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Wireless Order Delays Combined With Retail Channel Inventory Restructuring Result in Disappointing Quarter

Jul 19, 2001
Company Implemented Additional Cost-Cutting Measures

Aliso Viejo, CA -- Smith Micro Software, Inc. (NASDAQ:SMSI), a developer and marketer of wireless communication andutility software products and professional services today reportednet revenues for the quarter ended June 30, 2001, of $1.10 million,a decrease of 66% over $3.2 million in the same quarter last year.The company had a net loss of $3.8 million, or $0.24 per dilutedshare which includes a one-time restructuring charge of $345,000for facilities closures and head count reductions, compared with anet loss of $632,000 or $0.04 per diluted share in the same quarterlast year.

"We believe a delay in placing orders by several of our Wirelessand Broadband customers and an unanticipated change in orderprocedure by our largest retail distributor contributed to anunexpected decline in revenues in the second quarter," said WilliamW. Smith, Jr., President and Chief Executive Officer. "We do expectto see the Wireless and Broadband customer order lag to be resolvedby mid third quarter and we made the internal adjustments necessaryto reflect changes in the distributor channel. I am thereforehopeful that the retail part of the business will show improvementover the second quarter results going forward," Smith added.

"We continue to be positive about the efforts in the wirelesssector. During the second quarter, we announced a bundlingagreement with Samsung. They will be including a copy ofQuickLinkâ Mobile and QuickLinkâ Fax in their dataconnectivity kits. The Internet Solutions Division showedimprovement in the second quarter over the showing in the firstquarter. We saw that there was less of a holding pattern inimplementing client infrastructure improvements which was theprimary hindrance during the first quarter of 2001," Smithcontinued.

"Our largest distributor changed their inventory policies andorder taking strategy midway through the quarter, whichsignificantly impacted our second quarter plan. Enough time haspassed since then, so we believe we are now in sync with their newprocess as they have begun to place orders in July," Smithadds.

"We believe there has been a positive response to our new FAXstfX for the Mac OS X operating system at Mac World in New York. Wewere also pleased to see the recent news that Apple has capturedback a lead in the educational market. The educational market is atarget for our Mac products, so we see that our efforts in the Macmarket continues to be positive," Mr. Smith concluded.

Outlook

Mr. Smith indicated that the company has implemented acontinuous process to monitor operating expenses and whennecessary, make additional cost cutting measures but at the sametime assuring that the cuts are not affecting the core resources toreach the company's ultimate goal of a return to profitability. "Weanticipate another loss in the third quarter, although, we expectit to be less than the second quarter loss. If the marketconditions improve and our customers stay healthy, we are stilltargeting profitability later this year," Smith said.

In other business, Richard Bjorkman, the company's VicePresident of Finance and Chief Financial Officer resigned to pursueother interests. Robert Scheussler, Senior Vice President and ChiefOperating Officer will be acting Chief Financial Officer inaddition to his current responsibilities. The company has noimmediate plans to replace Mr. Bjorkman in a continued effort toreduce costs.

Investor Conference Call

Smith Micro will hold an investor conference call to discuss thecompany's results at 4:30 p.m. eastern time later today. Investorsmay access the conference call via telephone, or over the Internetvia the company's website at www.smithmicro.com or www.vcall.com.

About Smith Micro Software

Smith Micro Software, Inc., headquartered in Aliso Viejo, CA, isa developer and marketer of wireless communication and utilitysoftware products. The company designs integrated, cross platform,easy-to-use software for personal computing and business solutionsaround the world. With a focus on the Internet, Wireless, andBroadband technologies, the company's products and services enableeCommerce, eBusiness, Internet communications (voice-over-IP),video conferencing, wireless communications, and network fax, alongwith traditional computer telephony. Smith Micro's complete line ofproducts is available through direct sales, retail stores,value-added resellers (VARs) and original equipment manufacturers(OEMs). Smith Micro's common stock trades on The Nasdaq StockMarket® under the symbol SMSI. For more information, contact Smith Micro at (949)362-5800.

This release may contains forward-looking statements thatinvolve risks and uncertainties including statements by Mr. Smithregarding anticipated improvements in the company's business andresults of operations and a projected loss in the third quarter of2000 for the Comapany and the expected growth of the wirelessmarket in general. Among the important factors which could causeactual results to differ materially from those in theforward-looking statements are economic, competitive, governmentaland technological factors affecting the company's operations,markets, products, services and prices, as well as other factorsdetailed in the company's filings with the Securities and ExchangeCommission including its recent filings on Forms 10-K &10-Q.

Smith Micro and the Smith Micro logo are trademarks orregistered trademarks of Smith Micro Software, Inc. All othertrademarks and product names are the property of their respectivecompanies.

Financial Schedules follow

Smith Micro Software, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 Three Months Ended
June 30
(unaudited)
 20012000
Net Revenues
   Software2132,640
   Consulting868582

Total Net Revenues1,0813,222
Cost of Revenues
   Software375487
   Consulting56670

Total Cost of Revenues941557

Gross Margin1402,665

 
   Sales & Marketing1,5451,462
   Research & Development8321,004
   Restructuring345-----
   General & Administrative1,264940

Total Operating Expenses3,9863,406

Operating Loss(3,846)(741)

Other Income, net33115
Loss Before Income Tax(3,813)(626)
Income Tax Expense206
Net Loss$(3,833)$(632)

Net loss per basic and diluted share Per Share$(0.24)$(0.04)

Weighted average shares outstanding, basic anddiluted16,23215,895
Smith Micro Software, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 Six Months Ended
June 30
(unaudited)
 20012000
Net Revenues
   Software2,8425,376
   Consulting1,484920

Total Net Revenues4,3266,296
Cost of Revenues
   Software8921,043
   Consulting1,087127

Total Cost of Revenues1,9791,170

Gross Margin2,3475,126

 
   Sales & Marketing3,2642,841
   Research & Development1,8391,941
   Restructuring345-----
   General & Administrative2,3221,817

Total Operating Expenses7,7706,599

Operating Loss(5,423)(1,473)

Other Income, net65227
Loss Before Income Tax(5,358)(1,246)
Income Tax Expense8945
Net Loss$(5,447)$(1,291)

Net loss per basic and diluted share Per Share$(0.34)$(0.08)

Weighted average shares outstanding, basic anddiluted16,23215,828
Smith Micro Software, Inc.
Consolidated Balance Sheets
(in thousands)
 (unaudited)
June 30,
2001
December 31,
2000

ASSETS
Current Assets:
Cash & Cash Equivalents$4,377$6,178
Accounts Receivable (Net)1,6494,750
Inventory340338
Prepaids & Other Assets203294

   Total Current Assets6,56911,560
Equipment and Improvements, net645737
Other Assets3989
Intangible Assets2,4932,928

TOTAL ASSETS$9,746$15,314

 
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable$1,011$1,590
Accrued Liabilities1,7551,297

   Total Current Liabilities2,7662,887
Common Stock1616
Additional Paid In Capital24,78924,789
Accumulated Deficit(17,825)(12,378)

   Total Stockholders' Equity6,98012,427

TOTAL LIABILITIES AND EQUITY$9,746$15,314

Smith Micro Software, Inc.
Business Division Revenue
(in thousands, unaudited)
 Quarter Ended June 30, 2001
(UNAUDITED)
 Software Products

 
 Wireless & Broadband

 Macintosh 

 Retail 

Total Software Products

Internet Solutions

Total Company

Net Revenue$528$242$(603)$167$914$1,081
Cost of Revenue   367574941
 
Gross Profit   $(200)$340$140
 
 Six Months Ended June 30, 2001
(UNAUDITED)
 Software Products

 
 Wireless & Broadband

 Macintosh 

 Retail 

Total Software Products

Internet Solutions

Total Company

Net Revenue$1,922$520$214$2,656$1,670$4,326
Cost of Revenue   8571,1221,979
 
Gross Profit   $1,799$548$2,347
 
 Quarter Ended June 30, 2000
(UNAUDITED)
 Software Products

 
 Wireless & Broadband

 Macintosh 

 Retail 

Total Software Products

Internet Solutions

Total Company

Net Revenue$1,396$266$656$2,318$904$3,222
Cost of Revenue   429128557
 
Gross Profit   $1,889$776$2,665
 
 Six Months Ended June 30, 2000
(UNAUDITED)
 Software Products

 
 Wireless & Broadband

 Macintosh 

 Retail 

Total Software Products

Internet Solutions

Total Company

Net Revenue$2,927$644$1,199$4,770$1,526$6,296
Cost of Revenue   9272431,170
 
Gross Profit   $3,843$1,283$5,126
 
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