SMITH MICRO SOFTWARE, INC.

Previous wording

Item 2. Management**’s Discussion and Analysis of Financial Condition and Results of Operations

Current wording

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

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 visual voice messaging.

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 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 Internet of Things ("IoT") devices.

Previous 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.

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, the consumer IoT marketplace, and by leveraging advanced technologies like artificial intelligence to enhance the features and capabilities of our solutions. 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 third quarter of 2025, our revenues decreased by 6% to $4.3 million compared to the third quarter of 2024, primarily driven by a $0.4 million decrease in our Family Safety product line, coupled with a nominal decrease in ViewSpot revenue, partially offset by an increase of $0.1 million in CommSuite revenues. The revenue decline primarily resulted from 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 third quarter of 2025 was $3.2 million, representing a decrease of $0.1 million as compared to the third quarter of the prior year. In connection with the preparation of our second quarter 2025 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 were paid in two installments, the first of which was collected on July 1, 2025, and the final balance was collected on October 1, 2025. Our operating expenses decreased during the third quarter of 2025 compared to the third quarter of 2024 by approximately $2.1 million. This was primarily due to quarter-over-quarter reductions in sales and marketing and research and development expenses due to cost reduction initiatives undertaken during 2025. The net loss attributable to common stockholders for the third quarter of 2025 was $5.2 million, resulting in a net loss of $0.25 per basic and diluted share.

Current wording

In the first quarter of 2026, our revenues decreased by 9% to $4.2 million compared to the first quarter of 2025, primarily driven by a $0.4 million decrease in our Family Safety product line, coupled with a $0.1 million decrease in ViewSpot revenues, partially offset by an increase of $0.1 million in CommSuite revenues. The revenue decline primarily resulted from 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 first quarter of 2026 was $3.3 million, representing a decrease of $0.1 million as compared to the first quarter of the prior year. Our operating expenses decreased during the first quarter of 2026 compared to the first quarter of 2025 by approximately $1.9 million. This was primarily due to quarter-over-quarter reductions in sales and marketing, research and development, and general and administrative expenses due to significant cost reduction initiatives undertaken during 2025 and 2026. The net loss for the first quarter of 2026 was $3.9 million, resulting in a net loss of $0.15 per basic and diluted share.

Previous 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 completed, 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.

Current wording

We believe we are 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, we have a SafePath-based Kids Plan solution launched with a Tier 1 carrier in Europe. In addition, with the recent expansion of our SafePath product line, most notably SafePath OS with SafePath OS for Kids Phone and SafePath OS for Senior Phone, 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 completed, and we have delivered certain of the new features that it enables to some of our customers, with more expected throughout this year. 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

In the third quarter we received approximately $1.1 million in gross proceeds in exchange for short-term notes and warrants. Additionally, in October we announced strategic cost reductions in our organization, primarily comprised of workforce reorganization, which we expect to result in cost savings of approximately $1.8 million per quarter as compared to the second quarter of 2025, or approximately $7.2 million reduction in costs for 2026, excluding payment of employee separation costs of which approximately $0.5 million is currently expected to be paid by the end of the second quarter of 2026. These efforts are part of our broader initiative to realign the Company's cost structure with long-term business goals, strengthen the financial foundation, and accelerate our path to profitability.

Current wording

In 2025, we received approximately $1.5 million in gross proceeds from a registered direct offering of Common Stock and a concurrent private placement of warrants, approximately $1.2 million for short-term notes and warrants and subsequently approximately $2.7 million from concurrent registered direct and private placement offerings of Common Stock and in each case a concurrent private placement of warrants. Additionally, in October 2025, we announced strategic cost reductions (in addition to those noted in the paragraph above) in our organization, primarily comprised of workforce reorganization, which we expect to result in cost savings of approximately $7.2 million reduction in costs for 2026. These efforts are part of our broader initiative to realign the Company's cost structure with long-term business goals, strengthen the financial foundation, and accelerate our path to profitability.

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 nine months ended September 30, 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 months ended March 31, 2026 and 2025. Our historical results are not necessarily indicative of the operating results that may be expected in the future.

Previous wording

Revenues. Revenues were $4.3 million and $4.6 million for the three months ended September 30, 2025 and 2024, respectively, representing a decrease of $0.3 million, or 6%. This decrease was primarily related to declines associated with our Family Safety product line of $0.4 million, which was mostly driven by Sprint Safe & Found revenue declining as legacy Sprint subscribers migrated to the T-Mobile network, coupled with a nominal decline in ViewSpot revenue that was primarily due to a contract that concluded during 2024 and the sale of that product in June 2025, partially offset by an increase in CommSuite revenues of approximately $0.1 million.

Current wording

Revenues. Revenues were $4.2 million and $4.6 million for the three months ended March 31, 2026 and 2025, respectively, representing a decrease of $0.4 million, or 9%. This decrease was primarily related to declines associated with our Family Safety product line of $0.4 million, which was mostly driven by Sprint Safe & Found revenue declining as legacy Sprint subscribers migrated to the T-Mobile network, coupled with a nominal decline in ViewSpot revenue that was primarily due to a contract that concluded during 2024 and the sale of that product in June 2025, partially offset by an increase in CommSuite revenues of approximately $0.1 million.

Previous wording

Cost of revenues. Cost of revenues were $1.1 million and $1.3 million for the three months ended September 30, 2025 and 2024, respectively. This decrease of $0.2 million was primarily due to the period-over-period decline in revenue coupled with the impact of cost reduction efforts undertaken.

Current wording

Cost of revenues. Cost of revenues were $0.9 million and $1.3 million for the three months ended March 31, 2026 and 2025, respectively. This decrease of approximately $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 $3.2 million, or 73.9% of revenues, for the three months ended September 30, 2025, compared to $3.3 million, or 71.6% of revenues, for the three months ended September 30, 2024. The decrease of $0.1 million in gross profit was driven by the period-over-period decline in revenue volume.

Current wording

Gross profit. Gross profit was $3.3 million, or 78.4% of revenues, for the three months ended March 31, 2026, compared to $3.4 million, or 72.8% of revenues, for the three months ended March 31, 2025. The decrease of $0.1 million in gross profit was driven by the period-over-period decline in revenue volume.

Previous wording

Selling and marketing. Selling and marketing expenses were $1.5 million and $2.1 million for the three months ended September 30, 2025 and 2024, respectively. This decrease of $0.6 million was primarily due to decreases in personnel related costs due to cost reduction activities undertaken.

Current wording

Selling and marketing. Selling and marketing expenses were $1.5 million and $1.6 million for the three months ended March 31, 2026 and 2025, respectively. This decrease of approximately $0.1 million was primarily due to decreases in personnel related costs due to cost reduction activities undertaken.

Previous wording

Research and development. Research and development expenses were $2.6 million and $3.6 million for the three months ended September 30, 2025 and 2024, respectively. This decrease of $1.0 million was primarily due to decreases in personnel related costs due to cost reduction activities undertaken.

Current wording

Research and development. Research and development expenses were $1.8 million and $2.9 million for the three months ended March 31, 2026 and 2025, respectively. This decrease of approximately $1.1 million was primarily due to decreases in personnel related costs due to cost reduction activities undertaken.

Previous wording

General and administrative. General and administrative expenses were $2.3 million and $2.7 for each of the three months ended September 30, 2025 and 2024, respectively. This decrease of approximately $0.4million was primarily due to decreases in personnel related costs due to cost reduction activities undertaken.

Current wording

General and administrative. General and administrative expenses were $2.1 million and $2.7 million for each of the three months ended March 31, 2026 and 2025, respectively. This decrease of approximately $0.6 million was primarily due to decreases in personnel related costs due to cost reduction activities undertaken.

Previous wording

Depreciation and amortization. Depreciation expense was $0.1 million for both the three months ended September 30, 2025 and 2024. Amortization expense was $1.3 million for the three months ended September 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.

Current wording

Depreciation and amortization. Depreciation expense was $0.1 million for both the three months ended March 31, 2026 and 2025. Amortization expense was $1.2 million and $1.3 million the three months ended March 31, 2026 and 2025, respectively. Amortization expense is recognized based on the pattern of economic benefit expected to be generated from the use of the intangible assets.

Previous wording

Change in fair value of warrant liabilities. Change in fair value of warrant liabilities was $0.1 million and $0.4 million for the nine months ended September 30, 2025 and 2024, respectively. The total decrease in income of $0.3 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 nominal and $0.1 million the three months ended March 31, 2026 and 2025, respectively. The total decrease in income of $0.1 million resulted from valuation related impacts to the warrant liabilities in the respective periods.

Previous wording

*Other (expense) income, net.*Other expense, net was nominal for each of the three months ended September 30, 2025 and 2024.

Current wording

*Other expense, net.*Other expense, net was nominal for the three months ended March 31, 2026 and 2025.

Previous wording

The Company’s principal sources of liquidity are its existing cash and cash equivalents, and cash generated by operations. As of September 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. On July 18, 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. Additionally, on September 11, 2025 and September 29, 2025, we entered into Notes Purchase Agreements, as more fully described in Note 5, which provided gross cash proceeds of approximately $1.2 million by September 30, 2025.

Current wording

The Company’s principal sources of liquidity are its existing cash and cash equivalents, and cash generated by operations. As of March 31, 2026, the Company's cash and cash equivalents were approximately $1.7 million. Since the beginning of 2025, 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. On July 18, 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. Additionally, on each of September 11 and September 29, 2025, we entered into loan arrangements, as more fully described in Note 5, which provided aggregated gross cash proceeds of approximately $1.2 million as of September 30, 2025. On February 3, 2026, the Company received approximately $1.0 million in gross proceeds via a loan transaction and accompanying issuance of unregistered common stock purchase warrants, and subsequently on March 4, 2026 the Company received gross cash proceeds of $4.9 million from the sale of secured convertible notes with $1.9 million of that amount being used to pay off loans incurred in September 2025, and warrants to acquire up to an aggregate amount of approximately 9.4 million additional shares of the Company's common stock.

Previous wording

This adverse impact on liquidity does not trigger a violation of any covenants in our material agreements, particularly as the September 11, 2025 and September 29, 2025 Notes Purchase Agreements do not contain any material financial covenants. 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.

Current wording

This adverse impact on liquidity does not trigger a violation of any covenants in our material agreements, particularly as all of the agreements for the transactions discussed herein this “Liquidity and Capital Resources” section do not contain any material financial covenants. 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 2025 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 $5.0 million for the nine months ended September 30, 2025. The primary uses of operating cash were a net loss of $24.8 million less non-cash expenses totaling $18.0 million, including a goodwill impairment charge of $11.1 million, and depreciation and amortization of $4.0 million and stock compensation expense of $2.8 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 $3.0 million.

Current wording

Net cash used in operating activities was $3.8 million for the three months ended March 31, 2026. The primary uses of operating cash were a net loss of $3.9 million less non-cash expenses totaling $2.2 million, including depreciation and amortization of $1.2 million, amortization of debt discount and financing issuance costs of $0.4 million, and stock compensation expense of $0.6 million, offset by an increase in accounts receivable of $1.1 million and a decrease in accounts payable and accrued liabilities of $0.8 million.

Previous 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, driven by a goodwill impairment charge of $24.0 million, depreciation and amortization of $4.9 million and stock compensation expense of $3.5 million, and a decrease in accounts payable and accrued liabilities of $1.4 million, partially offset by a decrease in accounts receivable of $4.5 million.

Current 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, driven by depreciation and amortization of $1.4 million and stock compensation expense of $1.1 million, and a decrease in accounts payable and accrued liabilities of $0.3 million, partially offset by a decrease in accounts receivable of $2.4 million.

Previous wording

Net cash provided by financing activities of $2.4 million for the nine months ended September 30, 2025 was attributable to the net cash proceeds to the Company of $1.0 million from the July 2025 Registered Direct and Private Placement offering, and the September 2025 gross proceeds of $1.2 million from the issuance of notes and warrants, and the timing of borrowings of $0.9 million less repayments of $0.8 million from short-term insurance premium financing arrangements.

Current wording

Net cash provided by financing activities of $4.0 million for the three months ended March 31, 2026 was attributable to the cash proceeds to the Company of $1.0 million from the February 2026 loan transaction, and the March 2026 gross cash proceeds of $3.0 million from sale of secured convertible notes, and the timing of borrowings of $0.3 million less repayments of $0.3 million from short-term insurance premium financing arrangements.

Previous 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.

Current wording

Net cash provided by financing activities of $0.1 million for the three months ended March 31, 2025 was primarily attributable to the borrowings of $0.4 million less repayments of $0.3 million from short-term insurance premium financing arrangements.