e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
OR
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o |
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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)
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DELAWARE
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33-0029027 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
51 COLUMBIA
ALISO VIEJO, CA 92656
(Address of principal executive offices, including zip code)
(949) 362-5800
(Registrants telephone number, including area code)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer þ |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act
Rule 12b-2). Yes o No þ
As of April 30, 2009 there were 32,261,000 shares of common stock outstanding.
SMITH MICRO SOFTWARE, INC.
QUARTERLY REPORT ON FORM 10-Q
March 31, 2009
TABLE OF CONTENTS
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SMITH MICRO SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share, and par value data)
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March 31 |
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December 31, |
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2009 |
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2008 |
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(unaudited) |
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(audited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
10,772 |
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$ |
13,966 |
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Short-term investments |
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30,188 |
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$ |
22,649 |
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Accounts receivable, net of allowances for doubtful accounts
and other adjustments of $1,128 (2009) and $1,204 (2008) |
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19,387 |
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18,424 |
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Deferred tax asset |
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1,587 |
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1,698 |
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Inventories, net of reserves for obsolete inventory
of $756 (2009) and $404 (2008) |
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723 |
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1,097 |
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Prepaid expenses and other current assets |
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1,266 |
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1,026 |
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Total current assets |
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63,923 |
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58,860 |
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Equipment and improvements, net |
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4,775 |
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4,289 |
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Goodwill |
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83,483 |
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83,483 |
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Intangible assets, net |
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25,453 |
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27,603 |
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Deferred tax asset |
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2,760 |
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2,760 |
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Total assets |
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$ |
180,394 |
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$ |
176,995 |
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Liabilities and Stockholders Equity |
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Current liabilities: |
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Accounts payable |
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$ |
3,071 |
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$ |
3,492 |
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Accrued liabilities |
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6,352 |
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6,710 |
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Deferred revenue |
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2,647 |
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923 |
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Total current liabilities |
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12,070 |
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11,125 |
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Long-term liabilities |
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386 |
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466 |
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Commitments and contingencies
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Stockholders equity: |
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Preferred stock, par value $0.001 per share; 5,000,000 shares
authorized; none issued or outstanding |
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Common stock, par value $0.001 per share; 50,000,000 shares authorized;
32,261,000 and 31,400,000 shares issued and outstanding at March 31, 2009
and December 31, 2008, respectively |
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32 |
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31 |
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Additional paid-in capital |
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168,164 |
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165,864 |
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Accumulated other comprehensive income |
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24 |
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69 |
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Accumulated deficit |
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(282 |
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(560 |
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Total stockholders equity |
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167,938 |
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165,404 |
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Total liabilities and stockholders equity |
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$ |
180,394 |
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$ |
176,995 |
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See accompanying notes to the consolidated financial statements.
2
SMITH MICRO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
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Three Months Ended |
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March 31, |
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2009 |
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2008 |
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(unaudited) |
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(unaudited) |
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Revenues |
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$ |
23,788 |
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$ |
21,880 |
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Cost of revenues |
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4,523 |
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5,116 |
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Gross profit |
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19,265 |
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16,764 |
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Operating expenses: |
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Selling and marketing |
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6,277 |
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6,735 |
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Research and development |
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8,112 |
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7,069 |
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General and administrative |
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4,487 |
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4,848 |
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Total operating expenses |
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18,876 |
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18,652 |
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Operating income (loss) |
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389 |
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(1,888 |
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Interest and other income |
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255 |
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275 |
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Profit (loss) before taxes |
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644 |
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(1,613 |
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Income tax expense (benefit) |
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366 |
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(1,296 |
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Net income (loss) |
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$ |
278 |
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$ |
(317 |
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Net income (loss) per share: |
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Basic |
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$ |
0.01 |
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$ |
(0.01 |
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Diluted |
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$ |
0.01 |
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$ |
(0.01 |
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Weighted average shares outstanding: |
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Basic |
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31,675 |
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30,406 |
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Diluted |
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31,904 |
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30,406 |
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See accompanying notes to the consolidated financial statements.
3
SMITH MICRO SOFTWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(in thousands)
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Accumulated |
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Additional |
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other |
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Common stock |
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paid-in |
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comprehensive |
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Accumulated |
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Shares |
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Amount |
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capital |
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income |
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income (deficit) |
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Total |
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BALANCE, December 31, 2008 |
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31,400 |
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$ |
31 |
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$ |
165,864 |
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$ |
69 |
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$ |
(560 |
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$ |
165,404 |
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Exercise of common stock options |
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17 |
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33 |
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33 |
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Non cash compensation recognized on stock options |
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1,441 |
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1,441 |
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Restricted stock grants |
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845 |
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1 |
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932 |
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933 |
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Cancellation of shares for payment of withholding tax |
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(1 |
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(5 |
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(5 |
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Excess tax benefit related to stock compensation |
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10 |
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10 |
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Tax deficiencies related to stock compensation |
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(111 |
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(111 |
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Other comprehensive income: |
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Change in unrealized gain on short-term investments |
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(45 |
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(45 |
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Net income |
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278 |
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278 |
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Total comprehensive income |
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233 |
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BALANCE, March 31, 2009 |
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32,261 |
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$ |
32 |
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$ |
168,164 |
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$ |
24 |
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$ |
(282 |
) |
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$ |
167,938 |
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See accompanying notes to the unaudited consolidated financial statements.
4
SMITH MICRO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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Three Months Ended March 31, |
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2009 |
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2008 |
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(unaudited) |
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(unaudited) |
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Operating activities: |
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Net income (loss) |
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$ |
278 |
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$ |
(317 |
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Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities, net of the effect of acquisitions: |
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Depreciation and amortization |
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2,510 |
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2,116 |
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Provision for doubtful accounts and other adjustments to accounts receivable |
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269 |
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382 |
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Provision for excess and obsolete inventory |
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385 |
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3 |
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Tax benefits from stock-based compensation |
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(10 |
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207 |
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Non cash compensation related to stock options & restricted stock |
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2,374 |
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3,339 |
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Change in operating accounts, net of effect from acquisitions: |
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Accounts receivable |
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(1,232 |
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(4,191 |
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Deferred income taxes |
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(1,298 |
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Inventories |
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(11 |
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217 |
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Prepaid expenses and other assets |
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(240 |
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(580 |
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Accounts payable and accrued liabilities |
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870 |
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(411 |
) |
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Net cash provided by (used in) operating activities |
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5,193 |
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(533 |
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Investing activities: |
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Acquisition of eFrontier America, net of cash received |
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(16 |
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Acquisition of Insignia Solutions, net of cash received |
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(69 |
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Acquisition of PCTels Mobile Solutions Group, net of cash received |
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(60,327 |
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Capital expenditures |
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(846 |
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(198 |
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Purchase of short-term investments |
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(7,584 |
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Net cash used in investing activities |
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(8,430 |
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(60,610 |
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Financing activities: |
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Tax benefits from stock-based compensation |
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10 |
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(207 |
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Cash received from exercise of stock options |
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33 |
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10 |
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Net cash provided by (used in) financing activities |
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43 |
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(197 |
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Net decrease in cash and cash equivalents |
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(3,194 |
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(61,340 |
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Cash and cash equivalents, beginning of period |
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13,966 |
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87,549 |
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Cash and cash equivalents, end of period |
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$ |
10,772 |
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$ |
26,209 |
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Supplemental disclosures of cash flow information: |
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Cash paid for income taxes |
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$ |
661 |
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$ |
9 |
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See accompanying notes to the consolidated financial statements.
5
SMITH MICRO SOFTWARE, INC.
Notes to the Consolidated Financial Statements
1. The Company
Smith Micro Software, Inc. (we, us, our, Smith Micro, or the Company) designs,
develops and markets software products and services for the mobile industry. The Company is
focused on developing connectivity, multimedia, and device management solutions for a converging
world of wireless and wired networks. The Companys portfolio of wireless software products and
services include the QuickLink family of desktop and mobile products to manage wireless data
communications; including software applications for 3G and 4G broadband mobile networks, Wi-Fi,
personal information management, mobile content management, device management, and data compression
solutions. We sell our products and services to many of the worlds leading wireless service
providers (carriers), original equipment manufacturers (OEM), PC and device manufacturers,
enterprise businesses, as well as direct to consumers. The proliferation of broadband mobile
wireless technologies is providing new opportunities for our products and services on a global
basis. When these broadband wireless technologiesEVDO, UMTS/HSPA, Wi-Fi, and WiMAXare combined
with new devices such as mobile phones, Personal Computers (PCs), Netbooks, Smartphones, and
Ultra-Mobile PCs (UMPCs), opportunities emerge for new communications software products. Our core
technologies are designed to address these emerging mobile convergence opportunities.
In addition, the Company distributes its consumer product lines and a variety of third party
Mac and Windows PC products worldwide through our online stores and third-party wholesalers,
retailers and value-added resellers.
We offer software products that operate on Windows, Mac, UNIX, Linux, Windows Mobile, Symbian,
and Java platforms. The underlying design concept common across our products is our ability to
improve the customers experience and this philosophy is based on the combination of solid
engineering and exceptional design that reinforces our brands competitive differentiation and
customer value. We have over 25 years of experience in design, creation and custom engineering
services for software products. We create value by leveraging our business model to build new
services and solutions that allow our customers to quickly enter a market with new product
offerings that target their customer segments.
On December 10, 2007, Smith Micro entered into an Asset Purchase Agreement with PCTEL, Inc.
pursuant to which Smith Micro agreed to acquire substantially all of the assets of PCTELs Mobility
Solutions Group (MSG). The acquisition was completed on January 4, 2008. Pursuant to the terms
of the Asset Purchase Agreement, Smith Micro paid $59.7 million in cash to PCTEL at the closing on
January 4, 2008.
2. Basis of Presentation
The accompanying interim consolidated balance sheet and statement of equity as of March 31,
2009, and the related statements of operations and cash flows for the three months ended March 31,
2009 and 2008 are unaudited. The unaudited consolidated financial statements have been prepared
according to the rules and regulations of the Securities and Exchange Commission (SEC) and,
therefore, certain information and disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United States have been omitted.
In the opinion of management, the accompanying unaudited consolidated financial statements for
the periods presented reflect all adjustments, which are normal and recurring, necessary to fairly
state the financial position, results of operations and cash flows. These unaudited consolidated
financial statements should be read in conjunction with the audited financial statements included
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed with the SEC on
March 10, 2009.
Intercompany balances and transactions have been eliminated in consolidation.
Operating results for the three months ended March 31, 2009 are not necessarily indicative of
the results that may be expected for any other interim period or for the fiscal year ending
December 31, 2009.
3. Net Income (Loss) Per Share
The Company calculates earnings per share in accordance with the Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings per Share. Basic earnings per share (EPS) is
calculated by dividing the net income/loss available to common stockholders by the weighted average
number of common shares outstanding for the period, excluding common stock equivalents. Diluted EPS
is computed by dividing the net income/loss available to common stockholders by the weighted
average number of common shares outstanding for the period plus the weighted average number of
dilutive common stock equivalents outstanding for the period determined using the treasury-stock
method. For purposes of this calculation, common stock subject to repurchase by the
Company and options are considered to be common stock equivalents and are only included in the
calculation of diluted earnings per share when their effect is dilutive.
6
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Three Months Ended March 31, |
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2009 |
|
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2008 |
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(unaudited, in thousands, except per share amounts) |
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Numerator: |
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Net income (loss) available to common
stockholders |
|
$ |
278 |
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$ |
(317 |
) |
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Denominator: |
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Weighted average shares outstanding basic |
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31,675 |
|
|
|
30,406 |
|
|
|
|
|
|
|
|
|
|
Potential common shares options (treasury
stock method) |
|
|
229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted |
|
|
31,904 |
|
|
|
30,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares excluded (anti-dilutive) |
|
|
|
|
|
|
4,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares excluded due to an exercise price
greater than
weighted average stock price for the period |
|
|
2,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
Diluted |
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
4. Acquisitions
PCTELS Mobility Solutions Group
On January 4, 2008, the Company acquired substantially all of the assets of PCTELS Mobility
Solutions Group in exchange for $59.7 million in cash. The direct acquisition costs incurred to
date include $1.2 million of legal and professional services.
The results of operations of the business acquired have been included in the Companys
consolidated financial statements from the date of acquisition. Depreciation and amortization
related to the acquisition were calculated based on the estimated fair market values and estimated
lives for property and equipment and certain identifiable intangible assets acquired.
The total purchase price is summarized as follows (in thousands):
|
|
|
|
|
Cash consideration |
|
$ |
59,700 |
|
Acquisition related costs |
|
|
1,231 |
|
|
|
|
|
Total purchase price |
|
$ |
60,931 |
|
|
|
|
|
7
The Companys allocation of the purchase price is summarized as follows (in thousands):
|
|
|
|
|
Assets: |
|
|
|
|
Property & Equipment |
|
$ |
718 |
|
Intangible Assets |
|
|
13,050 |
|
Goodwill |
|
50,319 |
|
Total Assets |
|
|
64,087 |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Deferred Revenue |
|
|
3,156 |
|
|
|
|
|
Total Liabilities |
|
|
3,156 |
|
|
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
60,931 |
|
|
|
|
|
e Frontier, Inc.
In November 2007, the Company acquired certain assets of e frontier America, Inc., a
wholly-owned subsidiary of e Frontier, Inc., including e Frontiers Aquazone, Poser and Shade®
product suites. The Company paid a total of $5.6 million and incurred $0.1 million in direct costs
(legal and professional services) to complete the transaction.
Insignia Solutions, plc.
On April 4, 2007, the Company, IS Acquisition Sub, Inc., a wholly-owned subsidiary of the
Company, and Insignia Solutions, plc and its subsidiaries Insignia Solutions Inc., Insignia
Solutions AB and Insignia Asia Corporation (collectively Insignia) entered into an Amendment (the
Amendment) to the Asset Purchase Agreement dated February 11, 2007 by and among the Company,
Acquisition Sub and Insignia (the Asset Purchase Agreement).
Pursuant to the Asset Purchase Agreement, as amended by the Amendment, the Company,
Acquisition Sub and Insignia agreed that, among other things, the aggregate consideration to be
paid by the Company under the Asset Purchase Agreement would be $18.8 million, consisting of:
$14.5 million in cash; forgiveness of all indebtedness payable by Insignia under the Promissory
Note initially delivered to the Company on December 22, 2006 (the principal amount of the note was
$0.8 million as of December 31, 2006 and was included in Accounts Receivable on the Consolidated
Balance Sheet, and was $2.0 million at the closing of the acquisition), and a cash sum equal to the
product of $2.6 million less the dollar amount of the Employee Liabilities (as defined in the
Amendment) assumed by the Company at closing.
In accordance with the Asset Purchase Agreement, the Company held back $1.5 million in cash
from the aggregate purchase price for twelve months as security for satisfaction of Insignias
indemnification obligations under the Asset Purchase Agreement. In the quarter ended March 31,
2008, the Company filed an indemnification claim against Insignia and demanded that the full amount
of the holdback payment be cancelled in partial satisfaction of Insignias indemnification
obligations. In June, 2008 the Company received $0.5 million in settlement of the Companys
indemnification claim and was relieved from any obligation to pay the $1.5 million holdback. This
payment has been accounted for as a reduction of the purchase price and has been credited to
Goodwill. A total of $0.7 million in direct cost (legal and professional services) were incurred
relating to this transaction.
5. Stock-Based Compensation
Stock Plans
On July 28, 2005, our Shareholders approved the 2005 Stock Option / Stock Issuance Plan (2005
Plan). The 2005 Plan, which became effective the same date, replaced the 1995 Stock Option /
Stock Issuance Plan (1995 Plan), which expired on May 24, 2005. All outstanding options under
the 1995 Plan remained outstanding, but no further grants will be made under that Plan.
The 2005 Plan provides for the issuance of non-qualified or incentive stock options and
restricted stock to employees, non-employee members of the board and consultants. The exercise
price per share is not to be less than the fair market value per share of the Companys common
stock on the date of grant. The Board of Directors has the discretion to determine the vesting
schedule.
Options may be exercisable immediately or in installments, but generally vest over a four-year
period from the date of grant. In the event the holder ceases to be employed by the Company, all
unvested options terminate and all vested options may be exercised within a period following
termination. In general, options expire ten years from the date of grant. Restricted stock is
valued using the closing stock price on the date of the grant. The total value is expensed over
the vesting period of 12 to 48 months. The maximum number of
8
shares of the Companys common stock
that were available for issuance over the term of the original 2005 Plan could not exceed 5,000,000
shares, plus that number of additional shares equal to 2.5% of the number of shares of common stock
outstanding on the last trading day of the calendar year commencing with calendar year 2006 (but
not in excess of 750,000 shares). On October 11, 2007, our shareholders voted to approve an
amendment to the 2005 Plan to increase the maximum number of shares of common stock that may be
issued under the 2005 Plan from 5,000,000 shares (plus an annual increase) to 7,000,000 shares
(plus an annual increase).
SFAS 123(R)
Effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, which
requires the measurement and recognition of compensation expense for all share-based payment awards
made to employees and directors, including stock options based on their fair values. SFAS No.
123(R) supersedes Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued
to Employees, which the Company previously followed in accounting for stock-based awards. In March
2005, the SEC issued Staff Accounting Bulletin (SAB) No. 107 to provide guidance on SFAS No. 123(R). The Company has applied
SAB No. 107 in its adoption of SFAS No. 123(R).
The Company adopted SFAS No. 123(R) using the modified prospective transition method as of
January 1, 2006. In accordance with the modified prospective transition method, the Companys
financial statements for prior periods have not been restated to reflect, and do not include, the
impact of SFAS No. 123(R). Share-based compensation expense recognized is based on the value of the
portion of share-based payment awards that is ultimately expected to vest. Share-based compensation
expense recognized in the Companys consolidated statement of operations during the three months
ended March 31, 2009 and 2008 includes compensation expense for share-based payment awards granted
prior to, but not yet vested as of, December 31, 2005 based on the grant date fair value estimated
in accordance with the pro forma provisions of SFAS No. 123.
Valuation of Stock Option and Restricted Stock Awards
There were no stock options granted during the three months ended March 31, 2009. The
weighted average grant-date fair value of stock options granted during the three months ended March
31, 2008 was $4.07. The assumptions used to compute the share-based compensation costs for the
stock options granted during the three months ended March 31, 2008, using the Black-Scholes option
pricing model, were as follows:
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2008 |
|
|
(unaudited) |
Employee Stock Options |
|
|
|
|
Risk-free interest rate |
|
|
2.9 |
% |
Expected dividend yield |
|
|
|
|
Weighted average expected life (years) |
|
|
4 |
|
Volatility |
|
|
71.0 |
% |
Forfeiture rate |
|
|
3.5 |
% |
The risk-free interest rate assumption was based on the United States Treasurys rates for
U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award
being valued. The Company assumed no dividend yield because it does not expect to pay dividends for
the foreseeable future.
Grants of restricted stock are valued using the closing stock price on the date of grant. In
the three months ended March 31, 2009, a total of 50,000 shares of restricted stock, with a total
value of $0.2 million, were granted to members of the Board of Directors. This cost will be
amortized over a period of 12 months. In addition, 0.8 million shares of restricted stock, with a
total value of $3.1 million, were granted to key officers and employees of the Company. This cost
will be amortized over a period of 48 months.
Compensation Costs
In conjunction with the adoption of SFAS No. 123(R), the Company elected to attribute the
value of share-based compensation to expense using the straight-line method over the requisite
service period for each award, which was previously used for its pro forma information required
under SFAS No. 123. Share-based non-cash compensation expenses related to stock options and
restricted stock grants were recorded in the financial statements as follows (in thousands):
9
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
(unaudited) |
|
|
|
2009 |
|
|
2008 |
|
Cost of revenues |
|
$ |
73 |
|
|
$ |
100 |
|
Selling and marketing |
|
|
679 |
|
|
|
1,287 |
|
Research and development |
|
|
607 |
|
|
|
767 |
|
General and administrative |
|
|
1,015 |
|
|
|
1,185 |
|
|
|
|
|
|
|
|
Total non-cash stock compensation expense |
|
$ |
2,374 |
|
|
$ |
3,339 |
|
|
|
|
|
|
|
|
Total share-based compensation for each quarter includes cash payment of income taxes related
to grants of restricted stock in the amount of $0.2 million in the three months ended March 31,
2009 and $0.3 million in the three months ended March 31, 2008.
Stock Options
A summary of the Companys stock options outstanding under the 2005 Plan as of March 31, 2009,
and the activity during the three months then ended, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Ave. |
|
|
Aggregate |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Intrinsic Value |
|
|
|
(in thousands except per share amounts) |
|
Outstanding as of December 31, 2008 |
|
|
4,289 |
|
|
$ |
10.94 |
|
|
|
|
|
Granted (unaudited) |
|
|
|
|
|
$ |
|
|
|
|
|
|
Exercised (unaudited) |
|
|
(17 |
) |
|
$ |
1.91 |
|
|
|
|
|
Cancelled (unaudited) |
|
|
(220 |
) |
|
$ |
12.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of March 31, 2009 (unaudited) |
|
|
4,052 |
|
|
$ |
10.80 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of March 31, 2009 (unaudited) |
|
|
2,622 |
|
|
$ |
9.34 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2009 options to acquire 17,000 shares were exercised
with an intrinsic value of $57,000, resulting in cash proceeds to the Company of $33,000. There
were no stock options granted during the three months ended March 31, 2009. For the quarter ended
March 31, 2009, there were $9.5 million of total unrecognized compensation costs related to
non-vested stock options granted under the Plan, which will be recognized over a period not to
exceed four years. At March 31, 2009, there were 1.4 million shares available for future grants
under the 2005 Stock Issuance / Stock Option Plan.
Additional information regarding options outstanding as of March 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding |
|
Options exercisable |
|
|
|
|
|
|
Weighted average |
|
Weighted |
|
|
|
|
|
Weighted |
Range of |
|
Number |
|
remaining |
|
average |
|
Number |
|
average |
exercise |
|
outstanding |
|
contractual |
|
exercise |
|
exercisable |
|
exercise |
prices |
|
(in thousands) |
|
life (years) |
|
price |
|
(in thousands) |
|
price |
$0.24 - $4.00 |
|
|
315 |
|
|
|
4.8 |
|
|
$ |
1.68 |
|
|
|
315 |
|
|
$ |
1.68 |
|
$4.01 - $6.00 |
|
|
953 |
|
|
|
6.3 |
|
|
$ |
4.95 |
|
|
|
859 |
|
|
$ |
4.95 |
|
$6.01 - $12.00 |
|
|
292 |
|
|
|
7.7 |
|
|
$ |
8.73 |
|
|
|
185 |
|
|
$ |
8.60 |
|
$12.01 - $14.00 |
|
|
1,310 |
|
|
|
7.9 |
|
|
$ |
12.68 |
|
|
|
689 |
|
|
$ |
12.69 |
|
$14.01 - $16.00 |
|
|
678 |
|
|
|
8.0 |
|
|
$ |
15.18 |
|
|
|
346 |
|
|
$ |
15.19 |
|
$16.01 - $19.00 |
|
|
504 |
|
|
|
8.1 |
|
|
$ |
18.02 |
|
|
|
228 |
|
|
$ |
18.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,052 |
|
|
|
7.3 |
|
|
$ |
10.80 |
|
|
|
2,622 |
|
|
$ |
9.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Restricted Stock Awards
A summary of the Companys restricted stock awards outstanding under the 2005 Plan as of March
31, 2009, and the activity during the nine months then ended, are as follows (in thousands):
|
|
|
|
|
|
|
Shares |
Unvested at December 31, 2008 |
|
|
998 |
|
Granted (unaudited) |
|
|
847 |
|
Cancelled (unaudited) |
|
|
(12 |
) |
Vested (unaudited) |
|
|
(132 |
) |
|
|
|
|
|
Unvested at March 31, 2009 (unaudited) |
|
|
1,701 |
|
|
|
|
|
|
6. Fair Value of Financial Instruments
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements, which defines the
fair value, establishes a framework for measuring fair value and expands disclosures about fair
value measurements. This statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal years. On February 12,
2008, the FASB issued FASB Staff Position (FSP) No. 157-2 which defers the effective date of SFAS
No. 157 for one year for non-financial assets and non-financial liabilities that are not recognized
or disclosed at fair value in the financial statements on a recurring basis. Our adoption of SFAS
No. 157 on January 1, 2008 did not have a material impact on the Companys financial position,
results of operations or cash flows.
The carrying value of accounts receivable, foreign cash accounts, prepaid expenses, other
current assets, accounts payable, and accrued expenses are considered to be representative of their
respective fair values because of the short-term nature of those instruments.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 permits entities to choose to measure at fair value many
financial instruments and certain other items that are not currently required to be measured at
fair value. Subsequent changes in fair value for designated items will be required to be reported
in earnings in the current period. SFAS No. 159 also establishes presentation and disclosure
requirements for similar types of assets and liabilities measured at fair value. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. As permitted by SFAS No. 159, we have
elected not to use the fair value option to measure our available-for-sale securities under SFAS
No. 159 and will continue to report under SFAS No. 115, Accounting for Certain Investments in Debt
and Equity Securities. We have made this election because the nature of our financial assets and
liabilities are not of such complexity that they would benefit from a change in valuation to fair
value.
7. Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash, government securities, mutual funds, and
money market funds. These securities are all held in two financial institutions and are uninsured
except for the minimum Federal Deposit Insurance Corporation (FDIC) coverage, and have original
maturity dates of three months or less. As of March 31, 2009 and December 31, 2008, bank
balances totaling approximately $3.6 million and $14.0 million, respectively, were uninsured.
8. Short-Term Investments
Short-term investments consist of U.S. government agency and government sponsored enterprise
obligations. The Company accounts for these short-term investments in accordance with SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities. These debt and equity
securities are not classified as either held-to-maturity securities or trading securities. As
such, they are classified as available-for-sale securities. Available-for-sale securities are
recorded at fair value, with unrealized gains or losses recorded as a separate component of
accumulated other comprehensive income in shareholders equity until realized. Trading
securities are carried at fair value, with unrealized gains and losses included in investment
income. All securities are accounted for on a specific identification basis. As of March 31, 2009,
the following available-for-sale securities were in a gain position (in thousands):
11
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
Fair value |
|
|
Unrealized gain |
|
Holding period of less than 12 months: |
|
|
|
|
|
|
|
|
Corporate bonds and notes |
|
$ |
9,939 |
|
|
$ |
6 |
|
Government securities |
|
|
20,249 |
|
|
|
18 |
|
|
|
|
|
|
|
|
Total |
|
$ |
30,188 |
|
|
$ |
24 |
|
|
|
|
|
|
|
|
SFAS No. 157 clarifies that fair value is an exit price, representing the amount that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement that is determined based on
assumptions that market participants would use in pricing an asset or a liability. As a basis for
considering such assumptions, SFAS No. 157 establishes a three-tier value hierarchy, which
prioritizes the inputs used in the valuation methodologies in measuring fair value:
■ |
|
Level 1 Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
|
■ |
|
Level 2 Include other inputs that are directly or indirectly observable in the marketplace. |
|
■ |
|
Level 3 Unobservable inputs which are supported by little or no market activity. |
The fair value hierarchy also requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value.
In accordance with SFAS No. 157, we measure our cash equivalents and short-term investments at
fair value. Our cash equivalents and short-term investments are classified within Level
1, by using quoted market prices utilizing market observable inputs.
For the three months ended March 31, 2009, realized gains on our short-term investments were
$0.1 million; reported in the interest and other income line on the consolidated statements of
operations.
9. Accounts Receivable
The Company performs ongoing credit evaluations of its customers and generally does not
require collateral. The Company maintains reserves for estimated credit losses, and those losses
have been within managements estimates. Allowances for product returns are included in other
adjustments to accounts receivable on the accompanying consolidated balance sheets. Product
returns are estimated based on historical experience and have also been within managements
estimates.
10. Inventories
Inventories consist principally of cables, compact disks (CDs), boxes and manuals and are
stated at the lower of cost (determined by the first-in, first-out method) or market. The Company
regularly reviews its inventory quantities on hand and records a provision for excess and obsolete
inventory based primarily on managements forecast of product demand and production requirements.
At March 31, 2009, our net inventory balance consisted of approximately $0.2 million of assembled
products and $0.5 million of components.
11. 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 lease term.
12. Goodwill
In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the Company reviews the
recoverability of the carrying value of goodwill at least annually or whenever events or
circumstances indicate a potential impairment. The Companys annual impairment testing date is
December 31. Recoverability of goodwill is determined by comparing the fair value of the Companys
reporting units to the carrying value of the underlying net assets in the reporting units. If the
fair value of a reporting unit is determined to be less than the carrying value of its net assets,
goodwill is deemed impaired and an impairment loss is recognized to the extent that the carrying
value of goodwill exceeds the difference between the fair value of the reporting unit and the fair
value of its other assets and liabilities. We determined that we did not have any impairment of
goodwill at December 31, 2008.
The carrying amount of the Companys goodwill was $83.5 million as of March 31, 2009 and
December 31, 2008.
12
13. Intangible Assets
The following table sets forth our acquired intangible assets by major asset class as of March
31, 2009 and December 31, 2008 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful |
|
|
March 31, 2009 (unaudited) |
|
|
December 31, 2008 |
|
|
|
Life |
|
|
|
|
|
|
Accumulated |
|
|
Net Book |
|
|
|
|
|
|
Accumulated |
|
|
Net Book |
|
|
|
(Years) |
|
|
Gross |
|
|
Amortization |
|
|
Value |
|
|
Gross |
|
|
Amortization |
|
|
Value |
|
Amortizing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Technology |
|
|
1 |
|
|
$ |
3,047 |
|
|
$ |
(2,169 |
) |
|
$ |
878 |
|
|
$ |
3,047 |
|
|
$ |
(1,836 |
) |
|
$ |
1,211 |
|
Capitalized Software |
|
|
5-7 |
|
|
|
23,846 |
|
|
|
(8,087 |
) |
|
|
15,759 |
|
|
|
23,846 |
|
|
|
(6,899 |
) |
|
|
16,947 |
|
Distribution Rights |
|
|
5 |
|
|
|
482 |
|
|
|
(395 |
) |
|
|
87 |
|
|
|
482 |
|
|
|
(377 |
) |
|
|
105 |
|
Customer Lists |
|
|
5 |
|
|
|
1,484 |
|
|
|
(769 |
) |
|
|
715 |
|
|
|
1,484 |
|
|
|
(676 |
) |
|
|
808 |
|
Database |
|
|
10 |
|
|
|
182 |
|
|
|
(24 |
) |
|
|
158 |
|
|
|
182 |
|
|
|
(20 |
) |
|
|
162 |
|
Trademarks |
|
|
10 |
|
|
|
809 |
|
|
|
(392 |
) |
|
|
417 |
|
|
|
809 |
|
|
|
(375 |
) |
|
|
434 |
|
Trade Names |
|
|
1-2 |
|
|
|
2,121 |
|
|
|
(504 |
) |
|
|
1,617 |
|
|
|
2,121 |
|
|
|
(406 |
) |
|
|
1,715 |
|
Customer Agreements |
|
|
4-7 |
|
|
|
1,135 |
|
|
|
(771 |
) |
|
|
364 |
|
|
|
1,135 |
|
|
|
(650 |
) |
|
|
485 |
|
Customer
Relationships |
|
|
1-9 |
|
|
|
7,020 |
|
|
|
(1,562 |
) |
|
|
5,458 |
|
|
|
7,020 |
|
|
|
(1,284 |
) |
|
|
5,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
|
|
|
$ |
40,126 |
|
|
$ |
(14,673 |
) |
|
$ |
25,453 |
|
|
$ |
40,126 |
|
|
$ |
(12,523 |
) |
|
$ |
27,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense on intangible assets was $2.1 million for the three months
ended March 31, 2009. Expected future amortization expense is as follows: $6.2 million for the
remainder of 2009, $6.0 million for 2010, $5.6 million for 2011, $4.8 million for 2012, $2.2
million for 2013, $0.7 million thereafter.
14. Comprehensive Income
Comprehensive income includes unrealized gains and losses on short-term investments of U.S.
government agency and government sponsored enterprise debt and equity securities. The following
table sets forth the calculation of comprehensive income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
(unaudited) |
|
|
|
2009 |
|
|
2008 |
|
Net income (loss) |
|
$ |
278 |
|
|
$ |
(317 |
) |
Change in unrealized gain on investments, net |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
233 |
|
|
$ |
(317 |
) |
|
|
|
|
|
|
|
15. Segment and Geographical Information
Segment Information
The Company applies the provisions of SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 requires public companies to report financial and
descriptive information about their reportable operating segments. The Company identifies its
operating segments based on how management internally evaluates separate financial information,
business activities and management responsibility. The Company has two primary business units.
Wireless includes our connection manager solutions for the OEM and Enterprise channels,
music, photo and video content management, firmware over the air and products for the IMS
application layer. Consumer includes retail sales of our compression and broad
consumer-based software. Corporate/Other revenue includes the consulting portion of our services sector
which has been de-emphasized and is no longer considered a strategic element of our future plans.
13
The Company does not separately allocate operating expenses to these business units, nor does
it allocate specific assets. Therefore, business unit information reported includes only revenues.
The following table shows the revenues generated by each business unit (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(unaudited) |
|
Wireless |
|
$ |
19,257 |
|
|
$ |
16,156 |
|
Consumer |
|
|
4,251 |
|
|
|
5,485 |
|
Corporate/Other |
|
|
280 |
|
|
|
239 |
|
|
|
|
|
|
|
|
Total Revenues |
|
$ |
23,788 |
|
|
$ |
21,880 |
|
|
|
|
|
|
|
|
Sales to two customers and their respective affiliates in the Wireless business segment
accounted for 28.1% and 14.2% of the Companys total revenues for the three months ended March 31,
2009. Sales to one customer in the Wireless business segment accounted for 43.6% of the Companys
total revenues for the three months ended March 31, 2008.
Geographical Information
During the three months ended March 31, 2009 and 2008, the Company operated in three
geographic locations; the Americas, Asia Pacific, and EMEA (Europe, the Middle East, and Africa).
Revenues, attributed to the geographic location of the customers bill-to address, were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(unaudited) |
|
Americas |
|
$ |
20,951 |
|
|
$ |
19,779 |
|
Asia Pacific |
|
|
1,319 |
|
|
|
1,062 |
|
EMEA |
|
|
1,518 |
|
|
|
1,039 |
|
|
|
|
|
|
|
|
Total Revenues |
|
$ |
23,788 |
|
|
$ |
21,880 |
|
|
|
|
|
|
|
|
The Company does not separately allocate specific assets to these geographic locations.
16. Recent Accounting Pronouncements
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of
accounting principles to be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting principles (GAAP) in
the United States. This Statement is effective 60 days following the SECs approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles. The Company currently adheres to the
hierarchy of GAAP as presented in SFAS No. 162, and does not expect its adoption will have a
material impact on its consolidated results of operations and financial condition.
In December 2007, the FASB issued SFAS No. 141(R) (Revised 2007), Business Combinations. The
objective of SFAS No. 141(R) is to improve reporting by creating greater consistency in the
accounting and financial reporting of business combinations, resulting in more complete, comparable
and relevant information for investors and other users of financial statements. SFAS No. 141(R)
requires the acquiring entity in a business combination to recognize all (and only) the assets
acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as
the measurement objective for all assets acquired and liabilities assumed; and requires the
acquirer to disclose to investors and other users all of the information they need to evaluate and
understand the nature and financial effect of the business combination. SFAS No. 141(R) includes
both core principles and pertinent application guidance, eliminating the need for numerous Emerging
Issues Task Force (EITF) issues and other interpretative guidance, thereby reducing the
complexity of existing United States GAAP. SFAS No. 141(R) is effective as of the start of fiscal
years beginning after December 15, 2008. Early adoption is not allowed. The Company has adopted
SFAS no. 141(R) but the impact will not be known until there is another business acquisition.
14
In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated
Financial Statements. SFAS No. 160 improves the relevance, comparability, and transparency of
financial information provided to investors by requiring all entities to report non-controlling
(minority) interests in subsidiaries in the same wayas equity in the consolidated financial
statements. Moreover, SFAS No. 160 eliminates the diversity that currently exists in accounting for
transactions between an entity and non-controlling interests by requiring they be treated as equity
transactions. SFAS No. 160 is effective as of the start of fiscal years beginning after
December 15, 2008. Early adoption is not allowed. The Company has adopted SFAS No. 160 and does
not expect its adoption will have a material impact on its consolidated results of operations and
financial condition.
17. Commitments and Contingencies
Leases
The Company leases its buildings under operating leases that expire on various dates through
2016. Future minimum annual lease payments under such leases as of March 31, 2009 are as follows
(in thousands):
|
|
|
|
|
Year Ending December 31, |
|
Operating |
|
2009-9 months |
|
$ |
1,216 |
|
2010 |
|
|
1,538 |
|
2011 |
|
|
1,546 |
|
2012 |
|
|
1,389 |
|
2013 |
|
|
920 |
|
2014 |
|
|
737 |
|
Beyond |
|
|
1,080 |
|
|
|
|
|
Total |
|
$ |
8,426 |
|
|
|
|
|
Rent expense under operating leases for both the three months ended March 31, 2009 and 2008
was $0.4 million.
18. Income Taxes
We adopted the provisions of Financial Accounting Standards Board Interpretation (FIN) No.
48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109, on
January 1, 2007. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in
an enterprises financial statements in accordance with SFAS No. 109, Accounting for Income Taxes,
and prescribes a recognition threshold and measurement process for financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also
provides guidance on de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition.
Based on our evaluation, we have concluded that there are no significant uncertain tax
positions requiring recognition in our financial statements. Our evaluation was performed for the
tax years ended December 31, 2005, 2006, 2007, and 2008, the tax years which remain subject to
examination by major tax jurisdictions as of March 31, 2009.
In the three months ended March 31, 2009, we recorded income tax expense in the amount of $0.4
million.
We may from time to time be assessed interest or penalties by major tax jurisdictions,
although any such assessments historically have been minimal and immaterial to our financial
results. In the event we have received an assessment for interest and/or penalties, it has been
classified in the financial statements as general and administrative expense.
In June 2008, the Internal Revenue Service began its examination of the Companys U.S. federal
tax return for the period ended December 31, 2006. The examination is now complete and there were
no adjustments.
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This report contains forward-looking statements regarding Smith Micro Software, Inc. (we,
us, our,Smith Micro, or the Company) which include, but are not limited to, statements
concerning projected revenues, expenses, gross profit and income, the competitive factors affecting
our business, market acceptance of products, customer concentration, the success and timing of new
product introductions and the protection of our intellectual property. These forward-looking
statements are based on our current expectations, estimates and projections about our industry,
managements beliefs, and certain assumptions made by us. Words such as anticipates, expects,
intends, plans, predicts, potential, believes, seeks, estimates, should, may,
will and variations of these words or similar expressions are intended to identify
forward-looking statements. Forward-looking statements also include the assumptions underlying or
relating to any of the foregoing statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties and assumptions that are difficult to predict.
Therefore, our actual results could differ materially and adversely from those expressed or implied
in any forward-looking statements as a result of various factors. Such factors include, but are
not limited to, the following:
|
|
|
The duration and depth of the current economic slowdown and its effects on
capital expenditures by our customers and their end users; |
|
|
|
|
our ability to predict consumer needs, introduce new products, gain broad market
acceptance for such products and ramp up manufacturing in a timely manner; |
|
|
|
|
changes in demand for our products from our customers and their end-users; |
|
|
|
|
the intensity of the competition and our ability to successfully compete; |
|
|
|
|
the pace at which the market for new products develop; |
|
|
|
|
the response of competitors, many of whom are bigger and better financed than us; |
|
|
|
|
our ability to successfully execute our business plan and control costs and
expenses; |
|
|
|
|
our ability to protect our intellectual property and our ability to not infringe
on the rights of others; and |
|
|
|
|
those additional factors which are listed under the section Risk Factors in our
Annual Report on Form 10-K for the year ended December 31, 2008. |
The forward-looking statements contained in this report are made on the basis of the views and
assumptions of management regarding future events and business performance as of the date this
report is filed with the SEC. We do not undertake any obligation to update these statements to
reflect events or circumstances occurring after the date this report is filed.
Overview
Smith Micro Software, Inc. (we, us, our, Smith Micro, or the Company) designs,
develops and markets software products and services for the mobile industry. The Company is
focused on developing connectivity, multimedia, and device management solutions for a converging
world of wireless and wired networks. The Companys portfolio of wireless software products and
services include the QuickLink family of desktop and mobile products to manage wireless data
communications; including software applications for 3G and 4G broadband mobile networks, Wi-Fi,
personal information management, mobile content management, device management, and data compression
solutions. We sell our products and services to many of the worlds leading wireless service
providers (carriers), original equipment manufacturers (OEM), PC and device manufacturers,
enterprise businesses, as well as direct to consumers. The proliferation of broadband mobile
wireless technologies is providing new opportunities for our products and services on a global
basis. When these broadband wireless technologiesEVDO, UMTS/HSPA, Wi-Fi, and WiMAXare combined
with new devices such as mobile phones, Personal Computers (PCs), Netbooks, Smartphones, and
Ultra-Mobile PCs (UMPCs), opportunities emerge for new communications software products. Our core
technologies are designed to address these emerging mobile convergence opportunities.
In addition, the Company distributes its consumer product lines and a variety of third party
Mac and Windows PC products worldwide through our online stores and third-party wholesalers,
retailers and value-added resellers.
16
We offer software products that operate on Windows, Mac, UNIX, Linux, Windows Mobile, Symbian,
and Java platforms. The underlying design concept common across our products is our ability to
improve the customers experience and this philosophy is based on the combination of solid
engineering and exceptional design that reinforces our brands competitive differentiation and
customer value. We have over 25 years of experience in design, creation and custom engineering
services for software products. We create value by leveraging our business model to build new
services and solutions that allow our customers to quickly enter a market with new product
offerings that target their customer segments.
Sales to two customers and their respective affiliates in the Wireless business segment
accounted for 28.1% and 14.2% of the Companys total revenues for the three months ended March 31,
2009. Sales to one customer in the Wireless business segment accounted for 43.6% of the Companys
total revenues for the three months ended March 31, 2008.
On December 10, 2007, Smith Micro entered into an Asset Purchase Agreement with PCTEL, Inc.
pursuant to which Smith Micro agreed to acquire substantially all of the assets of PCTELs Mobility
Solutions Group (MSG). The acquisition was completed on January 4, 2008. Pursuant to the terms
of the Asset Purchase Agreement, Smith Micro paid $59.7 million in cash to PCTEL at the closing on
January 4, 2008.
Results of Operations
The table below sets forth certain statements of operations data expressed as a percentage of
revenues for the three months ended March 31, 2009 and 2008. Our historical results are not
necessarily indicative of the operating results that may be expected in the future.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenues |
|
|
19.0 |
% |
|
|
23.4 |
% |
|
|
|
|
|
|
|
Gross profit |
|
|
81.0 |
% |
|
|
76.6 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
26.4 |
% |
|
|
30.8 |
% |
Research and development |
|
|
34.1 |
% |
|
|
32.3 |
% |
General and administrative |
|
|
18.9 |
% |
|
|
22.2 |
% |
|
|
|
|
|
|
|
Total operating expenses |
|
|
79.4 |
% |
|
|
85.3 |
% |
|
|
|
|
|
|
|
Operating income (loss) |
|
|
1.6 |
% |
|
|
-8.7 |
% |
Interest and other income |
|
|
1.1 |
% |
|
|
1.3 |
% |
|
|
|
|
|
|
|
Profit (loss) before taxes |
|
|
2.7 |
% |
|
|
-7.4 |
% |
Income tax expense (benefit) |
|
|
1.5 |
% |
|
|
-5.9 |
% |
|
|
|
|
|
|
|
Net income (loss) |
|
|
1.2 |
% |
|
|
-1.5 |
% |
|
|
|
|
|
|
|
Revenues and Expense Components
The following is a description of the primary components of our revenues and expenses:
Revenues. Revenues are net of sales returns and allowances. Substantially all of our
operations are organized into two business units:
|
|
|
Wireless, which includes our connection manager solutions for the OEM and
Enterprise channels, music, photo and video content management, device management;
and |
|
|
|
|
Consumer, which includes retail sales of our compression and broad
consumer-based software. |
17
The following table shows the revenues generated by each business unit (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Wireless |
|
$ |
19,257 |
|
|
$ |
16,156 |
|
Consumer |
|
|
4,251 |
|
|
|
5,485 |
|
Corporate/Other |
|
|
280 |
|
|
|
239 |
|
|
|
|
|
|
|
|
Total Revenues |
|
|
23,788 |
|
|
|
21,880 |
|
Cost of revenues |
|
|
4,523 |
|
|
|
5,116 |
|
|
|
|
|
|
|
|
Gross Profit |
|
$ |
19,265 |
|
|
$ |
16,764 |
|
|
|
|
|
|
|
|
Corporate/Other refers to the consulting portion of our services sector which has been
de-emphasized and is no longer considered a strategic element of our future plans.
Cost of revenues. Cost of revenues consists of direct product costs, royalties, and the
amortization of purchased intangibles and capitalized software.
Selling and marketing. Selling and marketing expenses consist primarily of personnel costs,
advertising costs, sales commissions, trade show expenses, and the amortization of certain
purchased intangibles. These expenses vary significantly from quarter to quarter based on the
timing of trade shows and product introductions.
Research and development. Research and development expenses consist primarily of personnel
and equipment costs required to conduct our software development efforts, and the amortization of
acquired intangibles. We remain focused on the development and expansion of our technology,
particularly our wireless, compression and multimedia software technologies.
General and administrative. General and administrative expenses consist primarily of
personnel costs, professional services and fees paid for external service providers, travel, legal,
and other public company costs.
Interest and other income. Interest and other income are directly related to our average cash
balance during the period and vary among periods. On January 4, 2008, we purchased substantially
all of the assets of the Mobile Solutions Group of PCTEL at a cost of $59.7 million. In June 2008
we changed our investment strategy to include short-term investments in equity and debt securities
with maturity dates within three to 12 months. Our other excess cash is invested in short term
marketable equity and debt securities classified as cash equivalents.
Income tax expense. The Company accounts for income taxes under the provision of 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 Companys
financial statements or tax returns. Measurement of the deferred items is based on enacted tax
laws. In the event the future consequences of differences between financial reporting bases and
tax bases of the Companys 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. Effective
January 1, 2007, the Company adopted FIN No. 48, Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109. Based on our evaluation, we have concluded that there
are no significant uncertain tax positions requiring recognition in our financial statements.
Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008
Revenues. Revenues were $23.8 million and $21.9 million for the three months ended March 31,
2009 and 2008, respectively, representing an increase of $1.9 million, or 8.7%. Wireless sales
increased $3.1 million, or 19.2%, primarily due to new connectivity and security product OEM
licenses of $7.5 million. These increases were partially offset by a $4.4 million decrease
primarily due to the change in how our multimedia products were merchandised by our primary music
customers; changing from higher revenue, lower margin music kits (including software, cable and ear
buds) to downloadable software or as a software-only CD, resulting in lower revenue per unit, but
at a much higher margin per unit. Consumer group sales decreased $1.2 million, or 22.5%, primarily
due to a one-time inventory sell-in of a new major consumer product launched in the first quarter
of 2008 and the effect of the worldwide economic downturn in the first quarter of 2009.
18
Cost of revenues. Cost of revenues was $4.5 million and $5.1 million for the three months
ended March 31, 2009 and 2008, respectively, representing a decrease of $0.6 million, or 11.6%.
Direct product costs decreased $0.8 million primarily due to a shift in product mix. A decrease in
sales of lower margin multimedia and consumer products were more than offset by sales of higher
margin OEM license products. Amortization of intangibles increased from $1.0 million to $1.2
million, or $0.2 million, due to several small
acquisitions made in the fourth quarter of 2008. Stock-based compensation expense was $0.1
million for both fiscal quarters ended March 31, 2009 and 2008.
Gross profit. Gross profit was $19.3 million, or 81.0% of revenues for the three months ended
March 31, 2009, an increase of $2.5 million, or 14.9%, from $16.8 million, or 76.6% of revenues for
the three months ended March 31, 2008. The 4.4 percentage point increase was primarily due to
improved product margins of 4.8 points as a result of the change in product mix mentioned above,
and lower stock based compensation expense as a percentage of sales of 0.2 points. These items
were partially offset by higher amortization of intangibles due to several small acquisitions of
0.6 points.
Selling and marketing. Selling and marketing expenses were $6.3 million and $6.7 million for
the three months ended March 31, 2009 and 2008, respectively, representing a decrease of $0.4
million, or 6.8%. This decrease was primarily due to lower stock-based compensation expense which
decreased from $1.3 million to $0.7 million, or $0.6 million. This decrease was partially offset
by increased personnel costs and higher headcount of $0.2 million.
Research and development. Research and development expenses were $8.1 million and $7.1
million for the three months ended March 31, 2009 and 2008, respectively, representing an increase
of $1.0 million, or 14.8%. This increase was primarily due to increased personnel and recruiting
costs associated with acquired and new hired headcount of $1.1 million to support our new product
initiatives and new contract wins, and other cost increases of $0.1 million. This increase was
partially offset by lower stock-based compensation expense which decreased from $0.8 million to
$0.6 million, or $0.2 million. Amortization of purchased technologies was $0.3 million for both
fiscal quarters ended March 31, 2009 and 2008.
General and administrative. General and administrative expenses were $4.5 million and $4.8
million for the three months ended March 31, 2009 and 2008, respectively, representing a decrease
of $0.3 million, or 7.4%. This decrease was primarily due lower stock-based compensation expense
which decreased from $1.4 million to $1.2 million, or $0.2 million and overall reduced spending of
$0.1 million.
Interest and other income. Interest and other income was $0.3 million for both
fiscal quarters ended March 31, 2009 and 2008.
Income tax provision. We recorded an income tax expense for the three months ended March 31,
2009 in the amount of $0.4 million. We recorded a tax benefit of $1.3 million for the three months
ended March 31, 2008.
Liquidity and Capital Resources
At March 31, 2009, we had $41.0 million in cash, cash equivalents, and short-term investments
and $51.9 million of working capital. On January 4, 2008, we acquired the Mobile Solutions Group of
PCTEL at a cost of $59.7 million in cash plus $0.6 million of legal and banking fees which were
paid through March 31, 2008. We currently have no significant capital commitments, and currently
anticipate that capital expenditures will not vary significantly from recent periods. We believe
that our existing cash, cash equivalents, and short-term investment balances and cash flow from
operations will be sufficient to finance our working capital and capital expenditure requirements
through at least the next twelve months. We may require additional funds to support our working
capital requirements or for other purposes and may seek to raise additional funds through public or
private equity or debt financing or from other sources. If additional financing is needed, we
cannot assure that such financing will be available to us at commercially reasonable terms or at
all.
Operating activities
Net cash provided by operating activities was $5.2 million for the three months ended March
31, 2009. The primary sources of operating cash were adjustments for non-cash expenses including
depreciation and amortization of $2.5 million, stock based compensation of $2.4 million, net income
and other non-cash expenses of $0.9 million, and increases of current liabilities of $0.9 million.
The primary use of cash affecting operating cash flow was an increase in accounts receivable of
$1.2 million and the reduction of other assets of $0.3 million. Net cash used in operating
activities was $0.5 million for the three months ended March 31, 2008. The primary uses of
operating cash were for increases in accounts receivable of $4.2 million, and reduction of deferred
taxes of $1.3 million, and a reduction of all other working capital assets of $0.8 million. These
uses of cash were partially offset by non-cash expenses including stock based compensation of $3.3
million, depreciation and amortization of $2.1 million, and the net loss and other non-cash
expenses of $0.4 million.
19
Investing activities
During the three months ended March 31, 2009, we used $8.4 million in investing activities due
to investing in short-term investments of $7.6 million and capital expenditures, primarily
leasehold improvements, of $0.8 million. In the three months ended
March 31, 2008, we used $60.6 million in investing activities for the acquisition of the Mobility
Solutions Group of PCTEL for $60.3 million, capital expenditures of $0.2 million, and some other
acquisition cost adjustments of $0.1 million.
Financing activities
We received less than $0.1 million in cash during the three months ended March 31, 2009 from
the exercise of stock options. In the three months ended March 31, 2008, we used $0.2 million from
financing activities for tax benefits from stock-based compensation in accordance with SFAS No.
123(R).
Contractual obligations and commercial commitments
As of March 31, 2009 we had no debt. The following table summarizes our contractual
obligations as of March 31, 2009 (in thousands):
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Payments due by period |
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1 year |
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|
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More than |
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Contractual obligations: |
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Total |
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|
or less |
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|
1-3 years |
|
|
3-5 years |
|
|
5 years |
|
Operating Lease
Obligations |
|
$ |
8,426 |
|
|
$ |
1,597 |
|
|
$ |
3,083 |
|
|
$ |
2,137 |
|
|
$ |
1,609 |
|
Purchase Obligations |
|
|
97 |
|
|
|
97 |
|
|
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|
|
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
|
|
Total |
|
$ |
8,523 |
|
|
$ |
1,694 |
|
|
$ |
3,083 |
|
|
$ |
2,137 |
|
|
$ |
1,609 |
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|
During our normal course of business, we have made certain indemnities, commitments and
guarantees under which we may be required to make payments in relation to certain transactions.
These include: intellectual property indemnities to our customers and licensees in connection with
the use, sale and/or license of our products; indemnities to various lessors in connection with
facility leases for certain claims arising from such facility or lease; indemnities to vendors and
service providers pertaining to claims based on the negligence or willful misconduct; indemnities
involving the accuracy of representations and warranties in certain contracts; and indemnities to
directors and officers of the Company to the maximum extent permitted under the laws of the State
of Delaware. In addition, we have made contractual commitments to employees providing for severance
payments upon the occurrence of certain prescribed events. We may also issue a guarantee in the
form of a standby letter of credit as security for contingent liabilities under certain customer
contracts. The duration of these indemnities, commitments and guarantees varies, and in certain
cases, may be indefinite. The majority of these indemnities, commitments and guarantees may not
provide for any limitation of the maximum potential for future payments we could be obligated to
make. We have not recorded any liability for these indemnities, commitments and guarantees in the
accompanying consolidated balance sheets.
Real Property Leases
Our corporate headquarters, including our principal administrative, sales and marketing,
customer support and research and development facility, is located in Aliso Viejo, California,
where we currently lease and occupy approximately 40,000 square feet of space pursuant to leases
that expires May 31, 2016. We lease approximately 14,400 square feet in Chicago, Illinois under a
lease that expires August 31, 2012. We lease approximately 13,300 square feet in Watsonville,
California under a lease that expires September 30, 2013. We lease approximately 7,300 square feet
in Herndon, Virginia under a lease that expires November 30, 2009. Internationally,
we lease space in Stockholm, Sweden; Seoul, South Korea; Belgrade, Serbia; Oslo, Norway; and
Vancouver, Canada. These leases are for one to three-year terms.
Critical Accounting Policies and Estimates
Our discussion and analysis of results of operations, financial condition and liquidity are
based upon our consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments 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 period.
We base our estimates on historical experience and on various other assumptions that are believed
to be reasonable under the circumstances. Actual results may materially differ from these estimates
under different assumptions or conditions. On an on-going basis, we review our estimates to ensure
that the estimates appropriately reflect changes in our business or new information as it becomes
available.
20
We believe the following critical accounting policies affect our more significant estimates
and assumptions used in the preparation of our consolidated financial statements:
Revenue Recognition
We currently report our net revenues under two operating groups: Wireless and Consumer. Within
each of these groups software revenue is recognized based on the customer and contract type. We
recognize revenue in accordance with the AICPA Statement of Position (SOP) No. 97-2, Software
Revenue Recognition, as amended, when persuasive evidence of an arrangement exists, delivery has
occurred, the price is fixed and determinable, and collectibility is probable. We recognize
revenues from sales of our software to OEM customers or end users as completed products are shipped
and titles passes; or from royalties generated as authorized customers duplicate our software, if
the other requirements of SOP No. 97-2 are met. If the requirements of SOP No. 97-2 are not met at
the date of shipment, revenue is not recognized until these elements are known or resolved. Returns
from OEM customers are limited to defective goods or goods shipped in error. Historically, OEM
customer returns have not exceeded the very nominal estimates and reserves. Management reviews
available retail channel information and makes a determination of a return provision for sales made
to distributors and retailers based on current channel inventory levels and historical return
patterns. Certain sales to distributors or retailers are made on a consignment basis. Revenue for
consignment sales are not recognized until sell through to the final customer is established.
Within the Consumer group certain revenues are booked net of revenue sharing payments, pursuant to
the consensus of EITF No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. We
have a few multiple element agreements for which we have contracted to provide a perpetual license
for use of proprietary software, to provide non-recurring engineering, and in some cases to provide
software maintenance (post contract support). For multiple element agreements, vendor specific
objective evidence of fair value for all contract elements is reviewed and the timing of the
individual element revenue streams is determined and recognized consistent with SOP No. 97-2. Sales
directly to end-users are recognized upon delivery. End users have a thirty day right of return,
but such returns are reasonably estimable and have historically been immaterial. We also provide
technical support to our customers. Such costs have historically been insignificant.
Sales Incentives
Pursuant to the consensus of EITF No. 01-09, Accounting for Consideration Given by a Vendor to
a Customer (Including a Reseller of the Vendors Product), effective January 1, 2002, the cost of
sales incentives the Company offers without charge to customers that can be used in, or that are
exercisable by a customer as a result of, a single exchange transaction is accounted for as a
reduction of revenue. We track incentives by program and use historical redemption rates to
estimate the cost of customer incentives. Total sales incentives were $0.3 and $0.2 million for
the three months ended March 31, 2009 and 2008, respectively.
Accounts Receivable and Allowance for Doubtful Accounts
We sell our products worldwide. We perform ongoing credit evaluations of our customers and
adjust credit limits based upon payment history, the customers current credit worthiness and
various other factors, as determined by our review of their current credit information. We
continuously monitor collections and payments from our customers. We estimate credit losses and
maintain an allowance for doubtful accounts reserve based upon these estimates. While such credit
losses have historically been within our estimated reserves, we cannot guarantee that we will
continue to experience the same credit loss rates that we have in the past. If not, this could
have an adverse effect on our consolidated financial statements.
Internal 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
March 31, 2009, software has been substantially completed concurrently with the establishment of
technological feasibility; accordingly, no costs have been capitalized to date.
Capitalized Software and Amortization
Pursuant to the provisions of SFAS No. 86, Accounting for the Costs of Computer Software to Be
Sold, Leased or Otherwise Marketed, we capitalize internally developed software and software
purchased from third parties if the related software product under development has reached
technological feasibility or if there are alternative future uses for the purchased software. These
costs are amortized on a product-by-product basis, typically over an estimated life of five to
seven years, using the larger of the amount calculated using the straight-line method or the amount
calculated using the ratio between current period gross revenues and the total of current period
gross revenues and estimated future gross revenues. At each balance sheet date, we evaluate on a
product-by-product basis the unamortized capitalized cost of computer software compared to the net
realizable value of that product. The amount by which the unamortized capitalized costs of a
computer software product exceed its net realizable value is written off.
21
Intangible Assets and Amortization
Amortization expense related to other intangibles acquired in acquisitions is calculated on a
straight line basis over the lives indicated above. Certain assets acquired in the Allume
acquisition in 2005 had previously been amortized on a discounted cash flow basis through 2007.
Effective January 1, 2008, we changed to the straight line basis of amortization as these assets
have been integrated into our core operations and as such it is no longer feasible to separate the
cash flows generated by such assets to allow us to update the discounted cash flow analysis
originally developed. This change is classified as a change in estimate and will be accounted for
on a prospective basis.
Impairment or Disposal of Long Lived Assets
The Company accounts for the impairment and disposition of long-lived assets in accordance
with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. This statement
addresses financial accounting and reporting for the impairment of long-lived assets and for the
disposal of long-lived assets. In accordance with SFAS No. 144, 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. The Company has determined that there was no
impairment at March 31, 2009.
Valuation of Goodwill and Intangible Assets
The Company accounts for goodwill and intangible assets in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets. As a result of the adoption, we are no longer required to
amortize goodwill. Prior to the adoption of SFAS No. 142, goodwill was amortized over 7 years.
This statement requires us to periodically assess the impairment of our goodwill and
intangible assets, which requires us to make assumptions and judgments regarding the carrying value
of these assets. These assets are considered to be impaired if we determine that their carrying
value may not be recoverable based upon our assessment of the following events or changes in
circumstances:
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a determination that the carrying value of such assets cannot be recovered through undiscounted cash flows; |
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loss of legal ownership or title to the assets; |
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significant changes in our strategic business objectives and utilization of the assets; or |
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the impact of significant negative industry or economic trends. |
If the intangible assets are considered to be impaired, the impairment we recognize is the
amount by which the carrying value of the intangible assets exceeds the fair value of the
intangible assets. In addition, we base the useful lives and the related amortization expense on
our estimate of the useful life of the intangible assets. Due to the numerous variables associated
with our judgments and assumptions relating to the carrying value of our intangible assets and the
effects of changes in circumstances affecting these valuations, both the precision and reliability
of the resulting estimates are subject to uncertainty, and as additional information becomes known,
we may change our estimate, in which case, the likelihood of a material change in our reported
results would increase.
Deferred Income and Income Taxes
We account 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 our 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 our 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. Effective January 1, 2007, the Company adopted FIN No.
48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109. Based
on our evaluation, we have concluded that there are no significant uncertain tax positions
requiring recognition in our financial statements.
22
Stock-Based Compensation
Effective January 1, 2006, we adopted SFAS No. 123(R), Share-Based Payment , which revises
SFAS No. 123, Accounting for Stock-Based Compensation and, supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. SFAS No. 123(R) requires that share-based payment
transactions with employees be recognized in the financial statements based on their fair value and
recognized as compensation expense over the vesting period. Prior to SFAS No. 123(R), we disclosed
the pro forma effects of applying SFAS No. 123 under the minimum value method. We adopted SFAS
No. 123(R) effective January 1, 2006, prospectively for new equity awards issued subsequent to
January 1, 2006.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Our financial instruments include cash and cash equivalents, and short-term investments. At
March 31, 2009, the carrying values of our financial instruments approximated fair values based on
current market prices and rates.
Foreign Currency Risk
While a majority of our business is denominated in U.S. dollars, we do invoice in foreign
currencies. For both the three months ended March 31, 2009 and 2008, our revenues denominated in
foreign currencies were $0.3 million. Fluctuations in the rate of exchange between the U.S. dollar
and certain other currencies may affect our results of operations and period-to-period comparisons
of our operating results. We do not currently engage in hedging or similar transactions to reduce
these risks. The operational expenses of our foreign entities reduce the currency exposure we have
because our foreign currency revenues are offset in part by expenses payable in foreign currencies.
As such, we do not believe we have a material exposure to foreign currency rate fluctuations at
this time.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
We conducted an evaluation under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under
the Securities Exchange Act of 1934 (Exchange Act)) as of March 31, 2009. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer have determined that as of
March 31, 2009, our disclosure controls and procedures were effective to ensure that the
information required to be disclosed in our Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange Commissions
rules and forms, and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the disclosure controls and
procedures, our management recognizes that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control objectives,
and our management necessarily is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Managements responsibility for financial statements
Our management is responsible for the integrity and objectivity of all information presented
in this report. The consolidated financial statements were prepared in conformity with accounting
principles generally accepted in the United States of America and include amounts based on
managements best estimates and judgments. Management believes the consolidated financial
statements fairly reflect the form and substance of transactions and that the financial statements
fairly represent the Companys financial position and results of operations for the periods and as
of the dates stated therein.
The Audit Committee of the Board of Directors, which is composed solely of independent
directors, meets regularly with our independent registered public accounting firm, SingerLewak LLP,
and representatives of management to review accounting, financial reporting, internal control and
audit matters, as well as the nature and extent of the audit effort. The Audit Committee is
responsible for the engagement of the independent auditors. The independent auditors have free
access to the Audit Committee.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting during the quarter
ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time we may be party to litigation incidental to our business, none of which
is expected to have a material adverse effect on us.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider
the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for our
fiscal year ended December 31, 2008. The risks discussed in our Annual Report on Form 10-K could
materially affect our business, financial condition and future results. The risks described in our
Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may materially and adversely
affect our business, financial condition or operating results.
Item 6. Exhibits.
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31.1
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
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31.2
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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SMITH MICRO SOFTWARE, INC. |
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May 7, 2009 |
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By |
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/s/ William W. Smith, Jr. |
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William W. Smith, Jr. |
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|
|
President and Chief Executive Officer |
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(Principal Executive Officer) |
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May 7, 2009 |
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By |
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/s/ Andrew C. Schmidt |
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Andrew C. Schmidt |
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Vice President and Chief Financial Officer |
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(Principal Financial Officer) |
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25
EXHIBIT
INDEX
|
|
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Exhibit
No.
|
|
Description |
31.1
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |