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 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.

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 visual voice messaging.

Previous wording

In the first quarter of 2025, our revenues declined by 20% to $4.6 million compared to the first quarter of 2024, primarily drivenby a $0.7 million decrease in our Family Safety product line, coupled with a $0.6 million decrease in ViewSpot revenues. These revenue declines primarily resulted fromthe loss of a ViewSpot contract with a Tier 1 carrier during 2024 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 first quarter of 2025 to $3.4 million, representing a decrease of $0.4 million as compared to thefirst quarter of the prior year. Our operating expenses decreased during the first quarter of 2025 compared to the first quarter of 2024 by approximately $26.7 million, primarily due to a goodwill impairment charge of $24.0 million recognized in the first quarter of 2024 coupled with quarter-over-quarter reductions in sales and marketing and research and development expenses due to cost reduction initiatives undertaken during 2024. The net loss for the first quarter of 2025 was $5.2 million, resulting in a net lossof $0.28 per basic and diluted share.

Current wording

In the second quarter of 2025, our revenues decreased by 14.0% to $4.4 million compared to the second quarter of 2024, primarily driven by a $0.6 million decrease in our Family Safety product line, coupled with a $0.4 million decrease in ViewSpot revenues. These revenue declines primarily resulted from the loss of a ViewSpot contract with a Tier 1 carrier during 2024 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 during the second quarter of 2025 was $3.2 million, representing a decrease of $0.3 million as compared to the second quarter of the prior year. In connection with the preparation of our second quarter financial statements, we evaluated our goodwill and determined that the carrying value of our single reporting unit exceeded its fair value which resulted in a non-cash pretax impairment charge of $11.1 million for the quarter. On June 3, 2025, we sold our ViewSpot product for total consideration of $1.3 million, of which $1.0 million was paid on the closing date, with the remaining amounts to be paid in two installments, the first of which was collected on July 1, 2025, and the final balance is due October 1, 2025. Our operating expenses increased during the second quarter of 2025 compared to the second quarter of 2024 by approximately $7.7 million. This was primarily due to goodwill impairment, offset by the gain on the sale of ViewSpot of $1.3 million, and the remainder of the difference was due to quarter-over-quarter reductions in sales and marketing and research and development expenses due to cost reduction initiatives undertaken during 2025 and 2024. The net loss for the second quarter of 2025 was $15.1 million, resulting in a net loss of $0.78 per basic and diluted share.

Previous wording

We believe that we remain strategically positioned to offer our market-leading family safety platform to the majority of U.S. mobile subscribers, as we currently provide white-label Family Safety applications to two Tier 1 wireless carriers operating in the United States. Further, a Tier 1 carrier in Europe launched a new SafePath-based family safety solution in the fourth quarter of 2024 and began conducting robust marketing activities related to that solution during the first quarter of 2025. In addition, with the recent expansion of our SafePath product line, most notably with SafePath Kids and SafePath OS, we believe that we are well-positioned to grow our Family Safety revenues more broadly with these Tier 1 carriers as well as with other operators in our industry. 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.

Current wording

We believe that we still remain strategically positioned to offer our market-leading family safety platform to the majority of U.S. mobile subscribers, as we currently provide white-label Family Safety applications to two Tier 1 wireless carriers operating in the United States. Further, a Tier 1 carrier in Europe launched a new SafePath-based family safety solution in the fourth quarter of 2024 and began conducting robust marketing activities related to that solution during the first quarter of 2025. In addition, with the recent expansion of our SafePath product line, most notably with SafePath Kids and SafePath OS, we believe that we are well-positioned to grow our Family Safety revenues more broadly with these Tier 1 carriers as well as with other operators in our industry. Further, our development of SafePath 8 is expected to launch in the near term, and we expect to launch the new features that it enables with our customers. 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.

Previous wording

The table below sets forth certain statements of operations and comprehensive loss data expressed as a percentage of revenues for the three months ended March 31, 2025 and 2024. 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 six months ended June 30, 2025 and 2024. Our historical results are not necessarily indicative of the operating results that may be expected in the future.

Previous wording

Revenues. Revenues were $4.6 million and $5.8 million for the three months ended March 31, 2025 and 2024, respectively, representing a decrease of $1.2 million, or 20%. This decrease was primarily related to declines associated with our Family Safety product line of $0.7 million, which was most significantly driven by Sprint Safe & Found revenue declining as legacy Sprint subscribers migrated to the T-Mobile network, coupled with a decline in ViewSpot revenue of$0.6 million that wasprimarily due to a contract that concluded during 2024.

Current wording

Revenues. Revenues were $4.4 million and $5.1 million for the three months ended June 30, 2025 and 2024, respectively, representing a decrease of $0.7 million, or 14.0%. This decrease was primarily related to declines associated with our Family Safety product line of $0.6 million, which was mostly driven by Sprint Safe & Found revenue declining as legacy Sprint subscribers migrated to the T-Mobile network, coupled with a decline in ViewSpot revenue of $0.4 million that was primarily due to a contract that concluded during 2024 and the sale of that product in June 2025 and partially offset by an increase in CommSuite revenues of approximately $0.2 million.

Previous wording

Cost of revenues. Cost of revenues were $1.3 million and $2.0 million for the three months ended March 31, 2025 and 2024, respectively. This decrease of $0.7 million was primarily due to the period-over-period decline in revenue coupled with the impact of cost reduction efforts undertaken during 2024.

Current wording

Cost of revenues. Cost of revenues were $1.2 million and $1.6 million for the three months ended June 30, 2025 and 2024, respectively. This decrease of $0.4 million was primarily due to the period-over-period decline in revenue coupled with the impact of cost reduction efforts undertaken.

Previous wording

Gross profit. Gross profit was $3.4 million, or 72.8% of revenues, for the three months ended March 31, 2025, compared to $3.8 million, or 65.7% of revenues, for the three months ended March 31, 2024. The decrease of approximately $0.4 million in gross profit was driven by the period-over-period decline in revenue volume.

Current wording

Gross profit. Gross profit was $3.2 million, or 73.5% of revenues, for the three months ended June 30, 2025, compared to $3.5 million, or 68.7% of revenues, for the three months ended June 30, 2024. The decrease of $0.3 million in gross profit was driven by the period-over-period decline in revenue volume.

Previous wording

Depreciation and amortization. Depreciation expense was $0.1 million for both the three months ended March 31, 2025 and 2024. Amortization expense was $1.3 million and $1.8 million for the three months ended March 31, 2025 and 2024, 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$0.5 million period-over-period.

Current wording

Depreciation and amortization. Depreciation expense was $0.1 million for both the three months ended June 30, 2025 and 2024. Amortization expense was $1.3 million and $1.5 million for the three months ended June 30, 2025 and 2024, 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 it decreased by approximately $0.2 million period-over-period.

Previous wording

Goodwill impairment. The impairment charge for the three months ended March 31, 2024 was triggered by the sustained decrease in our common stock share price and overall market capitalization during the quarter, 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. We did not have a similar charge for the three months ended March 31, 2025.

Current wording

*Goodwill impairment.*A goodwill impairment charge of $11.1 million was recorded for the three months ended June 30, 2025 due to an analysis whereby we concluded that the carrying value of our single reporting unit exceeded its fair value. We did not have a similar charge for the three months ended June 30, 2024.

Previous wording

Selling and marketing. Selling and marketing expenses were $1.6 million and $2.6 million for the three months ended March 31, 2025 and 2024, respectively. This decrease of approximately $1.0 million was primarily due to decreases in personnel related costs due primarily to cost reduction activities undertaken by the Company during 2024.

Current wording

Selling and marketing. Selling and marketing expenses were $3.3 million and $5.1 million for the six months ended June 30, 2025 and 2024, respectively. This decrease of approximately $1.8 million was primarily due to decreases in personnel related costs due primarily to cost reduction activities undertaken by the Company.

Previous wording

Research and development. Research and development expenses were $2.9 million and $4.0 million for the three months ended March 31, 2025 and 2024, respectively. This decreases of approximately $1.1 million was primarily due to decreases in personnel related costs due to cost reduction activities undertaken by the Company during 2024.

Current wording

Research and development. Research and development expenses were $5.6 million and $7.7 million for the six months ended June 30, 2025 and 2024, respectively. This decrease of approximately $2.1 million was primarily due to decreases in personnel related costs due to cost reduction activities undertaken by the Company.

Previous wording

General and administrative. General and administrative expenses were $2.7 million and $2.8 million for the three months ended March 31, 2025 and 2024, respectively. This decrease of approximately $0.1 million was primarily related to declines in personnel-related costs of approximately $0.2 million partially offset by increases in stock-based compensation of approximately $0.1 million.

Current wording

General and administrative. General and administrative expenses were $5.4 million and $5.5 million for the six months ended June 30, 2025 and 2024, respectively. This decrease of approximately $0.1 million was primarily related to declines in personnel related costs of approximately $0.3 million partially offset by increases in stock-based compensation of approximately $0.2 million.

Previous wording

Change in fair value of warrant liabilities. Change in fair value of warrant liabilities was$0.1 million and$0.2 million for thethree months ended March 31, 2025 and 2024, respectively. The total decrease in income of approximately $0.1 million resulted from valuation related impacts to the warrant liabilities in the respective periods.

Current wording

Change in fair value of warrant liabilities. Change in fair value of warrant liabilities was $0.1 million and $0.2 million for the six months ended June 30, 2025 and 2024, respectively. The total decrease in income of approximately $0.1 million resulted from valuation related impacts to the warrant liabilities in the respective periods.

Previous wording

Interest (expense) income, net. Interest expense, net was nominal for the three months ended March 31, 2025 and interest income, net was $0.1 million for the three months ended March 31, 2024.

Current wording

*Interest (expense) income, net.*Interest expense, net was nominal for the six months ended June 30, 2025 and interest income, net was $0.1 million for the six months ended June 30, 2024.

Previous wording

Other (expense) income, net. Other expense, net was $0.1 million for the three months ended March 31, 2025 and Other income, net was $0.2 million for the three months ended March 31, 2024. The period over period change was primarily related to the licensing of several of our patents in February 2024.

Current wording

*Other (expense) income, net.*Other expense, net was $0.1 million for the six months ended June 30, 2025 and other income, net was $0.2 million for the six months ended June 30, 2024. The period over period change was primarily related to the licensing of several of our patents in February 2024.

Previous wording

The Company’s principal sources of liquidity are its existing cash and cash equivalents, and cash generated by operations. As of March 31, 2025, the Company's cash and cash equivalents were approximately $2.3 million.

Current wording

The Company’s principal sources of liquidity are its existing cash and cash equivalents, and cash generated by operations. As of June 30, 2025, the Company's cash and cash equivalents were approximately $1.4 million. Since December 31, 2024 we have utilized cash collections, including the proceeds from the sale of our ViewSpot product and cash on hand to cover routine working capital requirements. Subsequent to June 30, 2025, we closed on a registered direct offering of Common Stock and a concurrent placement of warrants, which provided gross proceeds to the Company of approximately $1.5 million, prior to offering fees and transaction expenses, and is further discussed in Note 15.

Previous wording

This 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 existence and 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 2024 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 of our outstanding debt was retired as of December 31, 2023. The availability of sufficient funds will depend to an extent on the existence and 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 2024 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 the financial statements are issued.

Previous wording

Net cash used in operating activities was $0.6 million for the three months ended March 31, 2025. The primary uses of operating cash were a net loss of $5.2 million less non-cash expenses totaling $2.5 million, including depreciation and amortization of $1.4 million and stock compensation expense of $1.1 million, coupled with a decrease in accounts payable and accrued liabilities of $0.3 million, primarily due to the timing and change in payments for accounts payable and payroll, partially offset by a decrease in accounts receivable of $2.4 million due to the timing of cash collections from customers.

Current wording

Net cash used in operating activities was $2.9 million for the six months ended June 30, 2025. The primary uses of operating cash were a net loss of $20.2 million less non-cash expenses totaling $16.0 million, including a goodwill impairment charge of $11.1 million, and depreciation and amortization of $2.7 million and stock compensation expense of $2.2 million, coupled with a decrease in accounts payable and accrued liabilities of $0.3 million, primarily due to the timing and change in payments for accounts payable and payroll, partially offset by a decrease in accounts receivable of $3.1 million.

Previous wording

Net cash used in operating activities was $1.3 million for the three months ended March 31, 2024. The primary uses of operating cash were a net loss of $31.0 million less non-cash expenses totaling $26.5 million, driven by a goodwill impairment charge of $24.0 million, and a decrease in accounts payable and accrued liabilities of $0.5 million partially offset by an decrease in accounts receivable of $3.6 million.

Current 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, driven by a goodwill impairment charge of $24.0 million, depreciation and amortization of $3.5 million and stock compensation expense of $2.3 million, and 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.

Previous wording

Net cash used in investing activities for three months ended March 31, 2025 was nominal. Net cash provided by investing activities of $0.2 million for the three months ended March 31, 2024 was primarily attributable to the net proceeds from licensing several of our patents in February 2024.

Current wording

Net cash provided by investing activities of $1.0 million for six months ended June 30, 2025 was primarily due to the net proceeds from the sale of ViewSpot in June 2025, offset by capital expenditures. 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.

Previous wording

Net cash provided by financing activities was $0.1 million the three months ended March 31, 2025, and $0.2 million for the three months ended March 31, 2024, and was primarily attributable to the timing of borrowings and repayments from short-term insurance premium financing arrangements.

Current wording

Net cash provided by financing activities was $0.5 million for the six months ended June 30, 2025 was primarily attributable to the timing of borrowings of $0.9 million less repayments of $0.4 million from short-term insurance premium financing arrangements.