UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10‑Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001‑35525

 

SMITH MICRO SOFTWARE, INC.

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

33‑0029027

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

5800 CORPORATE DRIVE

PITTSBURGH, PA 15237

(Address of principal executive offices, including zip code)

(412) 837-5300

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

SMSI

 

NASDAQ

 

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     No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No  

 

As of October 30, 2019, there were 38,502,511 shares of common stock outstanding.

 

 


 

SMITH MICRO SOFTWARE, INC.

QUARTERLY REPORT ON FORM 10-Q

SEPTEMBER 30, 2019

TABLE OF CONTENTS

 

PART I.

 

FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (Unaudited)

 

2

 

 

Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

 

2

 

 

Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018

 

3

 

 

Consolidated Statement of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018

 

4

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

 

6

 

 

Notes to the Consolidated Financial Statements

 

7

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16

Item 4.

 

Controls and Procedures

 

21

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

22

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

22

Item 6.

 

Exhibits

 

23

 

 

 

 

 

SIGNATURES

 

24

 

1


 

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

SMITH MICRO SOFTWARE, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and par value data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

(audited)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,870

 

 

$

12,159

 

Accounts receivable, net of allowances for doubtful accounts and other

   adjustments of $244 (2019) and $135 (2018)

 

 

11,087

 

 

 

7,130

 

Prepaid expenses and other current assets

 

 

763

 

 

 

795

 

Total current assets

 

 

35,720

 

 

 

20,084

 

Equipment and improvements, net

 

 

1,392

 

 

 

865

 

Right-of-use assets

 

 

6,459

 

 

 

 

Deferred tax assets, net

 

 

191

 

 

 

191

 

Other assets

 

 

239

 

 

 

140

 

Intangible assets, net

 

 

4,761

 

 

 

238

 

Goodwill

 

 

7,797

 

 

 

3,685

 

Total assets

 

$

56,559

 

 

$

25,203

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,536

 

 

$

1,160

 

Accrued payroll and benefits

 

 

2,128

 

 

 

1,745

 

Current operating lease liabilities

 

 

1,154

 

 

 

 

Other accrued liabilities

 

 

212

 

 

 

450

 

Deferred revenue

 

 

105

 

 

 

28

 

Total current liabilities

 

 

5,135

 

 

 

3,383

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Operating lease liabilities

 

 

5,809

 

 

 

 

Deferred rent

 

 

677

 

 

 

723

 

Other long term liabilities

 

 

151

 

 

 

534

 

Total non-current liabilities

 

 

6,637

 

 

 

1,257

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, par value $0.001 per share; 5,000,000 shares authorized; 5,500

   shares issued (2019 and 2018); 0 and 1,345 shares outstanding (2019 and

   2018, respectively)

 

 

 

 

 

 

Common stock, par value $0.001 per share; 100,000,000 shares authorized;

   38,487,090 and 28,241,129 shares issued and outstanding (2019 and

   2018, respectively)

 

 

38

 

 

 

28

 

Additional paid-in capital

 

 

273,815

 

 

 

256,626

 

Accumulated comprehensive deficit

 

 

(229,066

)

 

 

(236,091

)

Total stockholders’ equity

 

 

44,787

 

 

 

20,563

 

Total liabilities and stockholders' equity

 

$

56,559

 

 

$

25,203

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.

2


 

SMITH MICRO SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Revenues

 

$

11,782

 

 

$

6,525

 

 

$

31,068

 

 

$

18,933

 

Cost of revenues

 

 

1,011

 

 

 

979

 

 

 

2,902

 

 

 

3,404

 

Gross profit

 

 

10,771

 

 

 

5,546

 

 

 

28,166

 

 

 

15,529

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

1,793

 

 

 

1,311

 

 

 

5,529

 

 

 

4,488

 

Research and development

 

 

3,063

 

 

 

2,049

 

 

 

8,487

 

 

 

6,499

 

General and administrative

 

 

2,396

 

 

 

2,048

 

 

 

7,522

 

 

 

6,299

 

Restructuring expense

 

 

39

 

 

 

83

 

 

 

154

 

 

 

135

 

Total operating expenses

 

 

7,291

 

 

 

5,491

 

 

 

21,692

 

 

 

17,421

 

Operating income (loss)

 

 

3,480

 

 

 

55

 

 

 

6,474

 

 

 

(1,892

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

87

 

 

 

(128

)

 

 

117

 

 

 

(445

)

Change in fair value of warrant liability

 

 

 

 

 

(902

)

 

 

 

 

 

(3,126

)

Gain on sale of software product

 

 

 

 

 

 

 

 

483

 

 

 

 

Other expense

 

 

 

 

 

(1

)

 

 

(15

)

 

 

(48

)

Income (loss) before provision for income taxes

 

 

3,567

 

 

 

(976

)

 

 

7,059

 

 

 

(5,511

)

Provision for income tax expense

 

 

 

 

 

7

 

 

 

8

 

 

 

30

 

Net income (loss)

 

$

3,567

 

 

$

(983

)

 

$

7,051

 

 

$

(5,541

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.10

 

 

$

(0.04

)

 

$

0.21

 

 

$

(0.28

)

Diluted

 

$

0.09

 

 

$

(0.04

)

 

$

0.20

 

 

$

(0.28

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

36,094

 

 

 

25,020

 

 

 

33,170

 

 

 

20,771

 

Diluted

 

 

39,472

 

 

 

25,020

 

 

 

35,287

 

 

 

20,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred dividends per share

 

$

70.50

 

 

$

31.58

 

 

$

104.58

 

 

$

105.54

 

 

See accompanying notes to the consolidated financial statements.


3


 

SMITH MICRO SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

 

Series B Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

BALANCE, June 30, 2019 (unaudited)

 

 

1

 

 

$

 

 

 

32,042

 

 

$

32

 

 

$

262,215

 

 

$

(232,581

)

 

$

29,666

 

Non-cash compensation recognized on

   stock options and ESPP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

10

 

Restricted stock grants, net of cancellations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

340

 

 

 

 

 

 

340

 

Cancellation of shares for payment of

   withholding tax

 

 

 

 

 

 

 

 

(38

)

 

 

 

 

 

(191

)

 

 

 

 

 

(191

)

Employee stock purchase plan

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Exercise of warrants

 

 

 

 

 

 

 

 

5,301

 

 

 

5

 

 

 

11,398

 

 

 

 

 

 

11,403

 

Exercise of stock options

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

38

 

 

 

 

 

 

38

 

Conversion of preferred stock to common

   stock

 

 

(1

)

 

 

 

 

 

1,171

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(52

)

 

 

(52

)

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,567

 

 

 

3,567

 

BALANCE, September 30, 2019 (unaudited)

 

 

 

 

$

 

 

 

38,488

 

 

$

38

 

 

$

273,815

 

 

$

(229,066

)

 

$

44,787

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

 

Series B Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

BALANCE, December 31, 2018 (audited)

 

 

1

 

 

$

 

 

 

28,242

 

 

$

28

 

 

$

256,626

 

 

$

(236,091

)

 

$

20,563

 

Non-cash compensation recognized on

   stock options and ESPP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

30

 

Restricted stock grants, net of cancellations

 

 

 

 

 

 

 

 

1,225

 

 

 

1

 

 

 

1,108

 

 

 

 

 

 

1,109

 

Cancellation of shares for payment of

   withholding tax

 

 

 

 

 

 

 

 

(176

)

 

 

 

 

 

(506

)

 

 

 

 

 

(506

)

Employee stock purchase plan

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

10

 

 

 

 

 

 

10

 

Common shares issued in stock offering,

   net of offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

 

 

 

(14

)

Common shares issued in connection

   with Smart Retail acquisition, net

 

 

 

 

 

 

 

 

2,699

 

 

 

3

 

 

 

5,126

 

 

 

 

 

 

5,129

 

Exercise of warrants

 

 

 

 

 

 

 

 

5,304

 

 

 

5

 

 

 

11,398

 

 

 

 

 

 

11,403

 

Exercise of stock options

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

38

 

 

 

 

 

 

38

 

Conversion of preferred stock to common

   stock

 

 

(1

)

 

 

 

 

 

1,180

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(119

)

 

 

(119

)

Cumulative effect of adoption of ASC 842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

93

 

 

 

93

 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,051

 

 

 

7,051

 

BALANCE, September 30, 2019 (unaudited)

 

 

 

 

$

 

 

 

38,488

 

 

$

38

 

 

$

273,815

 

 

$

(229,066

)

 

$

44,787

 

 

See accompanying notes to the consolidated financial statements.


4


 

SMITH MICRO SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

 

Series B Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

BALANCE, June 30, 2018 (unaudited)

 

 

1

 

 

$

 

 

 

25,004

 

 

$

25

 

 

$

241,790

 

 

$

(237,831

)

 

$

3,984

 

Non-cash compensation recognized on

   stock options and ESPP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

10

 

Restricted stock grants, net of cancellations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

254

 

 

 

 

 

 

254

 

Cancellation of shares for payment of

   withholding tax

 

 

 

 

 

 

 

 

(26

)

 

 

 

 

 

(64

)

 

 

 

 

 

(64

)

Employee stock purchase plan

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Common shares issued in stock offering,

   net of offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10

)

 

 

 

 

 

(10

)

Issuance of warrants in stock offering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

(12

)

Exercise of warrants

 

 

 

 

 

 

 

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43

)

 

 

(43

)

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(983

)

 

 

(983

)

BALANCE, September 30, 2018 (unaudited)

 

 

1

 

 

$

 

 

 

25,005

 

 

$

25

 

 

$

241,970

 

 

$

(238,857

)

 

$

3,138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

 

Series B Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

BALANCE, December 31, 2017 (audited)

 

 

5

 

 

$

 

 

 

14,269

 

 

$

14

 

 

$

237,486

 

 

$

(232,933

)

 

$

4,567

 

Non-cash compensation recognized on

   stock options and ESPP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31

 

 

 

 

 

 

31

 

Restricted stock grants, net of cancellations

 

 

 

 

 

 

 

 

1,124

 

 

 

1

 

 

 

642

 

 

 

 

 

 

643

 

Cancellation of shares for payment of

   withholding tax

 

 

 

 

 

 

 

 

(68

)

 

 

 

 

 

(151

)

 

 

 

 

 

(151

)

Employee stock purchase plan

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Common shares issued in stock offering,

   net of offering costs

 

 

 

 

 

 

 

 

6,027

 

 

 

6

 

 

 

10,742

 

 

 

 

 

 

10,748

 

Issuance of warrants in stock offering