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Oct 21, 1999

Aliso Viejo, CA - Smith Micro Software, Inc. (Nasdaq: SMSI), a developer and marketer of Internet and communication software, today announced net revenues of $1.8 million for the third quarter ended September 30, 1999, compared with net revenues of $2.3 million for the third quarter ended September 30, 1998. The company recorded a net loss for the 1999 third quarter of $3.7 million, or a loss of $0.24 per share, compared with a net loss of $649,000, or a loss of $0.04 per share, for the 1998 third quarter. Third quarter 1999 results included a one time, non-cash tax charge of $1.2 million, or $0.08 per share, related to management's decision to increase the valuation allowance for deferred tax assets. In the absence of this charge, the net loss would have been $2.5 million, or a net loss of $0.16 per share, in the 1999 third quarter. Financial results in both the 1999 and 1998 periods include the September, 1999 acquisition of Pacific Coast Software which was accounted for as a pooling of interests. William W. Smith, Jr., Smith Micro's president and chief executive officer, attributed the decreased results, in part, to a reduction in OEM sales of legacy products during the 1999 third quarter, and the company's continued de-emphasis on sales to its analog modem business. Results were also impacted by aggressive marketing campaigns and lower product prices at retail to help move older versions of the company's products.

At the end of the third quarter, the company's financial condition included cash of approximately $8.7 million, working capital of $11.1 million and no long-term debt.

"We expect our legacy business to account for a smaller and smaller portion of our overall business going forward," commented Mr. Smith. "And, in the short-term we expect that our results will continue to be affected by our transition away from the declining modem industry and towards the growing Internet market. Given the results we reported today we do not expect to be profitable in 1999."

Nine-Month Results

For the nine months ended September 30, 1999, net revenues were $8.2 million, compared with net revenues of $7.4 million for the nine months ended September 30, 1998. The company recorded a net loss for the 1999 nine-month period of $5.1 million, or a loss of $0.33 per share, compared with a net loss of $1.2 million, or a loss of $0.08 per share, for the 1998 nine-month period. Results for the first nine months of 1999 were impacted by the same factors as during the third quarter of 1999.

"Over the past year we have been transitioning away from our core, or legacy, business to capture growing opportunities in the Internet market and to decrease our dependence on the declining analog modem market. This transition has been slower than we would have liked leading to disappointing results this quarter," said Mr. Smith. "We have made several strategic moves in the last few months, however, to speed the transition. Our recently formed Internet Solutions Division includes the e-commerce business acquired from Pacific Coast Software and a shift of software engineers, sales personnel and marketing resources from portions of our legacy business. We believe that these initial steps will improve Smith Micro's position in the Internet arena.

"While we cannot predict when these steps will translate into increased revenues and better bottom-line results, we feel confident that we've committed our talent and resources to those areas that will provide the greatest benefit to our shareholders," commented Mr. Smith. "Going forward, one of our primary focuses will be on strengthening our e-commerce presence. The acquisition of Pacific Coast Software during the third quarter clearly puts us in a better position to reap the benefits of the significant opportunities in that marketplace. Separately, our relationship with Apple continues to be strong as their Mac product line continues to build a solid position in the computer marketplace. Through our Mac Division, we will focus on providing personal Mac users with innovative Internet-related products."

About Smith Micro Software

Headquartered in Aliso Viejo, California, Smith Micro is a leading developer and marketer of software products that make communications simple. With a focus on the Internet, particularly broadband technologies, the company designs integrated, easy-to-use software that enables fax, data, voice and video communication to personal computer users and enables e-commerce solutions for businesses around the world. Smith Micro's complete line of products is available through Internet direct sales, retail stores, value-added resellers (VARs) and original equipment manufacturers (OEMs). Smith Micro's common stock trades on The Nasdaq Stock Market® under the symbol SMSI. For more information, contact Smith Micro at 949/362-5800 or visit

This release may contain forward-looking statements that involve risks and uncertainties. Among the important factors which could cause actual results to differ materially from those in the forward-looking statements are economic, competitive, governmental and technological factors effecting the company's operations, markets, products, services and prices, as well as, other factors detailed in the company's filings with the Securities and Exchange Commission including its recent filings on Forms 10-K and 10-Q.

Smith Micro and the Smith Micro logo are trademarks or registered trademarks of Smith Micro Software, Inc. All other trademarks and product names are the property of their respective companies.

For more information on Smith Micro Software, Inc., via fax at no charge, please call 1-800-PRO-INFO and enter ticker symbol SMSI.

(in thousands, except share and per-share amounts)

  Third Month Ended
September 30
Nine Month Ended
September 30
  1999 1998
1999 1998
Net revenues $1,845 $2,288 $8,243 $7,437
Cost of revenue 652 695 1964 2147
Gross profit 1,193 1,593 6,297 5,290
Operating expenses:
  Selling and marketing 1,649 1,083 4,910 2,709
  Research and development 1,009 854 2,938 2,552
  General and administrative 1,162 861 3,071 2,554
Total operating expenses 3,820 2,798 10,919 7,815
Operating loss (2,627) (1,205) (4,640) (2,525)
Interest income, net 111 195 350 552
Loss before income taxes (2,516) (1,010) (4,290) (1,973)
Income tax expense (benefit) 1,187 (361) 831 (755)
Net Loss $(3,703) $(649) $(5,121) $(1,218)
Net loss per basic and diluted share $(0.24) $(0.04) $(0.33) $(0.08)
Weighted average shares outstanding, basic and diluted 15,504 15,075 15,347 15,075

*Includes the results of Pacific Coast Software for all periods presented. Pacific Coast Software, acquired by Smith Micro in September, 1999, was accounted for as a pooling of interests.