SMITH MICRO SOFTWARE INC

Previous wording

Smith Micro provides software solutions that simplify and enhance the mobile experience to some of the leading wireless service providers around the globe. From delivering Digital Family Lifestyle™ solutions to providing powerful voice messaging capabilities, we strive to enrich today’s connected lifestyles while creating new opportunities to engage consumers via smartphones and consumer IoT devices. Our portfolio includes a wide range of products for creating, sharing, and monetizing rich content, such as visual voice messaging, retail content display optimization and performance analytics on any product set.

Current wording

Smith Micro provides software solutions that simplify and enhance the mobile experience to some of the leading wireless service providers around the globe. From enabling the Digital Family Lifestyle™ to providing powerful voice messaging capabilities, we strive to enrich today’s connected lifestyles while creating new opportunities to engage consumers via smartphones and consumer Internet of Things ("IoT") devices. Our portfolio includes family safety software solutions to support families in the digital age and a wide range of products for creating, sharing, and monetizing rich content, such as visual voice messaging, retail content display optimization and performance analytics on any product set.

Previous wording

We continue to innovate and evolve our business to respond to industry trends and maximize opportunities in emerging markets, such as digital lifestyle services and online safety, “Big Data” analytics, automotive telematics, and the consumer IoT marketplace. The key to our longevity, however, is not simply technological innovation, but our focus on understanding our customers’ needs and delivering value.

Current wording

We continue to innovate and evolve our business to respond to industry trends and maximize opportunities in growing and evolving markets, such as digital lifestyle services and online safety, “Big Data” analytics, automotive telematics, and the consumer IoT marketplace. The key to our longevity, however, is not simply technological innovation, but our focus on understanding our customers’ needs and delivering value.

Previous wording

In the second quarter of 2024, our revenues declined by 50% to $5.1 million compared to the second quarter of 2023, primarily drivenby a $4.5 million decrease in our Family Safety product line, coupled with a $0.5 million decrease in ViewSpot revenues. These revenue declines primarily resulted fromthe losses of a Family Safety contract with a Tier 1 carrier and a ViewSpot contract during 2023 coupled with decreases associated with legacy Sprint Safe & Found revenue as subscribers are migrating to the T-Mobile network. As a result of the decline in revenues, our gross profit decreased during the second quarter of 2024 to $3.5 million, representing a decrease of $4.2 million as compared to the second quarter of the prior year. Our operating expenses have decreased during the second quarter of 2024 compared to the second quarter of 2023 by approximately $0.5 million, primarily due to quarter-over-quarter reductions in general and administrative costs. The net loss for the second quarter of 2024 was $6.9 million, resulting in a net lossof $0.66 per basic and diluted share.

Current wording

In the third quarter of 2024, our revenues declined by 58% to $4.6 million compared to the third quarter of 2023, primarily drivenby a $5.2 million decrease in our Family Safety product line, coupled with a $1.0 million decrease in ViewSpot revenues. These revenue declines primarily resulted fromthe losses of a Family Safety contract with a Tier 1 carrier during 2023 and two ViewSpot contracts coupled with decreases associated with legacy Sprint Safe & Found revenue as subscribers migrate to the T-Mobile network. As a result of the decline in revenues, our gross profit decreased during the third quarter of 2024 to $3.3 million, representing a decrease of $5.1 million as compared to thethird quarter of the prior year. Our operating expenses decreased during the third quarter of 2024 compared to the third quarter of 2023 by approximately $0.8 million, primarily due to quarter-over-quarter reductions in sales and marketing expenses coupled with a decline in general and administrative costs. The net loss for the third quarter of 2024 was $6.4 million, resulting in a net lossof $0.54 per basic and diluted share.

Previous wording

We currently provide white label Family Safety applications to two Tier 1 wireless carriers in the United States, and believe that we remain strategically positioned to offer our market-leading family safety platform to the majority of U.S. mobile subscribers. We believe that we have an opportunity to increase the respective subscriber bases, and in turn, grow the revenues associated with these Tier 1 carriers. Further, we executed new, multi-year Family Safety agreements with a Tier 1 carrier in Europe in the fourth quarter of 2023 and a U.S.-based carrier in the first quarter of 2024. The new Family Safety solution with the U.S. based carrier launched on our SafePath Global platform during the second quarter of 2024, and associated marketing activities for that product have begun. Additionally, the Family Safety solution for the Tier 1 European carrier is anticipated to launch in the next few months.

Current wording

We currently provide white label Family Safety applications to two Tier 1 wireless carriers in the United States and believe that we remain strategically positioned to offer our market-leading family safety platform to the majority of U.S. mobile subscribers. We believe that we have an opportunity to increase the respective subscriber bases, and in turn, grow the revenues associated with these Tier 1 carriers. Further, we executed new, multi-year Family Safety agreements with a Tier 1 carrier in Europe in the fourth quarter of 2023 and a U.S.-based carrier in the first quarter of 2024. The new Family Safety solution with the U.S. based carrier launched on our SafePath Global platform during the second quarter of 2024, and associated marketing activities for that product have begun. Additionally, the Family Safety solution for the Tier 1 European carrier is expected to launch in the near term, and we are anticipating this carrier to conduct robust marketing activities related to that solution.

Previous wording

Refer to the section titled "Liquidity and Capital Resources" for discussion of material changes in cash, and Note 4 of our Notes to the Consolidated Financial Statements for discussion regarding the changes related to Common Stock and Note 5 for discussion regarding changes related to the warrant liabilities, and Note 7 for discussion regarding changes to goodwill.

Current wording

Refer to the section titled "Liquidity and Capital Resources" for discussion of material changes in cash, Note 4 of our Notes to the Consolidated Financial Statements for discussion regarding the changes related to Common Stock, Note 5 for discussion regarding changes related to the warrant liabilities, Note 7 for discussion regarding changes to goodwill.

Previous wording

The table below sets forth certain statements of operations and comprehensive loss data expressed as a percentage of revenues for the three and six months ended June 30, 2024 and 2023. Our historical results are not necessarily indicative of the operating results that may be expected in the future.

Current wording

The table below sets forth certain statements of operations and comprehensive loss data expressed as a percentage of revenues for the three and nine months ended September 30, 2024 and 2023. Our historical results are not necessarily indicative of the operating results that may be expected in the future.

Previous wording

Revenues. Revenues were $5.1 million and $10.3 million for the three months ended June 30, 2024 and 2023, respectively, representing a decrease of $5.2 million, or 50%. This decrease was primarily related to the loss of revenue from a Family Safety contract with a Tier 1 carrier that concluded during the fourth quarter of 2023 coupled with legacy Sprint Safe & Found revenue declining as legacy Sprint subscribers are migrating to the T-Mobile network. Also contributing to the decrease was a decline in ViewSpot revenue primarily due to one of our contracts concluding as of the end of September 2023.

Current wording

Revenues. Revenues were $4.6 million and $11.0 million for the three months ended September 30, 2024 and 2023, respectively, representing a decrease of $6.4 million, or 58%. This decrease was primarily related to declines associated with our Family Safety product line of $5.2 million, which was primarily resulting from the loss of revenue from a Family Safety contract with a Tier 1 carrier that concluded during the fourth quarter of 2023 and the legacy Sprint Safe & Found revenue declining as legacy Sprint subscribers migrated to the T-Mobile network coupled with a decline in ViewSpot revenue of$1.0 million that wasprimarily due to two of our contracts that concluded since September 2023.

Previous wording

Cost of revenues. Cost of revenues were $3.6 million and $5.9 million for the six months ended June 30, 2024 and 2023, respectively. This decrease of approximately $2.3 million was primarily due to the period-over-period decline in revenue coupled with cost reduction efforts.

Current wording

Cost of revenues. Cost of revenues were $1.3 million and $2.5 million for the three months ended September 30, 2024 and 2023, respectively. This decrease of $1.2 million was primarily due to the period-over-period decline in revenue coupled with cost reduction efforts.

Previous wording

Gross profit. Gross profit was $3.5 million, or 68.7% of revenues, for the three months ended June 30, 2024, compared to $7.7 million, or 75.0% of revenues, for the three months ended June 30, 2023. The decrease of $4.2 million in gross profit was primarily driven by the period-over-period decline in revenues.

Current wording

Gross profit. Gross profit was $3.3 million, or 71.6% of revenues, for the three months ended September 30, 2024, compared to $8.5 million, or 77.0% of revenues, for the three months ended September 30, 2023. The decrease of approximately $5.1 million in gross profit was primarily driven by the period-over-period decline in revenue volume.

Previous wording

Selling and marketing. Selling and marketing expenses were $2.5 million and $2.6 million for the three months ended June 30, 2024 and 2023, respectively. This decrease of approximately $0.1 million was due to decreases in marketing costs partially offset by increases in stock based compensation expense.

Current wording

Selling and marketing. Selling and marketing expenses were $2.1 million and $2.4 million for the three months ended September 30, 2024 and 2023, respectively. This decrease of approximately $0.4 million was primarily due to decreases in personnel related costs due to cost reduction activities undertaken by the Company.

Previous wording

Research and development. Research and development expenses were essentially flat period-over-period at $3.7 million for the three months ended June 30, 2024 and 2023.

Current wording

Research and development. Research and development expenses were $3.6 million and $3.7 million for the three months ended September 30, 2024 and 2023, respectively. Decreases in personnel related costs of $0.3 million were partially offset by increases in severance related costs of $0.2 million.

Previous wording

General and administrative. General and administrative expenses were $2.7 million and $3.0 million for the three months ended June 30, 2024 and 2023, respectively. This decrease of approximately $0.3 million was primarily related to declines in personnel related costs of approximately $0.1 million and a decrease in occupancy costs of approximately $0.1 million.

Current wording

General and administrative. General and administrative expenses were $2.7 million and $2.9 million for the three months ended September 30, 2024 and 2023, respectively. This decrease of approximately $0.2 million was primarily related to declines in personnel related costs of approximately $0.1 million and decreases in stock-based compensation of approximately $0.1 million.

Previous wording

Depreciation and amortization. Depreciation expense was $0.1 million for both the three months ended June 30, 2024 and 2023. Amortization expense was $1.5 million for both the three months ended June 30, 2024 and 2023. Amortization expense is recognized based on the pattern of economic benefit expected to be generated from the use of the intangible assets.

Current wording

Depreciation and amortization. Depreciation expense was $0.1 million for both the three months ended September 30, 2024 and 2023. Amortization expense was $1.3 million and $1.5 million for the three months ended September 30, 2024 and 2023, respectively. Amortization expense is recognized based on the pattern of economic benefit expected to be generated from the use of the intangible assets, and as such itdecreased by approximately$0.2 million period-over-period.

Previous wording

Change in fair value of warrant and derivative liabilities. Change in fair value of warrant and derivative liabilities wasnominal and$0.4 million for thethree months ended June 30, 2024 and 2023, respectively. The total decrease of approximately $0.4 million resulted from valuation related impacts to the warrant and derivative liabilities combined with settlements of the Notes during the three months ended June 30, 2023. The Notes were retired at maturity in December 2023, and thus there were no changes in the fair value of the derivative liability in 2024.

Current wording

Change in fair value of warrant and derivative liabilities. Change in fair value of warrant and derivative liabilities was$0.2 million and$0.1 million for thethree months ended September 30, 2024 and 2023, respectively. The total increase in income of approximately $0.1 million resulted from valuation related impacts to the warrant and derivative liabilities in the respective periods.

Previous wording

Loss on derecognition of debt. The loss recognized on derecognition of debt was $0.8 million for the three months ended June 30, 2023, resulting from installment payments made on the convertible notes issued under the Note and Stock offering in August 2022 (the "Notes") in the form of shares, and the required derecognition of the net debt position related to that principal balance, including the derivative and discounts. There was nothing commensurate in the three months ended June 30, 2024 as the convertible notes were retired at maturity as of December 31, 2023.

Current wording

Loss on derecognition of debt. The loss recognized on derecognition of debt was $1.6 million for the three months ended September 30, 2023, resulting from installment payments made on the convertible notes issued under the Note and Stock offering in August 2022 (the "Notes") in the form of shares, and the required derecognition of the net debt position related to that principal balance, including the derivative and discounts. There was nothing commensurate in the three months ended September 30, 2024 as the convertible notes were retired at maturity as of December 31, 2023.

Previous wording

Interest income (expense), net. Interest income, net was nominal for the three months ended June 30, 2024 while interest expense, net was $2.0 million for the three months ended June 30, 2023. The period-over-period change in interest income (expense), net of $2.1 million was primarily related to the amortization of the discount and debt issuance costs and stated interest expense related to the Notes, which were fully retired effective December 31, 2023.

Current wording

Interest (expense) income, net. Interest expense, net was nominal for the three months ended September 30, 2024 and $1.4 million for the three months ended September 30, 2023. The period-over-period change of $1.4 million was primarily related to the amortization of the discount and debt issuance costs and stated interest expense related to the Notes, which were fully retired effective December 31, 2023.

Previous wording

Other (expense) income, net. Other income (expense) net was nominal for both the three months ended June 30, 2024 and 2023.

Current wording

Other (expense) income, net. Other expense, net was $0.1 million for the three months ended September 30, 2024 and nominal for the three months ended September 30, 2023.

Previous wording

Revenues. Revenues were $10.9 million and $21.3 million for the six months ended June 30, 2024 and 2023, respectively, representing a decrease of $10.3 million, or 49%. This decrease was primarily related to declines associated with our Family Safety product line of $9.2 million. The decrease in revenues was primarily associated with the loss of revenue from a Family Safety contract with a Tier 1 carrier that concluded during the fourth quarter of 2023 coupled with legacy Sprint Safe & Found revenue declining as legacy Sprint subscribers are migrating to the T-Mobile network. Also contributing to the period-over-period revenue decrease was a decline in ViewSpot revenue of $0.8 million primarily due to one of our contracts concluding as of the end of September 2023.

Current wording

Revenues. Revenues were $15.6 million and $32.3 million for the nine months ended September 30, 2024 and 2023, respectively, representing a decrease of $16.7 million, or 52%. This decrease was primarily related to declines associated with our Family Safety product line of $14.4 million, which was primarily resulting from the loss of revenue from a Family Safety contract with a Tier 1 carrier that concluded during the fourth quarter of 2023 coupled with legacy Sprint Safe & Found revenue declining as legacy Sprint subscribers migrated to the T-Mobile network. Also contributing to the period-over-period revenue decrease was a decline in ViewSpot revenue of$1.8 million primarily due to two of our contracts concluding subsequent to the end of September 2023.

Previous wording

Cost of revenues. Cost of revenues were $1.6 million and $2.6 million for the three months ended June 30, 2024 and 2023, respectively. This decrease of $1.0 million was primarily due to cost reduction efforts and the period-over-period decline in revenue.

Current wording

Cost of revenues. Cost of revenues were $4.9 million and $8.4 million for the nine months ended September 30, 2024 and 2023, respectively. This decrease of $3.5 million was primarily due to the period-over-period decline in revenue coupled with cost reduction efforts.

Previous wording

Gross profit. Gross profit was $7.3 million, or 67.1% of revenues, for the six months ended June 30, 2024, compared to $15.4 million, or 72.4% of revenues, for the six months ended June 30, 2023. The decrease of approximately $8.1 million in gross profit was driven by the period-over-period decline in revenue volume.

Current wording

Gross profit. Gross profit was $10.7 million, or 68.5% of revenues, for the nine months ended September 30, 2024, compared to $23.9 million, or 74.0% of revenues, for the nine months ended September 30, 2023. The decrease of $13.2 million in gross profit was primarily driven by the period-over-period decline in revenue volume.

Previous wording

Selling and marketing. Selling and marketing expenses were $5.1 million and $6.2 million for the six months ended June 30, 2024 and 2023, respectively. This decrease of approximately $1.0 million was primarily due to decreases in personnel-related costs of $0.7 million coupled with a period-over-period decline in marketing costs of $0.6 million, partially offset by an increase in stock based compensation of approximately $0.3 million.

Current wording

Selling and marketing. Selling and marketing expenses were $7.2 million and $8.6 million for the nine months ended September 30, 2024 and 2023, respectively. This decrease of $1.4 million was primarily due to decreases in personnel-related costs of $1.0 million coupled with a period-over-period decline in marketing costs of $0.6 million and a decrease in travel costs of $0.1 million, partially offset by an increase in stock-based compensation of approximately $0.3 million.

Previous wording

Research and development. Research and development expenses were $7.7 million and $9.6 million for the six months ended June 30, 2024 and 2023 respectively. This decrease of approximately $1.9 million was primarily due to a decline in personnel-related costs of approximately $1.3 million and reductions in contractor costs of $0.2 million coupled with a decline in severance related costs of approximately $0.4 million.

Current wording

Research and development. Research and development expenses were $11.3 million and $13.3 million for the nine months ended September 30, 2024 and 2023, respectively. This decrease of approximately $1.9 million was primarily due to a decline in personnel-related costs of approximately $1.6 million and reductions in contractor costs of $0.2 million coupled with a decline in severance related costs of approximately $0.2 million, partially offset by an increase in stock-based compensation of approximately $0.1 million.

Previous wording

General and administrative. General and administrative expenses were $5.5 million and $6.5 million for the six months ended June 30, 2024 and 2023, respectively. This decrease of approximately $1.0 million was primarily related to declines in personnel-related costs of approximately $0.6 million, a decrease in professional fees of approximately $0.2 million and a reduction in occupancy costs of approximately $0.2 million.

Current wording

General and administrative. General and administrative expenses were $8.2 million and $9.4 million for the nine months ended September 30, 2024 and 2023, respectively. This decrease of $1.2 million was primarily related to declines in personnel-related costs of approximately $0.7 million, a decrease in professional fees of approximately $0.2 million and a reduction in occupancy costs of approximately $0.2 million.

Previous wording

Depreciation and amortization. Depreciation expense was $0.2 million and $0.4 million for the six months ended June 30, 2024 and 2023, respectively. Amortization expense was $3.3 million and $3.0 million for the six months ended June 30, 2024 and 2023, respectively. The decrease in depreciation expense of approximately $0.2 million was primarily due to certain fixed assets that have now been fully depreciated. Amortization expense is recognized based on the pattern of economic benefit expected to be generated from the use of the intangible assets, and as such it increased by approximately $0.3 million period-over-period.

Current wording

Depreciation and amortization. Depreciation expense was $0.3 million and $0.5 million for the nine months ended September 30, 2024 and 2023, respectively. Amortization expense was $4.6 million and $4.4 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease in depreciation expense of approximately $0.2 million was primarily due to certain fixed assets that have now been fully depreciated. Amortization expense is recognized based on the pattern of economic benefit expected to be generated from the use of the intangible assets, and as such it increased by approximately $0.2 million period-over-period.

Previous wording

Goodwill impairment. The impairment charge for the six months ended June 30, 2024 was triggered by the sustained decrease in our Common Stock share price and overall market capitalization during the first quarter of 2024, which led to an analysis whereby we concluded that the carrying value of our single reporting unit exceeded its fair value by $24.0 million.

Current wording

Goodwill impairment. The impairment charge for the nine months ended September 30, 2024 occurred during the first quarter of 2024 and was based on a quantitative valuation which led to the conclusion that that the carrying value of our single reporting unit exceeded its fair value by $24.0 million.

Previous wording

Change in fair value of warrant and derivative liabilities. Change in fair value of warrant and derivative liabilities was $0.2 millionfor the six months ended June 30, 2024 and $3.4 million for the six months ended June 30, 2023, a decrease of $3.2 million. The fair value adjustments resulted from valuation related impacts to the warrant and derivative liabilities combined with the settlements of the Notes in the six months ended June 30, 2023. The Notes were retired at maturity in December 2023, and thus there were no changes in the fair value of the derivative liability in 2024.

Current wording

Change in fair value of warrant and derivative liabilities. Change in fair value of warrant and derivative liabilities was $0.4 million of incomefor the nine months ended September 30, 2024 and $3.5 million for the nine months ended September 30, 2023, a decrease of approximately$3.0 million. The fair value adjustments resulted from valuation related impacts to the warrant and derivative liabilities combined with the settlements of the Notes in the nine months ended September 30, 2023. The Notes were retired at maturity in December 2023, and thus there were no changes in the fair value of the derivative liability in 2024.

Previous wording

Loss on derecognition of debt. The loss recognized on derecognition of debt was $1.4 million for the six months ended June 30, 2023. The $1.4 million loss recognized for the six months ended June 30, 2023 resulted from installment payments made on the Notes in the form of shares, and the required derecogition of the net debt position related to that principal balance, including the derivative and discounts. There was nothing commensurate in the six months ended June 30, 2024 as the convertible notes were retired at maturity as of December 31, 2023.

Current wording

Loss on derecognition of debt. The loss recognized on derecognition of debt was $3.0 million for the nine months ended September 30, 2023. The $3.0 million loss recognized for the nine months ended September 30, 2023 resulted from installment payments made on the Notes in the form of shares, and the required derecognition of the net debt position related to that principal balance, including the derivative and discounts. There was nothing commensurate in the nine months ended September 30, 2024 as the convertible notes were retired at maturity as of December 31, 2023.

Previous wording

Interest income (expense), net. Interest income, net was $0.1 million for the six months ended June 30, 2024 and interest expense, net was $4.3 million for the six months ended June 30, 2023. The period-over-period change in interest income (expense), net of $4.4 million was primarily related to the amortization of the discount and debt issuance costs and stated interest expense related to the Notes, which were fully retired effective December 31, 2023.

Current wording

Interest (expense) income, net. Interest income, net was $0.1 million for the nine months ended September 30, 2024 and interest expense, net was $5.7 million for the nine months ended September 30, 2023. The period-over-period change in interest income (expense), net of $5.8 million was primarily related to the amortization of the discount and debt issuance costs and stated interest expense related to the Notes, which were fully retired effective December 31, 2023.

Previous wording

Other (expense) income, net. Other income, net was $0.2 million for the six months ended June 30, 2024 and Other expense, net was $0.1 million for the six months ended June 30, 2023. The period-over-period change was primarily related to income derived from the licensing of several of our patents in February 2024.

Current wording

Other (expense) income, net. Other income, net was $0.1 million for the nine months ended September 30, 2024 and Other expense, net was $0.1 million for the nine months ended September 30, 2023. The period-over-period change was primarily related to income derived from the licensing of several of our patents in February 2024.

Previous wording

Provision for income tax expense. Because of our cumulative loss position, the provision for income tax expense consists of state income taxes, foreign tax withholdings, and foreign income taxes for the six months ended June 30, 2024 and 2023. There were no material changes in the period-to-period comparison.

Current wording

Provision for income tax expense. Because of our cumulative loss position, the provision for income tax expense consists of state income taxes, foreign tax withholdings, and foreign income taxes for the nine months ended September 30, 2024 and 2023. There were no material changes in the period-to-period comparison.

Previous wording

As more fully described in Note 4 of our Notes to the Consolidated Financial Statements included in this Report, in the second quarter of 2024, in order to fund working capital and for other general corporate purposes we received net proceeds of approximately$3.4 million through the issuance of additional Common Stock and Pre-Funded Warrants pursuant to a Registered Direct Offering and associated Private Placement. In addition to the Common Warrants issued in the Private Placement, we also have additional warrants outstanding, as further disclosed in Note 5 of our Notes to the Consolidated Financial Statements included in this Report.

Current wording

As of September 30, 2024, the Company's cash and cash equivalents were approximately $1.5 million. Subsequent to September 30, 2024, as more fully described in Note 15 of our Notes to the Consolidated Financial Statements included in this Report, in order to fund working capital and for other general corporate purposes, we received net cash proceeds of approximately $6.5 million through the issuance of our Common Stock pursuant to a registered direct offering and a concurrent private placement, in each case, with accompanying unregistered warrants.

Previous wording

Our liquidity may be adversely impacted by the anticipated effect of the aforementioned loss during 2023 of our Family Safety contract with a Tier 1 carrier on our results of operations, since we are receiving no revenue from that contract during 2024. While we have adjusted our cost structure and we anticipate marketing efforts to expand for one of our existing Tier 1 carrier customers in order to drive subscriber growth on our Family Safety product, and we expect to generate additional revenues from our recent launch with a carrier customer in the U.S. and our upcoming launch with a Tier 1 carrier in Europe, the timing of that anticipated revenue growth versus the immediate and current impact of the contract loss could cause the cash and cash equivalents on hand and expected to be generated in the next twelve months and beyond to be insufficient to fund operations at the current levels.

Current wording

While we have adjusted our cost structure and we anticipate marketing efforts to expand for one of our existing Tier 1 carrier customers in order to drive subscriber growth on our Family Safety product, and we expect to generate additional revenues from our launch with a carrier customer in the U.S. and our upcoming launch with a Tier 1 carrier in Europe, the timing of that anticipated revenue growth versus the immediate and current impact of the contract loss could cause the cash and cash equivalents on hand and expected to be generated in the next twelve months and beyond to be insufficient to fund operations at the current levels.

Previous wording

This potential adverse impact on liquidity does not trigger a violation of any covenants in our material agreements, particularly as all of our outstanding debt was retired as of December 31, 2023. The availability of sufficient funds will depend to an extent on the timing of subscriber growth and the related cash generation thereof, and/or the ability to obtain the necessary capital to meet our obligations and fund our working capital requirements to maintain normal business operations. To meet future cash needs, the Company may determine to take additional actions, as noted in the Risk Factor appearing in our 2023 Form 10-K under the heading, "If we are unable to meet our obligations as they become due over the next twelve months, the Company may not be able to continue as a going concern." There can be no assurance that any such potential actions will be available or will be available on satisfactory terms. Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, our performance and investor sentiment with respect to us and our industry. As a result of these uncertainties, and notwithstanding management's plans and efforts to date, we have been unable to alleviate substantial doubt about our ability to continue as a going concern within one year from the date that thefinancial statements are issued.

Current wording

This adverse impact on liquidity does not trigger a violation of any covenants in our material agreements, particularly as all our outstanding debt was retired as of December 31, 2023. The availability of sufficient funds will depend to an extent on the timing of subscriber growth and the related cash generation thereof, and/or the ability to obtain the necessary capital to meet our obligations and fund our working capital requirements to maintain normal business operations. To meet future cash needs, the Company may determine to take additional actions, as noted in the Risk Factor appearing in our 2023 Form 10-K under the heading, "If we are unable to meet our obligations as they become due over the next twelve months, the Company may not be able to continue as a going concern." There can be no assurance that any such potential actions will be available or will be available on satisfactory terms. Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, our performance and investor sentiment with respect to us and our industry. As a result of these uncertainties, and notwithstanding management's plans and efforts to date, we have been unable to alleviate substantial doubt about our ability to continue as a going concern within one year from the date that thefinancial statements are issued.

Previous wording

Net cash used in operating activities was $7.5 million for the six months ended June 30, 2023. The primary uses of operating cash were the net loss of $12.6 million less non-cash expenses totaling $7.3 million, an increase in accounts receivable of $1.4 million and a decrease in accounts payable and accrued and other liabilities of $0.9 million.

Current wording

Net cash used in operating activities was $9.4 million for the nine months ended September 30, 2024. The primary uses of operating cash were a net loss of $44.3 million less non-cash expenses totaling $31.7 million, including a goodwill impairment charge of $24.0 million, depreciation and amortization of $4.9 million and stock compensation expense of $3.5 million, coupled with a decrease in accounts payable and accrued liabilities of $1.4 million primarily due to the timing and change in payments for accounts payable and payroll, partially offset by a decrease in accounts receivable of $4.5 million due to the timing of cash collections from customers.

Previous wording

Net cash used in operating activities was $5.6 million for the six months ended June 30, 2024. The primary uses of operating cash were a net loss of $37.9 million less non-cash expenses totaling $29.3 million, primarily driven by a goodwill impairment charge of $24.0 million and stock compensation expense of $2.3 million, a decrease in accounts payable and accrued liabilities of $0.5 million and an increase in prepaid expenses and other assets of $0.2 million partially offset by a decrease in accounts receivable of $4.1 million.

Current wording

Net cash used in operating activities was $6.0 million for the nine months ended September 30, 2023. The primary uses of operating cash were the net loss of $17.7 million less non-cash expenses totaling $13.0 million, and a decrease in accounts payable and accrued liabilities of $2.2 million partially offset by an increase in other liabilities of $0.6 million, a decrease in accounts receivable of $0.2 million and a decrease in prepaid expenses and other assets of $0.2 million.

Previous wording

Net cash provided by investing activities of $0.2 million for the six months ended June 30, 2024 was primarily attributable to the net proceeds from licensing several of our patents in February 2024. Net cash provided by investing activities for six months ended June 30, 2023 was $0.1 million.

Current wording

Net cash provided by investing activities of $0.2 million for the nine months ended September 30, 2024 was primarily attributable to the net proceeds from licensing several of our patents in February 2024. Net cash provided by investing activities for nine months ended September 30, 2023 was $0.1 million.

Previous wording

Net cash provided by financing activities of $3.9 million for the six months ended June 30, 2024 was primarily attributable to the net cash proceeds of $3.4 million from the Registered Direct Offering and Private Placement and borrowings of $1.0 million less repayments of $0.5 million from short-term insurance premium financing arrangements.

Current wording

Net cash provided by financing activities of $3.6 million for the nine months ended September 30, 2024 was primarily attributable to the net cash proceeds of $3.4 million from the Registered Direct Offering and Private Placement conducted in May 2024 and borrowings of $1.0 million less repayments of $0.8 million from short-term insurance premium financing arrangements.

Previous wording

Net cash used by financing activities was $0.2 million for the six months ended June 30, 2023.

Current wording

Net cash used by financing activities was $0.2 million for the nine months ended September 30, 2023.