0.5
    %
    
    
    2.8
    %
    
    
    4.6
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Weighted average expected life (years)
    
    
    1
    
    
    
    4
    
    
    
    4Volatility (average)
    
    
    71.0
    %
    
    
    71.0
    %
    
    
    66.0
    %Forfeiture rate
    
    
    
    
    
    
    3.5
    %
    
    
    10.0
    %
   F -24




---



##### Table of Contents



Compensation Costs
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Cost of revenues
    
    $
    184
    
    
    $
    430
    
    
    $
    295Selling and marketing
    
    
    2,498
    
    
    
    3,460
    
    
    
    4,920Research and development
    
    
    2,514
    
    
    
    3,201
    
    
    
    2,353General and administrative
    
    
    3,528
    
    
    
    4,886
    
    
    
    4,804Total non-cash stock compensation expense
    
    $
    8,724
    
    
    $
    11,977
    
    
    $
    12,372
  Stock Options
  Weighted Ave.
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    Intrinsic ValueOutstanding as of December 31, 2006
    
    
    2,518
    
    
    $
    4.80(914 options, exercisable at a weighted average exercise
price of $3.91)Granted (weighted average fair value of $7.70)
    
    
    3,142
    
    
    $
    14.61Exercised
    
    
    (900
    )
    
    $
    4.23Cancelled
    
    
    (106
    )
    
    $
    13.89Outstanding 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
    
    
    $
    Exercisable as of December 31, 2009
    
    
    2,754
    
    
    $
    10.55
    
    
    $
    Vested and expected to vest at December 31, 2009
    
    
    3,536
    
    
    $
    11.29
    
    
    $
    
  F -25




---



##### Table of Contents



Options outstanding
    
    Options exercisableWeighted average
    
    Weighted
    
    
    
    
    
    WeightedRange of
    
    Number
    
    remaining
    
    average
    
    Number
    
    averageexercise
    
    outstanding
    
    contractual
    
    exercise
    
    exercisable
    
    exerciseprices
    
    (in thousands)
    
    life (years)
    
    price
    
    (in thousands)
    
    price$0.24 - $4.00
    
    
    188
    
    
    
    4.1
    
    
    $
    1.56
    
    
    
    188
    
    
    $
    1.56$4.01 - $6.00
    
    
    684
    
    
    
    5.6
    
    
    $
    4.95
    
    
    
    684
    
    
    $
    4.95$6.01 - $12.00
    
    
    306
    
    
    
    7.1
    
    
    $
    8.99
    
    
    
    247
    
    
    $
    9.11$12.01 - $14.00
    
    
    1,310
    
    
    
    7.1
    
    
    $
    12.68
    
    
    
    932
    
    
    $
    12.69$14.01 - $16.00
    
    
    668
    
    
    
    7.2
    
    
    $
    15.18
    
    
    
    463
    
    
    $
    15.18$16.01 - $19.00
    
    
    380
    
    
    
    7.4
    
    
    $
    17.73
    
    
    
    240
    
    
    $
    17.803,536
    
    
    
    6.7
    
    
    $
    11.29
    
    
    
    2,754
    
    
    $
    10.55
 Restricted Stock Awards
  Weighted averageNumber
    
    grant dateof shares
    
    fair valueUnvested at December 31, 2006
    
    
    263Granted
    
    
    527Vested
    
    
    (440
    )Unvested 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
    
    
    $
    6.28
 9. Comprehensive Income
  F -26




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    4,752
    
    
    $
    (732
    )
    
    $
    3,161Change in unrealized gain (loss) on investments, after tax
    
    
    (71
    )
    
    
    69
    
    
    
    Total comprehensive income (loss)
    
    $
    4,681
    
    
    $
    (663
    )
    
    $
    3,161
 10. Equity Transactions
   11. Subsequent Events
  F -27




---



##### Table of Contents



12. Quarterly Financial Data (Unaudited)
  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
 Year ended December 31, 20081st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th QuarterSelected quarterly financial data:Revenues
    
    $
    21,880
    
    
    $
    23,452
    
    
    $
    26,641
    
    
    $
    26,451Gross profit
    
    $
    16,764
    
    
    $
    17,989
    
    
    $
    21,444
    
    
    $
    22,119Operating income (loss)
    
    $
    (1,888
    )
    
    $
    (469
    )
    
    $
    2,026
    
    
    $
    3,032Net income (loss)
    
    $
    (317
    )
    
    $
    (158
    )
    
    $
    (1,576
    )
    
    $
    1,319Net income (loss) per share, basic (1)
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.05
    )
    
    $
    0.04Weighted average shares
outstanding, basic
    
    
    30,406
    
    
    
    30,855
    
    
    
    31,289
    
    
    
    31,340Net income (loss) per share, diluted (1)
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.05
    )
    
    $
    0.04Weighted average shares
outstanding, diluted
    
    
    30,406
    
    
    
    30,855
    
    
    
    31,289
    
    
    
    31,658
 
 (1)
    
    Basic and diluted net income (loss) 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 -28




---



##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 2009
(In thousands)
 AdditionsBalance at
    
    charged to
    
    
    
    
    
    Balance atbeginning of
    
    costs and
    
    
    
    
    
    end ofperiod
    
    expenses
    
    Deductions
    
    periodAllowance for accounts receivable (1):2009
    
    $
    1,204
    
    
    $
    1,596
    
    
    $
    (1,755
    )
    
    $
    1,0452008
    
    
    684
    
    
    
    1,170
    
    
    
    (650
    )
    
    
    1,2042007
    
    
    500
    
    
    
    574
    
    
    
    (390
    )
    
    
    684Allowance for excess and obsolete inventory:2009
    
    $
    404
    
    
    $
    1,063
    
    
    $
    (246
    )
    
    $
    1,2212008
    
    
    102
    
    
    
    435
    
    
    
    (133
    )
    
    
    4042007
    
    
    82
    
    
    
    178
    
    
    
    (158
    )
    
    
    102
 
 (1)
    
    Allowances are for retail return reserves, marketing development funds and doubtful accounts. S -1