UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTER ENDED JUNE 30, 2000

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

COMMISSION FILE NUMBER 0-26536

SMITH MICRO SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                DELAWARE                             33-0029027
     (STATE OR OTHER JURISDICTION OF      (I.R.S. EMPLOYER INCORPORATION OR
              ORGANIZATION)                    IDENTIFICATION NUMBER)

 51 COLUMBIA, SUITE 200, ALISO VIEJO, CA                92656
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)             (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 362-5800

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK,
$.001 PAR VALUE

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES (X) NO ( )

As of July 31, 2000, there were 16,011,481 shares of Common Stock outstanding.


SMITH MICRO SOFTWARE, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements

           Consolidated Balance Sheets as of June 30, 2000 (Unaudited) and December 31, 1999           3

           Unaudited Consolidated Statements of Operations For The Three and Six Months Ended
            June 30, 2000 and June 30, 1999 (Restated)                                                 4

           Unaudited Consolidated Statements of Cash Flows For The Six Months Ended June 30, 2000
           and June 30, 1999 (Restated)                                                                5

           Notes To Unaudited Consolidated Financial Statements                                        7

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations      11

Item 3.    Quantitative and Qualitative Disclosures About Market Risk                                 21

Part II.   OTHER INFORMATION

Item 1.    Legal Proceedings                                                                          22
Item 2.    Changes In Securities and Use of Proceeds                                                  22
Item 3.    Defaults Upon Senior Securities                                                            22
Item 4.    Submission of Matters To A Vote Of Security Holders                                        22
Item 5.    Other Information                                                                          23
Item 6.    Exhibits and Reports On Form 8-K                                                           24

Signatures                                                                                            27

FORWARD LOOKING STATEMENTS

THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A "SAFE HARBOR" FOR FORWARD-LOOKING STATEMENTS. THE STATEMENTS CONTAINED IN THIS QUARTERLY REPORT ON FORM 10-Q THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE FORWARD LOOKING STATEMENTS. WORDS SUCH AS "ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "PLANS" OR SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES THAT COULD CAUSE THE ACTUAL RESULTS OF THE COMPANY TO DIFFER MATERIALLY FROM THOSE ANTICIPATED. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS THAT SPEAK ONLY AS THE DATE HEREOF. THE COMPANY DISCLAIMS ANY OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO THESE FORWARD LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE FILING OF THIS FORM 10-Q WITH THE SECURITIES AND EXCHANGE COMMISSION OR OTHERWISE TO REVISE OR UPDATE ANY ORAL OR WRITTEN FORWARD LOOKING STATEMENT THAT MAY BE MADE FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY. READERS ARE ALSO URGED TO CAREFULLY REVIEW AND CONSIDER THE VARIOUS DISCLOSURES MADE BY THE COMPANY THAT DESCRIBE CERTAIN FACTORS WHICH AFFECT THE COMPANY'S BUSINESS, INCLUDING THE "RISK FACTORS" COMMENCING ON PAGE

15 OF THIS QUARTERLY REPORT, IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND SIMILAR DISCUSSIONS IN OUR OTHER SECURITIES AND EXCHANGE COMMISSION FILINGS. YOU SHOULD CAREFULLY CONSIDER THOSE FACTORS, IN ADDITION TO THE OTHER INFORMATION IN THIS QUARTERLY REPORT, BEFORE DECIDING TO INVEST IN OUR COMPANY OR TO MAINTAIN OR INCREASE YOUR INVESTMENT.

2

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SMITH MICRO SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)

                                                                               June 30,       December 31,
                                                                                 2000             1999
                                                                               --------       ------------
                                                                             (unaudited)
ASSETS

CURRENT ASSETS:
Cash and cash equivalents                                                      $  8,320         $  8,704
Accounts receivable, net of allowances for doubtful accounts
  and other adjustments of $1,762 (2000) and $1,944 (1999)                        4,301            3,487
Inventories, net                                                                    289              502
Prepaid expenses and other current assets                                           227              253
                                                                               --------         --------

    Total current assets                                                         13,137           12,946

EQUIPMENT AND IMPROVEMENTS, net                                                     455              456
OTHER ASSETS                                                                        171              215
INTANGIBLE ASSETS, net                                                            2,051            2,312
                                                                               --------         --------
                                                                               $ 15,814         $ 15,929
                                                                               ========         ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable                                                               $  1,009         $    747
Accrued liabilities                                                               1,566            1,350
                                                                               --------         --------

    Total current liabilities                                                     2,575            2,097

STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.001 per share; 5,000,000 shares
  authorized; none issued and outstanding
Common stock, par value $0.001 per share; 20,000,000 shares authorized;
  16,011,000 and 15,724,000 shares issued and outstanding
  at June 30, 2000 and December 31, 1999, respectively                               16               16
Additional paid-in capital                                                       23,737           23,039
Accumulated deficit                                                             (10,514)          (9,223)
                                                                               --------         --------

    Total stockholders' equity                                                   13,239           13,832
                                                                               --------         --------

                                                                               $ 15,814         $ 15,929
                                                                               ========         ========

SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

3

SMITH MICRO SOFTWARE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)

                                                For the Three Months               For the Six Months
                                                   Ended June 30,                    Ended June 30,
                                               2000             1999             2000             1999
                                             --------         --------         --------         --------
                                                             (restated)                        (restated)
NET REVENUES                                 $  3,222         $  3,362         $  6,296         $  6,398

COST OF REVENUES                                  557              583            1,170            1,316
                                             --------         --------         --------         --------

GROSS PROFIT                                    2,665            2,779            5,126            5,082

OPERATING EXPENSES:
Selling and marketing                           1,462            1,643            2,841            3,261
Research and development                        1,004              993            1,941            1,929
General and administrative                        940              991            1,817            1,907
                                             --------         --------         --------         --------

  Total operating expenses                      3,406            3,627            6,599            7,097
                                             --------         --------         --------         --------

OPERATING LOSS                                   (741)            (848)          (1,473)          (2,015)

INTEREST INCOME, NET                              115              105              227              239
                                             --------         --------         --------         --------

LOSS BEFORE INCOME TAXES                         (626)            (743)          (1,246)          (1,776)

INCOME TAX EXPENSE (BENEFIT)                        6                                45             (356)
                                             --------         --------         --------         --------

NET LOSS                                     $   (632)        $   (743)        $ (1,291)        $ (1,420)
                                             ========         ========         ========         ========

NET LOSS PER SHARE, basic and diluted        $  (0.04)        $  (0.05)        $  (0.08)        $  (0.09)
                                             ========         ========         ========         ========

WEIGHTED AVERAGE NUMBER OF
  COMMON SHARES OUTSTANDING,
  BASIC AND DILUTED                            15,895           15,462           15,828           15,268
                                             ========         ========         ========         ========

SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

4

SMITH MICRO SOFTWARE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

                                                                                For The Six Months
                                                                                   Ended June 30,
                                                                               2000             1999
                                                                              -------         --------
                                                                                             (restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                      $(1,291)        $ (1,418)
Adjustments to reconcile net loss to net cash
  used in operating activities, net of the effects of the acquisition:
  Depreciation and amortization                                                   469            1,065
  Provision for doubtful accounts and other adjustments
    to accounts receivable                                                       (182)           1,485
  Change in operating accounts, net of the effects of the acquisition:
    Accounts receivable                                                          (632)          (2,479)
    Income taxes receivable                                                                        115
    Inventories                                                                   213              189
    Prepaid expenses and other assets                                              (8)              29
    Accounts payable and accrued liabilities                                      478             (188)
                                                                              -------         --------

      Net cash used in operating activities                                      (953)          (1,202)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquistion of STF Technologies, Inc.                                                            (1,091)
Capital expenditures                                                             (129)            (766)
                                                                              -------         --------

      Net cash used in investing activities                                      (129)          (1,857)
                                                                              -------         --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank line of credit                                                                  (139)
Proceeds from the exercise of stock options                                       698               58
                                                                              -------         --------

      Net cash provided by financing activities                                   698              (81)
                                                                              -------         --------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                        (384)          (3,140)

CASH AND CASH EQUIVALENTS, beginning of period                                  8,704           12,732
                                                                              -------         --------

CASH AND CASH EQUIVALENTS, end of period                                      $ 8,320         $  9,592
                                                                              =======         ========

SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

5

SMITH MICRO SOFTWARE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In Thousands)

                                                                     For The Six Months
                                                                       Ended June 30,
                                                                    2000          1999
                                                                   -------       -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid (received) for income taxes                              $    45       $ (523)
                                                                   =======       =======

DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:

Detail of business acquired in purchase transaction:
Fair value of assets acquired, including goodwill of $2,271                      $ 2,686
Common stock issued in acquisition                                                (1,000)
Cash paid for acquisition                                                         (1,091)
                                                                                 -------

Liabilities assumed or created                                                   $   595
                                                                                 =======

SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

6

SMITH MICRO SOFTWARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The accompanying unaudited consolidated financial statements have been prepared by Smith Micro Software, Inc. ("Smith Micro" or the "Company") pursuant to Securities and Exchange Commission ("SEC") regulations and accounting principles generally accepted in the United States of America. The accompanying unaudited consolidated financial statements reflect the operating results and financial position of Smith Micro and its wholly-owned subsidiaries. On September 3, 1999, the Company acquired Dolphin-Safe Software, Inc., a California corporation, dba Pacific Coast Software ("PCS"), which develops software and provides consulting and web hosting services that enable eCommerce. This merger has been accounted for as a pooling of interests and all prior periods' financial statements have been restated to reflect the historical financial statements of PCS. On April 9, 1999, the Company acquired STF Technologies, Inc. ("STF"), a Missouri corporation that develops communications software for Macintosh computers. This acquisition has been accounted for as a purchase and the periods presented in the financial statements include STF's operations from the date of acquisition. All significant intercompany amounts have been eliminated in consolidation. In the opinion of management, such information contains all adjustments necessary for a fair presentation of the results of such periods. The results of operations for the three and six months ended June 30, 2000 are not necessarily indicative of the results to be expected for the full year ended December 31, 2000. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited financial statements included in the Company's report on Form 10-K for the year ended December 31, 1999 as footnotes and certain financial presentations are condensed or omitted from accounting principles generally accepted in the United States of America presentation requirements, pursuant to the SEC rules and regulations.

Cash Equivalents - Cash equivalents are considered to be highly liquid investments with initial maturities of three months or less.

Accounts Receivable - The Company sells its products worldwide. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses, and those losses have been within management's expectations. Allowances for product returns and price protection are included in other adjustments to accounts receivable on the accompanying consolidated balance sheets.

Inventories - Inventories consist principally of manuals and diskettes, and are stated at the lower of cost (determined by the first- in, first-out method) or market.

Equipment and Improvements - Equipment and Improvements are stated at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the assets, generally ranging from three to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the remaining lease term.

Long Lived Assets - The Company accounts for the impairment and disposition of long-lived assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. In accordance with SFAS No. 121, long-lived assets to be held are reviewed for events or changes in circumstances, which indicate that their carrying value may not be recoverable. The Company periodically reviews the carrying value of long-lived assets to determine whether or not impairment to such value has occurred and has determined that there was no impairment at June 30, 2000.

Goodwill and Other Intangibles - Goodwill represents the excess purchase cost over the fair value of net assets acquired and is amortized over seven years using the straight-line method. Other intangible assets include acquired workforce value, acquired technology and translation costs, all of which are being amortized using the straight-line method over three to seven years. The Company periodically evaluates the recoverability of goodwill based on a profitability analysis related to its product sales and evaluates the recoverability of other intangible assets based on the requirements of SFAS No. 121.

Revenue Recognition - The Company recognizes revenues from sales of its software as completed products are shipped and from royalties generated as authorized customers duplicate the Company's software. The Company generally allows its retail distributors to exchange unsold products for other products and provides inventory price protection in the event of price reductions by the Company. Allowances for product returns and price protection are estimated based on previous experience and are recorded as a

7

reduction of revenue at the time sales are recognized. The Company provides technical support and customer service to its customers. Such costs have historically been insignificant.

Software Development Costs - Development costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. The Company considers technological feasibility to be established when all planning, designing, coding and testing has been completed according to design specifications. After technological feasibility is established, any additional costs are capitalized. Through June 30, 2000, software has been substantially completed concurrently with the establishment of technological feasibility and, accordingly, no costs have been capitalized to date.

Income Taxes - The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes. This statement requires the recognition of deferred tax assets and liabilities for the future consequences of events that have been recognized in the Company's financial statements or tax returns. The measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and the tax bases of the Company's assets and liabilities result in a deferred tax asset, SFAS No. 109 requires an evaluation of the probability of being able to realize the future benefits indicated by such asset. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion or all of the deferred tax asset will not be realized. As of June 30, 2000 a full valuation allowance was provided for all deferred tax assets.

Fair Value of Financial Instruments - Pursuant to SFAS No. 107, Disclosures about Fair Value of Financial Instruments, the Company is required to estimate the fair value of all financial instruments included on its balance sheet at June 30, 2000. The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to (1) the relatively short period of time between origination of the instruments and their expected realization, (2) interest rates that approximate current market rates, or (3) the overall immateriality of the amounts.

Stock-Based Compensation - The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.

Net Loss Per Share - Net loss per share is presented as "basic" and "diluted" earnings (loss) per share (EPS). Basic EPS amounts are based upon the weighted average number of common shares outstanding. Diluted EPS amounts are based upon the weighted average number of common and common equivalent shares outstanding. Common equivalent shares include stock options using the treasury stock method. Common equivalent shares are excluded from the calculation of diluted EPS in loss years, as the impact is antidilutive. There was no difference between basic and diluted EPS for each period presented.

Segment Information - During the six months ended June 30, 2000, the Company restructured its reporting format to report revenues from three operating units as well as revenues from "Sunset" products. Sunset products are analog modem products sold to OEM modem manufactures and have been in constant decline over the past two years. The reporting operating units are the Internet Solutions Division, the Macintosh Division and the Wireless and Broadband Division. Revenues reported in the Wireless and Broadband division also contain product sales of our analog retail upgrade products, which the Company will continue to pursue. The Company's retail products are sold through a sales staff located at its corporate office. As these sales tend to be to major distribution warehouses, this group is responsible for selling all of the Company's retail products, which cover all three divisions. The Company allocates the total of these sales back to each division based on which division created the product. Retail product sales as a percentage of our total revenues represented 24% in the first half of 2000 compared with 34% in the first half of 1999. The following table shows a comparison of the revenues generated by each division:

                            For the Three Months Ended           For the Six Months Ended
Division                  June 30, 2000     June 30, 1999     June 30, 2000     June 30, 1999
--------                  -------------     -------------     -------------     -------------
Internet Solutions          $  821,000        $  161,000        $1,622,000        $  331,000
Macintosh                      318,000           665,000         1,267,000           715,000
Wireless & Broadband         1,870,000         1,916,000         2,925,000         3,862,000
Sunset Products                213,000           620,000           482,000         1,490,000
                            ----------        ----------        ----------        ----------
Total Revenues              $3,222,000        $3,362,000        $6,296,000        $6,398,000
                            ==========        ==========        ==========        ==========

8

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting years. Actual results could differ from those estimates.

Comprehensive Income - The Company has adopted SFAS No. 130, Reporting Comprehensive Income. This statement establishes standards for the reporting of comprehensive income and its components. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from nonowner sources. For each of the three and six month periods ended June 30, 2000 and 1999, there was no difference between net loss, as reported, and comprehensive loss.

Reclassifications - Certain reclassifications have been made to the 1999 financial statements to conform to the 2000 presentation.

2. ACQUISITIONS

On September 3, 1999, Smith Micro acquired all of the outstanding capital stock of PCS (the "PCS Merger") in exchange for one million shares of Smith Micro common stock. PCS is a developer and publisher of eCommerce software products and provides development and web hosting services to its customers. PCS is headquartered in San Diego, California and as a result of the PCS Merger, PCS became a wholly owned subsidiary of Smith Micro. The acquisition was treated as a pooling of interests for accounting purposes and the Company's historical financial statements and footnotes have been restated to reflect the combined results for all periods reported. Direct expenses of the transaction amounted to $187,000 and were included in general and administrative expenses in the third quarter of 1999.

On April 9, 1999, Smith Micro acquired all of the outstanding capital stock (the "STF Acquisition") of STF in exchange for $1.1 million in cash, including acquisition costs, and 409,164 shares of Smith Micro Common Stock valued at $1,000,000. STF is a developer and publisher of fax and communications software products for the Apple Macintosh computer. STF is headquartered in Concordia, Missouri and, as a result of the STF Acquisition, STF became a wholly owned subsidiary of Smith Micro. The acquisition was treated under the purchase method of accounting and the excess of cost over fair value of net assets acquired was allocated to goodwill, which is amortized using the straight-line method over 7 years.

Unaudited pro forma consolidated results of operations for the three and six months ended June 30, 1999 would have been as follows had the STF Acquisition occurred as of January 1, 1999 (in thousands, except per share data):

                                                          For the Thre Months    For the Six Months
                                                          Ended June 30, 1999   Ended June 30, 1999
                                                          -------------------   -------------------
Pro forma net revenues                                            $ 3,362           $  6,775
                                                                  =======           ========
Pro forma net loss                                                $  (743)          $ (1,677)
                                                                  =======           ========
Pro forma net loss per share, basic and diluted                   $ (0.05)          $  (0.11)
                                                                  =======           ========
Pro forma weighted average number of shares outstanding            15,498             15,268
                                                                  =======           ========

Pro forma adjustments have been applied to reflect the addition of amortization related to the intangible assets acquired and reduction in interest income as if the acquisition had occurred on January 1, 1999. The pro forma adjustment for amortization related to intangible assets acquired was $81,000 and $162,000 for the three and six month pro forma periods ended June 30, 1999, respectively.

9

3. NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. In May 1999, the FASB delayed the effective date of SFAS No. 133 by one year. The Company will be required to adopt SFAS No. 133 for fiscal year 2001. This statement establishes a new model for accounting for derivatives and hedging activities. Under SFAS No. 133, all derivatives must be recognized as assets and liabilities and measured at fair value. The Company does not currently engage in hedging activities but will continue to evaluate the effects of adopting SFAS 133.

In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. SAB 101 summarizes the staff's views in applying generally accepted accounting principles to selected revenue recognition issues in financial statements. Implementation of SAB 101, which was delayed by the issuance of SAB 101A on March 27, 2000 and SAB 101B on June 26, 2000, is required by the fourth quarter of 2000. The Company is currently evaluating the impact, if any, SAB 101 will have on its financial statements.

4. SUBSEQUENT EVENT

On July 31, 2000 the Company acquired the CheckIt line of software products from Touchstone Software Corporation and eSupport.Com, Inc., a wholly owned subsidiary of TouchStone Software Corporation, for 108,000 shares of Company Stock and $25,000 cash. The closing share price of the Company's stock on July 31, 2000 was $5.125 per share as reported by the Nasdaq National Market.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Smith Micro Software, Inc. develops and sells eCommerce and communications software for personal and business use. Our objective is to enhance human interaction by giving users the ability to communicate through multimedia technologies over analog and digital platforms. Smith Micro's products enable personal communication through telephony, fax, multimedia email, data, paging, video security and video conferencing. Smith Micro's eCommerce software and services enable businesses to create and launch online Internet storefronts.

Recently, we have been developing new products that leverage off our core technologies to address the consumer's use of the Internet and corporate intranets. We introduced QuickLink Mobil 2000 during the first quarter of 2000. This product allows digital cellular telephones to act as a wireless connectivity device to connect PC's to the Internet, corporate data centers or any other dial up connection. We intend to leverage our experience and position with original equipment manufacturers, commonly known as OEMs, to deploy these new product releases. Additionally, we are expanding our customer base to include manufacturers that produce devices that take advantage of the high bandwidth Internet connectivity such as cable and xDSL modems. The Company's products are designed to provide cost effective and efficient methods of communicating that take advantage of corporate, local and wide area networks, including the Internet or intranet. As a result of our merger with PCS in September of 1999, we have developed methods to combine the technologies originating from both Smith Micro and PCS to expand the functionality of our eCommerce software and services.

We shipped our first data communication software product in 1985 and, through the end of 1999, we had generated revenues primarily from the market acceptance of our OEM fax and data communication software products. We continue to generate revenues from OEM sources; however, we have augmented this revenue with sales from the retail channel and consultative sales from our eCommerce business. We began providing video communication products in 1996 to both OEM and retail customers. In January 1998, we purchased certain fax software assets of Mitek Systems, Inc. to provide LAN, Internet and intranet fax transmission solutions designed for the corporate market. In September 1998, we shipped our first Internet communications software product. This multi-purpose product provides for integrated telephony, multimedia e-mail, video security, fax, video conferencing and text based chat functionality over the Internet and other IP protocol services such as LANs and WANs. Designed to take advantage of high bandwidth technology, this product functions over a variety of IP connectivity hardware including xDSL modems, cable modems, network interface devices and analog modems. In April 1999 we expanded our Macintosh division with the STF acquisition. STF develops and sells communications software, primarily fax, to the Macintosh market. Goodwill recorded in the acquisition of STF was $2,271,000 and will be amortized over seven years. Our Macintosh division is currently working to provide Internet telephony products for this market. In September 1999, we merged with PCS to provide eCommerce business solutions. In late 1995, PCS sold its first copy of the original version of WebCatalog, an Internet store development software designed for the Macintosh. PCS began selling a Windows version in early 1997 and recently released its Unix version in late 1999. In the first quarter of 2000 we introduced QuickLink Mobil 2000. This product allows PC users to use digital cell phones as a connectivity device for wireless access to the Internet, corporate data centers and other dial up connections. This product was originally introduced as an OEM product. In the second quarter of 2000, we introduced a retail version of QuickLink Mobil 2000. Also in the first quarter of 2000 we introduced Wireless Web DNA. This product allows websites to be accessed both by traditional PC based web browsers and by newly created micro browsers located on digital cell phones.

We recognize revenues from sales of our software as completed products are shipped and from royalties generated as authorized customers duplicate our software. Any material reduction in demand for our products would have an adverse effect on our business, results of operations and financial condition. We continue to introduce new products and our future success will depend in part on the continued introduction of new and enhanced OEM and retail products for the wireless and broadband market and eCommerce products that achieve market acceptance. Revenues are net of estimated returns and other adjustments at the time the products are shipped. We have allowed our customers to return unused software and to rotate stock for new versions of retail releases. As a percentage of our net revenues, returns constituted 20.02% in the six months ended June 30, 2000, 27.6% for the year ended December 31,1999 and 4.8% for the year ended December 31, 1998. As a percentage of our net revenues, returns for stock rotation were 11.2% in the six months ended June 30, 2000, 23.9% for the year 1999 and 0.6% for the year 1998.

Although we have successfully expanded our OEM customer base during the past two years, a small number of OEM customers have historically accounted for a substantial portion of our revenues. Sales to 3Com, primarily U.S Robotics and its subsidiaries, accounted for the largest portion of this revenue source and it has been substantially reduced from the preceding two years.

11

Approximately 5.6% of our revenues came from 3Com in the six months ended June 30, 2000, compared with 15.2% of our net revenues for the year 1999 and 23.3% of our net revenues for the year 1998. Our three largest OEM customers, including 3Com, accounted for the following portions of our net revenues: 20.9% in the six months ended June 30, 2000, 26.8% for the year 1999 and 33.0% for the year 1998.

The OEM product ordering cycle beginning from placement of an order to shipment is very short. OEM customers generally operate under a just-in-time system and order software to be delivered as needed by their manufacturing operations. We generally ship our products as we receive orders and, accordingly, we have historically operated with little backlog. With the growth in our eCommerce business, we have begun to develop a backlog of consulting projects. This backlog is only representative of sales from the eCommerce business and is not representative of our total company. The backlog for eCommerce products at the end of the second quarter of 2000 was $193,000. We do not consider backlog to be a significant indication of future performance in the other areas of our business. As a result, our sales of non-consultative products in any quarter are dependent on orders booked and shipped in that quarter and are not predictable with any degree of certainty. Moreover, we generally do not produce software in advance of orders and, therefore, have not maintained a material amount of software inventory.

Beginning in the third quarter of 1998, we renewed our commitment of resources and efforts towards the retail channel. Our effort coincided with the launch of our first retail Internet telephony product, Internet CommSuite. Our strongest retail product continues to be HotFax MessageCenter, which provides fax, answering machine and data communication functionality via the PC. We recently began to ship the retail version of our Internet store software product, WebCatalog Builder. We have expanded into new retail outlets, particularly office supply chains such as Staples, Office Depot and Office Max and into numerous Internet retail stores. As a result of this expansion, sales to Ingram Micro, a retail distributor, were 14.7% of our net revenues in the six months ended June 30, 2000, 23.4% of our net revenues in the year 1999 and 18.0% of our net revenues in the year 1998. Inventory in the retail channel exposes us to product returns. We consider this exposure when we establish allowances for product returns. Substantial returns of products from the retail channel could have an adverse effect on our business, results of operations and financial condition.

The following discussion should be read in conjunction with, and is qualified in its entirety by, the Financial Statements and related notes thereto included in the Company's report on Form 10-K for the year ended December 31, 1999. Historical results of operations, percentage relationships and any trends that may be inferred from the discussion below are not necessarily indicative of our operating results for any future period.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentages of net revenues represented by each item in the Company's consolidated statements of operations.

                                  For The Three Months     For The Six Months
                                     Ended June 30,          Ended June 30,
                                   ------------------      ------------------
                                    2000        1999        2000        1999
                                   ------      ------      ------      ------
Net revenues                        100.0%      100.0%      100.0%      100.0%
Cost of revenues                     17.3%       17.3%       18.6%       20.6%
                                   ------      ------      ------      ------
Gross profit                         82.7%       82.7%       81.4%       79.4%
Operating expenses:
   Selling and marketing             45.4%       48.9%       45.1%       51.0%
   Research and development          31.1%       29.5%       30.8%       30.1%
   General and administrative        29.2%       29.5%       28.9%       29.8%
                                   ------      ------      ------      ------
Total operating expenses            105.7%      107.9%      104.8%      110.9%
                                   ------      ------      ------      ------
Operating loss                      (23.0)%     (25.2)%     (23.4)%     (31.5)%
Interest income                       3.6%        3.1%        3.6%        3.7%
                                   ------      ------      ------      ------
Loss before income taxes            (19.4)%     (22.1)%     (19.8)%     (27.8)%
Income tax expense (benefit)          0.2%        0.0%        0.7%       (5.6)%
                                   ------      ------      ------      ------
Net loss                            (19.6)%     (22.1)%     (20.5)%     (22.2)%
                                   ======      ======      ======      ======

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Net Revenues

During the first quarter of 2000, we restructured our reporting format to report revenues from three operating units as well as revenues from Sunset products. Sunset products are our analog modem products sold to OEM modem manufactures and have been in constant decline over the past two years. The reporting operating units are the Internet Solutions Division, the Macintosh Division and the Wireless and Broadband Division. Revenues reported in the Wireless and Broadband division also contain product sales of our analog retail upgrade products, which we will continue to pursue. Our retail products are sold through a sales staff located at our corporate office. As these sales tend to be to major distribution warehouses, this group is responsible for selling all of our retail products, which cover all three divisions. We allocate the total of these sales back to each division based on which division created the product.

Our net revenues decreased 4.2% to $3.2 million in the three months ended June 30, 2000 from $3.4 million in the three months ended June 30, 1999. Our net revenues decreased 1.6% to $6.3 million in the six months ended June 30, 2000 from $6.4 million in the six months ended June 30, 1999. The following table shows a comparison of the revenues generated by each division:

                          For the Three Months Ended       For the Six Months Ended
Division                 June 30, 2000   June 30, 1999   June 30, 2000   June 30, 1999
--------                 -------------   -------------   -------------   -------------
Internet Solutions        $  821,000      $  161,000      $1,622,000      $  331,000
Macintosh                    318,000         665,000       1,267,000         715,000
Wireless & Broadband       1,870,000       1,916,000       2,925,000       3,862,000
Sunset Products              213,000         620,000         482,000       1,490,000
                          ----------      ----------      ----------      ----------
Total Revenues            $3,222,000      $3,362,000      $6,296,000      $6,398,000
                          ==========      ==========      ==========      ==========

Although total net revenues in both the 2000 and 1999 periods is relatively constant, as our Sunset products continue to decline, we have offset this decline with increases in our new divisions in their targeted markets. The internet solutions division is the result of the merger of PCS in September of 1999, which was accounted for as a pooling of interests. The net revenues for 1999 reflect PCS's sales in that period before we had acquired them and infused our capital and resources into this division. The Macintosh division was the result of the purchase of STF in April of 1999. We did a limited amount of business in this market prior to the acquisition of STF. The major change in the Wireless and Broadband division is the result of the initial shipments of two of our retail products, Internet CommSuite and HotFax MessageCenter, which occurred in the first quarter of 1999.

Gross Profit

Gross profit represents net revenues, less cost of revenues, which includes costs of materials, costs related to the operations of the Company's duplicating facilities, engineering labor costs related to consulting revenues, freight charges and royalties paid to licensors. Gross profit dollars decreased 4.1% to $2.7 million in the three months ended June 30, 2000 from $2.8 million in the three months ended June 30, 1999. This decrease is attributable to the reduction in sales in this period. As a percentage of net revenues, gross margin remained constant at 82.7% for the three months ended June 30, 2000 and June 30, 1999.

Gross profit dollars remained relatively constant at $5.1 million in the six months ended June 30, 2000 and June 30, 1999. The gross margin percentage, however, increased by two percentage points to 81.4% in the six months ended June 30, 2000 from 79.4% during the same period last year. Contributing factors to the increase in the gross margin percentage include an increase in the number of products that enjoy a higher gross margin than the Sunset products being replaced and an increase in the amount of royalty revenue replacing kitted product to OEM customers.

Selling and Marketing Expenses

Our selling and marketing expenses consist primarily of personnel costs, advertising costs, sales commissions and trade show expenses. These expenses vary considerably from quarter to quarter based on the timing of trade shows, new product introductions and retail promotion programs. Our selling and marketing expenses decreased 11% to $1.5 million in the three months ended June 30, 2000 from $1.6 million in the three months ended June 30, 1999. The reduction in Sales and Marketing expenses over the same period last year represented approximately 82% of the total Company expense savings year on year. These savings came primarily from the retail channel as the result of a more efficient marketing approach. As this channel matures for the Company, it requires less

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capital outlays for promotional efforts and cooperative advertising campaigns than when it was being established. We will continue to promote our products through various advertising media and participation in retailer's promotional programs at levels sufficient enough to support sales of our products in this channel. As a percent of net revenues, selling and marketing expenses decreased to 45.4% in the three months ended June 30, 2000 from 48.9% in the three months ended June 30, 1999.

Our selling and marketing expenses decreased 12.9% to $2.8 million in the six months ended June 30, 2000 from $3.3 million in the six months ended June 30, 1999. The decrease in selling and marketing expenses is primarily due to promotional campaigns in the retail channel for our fax and Internet communications products that took place during the first half of 1999 and were not recurring in the current year. The decreases in promotional expenses were partially offset by increases in employee-related expenses due to the acquisition of STF, which took place in April of 1999. As a percent of net revenues, selling and marketing expenses decreased to 45.1% in the six months ended June 30, 2000 from 51.0% in the three months ended June 30, 1999.

Research and Development Expenses

Our research and development expenses consist primarily of personnel and supply costs required to conduct the Company's software development activities, and the amortization of acquired technology assets. Our research and development expenses remained unchanged at $1.0 million for the three months ended June 30, 2000 and 1999. As a percentage of net revenues, research and development expenses increased to 31.2% in the three months ended June 30, 2000 from 29.5% in the three months ended June 30, 1999, primarily due to the difference in revenues.

Our research and development expenses were also relatively consistant for the periods being compared at $1.9 million for the six months ended June 30, 2000 and 1999. We did increase our personnel costs, however, this increase was offset by reductions in contract programming and purchased technologies. As a percentage of net revenues, research and development expenses increased to 30.8% in the six months ended June 30, 2000 from 30.2% in the six months ended June 30, 1999.

General and Administrative Expenses

Our general and administrative expenses represent operating expenses that are not included as costs of sales, selling and marketing or research and development. Our general and administrative expenses decreased 5.2% to $940,000 in the three months ended June 30, 2000 from $991,000 in the three months ended June 30, 1999. General and administrative expenses decreased primarily as the result of reductions in employee-related expenses. The effects of these reductions were counteracted by the amortization of goodwill associated with the STF acquisition and an increase in bad debt expense. As a percent of net revenues, general and administrative expenses decreased to 29.2% in the three months ended June 30, 2000 from 29.5% in the three months ended June 30, 1999.

Our general and administrative expenses decreased 4.7% to $1.8 million in the six months ended June 30, 2000 from $1.9 million in the six months ended June 30, 1999. General and administrative expenses decreased primarily as the result of reductions in employee related expenses. The effects of these reductions were counteracted by the amortization of goodwill associated with the STF acquisition and an increase in bad debt expense. As a percent of net revenues, general and administrative expenses decreased to 28.9% in the six months ended June 30, 2000 from 29.8% in the six months ended June 30, 1999.

Income Taxes

Income tax expense was $45,000 for the six months ended June 30, 2000 compared with an income tax benefit of $356,000 for the six months ended June 30, 1999. The tax benefit in the first half of 1999 related to net operating loss carryforwards recorded as deferred tax assets. During the third quarter of 1999, we increased the valuation allowance to offset all deferred tax assets. This decision was reached last year when it was determined that the recent historical results of operations provided insufficient evidence that the deferred tax assets would be realized. The current period tax expense of $45,000 relates to taxes on foreign income.

Liquidity and Capital Resources

Since our inception, we have financed operations primarily through cash generated from operations and from proceeds generated by our initial public offering in 1995. Net cash used in operating activities was $953,000 in the six months ended June 30, 2000 compared to $1.2 million in the six months June 30, 1999. The primary operating use of cash during the both periods was the Company's net loss.

During the six months ended June 30, 2000, the Company used $129,000 in investing activities. On April 9, 1999, we used $1.1 million in cash and 409,164 shares of our Common Stock to acquire all of the outstanding capital stock of STF Technologies, Inc.

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(STF). STF, headquartered in Concordia, Missouri, is a developer and publisher of fax and communications software products for the Apple Macintosh computer.

At June 30, 2000, the Company had $8.3 million in cash and cash equivalents and $10.6 million of working capital. The Company had $4.3 million of accounts receivable, net of allowance for doubtful accounts and other adjustments. The Company has no significant capital commitments, and currently anticipates that growth in capital expenditures will not vary significantly from recent periods.

RISK FACTORS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties and our actual results may materially differ from the results anticipated in those statements. Factors that might cause such a difference include, without limitation, those discussed in this section, in the Management's Discussion and Analysis of Financial Condition and Results of Operations section and elsewhere in this Form 10-Q. All such factors should be considered in evaluating us and a decision to invest in us.

Our Quarterly Operating Results are Subject to Significant Fluctuations that Could Adversely Impact Our Stock Price. Our quarterly operating results have fluctuated significantly in the past and may continue to vary from quarter to quarter. Accordingly, you should not rely on quarter-to-quarter comparisons of our operating results as an indication of our future performance. It is possible that in some future periods our results of operations may be below the expectations of public market analysts and investors. In that event, the price of our Common Stock would likely decline.

There are a number of factors that could cause our quarterly operating results to fluctuate. Many of these factors are not in our control. These factors include:

o the size and timing of orders from, and shipments to, our major customers;

o our ability to maintain or increase gross margins;

o changes in pricing policies or price reductions by us or our competitors;

o variations in the our sales channels or the mix of our product sales;

o the timing of new product announcements and introductions by us, our competitors or customers;

o the availability and cost of supplies;

o the financial stability of our major customers;

o the market acceptance of our new products, applications and product enhancements;

o our ability to develop, introduce and market new products, applications and product enhancements;

o possible delays that we may face in the shipment of new products;

o our success in expanding our sales and marketing programs;

o deferrals of orders by our customers in anticipation of new products, applications, product enhancements or operating systems;

o changes in our strategy; and

o personnel changes.

While we historically have not experienced significant fluctuations in our sales from season to season, we may face greater seasonality in our sales in the future. Many of our OEM customers experience seasonality in their sales, which may affect their buying patterns from us. In addition, as we increase our sales of retail products, we expect to experience greater seasonality in our sales.

Because We Currently Operate With Little Backlog, Our Revenues in Each Quarter are Substantially Dependent on Orders Booked and Shipped in that Quarter. We currently have backlog orders only in our Internet Solutions division for our consultative sales and we only began building this backlog during the first half of 2000. In our other divisions, we operate with little backlog because we generally ship our software products as we receive orders and because our royalty revenue is based upon our customers' actual usage in a given period. Accordingly, we recognize revenue shortly after orders are received or royalty reports are generated. As a result, our sales in any quarter are dependent on orders that we book and ship in that quarter. This makes it difficult for us to predict what our revenues and operating results will be in any quarter. If orders in the first month or two of a quarter fall short of expectations, it is likely that we will not meet our revenue targets for that quarter. If this happens, our quarterly operating results would be adversely affected.

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An Unexpected Shortfall in Revenue May Adversely and Disproportionately Affect Our Business Because Our Expenses are Largely Fixed. Our expense levels are based, in part, on our expectations of our future revenues and a significant portion of our expenses is fixed. As a result, we may not be able to adjust our spending rapidly enough to compensate for an unexpected shortfall in revenue. Therefore, if revenue levels fall below our expectations, our operating results and net income are likely to be adversely and disproportionately affected.

We have Depended Upon a Small Number of OEM Customers. Sales to our three largest OEM customers accounted for approximately 20.9% of our net revenues in the six months ended June 30, 2000, 26.8% of our net revenues for the year 1999 and 33.0% of our net revenues for the year 1998. Although we have begun to diversify our product lines, we expect that we will continue to be dependent upon orders from our major OEM customers for a significant portion of our revenues in future periods. However, none of these customers are obligated to purchase any of our products. Accordingly, we cannot be certain that these customers will continue to place large orders for our products in the future, or purchase our products at all. Our customers may acquire products from our competitors or develop their own products that compete directly with ours. Any substantial decrease or delay in our sales to one or more of these entities in any quarter would have an adverse effect on our results of operations. In addition, certain of our OEM customers have in the past and may in the future acquire competitors or be acquired by competitors, causing further industry consolidation. In the past, such acquisitions have caused the purchasing departments of the combined companies to reevaluate their purchasing decisions. If one of our major OEM customers engages in an acquisition in the future, it could change its current purchasing habits. In that event, we could lose the customer, experience a decrease in orders from that customer or a delay in orders previously made by that customer. Moreover, if one of our existing OEM customers acquires another existing OEM customer, the concentration of our revenues from the combined companies could increase if the combined companies continue to purchase our software products. Although we maintain allowances for doubtful accounts, the insolvency of one or more of our major customers could result in a substantial decrease in our revenues.

Our Operating Results Have Been Substantially Dependent upon One Family of Products Sold to Original Equipment Manufacturers. In the past we have derived a significant portion of our revenues from a relatively small number of products. Sales of our QuickLink related products represented approximately 21.4% of our net revenues in the six months ended June 30, 2000, 37.1% of our net revenues for the year 1999 and 55.3% of our net revenues for the year 1998. We have continued to diversify our product offerings and have less of a dependency on these products. However, as our revenues from these software products continue to decline, whether as a result of competition, technological change, price pressures or other factors and our efforts to replace these sales through the addition of new products are not successful, our business could be seriously impaired.

Our Efforts to Develop a Market for Our Retail Software Products Require Substantial Investments that May Adversely Affect Our Operating Margins. We are continuing our efforts to develop a market for our retail software products. We recently added WebCatalog Builder to our existing line of retail software products that includes Internet CommSuite, HotFaxMessageCenter, HotFax, VideoLink Mail, FAXstf, HotPage and HotFaxShare. Sales of our retail products represented approximately 24.3% of our net revenues in the six months ended June 30, 2000, 31.9% of our net revenues for the year 1999 and 24.8% of our net revenues for the year 1998. In order to strengthen our product recognition and build distribution channels for our retail products, we will have to make significant investments in advertising, trade shows, public relations, distributor relationships and a dedicated sales force. Accordingly, our retail sales may not provide us with the same contribution margin to operating income that we have historically achieved on our OEM sales.

We May Not be Able to Develop and Maintain Relationships with Distributors and Retailers to Sell Our Retail Software Products. We rely on distributors, retailers, Internet distributors and value added resellers, commonly known as VARs, to market and distribute our retail software products. Our retailers include Staples, CompUSA, Office Depot, OfficeMax and numerous Internet retail stores, among others. As a result, net revenues to Ingram Micro, a retail distributor, were 14.7% of our net revenues in the six months ended June 30, 2000, 23.4% of our net revenues for the year 1999 and 18.0% of our net revenues for the year 1998. Our ability to maintain distributor and retailer relationships is largely a function of our sales volume. If we do not meet certain minimum volume requirements, we may not be able to maintain our relationships with our current distributors and retailers. Our agreements with retailers and VARs are not exclusive and in many cases may be terminated by either party without cause. Many of our retailers and VARs carry product lines that are competitive with our retail software products. These retailers and VARs may not give a high priority to the marketing of our products or may not continue to carry our products. In addition, our retailers and VARs may change their inventory strategies, with little or no warning to us. In many cases, such changes in inventory strategy may not be related to end user demand. If this happens our retail sales may be adversely affected. We may not be successful in recruiting new VARs and retailers to represent us.

Our Risk of Product Returns Will Increase as Our Retail Sales Increase. We typically allow the retailers and VARs who sell our retail software products to return our products without charge or penalty. As part of our revenue recognition policy, we calculate an allowance for product returns based on our historical experience. If retail sales of our products increase, our risk of product returns will increase. While our revenue recognition policy contemplates this risk, it is possible that returns may occur in excess of our previous

16

experience. If this happens, we would have to revise our estimates and increase our allowances for such returns. Excessive or unanticipated returns could adversely affect our results of operations.

Our Future Success Will Partially Depend on the Level of Market Acceptance of Our Internet Communications Products, Video Related Products and eCommerce products and services. We continue to focus significant resources on the development and introduction of Internet telephony and video communications products and services, including our currently released products: conexs.com and Internet CommSuite. Subsequent to our merger with PCS, we increased the level of resources directed at our eCommerce product group and we expect to continue to focus significant resources on the development, marketing and selling of eCommerce products and services, including our currently released products:
WebCatalog and WebCatalog Builder. Lack of market acceptance for these products or other similar products could have an adverse impact on our business. In addition, we may experience delays in or non-completion of the development of new software for these products, which could adversely affect our competitive position in these markets. Such products compete in new and rapidly changing markets and we cannot be certain that our products will receive or gain market acceptance. Our first Internet communications software product was released in September 1998. This software product includes a number of Internet communications tools such as telephony, fax, multimedia e-mail, video conferencing, video security and others. Our initial sales of this product were made to retail channels and did not include significant orders from OEM customers. We introduced our first video communications software in 1996. Since that time, our sales volume for such product has achieved only modest growth and has not become a significant part of net revenues. Our first eCommerce software product was released in late 1995. The current version of this software product enables businesses of all sizes to create and operate online Internet storefronts and web sites. Sales of this product line have primarily been made through VARs and direct sales to businesses. Revenue from this product group has achieved modest growth and has not become a significant part of net revenues. Our Internet telephony and video communications software products compete against several competitors, including White Pine, Logitech, Intel, Microsoft and VocalTech and our eCommerce software products also compete against several competitors, including Intershop, Intel, IBM, Yahoo and others, some of whom have greater financial and other resources than we do. We cannot be certain that we will be able to compete successfully against these and any future competitors in the Internet communications, video conferencing software markets or eCommerce software market.

Rapid Technological Change Could Render Our Products Obsolete. The communications software markets in which we operate are characterized by rapid technological change, changing customer needs, frequent product introductions and evolving industry standards. These factors make it difficult for us to estimate the life cycles of our products. Our future success will depend upon our ability to develop and introduce new software products, including new releases, applications and enhancements, on a timely basis that keep pace with technological developments and emerging industry standards and address the increasingly sophisticated needs of our customers. We may experience difficulties that could delay or prevent our development, introduction and marketing of new products. If we are unable to develop and introduce new products in a timely manner in response to changing market conditions or customer requirements, or technological or other reasons, our competitive positions in these markets would be adversely affected.

Microsoft is the leading developer of operating systems for personal computers. We may not be able to successfully develop new versions of our software products that will operate on future Microsoft operating systems. Even if we are able to develop such new versions, we may not be able to do so concurrently with or prior to introductions by our competitors of communication software products for those new operating systems. Any such failure or delay could adversely affect our competitive position or lead to obsolescence of our products in the future.

Microsoft Poses a Significant Competitive Threat to Us. We face competition from Microsoft, which is the publisher of the most prevalent personal computing operating platforms, Windows, Windows NT and DOS. Due to its market dominance, Microsoft represents a significant competitive threat to all personal computer software vendors, including us. The latest Microsoft operating systems, Windows 2000, Windows 98, Windows 95 and Windows NT, include capabilities now provided by certain of our OEM and retail software products, including our principal product, QuickLink. If the communications capabilities of Windows 2000, Windows 98, Windows 95, Windows NT or other operating systems are adopted by users, sales of our products could decline.

We Face Significant Competition from Other Companies. We operate in markets that are highly competitive and subject to rapid changes in technology. We compete with other software vendors for access to distribution channels, retail shelf space and the attention of customers. We also compete with other software companies in our efforts to acquire software technology developed by third parties. Competitive pressures could reduce our market share or require us to reduce the prices of our products.

We Face Significant Competition from Software Vendors in the Retail Market. Our principal fax related retail products, HotFaxMessageCenter and HotFax, compete directly with Symantec's WinFax Pro. Our new Internet communications software products, Internet CommSuite and conexs.com, compete with product offerings by Microsoft, Intel, White Pine and VocalTech, among others. In addition, because there are low barriers to entry into the software market, we expect significant competition from other established and

17

emerging software companies in the future. Furthermore, many of our existing and potential OEM customers may acquire or develop products that compete directly with our products.

Many of our current and prospective competitors have significantly greater financial, marketing, service, support, technical and other resources than we do. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the promotion and sale of their products. There is also a substantial risk that announcements of competing products by large competitors such as Microsoft and Symantec could result in the cancellation of orders by retailers, distributors or other customers in anticipation of the introduction of such new products. In addition, some or our competitors, such as Symantec, currently make complementary products that are sold separately. Such competitors could decide to enhance their competitive position by bundling their products to attract customers seeking integrated, cost-effective software applications. Some competitors have a retail emphasis and offer OEM products with a reduced set of features. The opportunity for retail upgrade sales may induce these and other competitors to make OEM products available at their own cost or even at a loss. We also expect competition to increase as a result of software industry consolidations, which may lead to the creation of additional large and well-financed competitors. Increased competition is likely to result in price reductions, fewer customer orders, reduced margins and loss of market share.

We believe that our ability to compete depends on elements both within and outside of our control, including:

o the success and timing of new product development;

o product performance;

o price;

o distribution; and

o customer support.

We cannot be certain that we will be able to compete successfully with respect to these and other factors or that the competitive pressures that we face will not adversely affect our results of operations.

Our Future Success Will Depend on Our Ability to Develop and Introduce New Product Offerings. Our future success will depend, in significant part, on our ability to successfully develop and introduce new software products and improved versions of our existing software products on a timely basis and in a manner that will allow such products to achieve broad customer acceptance. We cannot be certain that we will be able to develop and introduce new products on a timely basis, if at all, or that any new products that we do develop will be accepted in the market. If new products are delayed or do not achieve market acceptance, our sales and results of operations will be adversely affected. In the past, we have experienced delays in purchases of our products by customers anticipating the launch of new products by us. Accordingly, it is possible that our customers may defer material orders in the future in anticipation of new product introductions. If this happens, our results of operations may be adversely affected.

Our Efforts to Sell Our Products in the Corporate and Government Marketplaces May Not be Successful and May Adversely Affect Our Operating Margins. In the past, we have generated our revenues almost entirely from OEM sales. We began selling to the corporate/government marketplace while building the infrastructure necessary to sell to these two customer bases in 1997. In January 1998, we acquired the network fax software technology of Mitek Systems, Inc. Through this acquisition, we acquired software that is designed to address the fax requirements of the corporate/government customer. During 1998 we developed the acquired network fax product into the currently shipping product, HotFaxShare, and we released a newly developed IP Gateway module. In September 1999, we merged with PCS, which provided us with eCommerce products for this market. Although we continue to invest resources in the research and development of products for the corporate and government markets, and in building the additional infrastructure required to market and sell products in these markets, we cannot be certain that our efforts will yield any significant sales growth. In addition, because we have had to make substantial investments to develop, market and sell products for these markets, sales of such products may not provide the operating margins historically achieved by us for OEM sales.

Our Products May Contain Undetected Software Errors. Our software products are complex and may contain undetected errors. In the past, we have discovered software errors in certain of our products and have experienced delayed or lost revenues during the period it took to correct these errors. Although we test our products along with our current and potential OEM customers, it is possible that errors may be found in our new or existing products after we have commenced commercial shipment of those products. These undetected errors, could result in adverse publicity, loss of revenues, delay in market acceptance of our products or claims against us by customers.

Our Planned Expansion of Our International Business Activities May Make Us More Susceptible to Global Economic Factors, Foreign Business Practices and Currency Fluctuations. We presently operate in foreign markets and intend to expand our international

18

presence. Export net revenues represented 16.1% of our net revenues in the six months ended June 30, 2000, 17.8% of our net revenues for the year 1999 and 21.5% of our net revenues for the year 1998. We may not be able to continue to generate significant international sales. Our international business activities are subject to a number of risks, including:

o difficulties in managing distributors;

o difficulties in staffing and maintaining foreign operations;

o foreign currency exchange fluctuations;

o the possibility of difficulties in collecting accounts receivable;

o varying technical standards;

o substantially different regulatory requirements in different jurisdictions;

o tariffs and trade barriers;

o political and economic instability;

o reduced protection for our intellectual property rights in certain countries;

o potentially adverse tax consequences; and

o burdens associated with complying with a wide variety of complex foreign laws and treaties.

While we currently do not accept payment in foreign currencies and invoice all of our sales in U.S. dollars, we may not be able to continue this policy if we are able to grow international sales. If we begin to receive payment in foreign currencies, we are likely to be subject to the risks of foreign currency losses due to fluctuations in foreign currency exchange rates. In addition, if we are successful in growing our business outside of the United States, we may also face economic, political and foreign currency situations that are substantially more volatile than those commonly experienced in the United States. If this happens, our results of operations could be adversely affected.

We Must Continue to Hire and Retain Key Personnel in an Intensely Competitive Labor Market. Our future performance depends in significant part upon the continued service of our senior management and other key technical personnel. We are dependent on our ability to identify, hire, train, retain and motivate high quality personnel, especially highly skilled engineers involved in the ongoing research and development required to develop and enhance our communication software products and introduce enhanced future applications. A high level of employee mobility and an aggressive approach to the recruiting of skilled personnel characterize the software industry. Our inability to attract and retain the highly trained technical personnel that are essential to our product development, marketing, service and support teams may limit the rate at which we can generate revenue and develop new products or product enhancements. In order to attract and retain key personnel, we may need to grant additional options and provide other forms of incentive compensation.

Because We Rely on Third Party Suppliers, We Have Limited Control Over Component Costs and Product Delivery Schedules. We rely on third party suppliers to provide us with the components for our product kits. These components include disks, CDs and printed manuals. We also rely on third parties for CD-ROM replication. In the past, we have experienced disk shortages and may experience such shortages in the future. If we cannot obtain a sufficient quantity of disks or other components we may not be able to deliver products to our customers on a timely basis. Similarly, if the CD-ROM replication facilities that we use do not deliver our requirements on schedule, we may not be able to deliver products in a CD-ROM format to our customers on a timely basis. Any delays that we experience in delivering our products to customers could impair our customer relationships and adversely impact our business. In addition, if our third party suppliers raise their prices for disks or other components or CD-ROM replication services, our gross margins would be reduced.

Our Customers May Continue to Switch to the Pre-Loaded or CD-ROM Versions of Our Products, Which May Adversely Affect Our Operating Results. We primarily sell our software in a kit that includes a disk or CD-ROM and a manual. However, some of our customers "pre-load" our software onto a CD, diskette or the hard drive of a personal computer and pay us a royalty based on units produced or shipped. These arrangements eliminate the need for us to provide a disk or CD-ROM and may eliminate the need for a manual. The pre-load arrangements produce smaller unit revenues for us and eliminate our ability to generate revenues from our production facilities. We believe that our production facilities contribute profits to our operations. Currently, we have the capability to produce our products in-house on 3 1/2-inch diskettes. However, we do not currently have the capability to produce CD-ROMs internally and the cost to develop such production capability may be prohibitive. As the size of software programs grows, CD-ROM is becoming a more prominent medium. We currently contract CD-ROM production to specialized CD-ROM facilities. If more of our customers request product pre-loads and CD-ROM versions of our products, our operating results could be adversely affected.

19

We May be Unable to Adequately Protect Our Intellectual Property and Other Proprietary Rights. Our success is dependent upon our software code base, our programming methodologies and other intellectual properties and proprietary rights. In order to protect our proprietary technology, we rely on a combination of trade secret, nondisclosure and copyright and trademark law. However, these measures afford us only limited protection. We currently own United States trademark registrations for certain of our trademarks, but we have not yet obtained registrations for all of our trademarks in the United States or other countries. In addition, prior to becoming a publicly held entity, we did not require our employees to sign proprietary information and inventions agreements stipulating to our software ownership rights. We only recently started the patent application process for a number of technologies relating to our existing products and products under development. Furthermore, we rely primarily on "shrink wrap" licenses that are not signed by the end user and, therefore, may be unenforceable under the laws of certain jurisdictions. Accordingly, despite the precautions we have taken to protect our intellectual property and proprietary rights, it is possible that third parties may copy or otherwise obtain our rights without our authorization. It is also possible that third parties may independently develop technologies similar to ours. It may be difficult for us to detect unauthorized use of our intellectual property and proprietary rights.

We may be subject to claims of intellectual property infringement as the number of trademarks, patents, copyrights and other intellectual property rights asserted by companies in our industry grows and the coverage of these patents and other rights and the functionality of software products increasingly overlap. From time to time, we have received communications from third parties asserting that our trade name or features, content, or trademarks of certain of our products infringe upon intellectual property rights held by such third parties. We have also received correspondence from third parties separately asserting that our fax products may infringe on certain patents held by each of the parties. Although we are not aware that any of our products infringe on the proprietary rights of others, third parties may claim infringement by us with respect to our current or future products. Infringement claims, whether with or without merit, could result in time-consuming and costly litigation, divert the attention of our management, cause product shipment delays or require us to enter into royalty or licensing agreements with third parties. If we are required to enter into royalty or licensing agreements, they may not be on terms that are acceptable to us. Unfavorable royalty or licensing agreements could seriously impair our ability to market our products.

Our Officers and Directors Could Control Matters Submitted to Our Stockholders. As of July 31, 2000, William Smith, the President, Chief Executive Officer and Chairman of the Board of our company, and Rhonda Smith, the Secretary, Treasurer and Vice-Chairman of the Board of our company, beneficially owned approximately 61.1% of the outstanding shares of the Company. William Smith and Rhonda Smith are married to one another and, acting together, will have the ability to elect our directors and determine the outcome of any corporate action requiring stockholder approval, including a merger or business combination, irrespective of how you may vote. This concentration of ownership may discourage a potential acquirer from making an offer to buy our company, which, in turn, could adversely affect the market price of our common stock.

Provisions of Our Charter and Bylaws and Delaware Law Could Make a Takeover of Our Company Difficult. Our certificate of incorporation and bylaws contain provisions that may discourage or prevent a third party from acquiring us, even if doing so would be beneficial to our stockholders. For instance, our certificate of incorporation authorizes the board of directors to fix the rights and preferences of shares of any series of preferred stock, without action by our stockholders. As a result, the board can authorize and issue shares of preferred stock, which could delay or prevent a change of control because the rights given to the holders of such preferred stock may prohibit a merger, reorganization, sale or other extraordinary corporate transaction. In addition, we are organized under the laws of the State of Delaware and certain provisions of Delaware law may have the effect of delaying or preventing a change in our control.

The Price of Our Stock Has Been Volatile and Could Continue to Fluctuate Substantially. The market price of our common stock has been volatile and could fluctuate substantially in response to a variety of factors that are out of our control, in addition to our financial performance. Furthermore, stock prices for many high technology companies, including our own fluctuate widely for reasons that may be unrelated to the operating performance.

Future Sales of Our Common Stock Could Cause the Price of Our Shares to Decline. As of July 31, 2000, we had 16,011,481 shares of Common Stock outstanding. Of this amount, the 9,786,670 shares held by William Smith and Rhonda Smith became available for sale in the public market (subject to the volume and other applicable restrictions of Rule 144) in September 1997, following the expiration of a two year lock-up agreement with certain representatives of the underwriters of our initial public offering, which consummated in September 1995. Sales of a substantial number of shares of our common stock by William Smith, Rhonda Smith or any other person, either individually or when aggregated with sales by other persons, could adversely affect the market price of our common stock.

20

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. In May 1999, the FASB delayed the effective date of SFAS No. 133 by one year. The Company will be required to adopt SFAS No. 133 for fiscal year 2001. This statement establishes a new model for accounting for derivatives and hedging activities. Under SFAS No. 133, all derivatives must be recognized as assets and liabilities and measured at fair value. The Company does not currently engage in hedging activities but will continue to evaluate the effects of adopting SFAS 133.

In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. SAB 101 summarizes the staff's views in applying generally accepted accounting principles to selected revenue recognition issues in financial statements. Implementation of SAB 101, which was delayed by the issuance of SAB 101A on March 27, 2000 and SAB 101B on June 26, 2000, is required by the fourth quarter of 2000. The Company is currently evaluating the impact, if any, SAB 101 will have on its financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Smith Micro's financial instruments include cash and cash equivalents. At June 30, 2000, the carrying values of our financial instruments approximated fair values based on current market prices and rates.

It is our policy not to enter into derivative financial instruments. We do not currently have any significant foreign currency exposure as we do not transact business in foreign currencies. As such, we do not have significant currency exposure at June 30, 2000.

21

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There were no pending legal issues at this time.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

The effective date of the Company's first registration statement (the "Registration Statement") filed on Form S-1 (Registration No. 33-95096) under the Securities Act of 1993, as amended, was September 18, 1995. The class of securities registered was Common Stock. The offering commenced on September 19, 1995 and all securities were sold in the offering. The managing underwriters for the offering were Hambrecht & Quist LLC and Oppenheimer & Co., Inc.

Pursuant to the Registration Statement, the Company sold 1,700,000 shares of its Common Stock for an aggregate offering price of $20,400,000, and certain selling shareholders sold 2,210,000 shares of the Common Stock of the Company for an aggregate offering price of $26,520,000.

The Company incurred expenses of $2,262,000 of which $1,428,000 represented underwriting discounts and commissions and $834,000 represented other expenses. All such expenses were direct or indirect payments to others. The net offering proceeds to the Company after total expenses was $18,138,000.

Of the net proceeds from the offering, $4,188,000 were used to repay amounts due under a promissory note issued by the Company to certain of its stockholders as part of a distribution of retained earnings in connection with the Company's prior S corporation status, $3,011,000 was used in the Company's acquisition of Performance Computing Incorporated which was consummated in March 1996, $1,091,000 was used in the acquisition of STF which was consummated in April 1999, $458,000 was used in the acquisition of assets from Mitek Systems, Inc. in January 1998, $190,000 was used in the acquisition of other technologies, $4,800,000 has been used for working capital requirements and the remainder has been invested in U.S. Government obligations and corporate bonds. The use of the proceeds from the offering does not represent a material change in the use of the proceeds described in the prospectus that is part of the Registration Statement.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECUIRITY HOLDERS

An Annual Meeting of the Stockholders of the Company was held on May 30, 2000. At the Annual Meeting, the Stockholders voted as follows:

(a) The Stockholders elected each of the following nominees as directors, to hold office until the 2003 Annual Meeting, or until their successors are elected and qualified. The vote for each director was as follows:

Nominee                 Votes For     Withhold Authority
-------                 ---------     ------------------
Thomas G. Campbell      13,922,710          6,083
Robert W. Scheussler    13,922,710          6,083

(b) The Stockholders elected to approve amendments to the Company's 1995 Stock Option/Stock Issuance Plan to (i) increase the number of shares of Common Stock authorized for issuance under the Plan from 1,750,000 shares to 2,750,000, and (ii) to increase the limitation on the number of shares of Common Stock which may be granted to any one individual as stock options or direct stock issuances to 400,000 shares per calendar year (with 10,493,975 shares voting for, 13,083 shares voting against, and 6,466 shares abstaining).

(c) The Stockholders elected to approve an amendment to the Amended and Restated Certificate of Incorporation to increase the number of shares of Common Stock authorized for issuance thereunder by an additional 10,000,000 shares to a total

22

of 30,000,000 shares of Common Stock (with 13,912,293 shares voting for, 10,061 shares voting against, and 7,790 shares abstaining).

(d) The Stockholders elected to ratify the appointment of Deloitte and Touche LLP as the Company's independent auditor of the fiscal year ending December 31, 2000 (with 13,919,381 shares voting for, 4,012 shares voting against, and 5,900 shares abstaining).

ITEM 5. OTHER INFORMATION

None.

23

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

  Exhibit
    No.                           Title                                    Method of Filing
  -------                         -----                                    ----------------
3.1           Amended and Restated Certificate of            Incorporated by reference to Exhibit 3.1 to the
              Incorporation of the Company                   Registrant's Registration Statement No. 33-95096

3.1.1         Amendment to the Amended and Restated          Filed Herewith
              Certificate of Incorporation of the Company

3.2           Amended and Restated Bylaws of the Company.    Incorporated by reference to Exhibit 3.2 to the
                                                             Registrant's Registration Statement No. 33-95096

4.1           Specimen certificate representing shares of    Incorporated by reference to Exhibit 4.1 to the
              Common Stock of the Company.                   Registrant's Registration Statement No. 33-95096

10.1          Form of Indemnification Agreement.             Incorporated by reference to Exhibit 10.1 to the
                                                             Registrant's Registration Statement No. 33-95096

10.2          1995 Stock Option/Stock Issuance Plan.         Incorporated by reference to Exhibit 10.2 to the
                                                             Registrant's Registration Statement No. 33-95096

10.3          Form of Notice of Grant of Stock Option        Incorporated by reference to Exhibit 10.3 to the
              under 1995 Stock Option/Stock Issuance Plan.   Registrant's Registration Statement No. 33-95096

10.4          Form of 1995 Stock Option Agreement under      Incorporated by reference to Exhibit 10.4 to the
              1995 Stock Option /Stock Issuance Plan.        Registrant's Registration Statement No. 33-95096

10.5          Form of 1995 Stock Purchase Agreement under    Incorporated by reference to Exhibit 10.5 to the
              1995 Stock Option/Stock Issuance Plan.         Registrant's Registration Statement No. 33-95096

10.6          Distribution License Agreement dated           Incorporated by reference to Exhibit 10.6 to the
              September 30, 1991, by and between the         Registrant's Registration Statement No. 33-95096
              Company and Crandell Development Corporation.

10.7          Application Program Interface Retail License   Incorporated by reference to Exhibit 10.7 to the
              Agreement July 28, 1992 by and between the     Registrant's Registration Statement No. 33-95096
              Company and Rockwell International
              Corporation.

10.8          Application Program Interface License          Incorporated by reference to Exhibit 10.8 to the
              Agreement July 28, 1992 by and between the     Registrant's Registration Statement No. 33-95096
              Company and Rockwell International
              Corporation.

10.9          Rockwell High Speed Interface License          Incorporated by reference to Exhibit 10.9 to the
              Agreement dated June 2, 1994, by and between   Registrant's Registration Statement No. 33-95096
              the Company and Rockwell International
              Corporation.

24

  Exhibit
    No.                           Title                                    Method of Filing
  -------                         -----                                    ----------------
10.10         Letter Agreement dated February 22, 1994, by   Incorporated by reference to Exhibit 10.10 to the
              and between the Company and Rockwell           Registrant's Registration Statement No. 33-95096
              International Corporation.

10.11         Letter Agreement dated April 22, 1993, by      Incorporated by reference to Exhibit 10.11 to the
              and between the Company and Rockwell           Registrant's Registration Statement No. 33-95096
              International Corporation.

10.12         Software Distribution Agreement dated May 8,   Incorporated by reference to Exhibit 10.12 to the
              1995, by and between the Company and           Registrant's Registration Statement No. 33-95096
              International Business Machines Corporation.

10.13         Office Building Lease, dated June 10, 1992,    Incorporated by reference to Exhibit 10.13 to the
              by and between the Company and Developers      Registrant's Registration Statement No. 33-95096
              Venture Capital Corporation.

10.14         Amendment No. 1 To Office Building Lease,      Incorporated by reference to Exhibit 10.14 to the
              dated July 9, 1993, by and between the         Registrant's Registration Statement No. 33-95096
              Company and Pioneer Bank.

10.15         Amendment No. 2 To Office Building Lease,      Incorporated by reference to Exhibit 10.15 to the
              dated August 15, 1994, by and between the      Registrant's Registration Statement No. 33-95096
              Company and T&C Development.

10.16         Fourth Addendum to Office Building Lease,      Incorporated by reference to Exhibit 10.16 to the
              dated April 21, 1995, by and between the       Registrant's Registration Statement No. 33-95096
              Company and T&C Development.

10.17         Form of Promissory Note related to S           Incorporated by reference to Exhibit 10.17 to the
              Corporation Distribution.                      Registrant's Registration Statement No. 33-95096

10.18         Smith Micro Software, Inc. Amended and         Incorporated by reference to Exhibit 10.21 to the
              Restated Software Licensing and Distribution   Registrant's Quarterly Report on Form 10-Q for the
              Agreement, dated April 18, 1996, by and        quarter ended September 30, 1996
              between the Company and U.S. Robotics Access
              Corp.

10.19         Office Building Lease, dated March 1, 1994,    Incorporated by reference to Exhibit 10.19 to the
              by and between Performance Computing           Registrant's Annual Report on Form 10-K for the
              Incorporated and Petula Associates, Ltd./KC    fiscal year ended December 3l, 1995
              Woodside.

10.20         Agreement and Plan of Merger by and between    Incorporated by reference to Exhibit 2 to the
              Smith Micro Software, Inc., Performance        Registrant's Current Report on Form 8-K filed with
              Computing Incorporated and PCI Video           the Commission on March 28, 1996
              Products, Inc. dated as of March 14, 1996.

10.21         Amendment No. 1, dated as of March 10, 1997,   Incorporated by reference to Exhibit 10.21 to the
              to Agreement and Plan of Merger by and         Registrant's Annual Report on Form 10-K for the
              between Smith Micro Software, Inc.,            fiscal year ended December 31, 1996
              Performance Computing Incorporated and PCI
              Video Products, Inc. dated as of March 14,
              1996.

25

  Exhibit
    No.                           Title                                    Method of Filing
  -------                         -----                                    ----------------
10.22         Amendment No. 6 to Office Building Lease,      Incorporated by reference to Exhibit 10.22 to the
              dated February 19, 1998, by and between the    Registrant's Annual Report on Form 10-K for the
              Company and World Outreach Center.             fiscal year ended December 31, 1997

10.23         Software licensing and Distribution            Incorporated by reference to Exhibit 10.23 to the
              Agreement dated December 1, 1998, by and       Registrant's Annual Report on Form 10-K for the
              between the Company and 3Com Corporation       fiscal year ended December 31, 1998

10.24         Stock Purchase Agreement dated as of April     Incorporated by reference to Exhibit 2 to the
              9, 1999 by and among Smith Micro Software,     Registrant's Current Report on Form 8-K filed with
              Inc. STF Technologies, Inc. and the            the Commission on April 23, 1999
              Shareholders of STF Technologies, Inc.

10.25         Amendment No. 7 to Office Building Lease,      Incorporated by reference to Exhibit 10.25 to the
              dated November 5, 1999, by and between the     Registrant's Annual Report on Form 10-K for the
              Company and World Outreach Center.             fiscal year ended December 31, 1999

27            Financial Data Schedule.                       Filed Herewith

(B) REPORTS ON FORM 8-K

No such reports were filed during the three months ended June 30, 2000.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SMITH MICRO SOFTWARE, INC.

August 11, 2000                          By /s/ WILLIAM W. SMITH, JR.
                                            ------------------------------------
                                            William W. Smith, Jr.
                                            Chairman of the Board, President and
                                            Chief Executive Officer
                                            (Principal Executive Officer)

August 11, 2000                          By /s/ RICHARD C. BJORKMAN
                                            ------------------------------------
                                            Richard C. Bjorkman
                                            Chief Financial Officer
                                            (Principal Financial Officer)

26

EXHIBIT 3.1.1

CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SMITH MICRO SOFTWARE, INC.

Pursuant to Section 242 of the Delaware
General Corporation Law

SMITH MICRO SOFTWARE, INC., a Delaware corporation, hereby certifies as follows:

FIRST: The Amended and Restated Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of Delaware on July 27, 1995 and a certified copy was recorded in the Office of the Recorder of New Castle County, Delaware.

SECOND: The following resolution was adopted setting forth the proposed amendment to the Amended and Restated Certificate of Incorporation of the Corporation:

RESOLVED, that SECTION (A) of ARTICLE IV of the Amended and Restated Certificate of Incorporation of the Corporation be, and it hereby is, amended to read as follows:

"(A) Classes of Stock: The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is Thirty-Five Million (35,000,000) shares. Thirty Million (30,000,000) shares shall be Common Stock, par value $.001 per share, and Five Million (5,000,000) shares shall be Preferred Stock, par value $.001 per share."

THIRD: This Amendment to the Amended and Restated Certificate of Incorporation was duly adopted by the Written Consent of the Board of Directors and by the Written Consent of the holders of all of the outstanding and issued shares of the Common Stock of the Corporation entitled to vote in accordance with Sections 141(f), 228 and 242 of the Delaware General Corporation Law.

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to its Amended and Restated Certificate of Incorporation to be executed by its Secretary this 11th day of July, 2000.

/s/ Rhonda L. Smith
-----------------------------------
Rhonda L. Smith, Secretary


ARTICLE 5
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TOS UCH FINANCIAL STATEMENTS.
MULTIPLIER: 1,000


PERIOD TYPE 3 MOS
FISCAL YEAR END DEC 31 2000
PERIOD START APR 01 2000
PERIOD END JUN 30 2000
CASH 8,320
SECURITIES 0
RECEIVABLES 4,301
ALLOWANCES 1,762
INVENTORY 289
CURRENT ASSETS 13,137
PP&E 455
DEPRECIATION 2,120
TOTAL ASSETS 15,814
CURRENT LIABILITIES 2,575
BONDS 0
PREFERRED MANDATORY 0
PREFERRED 0
COMMON 16
OTHER SE 23,737
TOTAL LIABILITY AND EQUITY 15,814
SALES 3,222
TOTAL REVENUES 3,222
CGS 557
TOTAL COSTS 557
OTHER EXPENSES 3,406
LOSS PROVISION 0
INTEREST EXPENSE 0
INCOME PRETAX (626)
INCOME TAX 6
INCOME CONTINUING (632)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET INCOME (632)
EPS BASIC (0.04)
EPS DILUTED (0.04)