<SEC-DOCUMENT>0000950123-11-083790.txt : 20120402
<SEC-HEADER>0000950123-11-083790.hdr.sgml : 20120402
<ACCEPTANCE-DATETIME>20110909172826
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0000950123-11-083790
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		2
FILED AS OF DATE:		20110909

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SMITH MICRO SOFTWARE INC
		CENTRAL INDEX KEY:			0000948708
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-PREPACKAGED SOFTWARE [7372]
		IRS NUMBER:				330029027
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		51 COLUMBIA
		STREET 2:		STE 200
		CITY:			ALISO VIEJO
		STATE:			CA
		ZIP:			92656
		BUSINESS PHONE:		9493625800

	MAIL ADDRESS:	
		STREET 1:		51 COLUMBIA
		STREET 2:		STE 200
		CITY:			ALISO VIEJO
		STATE:			CA
		ZIP:			92656
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
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<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><IMG src="a60100a6010001.gif" alt="(SMITHMICRO SOFTWARE LOGO)">
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">September&nbsp;9, 2011
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Via Edgar </B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">United States Securities and Exchange Commission<BR>
Division of Corporation Finance<BR>
100 F. Street, NE<BR>
Washington, DC 20549<BR>
<u>Attention</u>: Stephen G. Krikorian

</DIV>

<DIV align="RIGHT" style="margin-top: 12pt">
<TABLE width="92%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>Re:</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>Smith Micro Software, Inc. (File No.&nbsp;000-26536)</B><BR>
<B>Form&nbsp;10-K for the Fiscal Year Ended December&nbsp;31, 2010</B><BR>
<B>Filed on February&nbsp;25, 2011</B><BR>
<B>Form&nbsp;10-Q for the Fiscal Quarters Ended March&nbsp;31</B><BR>
<B>and June&nbsp;30, 2011</B><BR>
<B>Filed on May 4 and August&nbsp;3, 2011</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Dear Mr.&nbsp;Krikorian:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are filing this letter in response to a comment letter received from the Staff of the
Securities and Exchange Commission by letter dated August&nbsp;25, 2011 with respect to the
above-referenced filings of Smith Micro Software, Inc. (the &#147;<U>Company</U>&#148;). The numbering of
the paragraphs below corresponds to the numbering of your letter, the text of which we have
incorporated into this response letter for convenience.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><B>Form&nbsp;10-K for the Fiscal Year Ended December&nbsp;31, 2010 (the &#147;Form&nbsp;10-K&#148;)</B></U><BR>
<U><B>Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations </B></U><BR>
<U><B>Year Ended December&nbsp;31, 2010 Compared to Year Ended December&nbsp;31, 2009, page 27</B></U>

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B><I>1.</I></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B><I>We note that your </I></B><B><I>Form 10-K</I></B><B><I> was filed on February&nbsp;25, 2011 and that &#147;subsequent events &#091;were&#093;
evaluated as of the date of &#091;the&#093; filing.&#148; Please tell us what consideration was given to
disclosing the 40% decrease in stock price between December&nbsp;31, 2010 and your filing date.
Further, we note discussion in your financial results conference call on February&nbsp;24, 2011 of
slow sell through for a large customer that was announced on February&nbsp;8, 2011. Tell us what,
if any, consideration was given to disclosing any of these events or trends within your
revenue discussions.</I></B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Decrease in Stock Price</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As indicated in Comment No.&nbsp;1, the Company stated in footnote 10 to the financial statements
of the Form 10-K that &#147;subsequent events have been evaluated as of the date of this
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">51 Columbia, Aliso Viejo California 92656 phone: (949)362-5800 fax: (949)362-2300

</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.
Stephen G. Krikorian <BR>
September 9, 2011<BR>
Page 2
</div>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">filing and there are no further disclosures required.&#148; Consistent with this statement, the Company
did consider whether the decline in stock price between December&nbsp;31, 2010 (closing at $15.74) and
the Form 10-K filing date of February&nbsp;25, 2011 (closing at $9.40) resulted in impairment of
goodwill and other intangible assets, which, if it occurred, could be material to a discussion of
subsequent events in the Form 10-K. A summary of the Company&#146;s impairment analysis methodology,
including the effect of the decline in stock price on this analysis, are discussed below:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U><I>Methodology</I></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company accounts for goodwill and other intangible assets in accordance FASB ASC Topic No.
350, Intangibles-Goodwill and Other, which requires that goodwill and other identifiable intangible
assets with indefinite useful lives be tested for impairment at least annually. The Company tests
goodwill and intangible assets for impairment in December of each year, or more frequently if
events and circumstances warrant.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has a process in place to continuously review triggering events that may indicate
a possible impairment of goodwill. The triggering events that we monitor are (i)&nbsp;stock
price/market capitalization, (ii)&nbsp;projected revenues, (iii)&nbsp;operating income, and (iv)&nbsp;the
introduction/sales of new products.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under ASC No.&nbsp;350, goodwill impairment analysis is a two-step process. The first step, used
to identify potential impairment, compares the Company&#146;s fair value to its net book value including
goodwill. If the fair value exceeds net book value, applicable goodwill is considered not to be
impaired. If the fair value is determined to be less than net book value, then in the second step,
the Company would calculate an implied fair value of the Company&#146;s goodwill and compare it to its
carrying amount. If the carrying amount of goodwill exceeds the implied fair value, the Company
would recognize an impairment loss equal to that excess amount.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U><I>Impairment Analysis as of December&nbsp;31, 2010</I></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Using the above methodology, the Company estimated the fair value of its goodwill and other
intangible assets as of December&nbsp;31, 2010 based on (i)&nbsp;the income approach, which included
discounted cash flows, as well as (ii)&nbsp;a market approach that utilized the Company&#146;s earnings and
revenue multiples. Under the income approach, the Company&#146;s discounted cash flows required
management&#146;s judgment with respect to forecasted revenues, launch of new products, operating
expenses, working capital and the selection and use of an appropriate discount rate. Under the
market approach, the Company utilized comparable company analysis using market price data of stocks
of corporations that are actively traded in public, free and open markets, either on an exchange or
on an over-the-counter basis. Although it is clear that no two companies are entirely alike, the
only restrictive requirement imposed by this method is that the selected guideline companies were
engaged in the same or a similar line of business, distribution channel, and the like. In
selecting valuation multiples, we considered the business line and history, profitability, growth,
and risk of each guideline company relative to the Reporting Units. We applied the cash-free
market value of invested capital (MVIC)-to-revenue multiples to the Reporting Units&#146; actual
results. In addition, we applied the cash-free market value of MVIC-to-EBIT multiple to the
Wireless Reporting Unit. These valuation calculations were carried out by a third party,
Globalview Advisors LLC, which we engage each year for the annual goodwill impairment test
analysis.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">51 Columbia, Aliso Viejo California 92656 phone: (949)362-5800 fax: (949)362-2300

</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.
Stephen G. Krikorian <BR>
September 9, 2011<BR>
Page 3
</div>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s fair value assessment resulted in a fair value that was marginally greater than
the Company&#146;s carrying values for the Productivity &#038; Graphics operating unit and was significantly
greater than the Company&#146;s carrying value for the Wireless operating unit at December&nbsp;31, 2010. In
accordance with the above methodology, the second step of the impairment test was not required to
be performed and no impairment of goodwill was recorded as of December&nbsp;31, 2010.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant management judgment was required in the forecast of future operating results that
was used in the Company&#146;s impairment analysis. Our estimates were consistent with the plans and
estimates used by the Company to manage our business at the time of the analysis. Significant
assumptions utilized in the Company&#146;s income approach model included the forecasted growth rate of
sales for recently introduced products and the introduction of anticipated new products.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the time of filing of the Company&#146;s Form 10-K on February&nbsp;25, 2011, the Company&#146;s stock
price had declined by approximately 40% to $9.40 per share. However at $9.40, the Company&#146;s market
capitalization was approximately $328.7&nbsp;million, which would not, under the above analysis, by
itself indicate an impairment of assets. In addition, the Company&#146;s average stock price over the
three year period of 2008 &#151; 2010 was $8.54. The $9.40 per share price was significantly higher
than the Company&#146;s historical stock price levels during this period, during which we had no
indication of a possible impairment of goodwill.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Slow Sell Through</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As indicated in the Staff&#146;s comment, on February 8 and February&nbsp;24, 2011, the Company
discussed that orders in the first quarter from a key customer would fall below expected levels due
to the customer carrying sufficient inventory and experiencing slower than expected sales of a
product which utilized our technology. In response to this event, the Company retracted its annual
2011 revenue guidance on February&nbsp;8, 2011, and disclosed that it had limited visibility of 2011
revenue at the time of the filing. The Company also announced that it would only be providing
quarterly revenue guidance and not annual guidance for the remainder of 2011.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the time of filing the Form 10-K, the Company felt that the above disclosures were
sufficient and that the event would likely be a one-quarter issue, the large customer (Verizon)
would start ordering at historical levels starting the second fiscal quarter of 2011, and that this
one-quarter decrease would not be permanent or indicate an ongoing trend.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the Company did disclose under &#147;Risk Factors&#148; that, among other things, the
Company&#146;s quarterly revenues were difficult to predict, the Company had a customer concentration in
2010 and that changes in demand and underlying technology (including the rate of adoption of the 4G
networking standard by wireless carriers and handset manufacturers) could impact its results.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><B>Consolidated Financial Statements</B></U><BR>
<U><B>Notes to Consolidated Financial Statements</B></U><BR>
<U><B>Note 6. Segment and Geographical Information, page F-22</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">51 Columbia, Aliso Viejo California 92656 phone: (949)362-5800 fax: (949)362-2300

</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.
Stephen G. Krikorian <BR>
September 9, 2011<BR>
Page 4
</div>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B><I>2.</I></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B><I>Tell us the amount of revenue attributable to Verizon, AT&#038;T, Sprint and Dell in each of the
years presented. Further, with regard to your enterprise-wide disclosures within this
section, tell us what consideration was given to disclosing the revenues for each customer
representing 10% or more of total revenue pursuant to ASC 280-10-50-42. In addition, ensure
that future filings provide the amount of goodwill allocated to each segment.</I></B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Verizon Wireless accounted for 40.1% ($52.3&nbsp;million) of total Company revenue in 2010, 32.8%
($35.2&nbsp;million) in 2009 and 31.9% ($31.5&nbsp;million) in 2008. AT&#038;T accounted for 12.3% ($16.1
million) of total Company revenue in 2010, 10.3% ($11.1&nbsp;million) in 2009 and 9.0% ($8.8&nbsp;million) in
2008. Sprint accounted for 13.9% ($18.1&nbsp;million) of total Company revenue in 2010, 10.4% ($11.1
million) in 2009 and 7.2% ($7.1&nbsp;million) in 2008. Dell accounted for 7.6% ($9.96&nbsp;million) of total
Company revenue in 2010, 12.2% ($13.1&nbsp;million) in 2009 and 6.5% ($6.4&nbsp;million) in 2008.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On page 8 of the Form 10-K, the Company disclosed the applicable percentages of revenue
accounted for by Verizon Wireless (our largest customer) for 2010, 2009 and 2008, and identified by
name the other customers exceeding 10% of revenues without quantifying revenues for each customer
(other than Verizon). On page F-22, the Company disclosed similar information. Since there are
only a small number of wireless carriers, the Company felt that this type of disclosure provided
meaningful information to investors while respecting our concerns to preserve customer
confidentiality. In our Form 10-Q filings during fiscal 2011, we listed the individual percentages
for the quarter of customers exceeding 10% of revenues without listing the customer names.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe these disclosures satisfied the requirements for the filings under ASC
280-10-50-42, and also under Item&nbsp;101 of Regulation&nbsp;S-K with respect to the Form 10-K. However in
our future periodic reports, we will disclose, in the financial statement footnotes, the individual
percentages of any customer accounting for more than 10% of revenues without listing the names of
the customers.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, this will confirm that in future Form 10-K and 10-Q filings, the Company will
provide the amount of goodwill and intangible assets allocated to each business segment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><B>Form&nbsp;10-Q for the Fiscal Quarter Ended March&nbsp;31, 2011</B></U><BR>
<U><B>Notes to the Consolidated Financial Statements</B></U><BR>
<U><B>Note 11. Goodwill, page 11</B></U>

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B><I>3.</I></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B><I>We note that as of March&nbsp;31, 2011 you had not &#147;noted any triggering events that would
indicate impairment.&#148; Please explain how you concluded that there were no triggering events,
given the approximate 40% decrease in your stock price between December&nbsp;31, 2010 and March&nbsp;31,
2011. In addition to the significant loss in market value, we note decreased revenues, a net
loss and negative cash flows from operating activities.</I></B></TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As discussed earlier, we have a process in place to continuously review triggering events
that may indicate a possible impairment of goodwill. The triggering
events that  we monitor are
(i) stock price/market capitalization, (ii) projected revenues, (iii) operating income, and
(iv) the introduction/sales of new products.
</div>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the first quarter, we considered market capitalization as part of this process. At March&nbsp;31, 2011, the Company&#146;s market capitalization was $335.8&nbsp;million, and the net book value of the Company&#146;s assets was $213.1&nbsp;million, or $122.7&nbsp;million below its market
capitalization. Using this simple valuation, it did not appear that goodwill was impaired.
</div>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">51 Columbia, Aliso Viejo California 92656 phone: (949)362-5800 fax: (949)362-2300

</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.
Stephen G. Krikorian <BR>
September 9, 2011<BR>
Page 5
</div>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore, on February&nbsp;17, 2011, the Company&#146;s internal business plan for 2011 was revised
to reflect $121.5&nbsp;million in revenues, with 2011 operating income at $10.5&nbsp;million on a non-GAAP
basis. This revised internal plan was reviewed by the Company&#146;s Board of Directors on February&nbsp;22,
2011. The plan projected first quarter revenues at $17.0&nbsp;million, which came in at $17.8&nbsp;million.
The Company continued to believe at March&nbsp;31, 2011 and the date of the Form 10-Q filing for this
quarter that we would achieve our revised business plan for the year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><B>Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B></U>
<U><B>Results of Operations; Three Months Ended March&nbsp;31, 2011 Compared to the Three Months Ended
March&nbsp;31, 2010, page 17</B></U>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B><I>4.</I></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B><I>We note that you have attributed the $11&nbsp;million decrease in wireless revenues primarily to
&#147;low current period orders as a result of high inventory levels of our connection manager
product at a key customer.&#148; It is unclear from this statement when revenue from transactions
with your key customer is recognized. In this regard, is revenue recognized on a sell-through
basis or when items are shipped? Please explain in detail how your revenue recognition
policy, as described on page 20, applies to this key customer.</I></B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The key customer, which is Verizon Wireless, purchases USB hardware from vendors such as
Novatel Wireless, Pantech, LG, and ZTE. Verizon purchases software licenses from us that allow
these devices to interface or connect with the Verizon network. Verizon purchased approximately
1.5&nbsp;million licenses (at an average selling price of $8.36 per license) in Q4-2010 to support their
3G wireless network and the new 4G/LTE network (which launched in the fourth quarter of 2010).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under our revenue recognition policy, revenues from sales to Verizon (as well as sales to
other wireless carriers) are recognized when the customer takes title to the license and the
license is deemed to be delivered, and as otherwise required by FASB ASC Topic No.&nbsp;985-605,
Software-Revenue Recognition. There is a no return provision in our contract with Verizon, as the
software purchased is custom software, nor have we ever taken
significant returns. There are different methods in which product is physically
delivered to Verizon or Verizon&#146;s authorized hardware OEMs, as well as different types of work:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Licenses</U> &#151; Licenses are purchased in quantity and paired with USB hardware
purchased by Verizon from other vendors. Software license inventory is held by Verizon.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Activations</U> &#151; Activation revenue is recognized based on customer activations of
preloaded Company software, based on customer activation reports received over the
Internet.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>CDs</U> &#151; Our software is loaded on CDs and shipped to the customer. Revenue is
recognized upon shipment of the CD to the customer.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">51 Columbia, Aliso Viejo California 92656 phone: (949)362-5800 fax: (949)362-2300

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


</TABLE>
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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.
Stephen G. Krikorian <BR>
September 9, 2011<BR>
Page 6
</div>

<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Customization and adaptation work</U> &#151; Revenues from this type of work are
recognized upon completion of work per contract based on customer acceptance to an agreed
to Statement of Work.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Hosting</U> &#151; Hosting is billed and recognized monthly per contract.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Maintenance and support</U> &#151; Maintenance and support is billed annually but
recognized ratably over the term of the maintenance agreement, which is generally one year.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B><I>5.</I></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B><I>We note that your </I></B><B><I>Form 10-Q</I></B><B><I> for the quarterly period ended March&nbsp;31, 2011 was filed on May&nbsp;5,
2011. By this date, your stock had continued to decrease, to approximately $5.66 from
approximately $15.74 on December&nbsp;31, 2010 &#091;sic&#093;. Tell us what consideration was given to
disclosing the approximate 64% drop in your stock price to $5.66 in the period since December
31, 2010. Please tell us what consideration was given to disclosing your significantly
changed position and disclosing the possibility of impairment of your goodwill.</I></B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At May&nbsp;5, 2011, the Company&#146;s market capitalization was $203.1&nbsp;million and the net book value
of our assets was estimated to be approximately the same amount. Also at that time, we were
projecting to achieve our revised internal business plan for the year of $121.5&nbsp;million in revenue
and operating income of $10.5&nbsp;million on a non-GAAP basis. Based on market capitalization relative
to our net assets and our internal forecasts, we did not believe at the time that we would face the
possibility of impaired goodwill.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><B>Form&nbsp;10-Q for the Fiscal Quarter Ended June&nbsp;30, 2011</B></U><BR>
<U><B>Notes to the Consolidated Financial Statements</B></U><BR>
<U><B>Note 11. Goodwill and Long-Lived Assets, page 11</B></U>

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B><I>6.</I></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B><I>We note that you &#147;will &#145;more likely than not&#146; have to perform Step 1 of the impairment test&#148;
if there is a triggering event in the third and fourth quarters. Please confirm, if true,
that no Step 1 test was performed as of June&nbsp;30, 2011. Considering your revenue and your
stock price have significantly declined during the first two quarters of 2011, please explain
how you concluded that no triggering event had occurred. In this regard, please clarify why
the technology shift you refer to within your MD&#038;A (your page 20) does not represent a
triggering event. While we note that these changes are recent, they appear to be company
specific and represent severe declines that appear likely to continue. Please provide us with
your analysis that supports your conclusion &#147;that it is &#145;more likely than not&#146; that the fair
value of any of &#091;your&#093; reporting units has not declined below the reporting unit&#146;s carrying
amount.&#148;</I></B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No Step 1 test was performed as of June&nbsp;30, 2011. As of June&nbsp;30, 2011, the Company
concluded that a decline in its stock price and market capitalization was not representative of the
fair value of the reporting unit as a whole. Even as of the filing date for the 10-Q for the
period ended June&nbsp;30, 2011 (August&nbsp;3, 2011), the Company believed that the triggering events that
would indicate the need
for a Step 1 goodwill impairment test were temporary in nature and that it was &#147;more likely
than not&#148; that the fair value of any of its reporting units had not declined below the reporting
unit&#146;s carrying amount due to the following reasons:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">51 Columbia, Aliso Viejo California 92656 phone: (949)362-5800 fax: (949)362-2300

</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.
Stephen G. Krikorian <BR>
September 9, 2011<BR>
Page 7
</div>



<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U><B><I>Stock price is currently depressed</I></B></U> &#151; we believed that the short-term decline in
the market price of the Company&#146;s stock was not indicative of an actual decline in the
company&#146;s fair value. The Company&#146;s stock price was $15.74 at December&nbsp;31, 2010 and
dropped to $9.36 at March&nbsp;31, 2011, we believe primarily as a result of the announcement of
the suspension of the Company&#146;s annual guidance and re-guiding revenues for the first
quarter of 2011. The Company&#146;s stock price ended June&nbsp;30, 2011 at $4.21, we believe
primarily as a result of our first quarter results and issuing similar guidance for the
second quarter of 2011 as our actual first quarter results. The stock markets in general
and our stock in particular have been highly volatile during 2011. The Company believed
that the decline in the price of our stock was temporary. We had a plan to increase
revenues and profitability during the second half of 2011 with the launch of our new
products which, if successful, would be expected to result in an increase in our stock
price and market capitalization.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U><B><I>Revenues are currently depressed due to a technology shift</I></B></U> &#151; the second fiscal
quarter was the first one where we could see evidence that there had been a technology
shift in our customer&#146;s marketplace resulting in our current core connection management
products experiencing lower demand in certain markets. Carriers are struggling as internet
providers such as Google, Apple, and others are starting to &#147;dis-intermediate&#148; the wireless
carriers, resulting in the de-coupling of mobile data traffic and the associated revenue.
Sales of USB hardware are slowing not just at Verizon but also among other wireless
carriers. Verizon has compounded this trend by no longer focusing its marketing resources
on USB devices during the first half of 2011. There has also been an explosion of new
devices with connectivity built into the operating system, thus lowering demand for our
current core connection management products. With this shift in the marketplace, the
Company is evolving its connectivity business from primarily USB devices to multi-device
&#147;experience&#148; management products, which include premium applications and
network/application controls. There are several new products, all based on our existing
underlying core technology, that we expect to launch during the second half of 2011 that
will address the technology shift in the marketplace. They are (i)&nbsp;Mobile Network Director
(MND), (ii)&nbsp;Hotspot Manager (HSM), (iii)&nbsp;Application &#038; Connection Control (ACC), and (iv)
Experience Manager (EM). The Company expected that these new products could result in
improved revenues and corresponding increases in our profitability and stock price during
the second half of 2011.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U><B><I>Earnings are currently depressed </I></B></U>&#151; we are still investing heavily in R&#038;D to
bring the aforementioned new products to market. We expected that our new products would
increase revenues, profitability, and our stock price the second half of this year.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Future Triggering Events</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the Company&#146;s revenues, profitability, and stock price do not improve in the third or
fourth quarter of 2011, it is more likely than not that will need to perform a Step 1 impairment
test at that time. The triggering events that we are monitoring during the third quarter of 2011
are:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Revenues</U> &#151; must achieve (or be close to) our current internal forecast of
$20&nbsp;million.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>New Products</U> &#151; must receive sales orders for at least one of the new
products mentioned above, resulting in recognized revenue.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Profitability</U> &#151; must be favorable to the current internal forecast of a
non-GAAP operating loss of $8.1&nbsp;million.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Stock Price</U> &#151; must be at least $4.60 at September&nbsp;30, 2011.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of the date of this letter, our stock price is trading under $2.00 per share. We plan
on engaging our third party valuation advisor, Globalview Advisors LLC, to do a full valuation
analysis of our reporting units for the purposes of performing a goodwill and long-lived assets
impairment test. It may be &#147;more likely than not&#148; that we would have to record an impairment
of goodwill and/or long-lived assets for the period ending September&nbsp;30, 2011, which we assess
prior to the time that we report our financial results for the third quarter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">51 Columbia, Aliso Viejo California 92656 phone: (949)362-5800 fax: (949)362-2300

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.
Stephen G. Krikorian <BR>
September 9, 2011<BR>
Page 8
</div>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>* &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; * &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; * &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; * &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the Staff&#146;s comment letters and our responses, the Company acknowledges
that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company is responsible for the adequacy and accuracy of the disclosure in its
filings;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Staff comments or changes to disclosure in response to comments from SEC staff do not
foreclose the SEC from taking any action with respect to the filing; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company may not assert SEC staff comments as a defense in any proceeding initiated
by the SEC or any person under the federal securities laws of the United States.</TD>
</TR>

</TABLE>
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Sincerely,<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 0px solid #000000" align="left">/s/ Andrew Schmidt<BR><BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Andrew Schmidt&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Chief Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">cc:</TD>
    <TD>&nbsp;</TD>
    <TD>Tamara Tangen, Staff Accountant</TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">51 Columbia, Aliso Viejo California 92656 phone: (949)362-5800 fax: (949)362-2300

</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
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`
end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
