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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-26536
SMITH MICRO SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0029027
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR
ORGANIZATION) IDENTIFICATION NUMBER)
51 COLUMBIA, SUITE 200, ALISO VIEJO, CA 92656
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 362-5800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK,
$.001 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
As of October 31, 2000, there were 16,231,791 shares of Common Stock
outstanding.
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SMITH MICRO SOFTWARE, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000 (Unaudited) and December 31, 1999 3
Unaudited Consolidated Statements of Operations For The Three and Nine Months Ended
September 30, 2000 and September 30, 1999 4
Unaudited Consolidated Statements of Cash Flows For The Nine Months Ended September 30, 2000
and September 30, 1999 5
Notes To Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes In Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters To A Vote Of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports On Form 8-K 23
Signatures 26
</TABLE>
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SMITH MICRO SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,174 $ 8,704
Accounts receivable, net of allowances for doubtful accounts
and other adjustments of $2,076 (2000) and $1,944 (1999) 4,966 3,487
Inventories, net 349 502
Prepaid expenses and other current assets 189 253
-------- --------
Total current assets 12,678 12,946
EQUIPMENT AND IMPROVEMENTS, net 518 456
OTHER ASSETS 132 215
INTANGIBLE ASSETS, net 3,092 2,312
-------- --------
$ 16,420 $ 15,929
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,345 $ 747
Accrued liabilities 1,659 1,350
-------- --------
Total current liabilities 3,004 2,097
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.001 per share; 5,000,000 shares
authorized; none issued and outstanding
Common stock, par value $0.001 per share; 30,000,000 shares authorized;
16,232,000 and 15,724,000 shares issued and outstanding
at September 30, 2000 and December 31, 1999, respectively 16 16
Additional paid-in capital 24,788 23,039
Accumulated deficit (11,388) (9,223)
-------- --------
Total stockholders' equity 13,416 13,832
-------- --------
$ 16,420 $ 15,929
======== ========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
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SMITH MICRO SOFTWARE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Sept 30, Ended Sept 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES $ 3,374 $ 1,845 $ 9,670 $ 8,243
COST OF REVENUES 985 652 2,155 1,964
-------- -------- -------- --------
GROSS PROFIT 2,389 1,193 7,515 6,279
OPERATING EXPENSES:
Selling and marketing 1,394 1,649 4,235 4,910
Research and development 969 1,009 2,910 2,938
General and administrative 986 1,162 2,803 3,071
-------- -------- -------- --------
Total operating expenses 3,349 3,820 9,948 10,919
-------- -------- -------- --------
OPERATING LOSS (960) (2,627) (2,433) (4,640)
INTEREST INCOME, NET 94 111 321 350
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (866) (2,516) (2,112) (4,290)
INCOME TAX EXPENSE 7 1,187 52 831
-------- -------- -------- --------
NET LOSS $ (873) $ (3,703) $ (2,164) $ (5,121)
======== ======== ======== ========
NET LOSS PER SHARE, basic and diluted $ (0.05) $ (0.24) $ (0.14) $ (0.33)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 16,030 15,504 15,898 15,347
======== ======== ======== ========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
4
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SMITH MICRO SOFTWARE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
For The Nine Months
Ended September 30,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,164) $ (5,121)
Adjustments to reconcile net loss to net cash
used in operating activities, net of the effects of the acquisition:
Depreciation and amortization 768 680
Provision for doubtful accounts and other adjustments
to accounts receivable 132 1,535
Deferred Income Taxes 1,187
Change in operating accounts, net of the effects of the acquisition:
Accounts receivable (1,611) (992)
Income taxes receivable 574
Inventories 153 331
Prepaid expenses and other assets 19 39
Accounts payable and accrued liabilities 769 (908)
-------- --------
Net cash used in operating activities (1,934) (2,675)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Touchstone (25)
Acquisition of QuickStart (50)
Acquisition of STF Technologies, Inc. (1,091)
Capital expenditures (252) (149)
-------- --------
Net cash used in investing activities (327) (1,240)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank line of credit (139)
Proceeds from the exercise of stock options 731 58
-------- --------
Net cash provided by (used in) financing activities 731 (81)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,530) (3,996)
CASH AND CASH EQUIVALENTS, beginning of period 8,704 12,732
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 7,174 $ 8,736
======== ========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
5
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SMITH MICRO SOFTWARE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In Thousands)
<TABLE>
<CAPTION>
For The Nine Months
Ended September 30,
-----------------------
2000 1999
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<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) for income taxes $ 52 $(1,007)
======= =======
DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
During Q3 2000, the Company acquired a product line (CheckIt Software)
and a business (QuickStart Technologies - Consulting)
in a transaction summarized as follows:
CheckIt:
Fair value of assets acquired (goodwill) $ 673
Common stock issued in acquisition (560)
Cash paid for acquisition (25)
-------
Liabilities assumed or created $ 88
=======
QuickStart:
Fair value of assets acquired (goodwill) $ 558
Common stock issued in acquisition (458)
Cash paid for acquisition (50)
-------
Liabilities assumed or created $ 50
=======
During Q2 of 1999, the Company acquired a business (STF Technologies)
in a transaction summarized as follows:
Fair value of assets acquired, including goodwill of $2,271 $ 2,686
Common stock issued in acquisition (1,000)
Cash paid for acquisition (1,091)
-------
Liabilities assumed or created $ 595
=======
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
6
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SMITH MICRO SOFTWARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying unaudited consolidated
financial statements have been prepared by Smith Micro Software, Inc. ("Smith
Micro" or the "Company") pursuant to Securities and Exchange Commission ("SEC")
regulations and accounting principles generally accepted in the United States of
America. The accompanying unaudited consolidated financial statements reflect
the operating results and financial position of Smith Micro and its wholly-owned
subsidiaries. On September 2, 2000, the Company completed its purchase of the
eBusiness consulting practice of QuickStart Technologies, Inc., a provider of
integrated Internet business services to middle market companies. This
acquisition has been accounted for as a purchase and the periods presented in
the financial statements include QuickStart Technologies, Inc. operations from
the date of acquisition. On July 31, 2000 the Company acquired the CheckIt line
of software products from Touchstone Software Corporation and eSupport.Com,
Inc., a wholly owned subsidiary of TouchStone Software Corporation. Touchstone
is the developer of the CheckIt(R) line of software which consist of general
system utility products. This acquisition has been accounted for as a purchase
and the periods presented in the financial statements include Touchstone
Software Corporation operations from the date of acquisition. On September 3,
1999, the Company acquired Dolphin-Safe Software, Inc., a California
corporation, dba Pacific Coast Software ("PCS"), which develops software and
provides consulting and web hosting services that enable eCommerce. This merger
has been accounted for as a pooling of interests and all prior periods'
financial statements have been restated to reflect the historical financial
statements of PCS. On April 9, 1999, the Company acquired STF Technologies, Inc.
("STF"), a Missouri corporation that develops communications software for
Macintosh computers. This acquisition has been accounted for as a purchase and
the periods presented in the financial statements include STF's operations from
the date of acquisition. All significant intercompany amounts have been
eliminated in consolidation. In the opinion of management, such information
contains all adjustments necessary for a fair presentation of the results of
such periods. The results of operations for the three and nine months ended
September 30, 2000 are not necessarily indicative of the results to be expected
for the full year ended December 31, 2000. The accompanying unaudited
consolidated financial statements should be read in conjunction with the audited
financial statements included in the Company's report on Form 10-K for the year
ended December 31, 1999 as footnotes and certain financial presentations are
condensed or omitted from accounting principles generally accepted in the United
States of America presentation requirements, pursuant to the SEC rules and
regulations.
Cash Equivalents - Cash equivalents are considered to be highly liquid
investments with initial maturities of three months or less.
Accounts Receivable - The Company sells its products worldwide. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for potential credit
losses, and those losses have been within management's expectations. Allowances
for product returns and price protection are included in other adjustments to
accounts receivable on the accompanying consolidated balance sheets.
Inventories - Inventories consist principally of manuals and diskettes,
and are stated at the lower of cost (determined by the first- in, first-out
method) or market.
Equipment and Improvements - Equipment and Improvements are stated at
cost. Depreciation is computed using the straight-line method based on the
estimated useful lives of the assets, generally ranging from three to seven
years. Leasehold improvements are amortized using the straight-line method over
the shorter of the estimated useful life of the asset or the remaining lease
term.
Long Lived Assets - The Company accounts for the impairment and
disposition of long-lived assets in accordance with Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. In accordance with SFAS No.
121, long-lived assets to be held are reviewed for events or changes in
circumstances, which indicate that their carrying value may not be recoverable.
The Company periodically reviews the carrying value of long-lived assets to
determine whether or not impairment to such value has occurred and has
determined that there was no impairment at September 30, 2000.
Goodwill and Other Intangibles - Goodwill represents the excess purchase
cost over the fair value of net assets acquired and is amortized using the
straight-line method over three to seven years using the straight-line method.
Other intangible assets include acquired workforce value, acquired technology
and translation costs, all of which are being amortized using the straight-line
method over three to
7
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seven years. The Company periodically evaluates the recoverability of goodwill
based on a profitability analysis related to its product sales and evaluates the
recoverability of other intangible assets based on the requirements of SFAS No.
121.
Revenue Recognition - The Company recognizes revenues from sales of its
software as completed products are shipped and from royalties generated as
authorized customers duplicate the Company's software. The Company generally
allows its retail distributors to exchange unsold products for other products
and provides inventory price protection in the event of price reductions by the
Company. Allowances for product returns and price protection are estimated based
on previous experience and are recorded as a reduction of revenue at the time
sales are recognized. The Company provides technical support and customer
service to its customers. Such costs have historically been insignificant.
Software Development Costs - Development costs incurred in the research
and development of new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established. The Company considers technological feasibility to be established
when all planning, designing, coding and testing has been completed according to
design specifications. After technological feasibility is established, any
additional costs are capitalized. Through September 30, 2000, software has been
substantially completed concurrently with the establishment of technological
feasibility and, accordingly, no costs have been capitalized to date.
Income Taxes - The Company accounts for income taxes under SFAS No. 109,
Accounting for Income Taxes. This statement requires the recognition of deferred
tax assets and liabilities for the future consequences of events that have been
recognized in the Company's financial statements or tax returns. The measurement
of the deferred items is based on enacted tax laws. In the event the future
consequences of differences between financial reporting bases and the tax bases
of the Company's assets and liabilities result in a deferred tax asset, SFAS No.
109 requires an evaluation of the probability of being able to realize the
future benefits indicated by such asset. A valuation allowance related to a
deferred tax asset is recorded when it is more likely than not that some portion
or all of the deferred tax asset will not be realized. As of September 30, 2000
a full valuation allowance was provided for all deferred tax assets.
Fair Value of Financial Instruments - Pursuant to SFAS No. 107,
Disclosures about Fair Value of Financial Instruments, the Company is required
to estimate the fair value of all financial instruments included on its balance
sheet at September 30, 2000. The Company considers the carrying value of such
amounts in the financial statements to approximate their fair value due to (1)
the relatively short period of time between origination of the instruments and
their expected realization, (2) interest rates that approximate current market
rates, or (3) the overall immateriality of the amounts.
Stock-Based Compensation - The Company accounts for stock-based awards
to employees using the intrinsic value method in accordance with Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.
Net Loss Per Share - Net loss per share is presented as "basic" and
"diluted" earnings (loss) per share (EPS). Basic EPS amounts are based upon the
weighted average number of common shares outstanding. Diluted EPS amounts are
based upon the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares include stock options using the treasury
stock method. Common equivalent shares are excluded from the calculation of
diluted EPS in loss years, as the impact is antidilutive. There was no
difference between basic and diluted EPS for each period presented.
Segment Information - During the nine months ended September 30, 2000,
the Company restructured its reporting format to report revenues from three
operating units as well as revenues from retail products. The reporting
operating units are the Internet Solutions Division, the Macintosh Division and
the Wireless and Broadband Division. Revenues reported in the Wireless and
Broadband division also contain product sales of our analog products, which the
Company will continue to provide. The Company's retail products are sold through
a sales staff located at its corporate office. As these sales tend to be to
major distribution warehouses, this group is responsible for selling all of the
Company's retail products, which cover all three divisions. The following table
shows a comparison of the revenues generated by each division:
8
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<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
----------------------------------- -----------------------------------
Division September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Internet Solutions $ 923,000 $ 204,000 $2,449,000 $ 535,000
Macintosh 392,000 342,000 1,037,000 881,000
Wireless & Broadband 758,000 607,000 3,684,000 3,988,000
Retail Products 1,301,000 692,000 2,500,000 2,839,000
---------- ---------- ---------- ----------
Total Revenues $3,374,000 $1,845,000 $9,670,000 $8,243,000
========== ========== ========== ==========
</TABLE>
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting years. Actual results could differ
from those estimates.
Comprehensive Income - The Company has adopted SFAS No. 130, Reporting
Comprehensive Income. This statement establishes standards for the reporting of
comprehensive income and its components. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from nonowner
sources. For each of the three and nine month periods ended September 30, 2000
and 1999, there was no difference between net loss, as reported, and
comprehensive loss.
Reclassifications - Certain reclassifications have been made to the 1999
financial statements to conform to the 2000 presentation.
2. ACQUISITIONS
On September 2, 2000, the Company acquired the eBusiness consulting
practice of QuickStart Technologies, Inc., (the "QuickStart Acquisition") a
provider of integrated Internet business services to middle market companies for
100,000 shares of Smith Micro Common Stock valued at $458,000 plus, up to a
maximum of $150,000 to be paid in accordance with an earn out provision expiring
on November 30, 2000. The acquisition was treated under the purchase method of
accounting and the excess of cost over fair value of net assets acquired was
allocated to goodwill, which is amortized using the straight-line method over 3
years.
On July 31, 2000 the Company acquired the CheckIt(R) line of software
products from Touchstone Software Corporation and eSupport.Com, Inc., a wholly
owned subsidiary of TouchStone Software Corporation, (the "TouchStone
Acquisition") for 108,000 shares of Smith Micro Common Stock valued at $560,000
and $25,000 cash. Touchstone is the developer of the CheckIt(R) line of software
which consist of general system utility products. The acquisition was treated
under the purchase method of accounting and the excess of cost over fair value
of net assets acquired was allocated to goodwill, which is amortized using the
straight-line method over 3 years.
On September 3, 1999, Smith Micro acquired all of the outstanding
capital stock of PCS (the "PCS Merger") in exchange for one million shares of
Smith Micro common stock. PCS is a developer and publisher of eCommerce software
products and provides development and web hosting services to its customers. PCS
is headquartered in San Diego, California and as a result of the PCS Merger, PCS
became a wholly owned subsidiary of Smith Micro. The acquisition was treated as
a pooling of interests for accounting purposes and the Company's historical
financial statements and footnotes have been restated to reflect the combined
results for all periods reported. Direct expenses of the transaction amounted to
$187,000 and were included in general and administrative expenses in the third
quarter of 1999.
On April 9, 1999, Smith Micro acquired all of the outstanding capital
stock of STF (the "STF Acquisition") in exchange for $1.1 million in cash,
including acquisition costs, and 409,164 shares of Smith Micro Common Stock
valued at $1,000,000. STF is a developer and publisher of fax and communications
software products for the Apple Macintosh computer. STF is headquartered in
Concordia, Missouri and, as a result of the STF Acquisition, STF became a wholly
owned subsidiary of Smith Micro. The acquisition was treated under the purchase
method of accounting and the excess of cost over fair value of net assets
acquired was allocated to goodwill, which is amortized using the straight-line
method over 7 years.
Unaudited pro forma consolidated results of operations for the three and
nine months ended September 30, 1999 would have been as follows had the STF
Acquisition occurred as of January 1, 1999 (in thousands, except per share
data):
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<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Sept. 30, 1999 Ended Sept. 30, 1999
-------------------- --------------------
<S> <C> <C>
Pro forma net revenues $ 1,845 $ 8,620
======== ========
Pro forma net loss $ (3,703) $ (5,380)
======== ========
Pro forma net loss per share, basic and diluted $ (0.24) $ (0.35)
======== ========
Pro forma weighted average number of shares outstanding 15,504 15,496
======== ========
</TABLE>
Pro forma adjustments have been applied to reflect the addition of
amortization related to the intangible assets acquired and reduction in interest
income as if the acquisition had occurred on January 1, 1999. The pro forma
adjustment for amortization related to intangible assets acquired was $81,000
and $243,000 for the three and nine month pro forma periods ended September 30,
1999, respectively.
3. NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44 of Accounting Principles Board Opinion No. 25, Accounting
for Certain Transactions Involving Stock Compensation, which, among other
things, addressed accounting consequences of a modification that reduces the
exercise price of a fixed stock option award (otherwise known as repricing). If
the exercise price of a fixed stock option award is reduced, the award must be
accounted for as variable price stock plan from the date of the modification to
the date the award is exercised, is forfeited, or expires unexercised. The
exercise price of an option award has been reduced if the fair value of the
consideration required to be paid by the grantee upon exercise is less than or
potentially less than the fair value of the consideration that was required to
be paid pursuant to the award's original terms. The requirements about
modifications to fixed stock option awards that directly or indirectly reduce
the exercise price of an award apply to modifications made after December 15,
1998, and will be applied prospectively as of July 1, 2000. The adoption of this
interpretation did not have an impact on the Company's consolidated financial
statements.
In June 1998, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133 establishes new accounting and reporting standards for
derivative financial instruments and for hedging activities. SFAS No. 133
requires the Company to measure all derivatives at fair value and to recognize
them in the balance sheet as an asset or liability, depending on the Company's
rights or obligations under the applicable derivative contract. In June 1999,
the FASB issued SFAS No. 137, which deferred the effective date of adoption of
SFAS No. 133 for one year. The Company will adopt SFAS No. 133 no later than the
first quarter of fiscal year 2001. Adoption of the new method of accounting for
derivatives and hedging activities is not expected to have a material impact on
the Company's financial position.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) 101,
Revenue Recognition in Financial Statements. SAB 101 summarizes the staff's
views in applying generally accepted accounting principles to selected revenue
recognition issues in financial statements. Implementation of SAB 101, which was
delayed by the issuance of SAB 101A on March 27, 2000 and SAB 101B on June 26,
2000, is required by the fourth quarter of 2000. The Company is currently
evaluating the impact, if any, SAB 101 will have on its financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT
You should read the following discussion and analysis in conjunction
with the Consolidated Financial Statements and related Notes thereto contained
elsewhere in this Report. The information contained in this Quarterly Report on
Form 10-Q is not a complete description of our business or the risks associated
with an investment in our common stock. We urge you to carefully review and
consider the various disclosures made by us in this Report and in our other
reports filed with the SEC, including our Annual Report on Form 10-K for the
year ended December 31, 1999 and our subsequent reports on Forms 10-Q and 8-K
that discuss our business in greater detail.
The section entitled "Risk Factors" set forth below, and similar
discussions in our other SEC filings, discuss some of the important risk factors
that may affect our business, results of operations and financial condition. You
should carefully consider those risks, in addition to the other information in
this Report and in our other filings with the SEC, before deciding to invest in
our company or to maintain or increase your investment.
This Report contains forward-looking statements which include, but are
not limited to, statements concerning projected revenues, expenses, gross profit
and income, the need for additional capital, market acceptance of our products,
our ability to consummate acquisitions and integrate their operations
successfully, the competitive nature of our markets, our ability to achieve
further product integration, the status of evolving technologies and their
growth potential and our production capacity. 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," "believes," "seeks,"
"estimates," "may," "will" and variations of these words or similar expressions
are intended to identify forward-looking statements. In addition, any statements
that refer to expectations, projections or other characterizations of future
events or circumstances, including any underlying assumptions, are
forward-looking 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 in any forward-looking statements as a result of
various factors. We undertake no obligation to revise or update publicly any
forward-looking statements for any reason.
GENERAL
Smith Micro Software, Inc. headquartered in Aliso Viejo, CA, is a
developer and marketer of e-Commerce and communication software products and the
provider of professional consulting services. Our satellite offices are located
in Beaverton, OR: Boulder, CO; Lee's Summit, MO; Plano, TX; and San Diego, CA.
Our Macintosh Division is headquartered in Lee's Summit, MO, the Internet
Solutions Division is based out of San Diego, CA and our Wireless & Broadband
Division and Retail Business Unit are located at our corporate offices in Aliso
Viejo, CA. We design integrated, cross platform, easy-to-use software for
personal computing and business solutions and provide consulting services
consisting of integrated Internet business services to middle market companies.
Our software includes products developed for the Internet and broad-band
technologies, products that enable e-commerce, Internet communications
(voice-over-IP -- VoIP), video conferencing, wireless communications, general
system utility products and network fax along with traditional computer
telephony.
Our products for the consumer and business markets are available through
Internet sales, retail stores, direct sales, and value-added resellers (VARs).
Retail outlets include CompUSA, OfficeMax, Office Depot, Micro Center, Staples,
and Fry's Electronics. On the web, our products can be found at Buy.com,
Beyond.com, Egghead.com and many others. In the OEM market, we supply wireless
and communication software. OEM customers include: Internet portals and service
providers; website designers and consultants; manufacturers of personal
computers, wireless/cellular phones, digital cameras, video capture cards,
broad-band DSL and cable modems and 56k modems. The Internet Solutions Division
(ISD) provides a broad spectrum of services to assist middle market clients in
planning, implementing and supporting eBusiness initiatives. Consulting services
range from WebCatalog support to complete eBusiness implementation. We also
provide website hosting and co-location services.
We generate our revenues from OEM sources, sales from the retail channel
and consultative sales from our eCommerce business. In the third quarter of 2000
we acquired the TouchStone Checkit product line (See Note 2 to the consolidated
financial statements). We market these products under the Smith Micro CheckIt
brand including: CheckIt(R) NetOptimizer, CheckIt(R)
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<PAGE> 12
Utilities; CheckIt(R) FastMove(R); and CheckIt(R) Suite. CheckIt NetOptimizer
analyzes and optimizes wireless, broadband and dialup Internet connections for
maximum performance. CheckIt Utilities enables users to uncover potential
problems, check PC performance and assess system reliability. CheckIt FastMove
is a file synchronization and transfer program for users who work on multiple
PC's and also includes file management utilities. These products will also be
included as components in the CheckIt Suite product. These products will also be
available in special versions for OEM customers along with CheckIt Factory
Edition, targeted at PC manufacturers for factory testing and burn-in. Goodwill
recorded in the acquisition of the TouchStone Checkit asset was $673,000 and
will be amortized over three years. Also in the third quarter of 2000, we
acquired the consulting practice unit of QuickStart Technologies, Inc., a
provider of integrated Internet business services to middle market companies.
(See Note 2 to the consolidated financial statements).
Through the QuickStart Consulting Acquisition, we now have a
comprehensive suite of services to assist middle market clients in planning,
implementing and supporting eBusiness initiatives. These services include
methodologies to help clients focus, define and prioritize Internet investments;
develop eCommerce sites and custom eBusiness applications; implement tools to
increase revenue per online transaction and transactions per customer;
warehouse, mine and integrate data for enhanced accessibility and effective
decision support; and select the right technology infrastructure to support
eBusiness. Goodwill recorded in the acquisition of the QuickStart unit was
$558,000 and will be amortized over three years. In the first quarter of 2000 we
introduced QuickLink Mobil 2000. This product allows PC users to use digital
cell phones as a connectivity device for wireless access to the Internet,
corporate data centers and other dial up connections. This product was
originally introduced as an OEM product. In the second quarter of 2000, we
introduced a retail version of QuickLink Mobil 2000. Also in the first quarter
of 2000 we introduced Wireless Web DNA. This product allows websites to be
accessed both by traditional PC based web browsers and by newly created micro
browsers located on digital cell phones. In April 1999 we expanded our Macintosh
division with the STF acquisition. STF develops and sells communications
software, primarily fax, to the Macintosh market. Goodwill recorded in the
acquisition of STF was $2,271,000 and will be amortized over seven years. Our
Macintosh division provides Internet telephony products and video conferencing
products for this market. In September 1999, we merged with PCS to provide
eCommerce business solutions. In late 1995, PCS sold its first copy of the
original version of WebCatalog, an Internet store development software designed
for the Macintosh. PCS began selling a Windows version in early 1997 and
released its Unix version in late 1999.
We recognize revenues from sales of our software as completed
products are shipped, consulting projects are completed and from royalties
generated as authorized customers duplicate our software. We continue to
introduce new products and our future success will depend in part on the
continued introduction of new and enhanced OEM and retail products for the
wireless and broadband market and eCommerce products that achieve market
acceptance. Revenues are net of estimated returns and other adjustments at the
time the products are shipped. We have allowed our customers to return unused
software and to rotate stock for new versions of retail releases. As a
percentage of our net revenues, returns constituted 18.1% in the nine months
ended September 30, 2000, 27.6% for the year ended December 31,1999 and 4.8% for
the year ended December 31, 1998. As a percentage of our net revenues, returns
for stock rotation were 8.2% in the nine months ended September 30, 2000, 23.9%
for the year 1999 and 0.6% for the year 1998.
Although we have successfully expanded our OEM customer base during
the past two years, a small number of OEM customers have historically accounted
for a substantial portion of our revenues. Sales to 3Com, primarily U.S Robotics
and its subsidiaries, accounted for the largest portion of this revenue source,
although it has been substantially reduced from the preceding two years.
Approximately 4.7% of our revenues came from 3Com in the nine months ended
September 30, 2000, compared with 15.2% of our net revenues for the year 1999
and 23.3% of our net revenues for the year 1998. Our three largest OEM
customers, including 3Com, accounted for the following portions of our net
revenues: 19.1% in the nine months ended September 30, 2000, 26.8% for the year
1999 and 33.0% for the year 1998.
The OEM product ordering cycle beginning from placement of an order
to shipment is very short. OEM customers generally operate under a just-in-time
system and order software to be delivered as needed by their manufacturing
operations. We generally ship our products as we receive orders and,
accordingly, we have historically operated with little backlog. With the growth
in our eCommerce business, we have begun to develop a backlog of consulting
projects. This backlog is only representative of sales from the eCommerce
business and is not representative of our total company. The backlog for
eCommerce products at the end of the second quarter of 2000 was in excess of
$1,000,000. We do not consider backlog to be a significant indication of future
performance in the other areas of our business. As a result, our sales of
non-consultative products in any quarter are dependent on orders booked and
shipped in that quarter and are not predictable with any degree of certainty.
Moreover, we generally do not produce software in advance of orders and,
therefore, have not maintained a material amount of software inventory.
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Our strongest retail product continues to be HotFax MessageCenter, which
provides fax, answering machine and data communication functionality via the PC.
We began to ship the retail version of our Internet store software product,
WebCatalog Builder in late 1999. With the acquisition of TouchStone on July 31,
2000, we have added the following products under the Smith Micro CheckIt brand:
CheckIt(R) NetOptimizer, CheckIt(R) Utilities; CheckIt(R) FastMove(R); and
CheckIt(R) Suite. We have expanded into new retail outlets, particularly office
supply chains such as Staples, Office Depot and Office Max and into numerous
Internet retail stores. As a result of this expansion, sales to Ingram Micro, a
retail distributor, were 20.9% of our net revenues in the nine months ended
September 30, 2000, 23.4% of our net revenues in the year 1999 and 18.0% of our
net revenues in the year 1998. Inventory in the retail channel exposes us to
product returns. We consider this exposure when we establish allowances for
product returns. Substantial returns of products from the retail channel could
have an adverse effect on our business, results of operations and financial
condition.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of operations data expressed as a percentage of total revenue.
<TABLE>
<CAPTION>
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------ ------ ------ ------
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 29.2% 35.3% 22.3% 23.8%
------ ------ ------ ------
Gross profit 70.8% 64.7% 77.7% 76.2%
Operating expenses:
Selling and marketing 41.4% 89.4% 43.8% 59.6%
Research and development 28.7% 54.7% 30.1% 35.6%
General and administrative 29.2% 63.0% 29.0% 37.3%
------ ------ ------ ------
Total operating expenses 99.3% 207.1% 102.9% 132.5%
------ ------ ------ ------
Operating loss -28.5% -142.4% -25.2% -56.3%
Interest income 2.8% 6.0% 3.3% 4.3%
------ ------ ------ ------
Loss before income taxes -25.7% -136.4% -21.9% -52.0%
Income tax expense 0.2% 64.3% 0.5% 10.1%
------ ------ ------ ------
Net loss -25.9% -200.7% -22.4% -62.1%
====== ====== ====== ======
</TABLE>
Net Revenues
During the current year, we have restructured our reporting format to
report revenues from three operating units as well as revenues from retail
products. The reporting operating units are the Internet Solutions Division, the
Macintosh Division, the Wireless and Broadband Division and Retail Products.
Our net revenues increased 82.9% to $3.4 million in the three months
ended September 30, 2000 from $1.8 million in the three months ended September
30, 1999. Our net revenues increased 17.3% to $9.7 million in the nine months
ended September 30, 2000 from $8.2 million in the nine months ended September
30, 1999. The following table shows a comparison of the revenues generated by
each division:
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<PAGE> 14
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
----------------------------------- -----------------------------------
Division September 30, September 30, September 30, September 30,
-------- 2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Internet Solutions $ 923,000 $ 204,000 $2,449,000 $ 535,000
Macintosh 392,000 342,000 1,037,000 881,000
Wireless & Broadband 758,000 607,000 3,684,000 3,988,000
Retail Products 1,301,000 692,000 2,500,000 2,839,000
---------- ---------- ---------- ----------
Total Revenues $3,374,000 $1,845,000 $9,670,000 $8,243,000
========== ========== ========== ==========
</TABLE>
The Internet solutions division is the result of the merger of PCS in
September of 1999, which was accounted for as a pooling of interests. The net
revenues for 1999 reflect PCS's sales in that period before we had acquired them
and infused our capital and resources into this division. Also, in the third
quarter, this division had $444,000 of revenue from the acquisition of the
QuickStart consulting unit in September 2000 which was not included in the
earlier period.
The creation of our Macintosh division resulted from the purchase of STF
in April of 1999. We did a limited amount of business in this market prior to
the acquisition of STF.
The Wireless and Broadband division increased revenues in the third
quarter of 2000 over the third quarter of 1999 partially as a result of sales to
new cellular phone manufacturer customers. The decrease in this division for the
nine months ended September 2000 versus 1999 is due to the decline in the sales
of analog modem software to OEM customers. We believe that this trend will
continue through out 2000.
Retail products had $780,000 of additional revenue in the third quarter
2000 over the third quarter 1999 from the acquisition of the TouchStone Checkit
product line in July 2000 which was not included in the earlier period.
Gross Profit
Gross profit represents net revenues, less cost of revenues, which
includes costs of materials, costs related to the operations of our kitting
facilities, labor costs related to our consulting revenues, freight charges and
royalties paid to licensors. Gross margins increased to 70.8% in the third
quarter of 2000 from 64.7% in the third quarter of 1999. Gross profit dollars
increased to $2.4 million in the third quarter of 2000 from $1.2 million in the
third quarter of 1999. The gross profit dollars for the third quarter of 2000
include gross profit dollars from the acquisition of the QuickStart consulting
unit and the assets of the TouchStone CheckIt product line which were not
included in the gross margin dollars for the third quarter of 1999. The gross
margin percentage increased to 77.7% in the nine months ended September 30, 2000
from 76.2% in the nine months ended September 30, 1999. Gross profit increased
to $7.5 million in the nine months ended September 30, 2000 from $6.3 million in
the nine months ended September 30, 1999.
Gross margins were higher in the third quarter of 2000 compared to the
third quarter of 1999 due to significant product returns which took place in the
third quarter of 1999. The gross margin percentage for the third quarter is
actually lower than the year to date gross margin percentage. This decrease is
the result of an increase in the number of consulting projects in our sales mix.
The QuickStart consulting practice which was acquired on September 2, 2000 has a
sales mix predominately of time and material consulting engagements. Gross
margins on these consulting sales are lower than the gross margins from project
consulting sales which were the norm before the QuickStart consulting
acquisition. As a result of this new addition, we believe the gross margin will
continue to decrease in the future as we increase the sales from the consulting
practice. Gross margin percentages have also been impacted by the addition of
products from the TouchStone Checkit acquisition which took place on July 31,
2000. As we shipped initial product requirements to our
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<PAGE> 15
customers in the third quarter, we incurred additional cost of sales expense
related to the packaging and kitting of these products. Retail products provide
a lower margin than the gross margins achieved for OEM product sales. Our sales
mix was more heavily weighted with retail product sales in the third quarter
than it was in the previous two quarters of 2000 and has also created an adverse
impact on our gross margin. We believe that our overall gross margin will
continue to decrease in the future as we move further away from predominately
OEM revenues towards a blended revenue stream of retail products, consulting
sales and OEM revenues. We are attempting to mitigate this trend through various
means, such as controlling royalty costs, improving manufacturing efficiencies
and concentrating on our pricing methodologies. There can be no assurance that
any efforts made by us in these and other areas will successfully offset
decreasing margins.
Selling and Marketing Expenses
Our selling and marketing expenses consist primarily of personnel costs,
advertising costs, sales commissions and trade show expenses. These expenses
vary considerably from quarter to quarter based on the timing of trade shows,
new product introductions and retail promotion programs. Selling and marketing
expenses decreased by $255,000 in the third quarter of 2000 over the third
quarter of 1999, a decrease to 41.3% from 89.4% of net revenues. Our selling and
marketing expenses decreased $675,000 in the first nine months of 2000 over the
first nine months of 1999, a decrease to 43.8% from 59.6% of net revenues. The
decrease both during the third quarter and for the first nine months of 2000 was
primarily due to reduced advertising, reduced promotional campaigns in the
retail channel and related travel expense. These savings were partially offset
by increases in employee-related expenses from additional staff being hired and
as the result of personnel acquired through the QuickStart consulting
acquisition.
Research and Development Expenses
Our research and development expenses consist primarily of personnel and
supply costs required to conduct our software development activities and the
amortization of acquired technology assets. Our research and development
expenses remained unchanged at $1.0 million in the third quarter of 2000 and
1999, but decreased to 28.7% from 54.7% of net revenues, primarily due to the
difference in revenues. Our research and development expenses also remained
unchanged at $2.9 million for the nine month periods ended September 30, 2000
and 1999, but decreased to 30.1% from 35.6% of net revenues, again primarily due
to the difference in revenues. We did increase our personnel costs, however,
this increase was offset by reductions in contract programming costs.
General and Administrative Expenses
Our general and administrative expenses represent operating expenses
that are not included as costs of sales, selling and marketing or research and
development. Our general and administrative expenses decreased by $176,000 in
the third quarter of 2000 from the third quarter of 1999, a decrease to 29.2%
from 63% of net sales. Our general and administrative expenses decreased by
$268,000 in the nine months ended September 30, 2000, a decrease to 29% from
37.3% of net revenues. General and administrative expenses decreased in the
third quarter of 2000 compared to the third quarter of 1999 primarily as the
result of reductions in employee-related expenses and savings from non-recurring
legal and commission fees incurred during the acquisition of PCS in September of
1999. General and administrative expenses decreased in the first nine months of
2000 compared to the first nine months of 1999 primarily due to reductions in
employee related expenses. The effects of these reductions were partially offset
by increases in the amortization of goodwill due to the TouchStone Checkit and
QuickStart consulting acquisitions and an increase in bad debt expense. It is
management's intent to tightly control and keep relatively constant general and
administrative costs; however, this is dependent upon the level of acquisition
activity and our growth, among other things.
Income Taxes
Income tax expense was $52,000 for the nine months ended September 30,
2000 compared $831,000 for the nine months ended September 30, 1999. During the
third quarter of 1999, we increased our income tax valuation allowance to offset
all deferred tax assets. This decision was reached when it was determined that
the recent historical results of operations provided insufficient evidence that
the deferred tax assets would be realized. The current year tax expense of
$52,000 relates to taxes on foreign income.
Liquidity and Capital Resources
Since our inception, we have financed operations primarily through cash
generated from operations and from proceeds generated by our initial public
offering in 1995. Net cash used in operating activities was $1.9 million in the
nine months ended September 30, 2000 compared to $2.7 million in the nine months
September 30, 1999. The primary operating use of cash during the both periods
was the Company's net loss.
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<PAGE> 16
On September 2, 2000, we purchased the eBusiness consulting practice
of QuickStart Technologies, Inc., for Common Stock valued at $458,000. On July
31, 2000 the Company acquired the CheckIt(R) line of software products from
Touchstone Software Corporation and eSupport.Com, Inc., a wholly owned
subsidiary of TouchStone Software Corporation, for 108,000 shares of Smith Micro
Common Stock valued at $560,000 and $25,000 cash. On April 9, 1999, we used $1.1
million in cash and 409,164 shares of our Common Stock to acquire all of the
outstanding capital stock of STF Technologies, Inc. (STF).
At September 30, 2000, the Company had $7.2 million in cash and cash
equivalents and $9.7 million of working capital. The Company had $5.0 million of
accounts receivable, net of allowance for doubtful accounts and other
adjustments. The Company has no significant capital commitments, and currently
anticipates that growth in capital expenditures will not vary significantly from
recent periods.
RISK FACTORS
This Quarterly Report on Form 10-Q contains forward-looking statements
that involve risks and uncertainties and our actual results may materially
differ from the results anticipated in those statements. Factors that might
cause such a difference include, without limitation, those discussed in this
section, in the Management's Discussion and Analysis of Financial Condition and
Results of Operations section and elsewhere in this Form 10-Q. All such factors
should be considered in evaluating us and a decision to invest in us.
Our Quarterly Operating Results are Subject to Significant Fluctuations
that Could Adversely Impact Our Stock Price. Our quarterly operating results
have fluctuated significantly in the past and may continue to vary from quarter
to quarter. Accordingly, you should not rely on quarter-to-quarter comparisons
of our operating results as an indication of our future performance. It is
possible that in some future periods our results of operations may be below the
expectations of public market analysts and investors. In that event, the price
of our Common Stock would likely decline.
There are a number of factors that could cause our quarterly operating results
to fluctuate. Many of these factors are not in our control. These factors
include:
- the size and timing of orders from, and shipments to, our major
customers;
- our ability to maintain or increase gross margins;
- changes in pricing policies or price reductions by us or our
competitors;
- variations in the our sales channels or the mix of our product
sales;
- the timing of new product announcements and introductions by us,
our competitors or customers;
- the availability and cost of supplies;
- the financial stability of our major customers;
- the market acceptance of our new products, applications and
product enhancements;
- our ability to develop, introduce and market new products,
applications and product enhancements;
- possible delays that we may face in the shipment of new products;
- our success in expanding our sales and marketing programs;
- deferrals of orders by our customers in anticipation of new
products, applications, product enhancements or operating
systems;
- changes in our strategy; and
- personnel changes.
While we historically have not experienced significant fluctuations in
our sales from season to season, we may face greater seasonality in our sales in
the future. Many of our OEM customers experience seasonality in their sales,
which may affect their buying patterns from us. In addition, as we increase our
sales of retail products and consulting services, we expect to experience
greater seasonality in our sales.
Because We Currently Operate With Little Backlog, Our Revenues in Each
Quarter are Substantially Dependent on Orders Booked and Shipped in that
Quarter. We currently have backlog orders only in our Internet Solutions
division for our consultative sales and we only began building this backlog
during the nine months ended September 30, 2000. In our other divisions, we
operate with little backlog because we generally ship our software products as
we receive orders and because our royalty revenue is based upon our
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<PAGE> 17
customers' actual usage in a given period. Accordingly, we recognize revenue
shortly after orders are received or royalty reports are generated. As a result,
our sales in any quarter are dependent on orders that we book and ship in that
quarter. This makes it difficult for us to predict what our revenues and
operating results will be in any quarter. If orders in the first month or two of
a quarter fall short of expectations, it is likely that we will not meet our
revenue targets for that quarter. If this happens, our quarterly operating
results would be adversely affected.
An Unexpected Shortfall in Revenue May Adversely and Disproportionately
Affect Our Business Because Our Expenses are Largely Fixed. Our expense levels
are based, in part, on our expectations of our future revenues and a significant
portion of our expenses is fixed. As a result, we may not be able to adjust our
spending rapidly enough to compensate for an unexpected shortfall in revenue.
Therefore, if revenue levels fall below our expectations, our operating results
and net income are likely to be adversely and disproportionately affected.
We have Depended Upon a Small Number of OEM Customers. Sales to our
three largest OEM customers accounted for approximately 19.1% of our net
revenues in the nine months ended September 30, 2000, 26.8% of our net revenues
for the year 1999 and 33.0% of our net revenues for the year 1998. Although we
have begun to diversify our product lines, we expect that we will continue to be
dependent upon orders from our major OEM customers for a significant portion of
our revenues in future periods. However, none of these customers is obligated to
purchase any of our products. Accordingly, we cannot be certain that these
customers will continue to place large orders for our products in the future, or
purchase our products at all. Our customers may acquire products from our
competitors or develop their own products that compete directly with ours. Any
substantial decrease or delay in our sales to one or more of these entities in
any quarter would have an adverse effect on our results of operations. In
addition, certain of our OEM customers have in the past and may in the future
acquire competitors or be acquired by competitors, causing further industry
consolidation. In the past, such acquisitions have caused the purchasing
departments of the combined companies to reevaluate their purchasing decisions.
If one of our major OEM customers engages in an acquisition in the future, it
could change its current purchasing habits. In that event, we could lose the
customer, experience a decrease in orders from that customer or a delay in
orders previously made by that customer. Moreover, if one of our existing OEM
customers acquires another existing OEM customer, the concentration of our
revenues from the combined companies could increase if the combined companies
continue to purchase our software products. Although we maintain allowances for
doubtful accounts, the insolvency of one or more of our major customers could
result in a substantial decrease in our revenues.
Our Operating Results Have Been Substantially Dependent upon One Family
of Products Sold to Original Equipment Manufacturers. In the past we have
derived a significant portion of our revenues from a relatively small number of
products. Sales of our QuickLink related products represented approximately
19.1% of our net revenues in the nine months ended September 30, 2000, 37.1% of
our net revenues for the year 1999 and 55.3% of our net revenues for the year
1998. We have continued to diversify our product offerings and have less of a
dependency on these products. However, as our revenues from these software
products continue to decline, whether as a result of competition, technological
change, price pressures or other factors and if our efforts to replace these
sales through the addition of new products are not successful, our business
could be seriously impaired.
Our Efforts to Develop a Market for Our Retail Software Products Require
Substantial Investments that May Adversely Affect Our Operating Margins. We are
continuing our efforts to develop a market for our retail software products.
With the acquisition of the TouchStone Checkit products on July 31, 2000, we
have added the following products under the Smith Micro CheckIt brand:
CheckIt(R) NetOptimizer, CheckIt(R) Utilities; CheckIt(R) FastMove(R); and
CheckIt(R) Suite to our existing line of retail software products that includes
WebCatalog Builder, Internet CommSuite, HotFaxMessageCenter, HotFax, VideoLink
Mail, FAXstf, HotPage and HotFaxShare. Sales of our retail products represented
approximately 25.6% of our net revenues in the nine months ended September 30,
2000, 32.1% of our net revenues for the year 1999 and 24.8% of our net revenues
for the year 1998. In order to strengthen our product recognition and build
distribution channels for our retail products, we will have to make significant
investments in advertising, trade shows, public relations, distributor
relationships and a dedicated sales force. Accordingly, our retail sales may not
provide us with the same contribution margin to operating income that we have
historically achieved on our OEM sales.
We May Not be Able to Develop and Maintain Relationships with
Distributors and Retailers to Sell Our Retail Software Products. We rely on
distributors, retailers, Internet distributors and value added resellers,
commonly known as VARs, to market and distribute our retail software products.
Our retailers include Staples, CompUSA, Office Depot, OfficeMax and numerous
Internet retail stores, among others. As a result, net revenues to Ingram Micro,
a retail distributor, were 20.9% of our net revenues in the nine months ended
September 30, 2000, 23.4% of our net revenues for the year 1999 and 18.0% of our
net revenues for the year 1998. Our ability to maintain distributor and retailer
relationships is largely a function of our sales volume. If we do not meet
certain minimum volume requirements, we may not be able to maintain our
relationships with our current distributors and retailers. Our agreements with
retailers and VARs are not exclusive and in many cases may be terminated by
either party without cause. Many of our retailers and VARs carry product lines
that are competitive with our retail software products. These retailers and VARs
may not give a high priority to the
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<PAGE> 18
marketing of our products or may not continue to carry our products. In
addition, our retailers and VARs may change their inventory strategies, with
little or no warning to us. In many cases, such changes in inventory strategy
may not be related to end user demand. If this happens our retail sales may be
adversely affected. We may not be successful in recruiting new VARs and
retailers to represent us.
Our Risk of Product Returns Will Increase as Our Retail Sales Increase.
We typically allow the retailers and VARs who sell our retail software products
to return our products without charge or penalty. As part of our revenue
recognition policy, we calculate an allowance for product returns based on our
historical experience. If retail sales of our products increase, our risk of
product returns will increase. While our revenue recognition policy contemplates
this risk, it is possible that returns may occur in excess of our previous
experience. If this happens, we would have to revise our estimates and increase
our allowances for such returns. Excessive or unanticipated returns could
adversely affect our results of operations.
Our Future Success Will Partially Depend on the Level of Market
Acceptance of Our Internet Communications Products, Video Related Products and
eCommerce products and services. We continue to focus significant resources on
the development and introduction of Internet telephony and video communications
products and services, including our currently released products: Internet
CommSuite and QuickLink Mobil 2000. Subsequent to our merger with PCS, we
increased the level of resources directed at our eCommerce product group and we
expect to continue to focus significant resources on the development, marketing
and selling of eCommerce products and services, including our currently released
products: WebCatalog and WebCatalog Builder. Lack of market acceptance for these
products or other similar products could have an adverse impact on our business.
In addition, we may experience delays in or non-completion of the development of
new software for these products, which could adversely affect our competitive
position in these markets. Such products compete in new and rapidly changing
markets and we cannot be certain that our products will receive or gain market
acceptance. Our first Internet communications software product was released in
September 1998. This software product includes a number of Internet
communications tools such as telephony, fax, multimedia e-mail, video
conferencing, video security and others. Our initial sales of this product were
made to retail channels and did not include significant orders from OEM
customers. We introduced our first video communications software in 1996. Since
that time, our sales volume for such product has achieved only modest growth and
has not become a significant part of net revenues. Our first eCommerce software
product was released in late 1995. The current version of this software product
enables businesses of all sizes to create and operate online Internet
storefronts and web sites. Sales of this product line have primarily been made
through VARs and direct sales to businesses. Revenue from this product group has
achieved modest growth and has not become a significant part of net revenues.
Our Internet telephony and video communications software products compete
against several competitors, including White Pine, Logitech, Intel, Microsoft
and VocalTech and our eCommerce software products also compete against several
competitors, including Intershop, Intel, IBM, Yahoo and others, some of whom
have greater financial and other resources than we do. We cannot be certain that
we will be able to compete successfully against these and any future competitors
in the Internet communications, video conferencing software markets or eCommerce
software market.
Rapid Technological Change Could Render Our Products Obsolete. The
communications software markets in which we operate are characterized by rapid
technological change, changing customer needs, frequent product introductions
and evolving industry standards. These factors make it difficult for us to
estimate the life cycles of our products. Our future success will depend upon
our ability to develop and introduce new software products, including new
releases, applications and enhancements, on a timely basis that keep pace with
technological developments and emerging industry standards and address the
increasingly sophisticated needs of our customers. We may experience
difficulties that could delay or prevent our development, introduction and
marketing of new products. If we are unable to develop and introduce new
products in a timely manner in response to changing market conditions or
customer requirements, or technological or other reasons, our competitive
positions in these markets would be adversely affected.
Microsoft is the leading developer of operating systems for personal
computers. We may not be able to successfully develop new versions of our
software products that will operate on future Microsoft operating systems. Even
if we are able to develop such new versions, we may not be able to do so
concurrently with or prior to introductions by our competitors of communication
software products for those new operating systems. Any such failure or delay
could adversely affect our competitive position or lead to obsolescence of our
products in the future.
Microsoft Poses a Significant Competitive Threat to Us. We face
competition from Microsoft, which is the publisher of the most prevalent
personal computing operating platforms, Windows, Windows NT and DOS. Due to its
market dominance, Microsoft represents a significant competitive threat to all
personal computer software vendors, including us. The latest Microsoft operating
systems, Windows 2000, Windows 98, Windows 95 and Windows NT, include
capabilities now provided by certain of our OEM and retail software products,
including our principal product, QuickLink. If the communications capabilities
of Windows 2000, Windows 98, Windows 95, Windows NT or other operating systems
are adopted by users, sales of our products could decline.
18
<PAGE> 19
We Face Significant Competition from Other Companies. We operate in
markets that are highly competitive and subject to rapid changes in technology.
We compete with other software vendors for access to distribution channels,
retail shelf space and the attention of customers. We also compete with other
software companies in our efforts to acquire software technology developed by
third parties. Competitive pressures could reduce our market share or require us
to reduce the prices of our products.
We Face Significant Competition from Software Vendors in the Retail
Market. Our principal fax related retail products, HotFaxMessageCenter and
HotFax, compete directly with Symantec's WinFax Pro. Our new Internet
communications software products, Internet CommSuite and VideoLink pro, compete
with product offerings by Microsoft, Intel, White Pine and VocalTech, among
others. Our new CheckIt products: CheckIt(R) NetOptimizer, CheckIt(R) Utilities;
CheckIt(R) FastMove(R); and CheckIt(R) Suite, compete with McAfee's Office Pro
2000, Symantec's SystemWorks 2000 and Ontrack's SystemSuite 2000, among others.
In addition, because there are low barriers to entry into the software market,
we expect significant competition from other established and emerging software
companies in the future. Furthermore, many of our existing and potential OEM
customers may acquire or develop products that compete directly with our
products.
Many of our 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 to new or
emerging technologies and changes in customer requirements or to devote greater
resources to the promotion and sale of their products. There is also a
substantial risk that announcements of competing products by large competitors
such as Microsoft and Symantec could result in the cancellation of orders by
retailers, distributors or other customers in anticipation of the introduction
of such new products. In addition, some or our competitors, such as Symantec,
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.
We believe that our ability to compete depends on elements both within
and outside of our control, including:
- the success and timing of new product development;
- product performance;
- price;
- distribution; and
- customer support.
We cannot be certain that we will be able to compete successfully with
respect to these and other factors or that the competitive pressures that we
face will not adversely affect our results of operations.
Our Future Success Will Depend on Our Ability to Develop and Introduce
New Product Offerings. Our future success will depend, in significant part, on
our ability to successfully develop and introduce new software products and
improved versions of our existing software products on a timely basis and in a
manner that will allow such products to achieve broad customer acceptance. We
cannot be certain that we will be able to develop and introduce new products on
a timely basis, if at all, or that any new products that we do develop will be
accepted in the market. If new products are delayed or do not achieve market
acceptance, our sales and results of operations will be adversely affected. In
the past, we have experienced delays in purchases of our products by customers
anticipating the launch of new products by us. Accordingly, it is possible that
our customers may defer material orders in the future in anticipation of new
product introductions. If this happens, our results of operations may be
adversely affected.
Our Efforts to Sell Our Products in the Corporate and Government
Marketplaces May Not be Successful and May Adversely Affect Our Operating
Margins. In the past, we have generated our revenues almost entirely from OEM
sales. We began selling to the corporate/government marketplace while building
the infrastructure necessary to sell to these two customer bases in 1997. In
January 1998, we acquired the network fax software technology of Mitek Systems,
Inc. Through this acquisition, we acquired software that is designed to address
the fax requirements of the corporate/government customer. During 1998 we
developed the acquired network fax product into the currently shipping product,
HotFaxShare, and we released a newly developed IP Gateway module. In September
1999, we merged with PCS, which provided us with eCommerce products for this
market. Although we continue to invest resources in the research and development
of products for the corporate and government markets, and in building the
additional infrastructure required to market and sell products in these markets,
we cannot be certain that our efforts will yield any significant sales growth.
In addition,
19
<PAGE> 20
because we have had to make substantial investments to develop, market and sell
products for these markets, sales of such products may not provide the operating
margins historically achieved by us for OEM sales.
Our Products May Contain Undetected Software Errors. Our software
products are complex and may contain undetected errors. In the past, we have
discovered software errors in certain of our products and have experienced
delayed or lost revenues during the period it took to correct these errors.
Although we test our products along with our current and potential OEM
customers, it is possible that errors may be found in our new or existing
products after we have commenced commercial shipment of those products. These
undetected errors, could result in adverse publicity, loss of revenues, delay in
market acceptance of our products or claims against us by customers.
Our Planned Expansion of Our International Business Activities May Make
Us More Susceptible to Global Economic Factors, Foreign Business Practices and
Currency Fluctuations. We presently operate in foreign markets and intend to
expand our international presence. Export net revenues represented 14.5% of our
net revenues in the nine months ended September 30, 2000, 17.8% of our net
revenues for the year 1999 and 21.5% of our net revenues for the year 1998. We
may not be able to continue to generate significant international sales. Our
international business activities are subject to a number of risks, including:
- difficulties in managing distributors;
- difficulties in staffing and maintaining foreign operations;
- foreign currency exchange fluctuations;
- the possibility of difficulties in collecting accounts
receivable;
- varying technical standards;
- substantially different regulatory requirements in different
jurisdictions;
- tariffs and trade barriers;
- political and economic instability;
- reduced protection for our intellectual property rights in
certain countries;
- potentially adverse tax consequences; and
- burdens associated with complying with a wide variety of complex
foreign laws and treaties.
While we currently do not accept payment in foreign currencies and
invoice all of our sales in U.S. dollars, we may not be able to continue this
policy if we are able to grow international sales. If we begin to receive
payment in foreign currencies, we are likely to be subject to the risks of
foreign currency losses due to fluctuations in foreign currency exchange rates.
In addition, if we are successful in growing our business outside of the United
States, we may also face economic, political and foreign currency situations
that are substantially more volatile than those commonly experienced in the
United States. If this happens, our results of operations could be adversely
affected.
We Must Continue to Hire and Retain Key Personnel in an Intensely
Competitive Labor Market. Our future performance depends in significant part
upon the continued service of our senior management and other key technical and
consulting personnel. We are dependent on our ability to identify, hire, train,
retain and motivate high quality personnel, especially highly skilled engineers
involved in the ongoing research and development required to develop and enhance
our communication software products and introduce enhanced future applications.
We are also dependent on our ability to identify, hire, train, retain and
motivate highly specialized consulting workforce in order to continue to service
our consulting clients. A high level of employee mobility and an aggressive
approach to the recruiting of skilled personnel characterize the software and
consulting industry. Our inability to attract and retain the highly trained
technical personnel that are essential to our product development, consulting
service, marketing, service and support teams may limit the rate at which we can
generate revenue and develop new products or product enhancements. In order to
attract and retain key personnel, we may need to grant additional options and
provide other forms of incentive compensation.
Because We Rely on Third Party Suppliers, We Have Limited Control Over
Component Costs and Product Delivery Schedules. We rely on third party suppliers
to provide us with the components for our product kits. These components include
disks, CDs and printed manuals. We also rely on third parties for CD-ROM
replication. In the past, we have experienced disk shortages and may experience
such shortages in the future. If we cannot obtain a sufficient quantity of disks
or other components we may not be able to deliver products to our customers on a
timely basis. Similarly, if the CD-ROM replication facilities that we use do not
deliver our requirements on schedule, we may not be able to deliver products in
a CD-ROM format to our customers on a timely basis. Any delays that we
experience in delivering our products to customers could impair our customer
relationships and adversely impact our business. In
20
<PAGE> 21
addition, if our third party suppliers raise their prices for disks or other
components or CD-ROM replication services, our gross margins would be reduced.
Our Customers May Continue to Switch to the Pre-Loaded or CD-ROM
Versions of Our Products, Which May Adversely Affect Our Operating Results. We
primarily sell our software in a kit that includes a disk or CD-ROM and a
manual. However, some of our customers "pre-load" our software onto a CD,
diskette or the hard drive of a personal computer and pay us a royalty based on
units produced or shipped. These arrangements eliminate the need for us to
provide a disk or CD-ROM and may eliminate the need for a manual. The pre-load
arrangements produce smaller unit revenues for us and eliminate our ability to
generate revenues from our production facilities. We believe that our production
facilities contribute profits to our operations. Currently, we have the
capability to produce our products in-house on 3 1/2-inch diskettes. However, we
do not currently have the capability to produce CD-ROMs internally and the cost
to develop such production capability may be prohibitive. As the size of
software programs grows, CD-ROM is becoming a more prominent medium. We
currently contract CD-ROM production to specialized CD-ROM facilities. If more
of our customers request product pre-loads and CD-ROM versions of our products,
our operating results could be adversely affected.
<<<This has happened . . . doesn't hurt to leave but needs to go away at
some point>>>
We May be Unable to Adequately Protect Our Intellectual Property and
Other Proprietary Rights. 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 secret, nondisclosure and copyright and trademark law. However, these
measures afford us only limited protection. We currently own United States
trademark registrations for certain of our trademarks, but we have not yet
obtained registrations for all of our trademarks in the United States or other
countries. In addition, prior to becoming a publicly held entity, we did not
require our employees to sign proprietary information and inventions agreements
stipulating to our software ownership rights. We only recently started the
patent application process for a number of technologies relating to our existing
products and products under development. 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, despite
the precautions we have taken to protect our intellectual property and
proprietary rights, 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 fax 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. 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.
Our Officers and Directors Could Control Matters Submitted to Our
Stockholders. As of October 31, 2000, William W. Smith Jr., the President, Chief
Executive Officer and Chairman of the Board of our company, and Rhonda L. Smith,
the Secretary, Treasurer and Vice-Chairman of the Board of our company,
beneficially owned approximately 60.3% of our outstanding shares of common
stock. William W. Smith Jr. and Rhonda L. Smith are married to one another and,
acting together, will have the ability to elect our directors and determine the
outcome of any corporate action requiring stockholder approval, including a
merger or business combination, irrespective of how you may vote. This
concentration of ownership may discourage a potential acquirer from making an
offer to buy our company, which, in turn, could adversely affect the market
price of our common stock.
Provisions of Our Charter and Bylaws and Delaware Law Could Make a
Takeover of Our Company Difficult. Our certificate of incorporation and bylaws
contain provisions that may discourage or prevent a third party from acquiring
us, even if doing so would be beneficial to our stockholders. For instance, our
certificate of incorporation authorizes the board of directors to fix the rights
and preferences of shares of any series of preferred stock, without action by
our stockholders. As a result, the board can authorize and issue shares of
preferred stock, which could delay or prevent a change of control because the
rights given to the holders of such preferred stock may prohibit a merger,
reorganization, sale or other extraordinary corporate transaction. In addition,
we are organized under the laws of the State of Delaware and certain provisions
of Delaware law may have the effect of delaying or preventing a change in our
control.
21
<PAGE> 22
The Price of Our Stock Has Been Volatile and Could Continue to Fluctuate
Substantially. The market price of our common stock has been volatile and could
fluctuate substantially in response to a variety of factors that are out of our
control, in addition to our financial performance. Furthermore, stock prices for
many high technology companies, including our own fluctuate widely for reasons
that may be unrelated to the operating performance.
Future Sales of Our Common Stock Could Cause the Price of Our Shares to
Decline. As of October 31, 2000, we had 16,231,791 shares of Common Stock
outstanding. Of this amount, the 9,786,670 shares held by William Smith and
Rhonda Smith became available for sale in the public market (subject to the
volume and other applicable restrictions of Rule 144) in September 1997,
following the expiration of a two year lock-up agreement with certain
representatives of the underwriters of our initial public offering, which
consummated in September 1995. Sales of a substantial number of shares of our
common stock by William Smith, Rhonda Smith or any other person, either
individually or when aggregated with sales by other persons, could adversely
affect the market price of our common stock.
NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44 of Accounting Principles Board Opinion No. 25, Accounting
for Certain Transactions Involving Stock Compensation, which, among other
things, addressed accounting consequences of a modification that reduces the
exercise price of a fixed stock option award (otherwise known as repricing). If
the exercise price of a fixed stock option award is reduced, the award must be
accounted for as variable price stock plan from the date of the modification to
the date the award is exercised, is forfeited, or expires unexercised. The
exercise price of an option award has been reduced if the fair value of the
consideration required to be paid by the grantee upon exercise is less than or
potentially less than the fair value of the consideration that was required to
be paid pursuant to the award's original terms. The requirements about
modifications to fixed stock option awards that directly or indirectly reduce
the exercise price of an award apply to modifications made after December 15,
1998, and will be applied prospectively as of July 1, 2000. The adoption of this
interpretation did not have an impact on the Company's consolidated financial
statements.
In June 1998, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133 establishes new accounting and reporting standards for
derivative financial instruments and for hedging activities. SFAS No. 133
requires the Company to measure all derivatives at fair value and to recognize
them in the balance sheet as an asset or liability, depending on the Company's
rights or obligations under the applicable derivative contract. In June 1999,
the FASB issued SFAS No. 137, which deferred the effective date of adoption of
SFAS No. 133 for one year. The Company will adopt SFAS No. 133 no later than the
first quarter of fiscal year 2001. Adoption of the new method of accounting for
derivatives and hedging activities is not expected to have a material impact on
the Company's financial position.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) 101,
Revenue Recognition in Financial Statements. SAB 101 summarizes the staff's
views in applying generally accepted accounting principles to selected revenue
recognition issues in financial statements. Implementation of SAB 101, which was
delayed by the issuance of SAB 101A on March 27, 2000 and SAB 101B on June 26,
2000, is required by the fourth quarter of 2000. The Company is currently
evaluating the impact, if any, SAB 101 will have on its financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Smith Micro's financial instruments include cash and cash equivalents.
At September 30, 2000, the carrying values of our financial instruments
approximated fair values based on current market prices and rates.
It is our policy not to enter into derivative financial instruments. We
do not currently have any significant foreign currency exposure as we do not
transact business in foreign currencies. As such, we do not have significant
currency exposure at September 30, 2000.
22
<PAGE> 23
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In September 2000, the company acquired the eBusiness consulting
practices of QuickStart Technologies,, Inc. for 100,000 shares of Smith Micro
Common Stock, plus up to a maximum of $150,000 to be paid in accordance with an
earn out provision expiring on November 30, 2000. In July 2000, the Company
acquired the CheckIt line of software products from Touchstone Software
Corporation and eSupport.Com, Inc., a wholly owned subsidiary of TouchStone
Software Corporation for 108,000 shares of Smith Micro Common Stock and $25,000
in cash.
None of the foregoing transactions involved any underwriters,
underwriting discounts or commissions, or any public offering and the company
believes that each transaction was exempt from the registration requirements of
the Securities Act by virtue of Section 4(2) thereof or Regulation D promulgated
thereunder. The recipients in such transaction represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates issued in such transactions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Title Method of Filing
------- ----- ----------------
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporated by reference to Exhibit 3.1
Incorporation of the Company to the Registrant's Registration Statement
No. 33-95096
3.1.1 Amendment to the Amended and Incorporated by reference to Exhibit 3.1.1
Restated Certificate of to the Registrant's Quarterly Report on
Incorporation of the Company Form 10-Q for the period ended June 30,
2000.
3.2 Amended and Restated Bylaws of the Incorporated by reference to Exhibit 3.2
Company. to the Registrant's Registration Statement
No. 33-95096
4.1 Specimen certificate representing Incorporated by reference to Exhibit 4.1
shares of Common Stock of the to the Registrant's Registration Statement
Company. No. 33-95096
10.1 Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.1
to the
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
Exhibit
No. Title Method of Filing
------- ----- ----------------
<S> <C> <C>
Registrant's Registration Statement No.
33-95096
10.2 1995 Stock Option/Stock Issuance Filed Herewith
Plan, as amended.
10.3 Form of Notice of Grant of Stock Incorporated by reference to Exhibit 10.3
Option under 1995 Stock Option/Stock to the Registrant's Registration Statement
Issuance Plan. No. 33-95096
10.4 Form of 1995 Stock Option Agreement Incorporated by reference to Exhibit 10.4
under 1995 Stock Option /Stock to the Registrant's Registration Statement
Issuance Plan. No. 33-95096
10.5 Form of 1995 Stock Purchase Incorporated by reference to Exhibit 10.5
Agreement under 1995 Stock to the Registrant's Registration Statement
Option/Stock Issuance Plan. No. 33-95096
10.6 Distribution License Agreement dated Incorporated by reference to Exhibit 10.6
September 30, 1991, by and between to the Registrant's Registration Statement
the Company and Crandell Development No. 33-95096
Corporation.
10.7 Application Program Interface Retail Incorporated by reference to Exhibit 10.7
License Agreement July 28, 1992 by to the Registrant's Registration Statement
and between the Company and Rockwell No. 33-95096
International Corporation.
10.8 Application Program Interface Incorporated by reference to Exhibit 10.8
License Agreement July 28, 1992 by to the Registrant's Registration Statement
and between the Company and Rockwell No. 33-95096
International Corporation.
10.9 Rockwell High Speed Interface Incorporated by reference to Exhibit 10.9
License Agreement dated June 2, to the Registrant's Registration Statement
1994, by and between the Company and No. 33-95096
Rockwell International Corporation.
10.10 Letter Agreement dated February 22, Incorporated by reference to Exhibit 10.10
1994, by and between the Company and to the Registrant's Registration Statement
Rockwell International Corporation. No. 33-95096
10.11 Letter Agreement dated April 22, Incorporated by reference to Exhibit 10.11
1993, by and between the Company and to the Registrant's Registration Statement
Rockwell International Corporation. No. 33-95096
10.12 Software Distribution Agreement Incorporated by reference to Exhibit 10.12
dated May 8, 1995, by and between to the Registrant's Registration Statement
the Company and International No. 33-95096
Business Machines Corporation.
10.13 Office Building Lease, dated June Incorporated by reference to Exhibit 10.13
10, 1992, by and between the Company to the Registrant's Registration Statement
and Developers Venture Capital No. 33-95096 Corporation.
10.14 Amendment No. 1 To Office Building Incorporated by reference to Exhibit 10.14
Lease, dated July 9, 1993, by and to the Registrant's Registration Statement
between No. 33-95096
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
Exhibit
No. Title Method of Filing
------- ----- ----------------
<S> <C> <C>
the Company and Pioneer Bank.
10.15 Amendment No. 2 To Office Building Incorporated by reference to Exhibit 10.15
Lease, dated August 15, 1994, by and to the Registrant's Registration Statement
between the Company and T&C No. 33-95096
Development.
10.16 Fourth Addendum to Office Building Incorporated by reference to Exhibit 10.16
Lease, dated April 21, 1995, by and to the Registrant's Registration Statement
between the Company and T&C No. 33-95096
Development.
10.17 Form of Promissory Note related to S Incorporated by reference to Exhibit 10.17
Corporation Distribution. to the Registrant's Registration Statement
No. 33-95096
10.18 Smith Micro Software, Inc. Amended Incorporated by reference to Exhibit 10.21
and Restated Software Licensing and to the Registrant's Quarterly Report on
Distribution Agreement, dated April Form 10-Q for the quarter ended September
18, 1996, by and between the Company 30, 1996
and U.S. Robotics Access Corp.
10.19 Office Building Lease, dated March Incorporated by reference to Exhibit 10.19
1, 1994, by and between Performance to the Registrant's Annual Report on Form
Computing Incorporated and Petula 10-K for the fiscal year ended December
Associates, Ltd./KC Woodside. 3l, 1995
10.20 Agreement and Plan of Merger by and Incorporated by reference to Exhibit 2 to
between Smith Micro Software, Inc., the Registrant's Current Report on Form
Performance Computing Incorporated 8-K filed with the Commission on March 28,
and PCI Video Products, Inc. dated 1996
as of March 14, 1996.
10.21 Amendment No. 1, dated as of March Incorporated by reference to Exhibit 10.21
10, 1997, to Agreement and Plan of to the Registrant's Annual Report on Form
Merger by and between Smith Micro 10-K for the fiscal year ended December
Software, Inc., Performance 31, 1996
Computing Incorporated and PCI Video
Products, Inc. dated as of March 14,
1996.
10.22 Amendment No. 6 to Office Building Incorporated by reference to Exhibit 10.22
Lease, dated February 19, 1998, by to the Registrant's Annual Report on Form
and between the Company and World 10-K for the fiscal year ended December
Outreach Center. 31, 1997
10.23 Software licensing and Distribution Incorporated by reference to Exhibit 10.23
Agreement dated December 1, 1998, by to the Registrant's Annual Report on Form
and between the Company and 3Com 10-K for the fiscal year ended December
Corporation 31, 1998
10.24 Stock Purchase Agreement dated as of Incorporated by reference to Exhibit 2 to
April 9, 1999 by and among Smith the Registrant's Current Report on Form
Micro Software, Inc. STF 8-K filed with the Commission on April 23,
Technologies, Inc. and the 1999
Shareholders of STF Technologies,
Inc.
10.25 Amendment No. 7 to Office Building Incorporated by reference to Exhibit 10.25
to the
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
Exhibit
No. Title Method of Filing
------- ----- ----------------
<S> <C> <C>
Lease, dated November 5, 1999, by Registrant's Annual Report on Form
and between the Company and World 10-K for the fiscal year ended December
Outreach Center. 31, 1999
27 Financial Data Schedule. Filed Herewith
</TABLE>
(B) REPORTS ON FORM 8-K
No such reports were filed during the three months ended September 30,
2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMITH MICRO SOFTWARE, INC.
November 13, 2000 By /s/ WILLIAM W. SMITH, JR.
-------------------------
William W. Smith, Jr.
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
November 13, 2000 By /s/ RICHARD C. BJORKMAN
-----------------------
Richard C. Bjorkman
Chief Financial Officer
(Principal Financial Officer)
26
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Title Method of Filing
------- ----- ----------------
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporated by reference to Exhibit 3.1
Incorporation of the Company to the Registrant's Registration Statement
No. 33-95096
3.1.1 Amendment to the Amended and Incorporated by reference to Exhibit 3.1.1
Restated Certificate of to the Registrant's Quarterly Report on
Incorporation of the Company Form 10-Q for the period ended June 30,
2000.
3.2 Amended and Restated Bylaws of the Incorporated by reference to Exhibit 3.2
Company. to the Registrant's Registration Statement
No. 33-95096
4.1 Specimen certificate representing Incorporated by reference to Exhibit 4.1
shares of Common Stock of the to the Registrant's Registration Statement
Company. 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 Filed Herewith
Plan, as amended.
10.3 Form of Notice of Grant of Stock Incorporated by reference to Exhibit 10.3
Option under 1995 Stock Option/Stock to the Registrant's Registration Statement
Issuance Plan. No. 33-95096
10.4 Form of 1995 Stock Option Agreement Incorporated by reference to Exhibit 10.4
under 1995 Stock Option /Stock to the Registrant's Registration Statement
Issuance Plan. No. 33-95096
10.5 Form of 1995 Stock Purchase Incorporated by reference to Exhibit 10.5
Agreement under 1995 Stock to the Registrant's Registration Statement
Option/Stock Issuance Plan. No. 33-95096
10.6 Distribution License Agreement dated Incorporated by reference to Exhibit 10.6
September 30, 1991, by and between to the Registrant's Registration Statement
the Company and Crandell Development No. 33-95096
Corporation.
10.7 Application Program Interface Retail Incorporated by reference to Exhibit 10.7
License Agreement July 28, 1992 by to the Registrant's Registration Statement
and between the Company and Rockwell No. 33-95096
International Corporation.
10.8 Application Program Interface Incorporated by reference to Exhibit 10.8
License Agreement July 28, 1992 by to the Registrant's Registration Statement
and between the Company and Rockwell No. 33-95096
International Corporation.
10.9 Rockwell High Speed Interface Incorporated by reference to Exhibit 10.9
License Agreement dated June 2, to the Registrant's Registration Statement
1994, by and between the Company and No. 33-95096
Rockwell International Corporation.
10.10 Letter Agreement dated February 22, Incorporated by reference to Exhibit 10.10
1994, by and between the Company and to the Registrant's Registration Statement
Rockwell International Corporation. No. 33-95096
10.11 Letter Agreement dated April 22, Incorporated by reference to Exhibit 10.11
1993, by and between the Company and to the Registrant's Registration Statement
Rockwell International Corporation. No. 33-95096
10.12 Software Distribution Agreement Incorporated by reference to Exhibit 10.12
dated May 8, 1995, by and between to the Registrant's Registration Statement
the Company and International No. 33-95096
Business Machines Corporation.
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
Exhibit
No. Title Method of Filing
------- ----- ----------------
<S> <C> <C>
10.13 Office Building Lease, dated June Incorporated by reference to Exhibit 10.13
10, 1992, by and between the Company to the Registrant's Registration Statement
and Developers Venture Capital No. 33-95096 Corporation.
10.14 Amendment No. 1 To Office Building Incorporated by reference to Exhibit 10.14
Lease, dated July 9, 1993, by and to the Registrant's Registration Statement
between the Company and Pioneer Bank. No. 33-95096
10.15 Amendment No. 2 To Office Building Incorporated by reference to Exhibit 10.15
Lease, dated August 15, 1994, by and to the Registrant's Registration Statement
between the Company and T&C No. 33-95096
Development.
10.16 Fourth Addendum to Office Building Incorporated by reference to Exhibit 10.16
Lease, dated April 21, 1995, by and to the Registrant's Registration Statement
between the Company and T&C No. 33-95096
Development.
10.17 Form of Promissory Note related to S Incorporated by reference to Exhibit 10.17
Corporation Distribution. to the Registrant's Registration Statement
No. 33-95096
10.18 Smith Micro Software, Inc. Amended Incorporated by reference to Exhibit 10.21
and Restated Software Licensing and to the Registrant's Quarterly Report on
Distribution Agreement, dated April Form 10-Q for the quarter ended September
18, 1996, by and between the Company 30, 1996
and U.S. Robotics Access Corp.
10.19 Office Building Lease, dated March Incorporated by reference to Exhibit 10.19
1, 1994, by and between Performance to the Registrant's Annual Report on Form
Computing Incorporated and Petula 10-K for the fiscal year ended December
Associates, Ltd./KC Woodside. 3l, 1995
10.20 Agreement and Plan of Merger by and Incorporated by reference to Exhibit 2 to
between Smith Micro Software, Inc., the Registrant's Current Report on Form
Performance Computing Incorporated 8-K filed with the Commission on March 28,
and PCI Video Products, Inc. dated 1996
as of March 14, 1996.
10.21 Amendment No. 1, dated as of March Incorporated by reference to Exhibit 10.21
10, 1997, to Agreement and Plan of to the Registrant's Annual Report on Form
Merger by and between Smith Micro 10-K for the fiscal year ended December
Software, Inc., Performance 31, 1996
Computing Incorporated and PCI Video
Products, Inc. dated as of March 14,
1996.
10.22 Amendment No. 6 to Office Building Incorporated by reference to Exhibit 10.22
Lease, dated February 19, 1998, by to the Registrant's Annual Report on Form
and between the Company and World 10-K for the fiscal year ended December
Outreach Center. 31, 1997
10.23 Software licensing and Distribution Incorporated by reference to Exhibit 10.23
Agreement dated December 1, 1998, by to the Registrant's Annual Report on Form
and between the Company and 3Com 10-K for the fiscal year ended December
Corporation 31, 1998
10.24 Stock Purchase Agreement dated as of Incorporated by reference to Exhibit 2 to
April 9, 1999 by and among Smith the Registrant's Current Report on Form
Micro Software, Inc. STF 8-K filed with the Commission on April 23,
Technologies, Inc. and the 1999
Shareholders of STF Technologies,
Inc.
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
Exhibit
No. Title Method of Filing
------- ----- ----------------
<S> <C> <C>
10.25 Amendment No. 7 to Office Building Incorporated by reference to Exhibit 10.25
Lease, dated November 5, 1999, by to the Registrant's Annual Report on Form
and between the Company and World 10-K for the fiscal year ended December
Outreach Center. 31, 1999
27 Financial Data Schedule. Filed Herewith
</TABLE>
