Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

In this document, the terms "Smith Micro," "Company," "we," "us," and "our" refer to Smith Micro Software, Inc. and, where appropriate, its subsidiaries.

This Quarterly Report on Form 10-Q (this "Report") contains forward-looking statements regarding Smith Micro which include, but are not limited to, statements concerning customer concentration, projected revenues, market acceptance of products, the success and timing of new product introductions, the competitive factors affecting our business, our ability to raise additional capital, gross profit and income, our expenses, the protection of our intellectual property, and our ability to remain a going concern. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by us. Words such as "anticipates," "expects," "intends," "plans," "predicts," "potential," "believes," "seeks," "estimates," "should," "may," "will," and variations of these words or similar expressions are intended to identify forward-looking statements. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, our actual results or performance could differ materially from those expressed or implied in any forward-looking statements as a result of various factors. Such factors include, but are not limited to, the following:

Risks Related to our Business Operations

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our customer concentration, given that the majority of our sales currently depend on a few large client relationships;

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our ability to establish and maintain strategic relationships with our customers and mobile device manufacturers, their ability to attract customers, and their willingness to promote our products;

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our ability and/or customers' ability to distribute our mobile software applications to their end users through third party mobile software application stores, which we do not control;

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our dependency upon effective operation with operating systems, devices, networks and standards that we do not control and on our continued relationships with mobile operating system providers, device manufacturers and mobile software application stores;

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our ability to hire and retain key personnel;

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the possibility of security and privacy breaches in our systems and in the third-party software and/or systems that we use, damaging client relations and inhibiting our ability to grow;

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interruptions or delays in the services we provide from our data center hosting facilities or virtual cloud infrastructures;

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the existence of undetected software defects in our products and our failure to resolve detected defects in a timely manner;

Financial, Investment and Indebtedness Risks

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our ability to remain a going concern;

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our ability to raise additional capital and the risk of such capital not being available to us at commercially reasonable terms or at all;

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our ability to be profitable;

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current and potential future negative impacts from cost reduction efforts we have taken and may in the future undertake;

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adverse impact to our results of operations if we fail to realize the full value of our intangible assets;

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the dilutive impact to our stockholders of the exercise of our outstanding warrants;

Risks Related to Our Industry and Macroeconomic Conditions

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changes in our operating income due to shifts in our sales mix and variability in our operating expenses;

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our current client concentration within the vertical wireless carrier market, and the potential impact to our business resulting from changes within this vertical market, or failure to penetrate new markets;

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rapid technological evolution and resulting changes in demand for our products from our key customers and their end users;

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intense competition in our industry and the core vertical markets in which we operate, and our ability to successfully compete;

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the risks inherent with international operations;

Legal and Regulatory Risks

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the risk of being delisted from Nasdaq if we in the future fail to meet any of its applicable listing requirements;

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the impact of evolving information security and data privacy laws on our business and industry;

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the impact of governmental regulations on our business and industry;

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our ability to protect our intellectual property and our ability to operate our business without infringing on the rights of others;

Risk Related to our Convertible notes

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the terms and repayment obligations under our indebtedness may restrict our ability to obtain additional financing;

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the conversion of the Convertible Notes and exercise of accompanying warrants will have a dilutive effect;

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the Convertible Notes are secured, and default on the Convertible Notes could cause the note holders to foreclose on our assets;

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the Convertible Note holders have additional rights upon an event of default that could harm our financial condition or require us to curtail or cease operations;

Other General Risks

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negotiation of new or amended agreements may result in longer sales and launch cycles than expected, which could impact our financial position;

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our ability to assimilate acquisitions without diverting management attention and impacting current operations;

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failure to realize the expected benefits of prior acquisitions;

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the availability of third-party intellectual property and licenses needed for our operations on commercially reasonable terms, or at all;

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the difficulty of predicting our quarterly revenues and operating results and the chance of such revenues and results falling below analyst or investor expectations, which could cause the price of our Common Stock to fall; and

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those additional factors which are listed under Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 5, 2026 (the "2025 Form 10-K") under the caption "RISK FACTORS."

The forward-looking statements contained in this Report are made on the basis of the views and assumptions of management regarding future events and business performance as of the date this Report is filed with the Securities and Exchange Commission (the "SEC"). In addition, we operate in a highly competitive and rapidly changing environment; therefore, new risk factors can arise, and it is not possible for management to predict all such risk factors, nor to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of risk factors, may cause results to differ materially from those contained in any forward-looking statement. We do not undertake any obligation to update these statements to reflect events or circumstances occurring after the date this Report is filed.

Overview

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.

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.

In the second quarter of 2026, our revenues decreased by 2% to $4.3 million compared to the second quarter of 2025, primarily driven by a $0.1 million decrease in our Family Safety product line partially offset with an increase in CommSuite revenues of $26 thousand. As a result of the decrease in cost of revenues, our gross profit during the second quarter of 2026 was $3.5 million, representing an increase of $0.3 million as compared to the second quarter of the prior year. Our operating expenses decreased during the second quarter of 2026 compared to the second quarter of 2025 by approximately $12.3 million. Excluding the second quarter 2025 write-off of goodwill impairment of $11.1 million and the gain on sale of ViewSpot of $1.3 million, second quarter 2026 operating expenses quarter over quarter decreased by $2.5 million. This reduction was a result of cost optimization activities in 2026 and 2025, in sales and marketing, research and development, and general and administrative expenses, inclusive of personnel and organizational cost reduction activities as well as lower stock compensation costs. The net loss attributable to common stockholders for the second quarter of 2026 was $2.7 million, resulting in a net loss of $0.52 per basic and diluted share.

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, through SafePath OS with SafePath OS for Kids Phone and SafePath OS for Senior Phone, SafePath Connect, a partner-supported direct to consumer family safety offering, and our SafePath SDKs and APIs as new deployment options, 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 and partners. We believe that we have an opportunity to increase the respective subscriber bases, and in turn, grow revenues.

In the first quarter of 2026 we received approximately $1.0 million in gross cash proceeds from the sale of a secured note and accompanying unregistered common stock purchase warrants, and additional gross proceeds of $4.9 million from the sale of secured convertible notes and warrants to acquire up to an aggregate amount of approximately 1.9 million additional shares of the our common stock, of which $1.9 million was used to retire outstanding notes issued pursuant to September 2025 note purchase agreements. In the second quarter ended June 30, 2026, we entered into Inducement Letter Agreements for the exercise of certain October 2024 Warrants to purchase a total of approximately 0.5 million shares of common stock at $3.35 share with proceeds to the company of approximately $1.6 million, and approximately 0.5 million new warrants were issued in connection with this transaction.

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 and Note 7 for discussion regarding changes to goodwill.

Results of Operations

On June 4, 2026, we effected a one-for-five (1:5) reverse stock split of the shares of the Company's Common Stock, par value $0.001 per share. At the effective time, every five shares of our Common Stock were automatically combined and converted (without any further act) into one share of fully paid and nonassessable Common Stock, with any fractional shares resulting from the Reverse Stock Split rounded up to the nearest whole shares. See further information in Note 1. All shares and per share amounts herein have been retroactively adjusted for all periods presented to give effect to the Reverse Stock Split.

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, 2026 and 2025. Our historical results are not necessarily indicative of the operating results that may be expected in the future.

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2026				2025				2026				2025
Revenues			100.0	%			100.0	%			100.0	%			100.0	%
Cost of revenues			18.7				26.5				20.1				26.9
Gross profit			81.3	%			73.5	%			79.9	%			73.1	%
Operating expenses:				​				​				​				​
Selling and marketing			28.4				37.7				31.7				36.6
Research and development			31.5				62.3				37.6				62.0
General and administrative			46.0				60.4				48.0				59.7
Depreciation and amortization			29.9				30.5				29.7				29.8
Proceeds from sale of ViewSpot, net			-				(29.1	)			-				(14.2	)
Goodwill impairment			-				250.0				-				122.2
Total operating expenses			135.9	%			411.8	%			147.0	%			296.2	%
Operating loss			(54.6	)			(338.3	)			(67.1	)			(223.0	)
Change in fair value of warrant liabilities			(0.3	)			(0.5	)			(0.1	)			1.1
Interest expense, net			(5.1	)			(0.5	)			(8.7	)			(0.5	)
Other expense, net			(1.1	)			(1.5	)			(0.5	)			(1.4	)
Loss before for income tax provision			(61.0	)%			(340.8	)%			(76.5	)%			(223.9	)%
Provision for income tax expense			-				-				-				0.0
Net loss			(61.0	)%			(340.8	)%			(76.5	)%			(223.9	)%
Deemed dividend			(2.0	)%			-	%			(1.0	)%			-	%
Net loss attributable to common stockholders			(63.0	)%			(340.8	)%			(77.5	)%			(223.9	)%

Three Months Ended June 30, 2026 Compared to the Three Months Ended June 30, 2025

Revenues. Revenues were $4.3 million and $4.4 million for the three months ended June 30, 2026 and 2025, respectively, representing an decrease of $0.1 million, or 2%. This decrease of $0.1 million was related to our Family Safety product line, partially offset by an increase in CommSuite revenues of approximately $26 thousand.

Cost of revenues. Cost of revenues were $0.8 million and $1.2 million for the three months ended June 30, 2026 and 2025, respectively. This decrease of approximately $0.4 million was primarily due to the period-over-period impact of cost reduction efforts undertaken.

Gross profit. Gross profit was $3.5 million, or 81.3% of revenues, for the three months ended June 30, 2026, compared to $3.2 million, or 73.5% of revenues, for the three months ended June 30, 2025. The increase of $0.3 million in gross profit was driven by the period-over-period increase in revenue coupled with cost reduction efforts.

Selling and marketing. Selling and marketing expenses were $1.2 million and $1.7 million for the three months ended June 30, 2026 and 2025, respectively. This decrease of approximately $0.4 million was primarily due to decreases in personnel-related costs of $0.2 million and stock-based compensation of $0.2 million.

Research and development. Research and development expenses were $1.4 million and $2.8 million for the three months ended June 30, 2026 and 2025, respectively. This decrease of approximately $1.4 million was primarily due to decreases in personnel-related costs of $0.8 million, a one-time cost reduction of approximately $0.3 million, stock-based compensation of $0.2 million, and other costs of $0.1 million.

General and administrative. General and administrative expenses were $2.0 million and $2.7 million for each of the three months ended June 30, 2026 and 2025, respectively. This decrease of approximately $0.7 million was primarily due to decreases in personnel-related costs of $0.2 million and stock-based compensation of $0.5 million.

Depreciation and amortization. Depreciation expense was $0.1 million for both the three months ended June 30, 2026 and 2025. Amortization expense was $1.2 million and $1.3 million for the three months ended June 30, 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.

Change in fair value of warrant liabilities. Change in fair value of warrant liabilities was nominal the three months ended June 30, 2026 and 2025, respectively.

Interest expense, net. Interest expense was $0.2 million and nominal for the three months ended June 30, 2026 and 2025, respectively. The increase in interest expense of $0.2 million was primarily related to the amortization of the debt discount and issuance costs and stated interest expense related to the financing transaction entered into in March 2026, which is discussed in further detail in Notes 5.

Other expense, net. Other expense, net was nominal for the three months ended June 30, 2026 and 2025.

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 three months ended June 30, 2026 and 2025. There were no material changes in the period-to-period comparison.

Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025

Revenues. Revenues were $8.6 million and $9.0 million for the six months ended June 30, 2026 and 2025, respectively, representing a decrease of $0.5 million, or 5%. This decrease of $0.5 million was related to our Family Safety product line coupled with $0.1 million in ViewSpot revenue recorded in the six months ended June 30, 2025 which was primarily due to the sale of that product in June 2025, partially offset by an increase in CommSuite revenues of approximately $0.1 million.

Cost of revenues. Cost of revenues were $1.7 million and $2.4 million for the six months ended June 30, 2026 and 2025, respectively. This decrease of approximately $0.7 million was primarily due to the period-over-period impact of cost reduction efforts undertaken.

Gross profit. Gross profit was $6.8 million, or 79.9% of revenues, for the six months ended June 30, 2026, compared to $6.6 million, or 73.1% of revenues, for the six months ended June 30, 2025. The increase of $0.3 million in gross profit in gross profit was driven by the cost reduction efforts in cost of revenues.

Selling and marketing. Selling and marketing expenses were $2.7 million and $3.3 million for the six months ended June 30, 2026 and 2025, respectively. This decrease of approximately $0.6 million was primarily due to decreases in personnel-related costs of $0.3 million and stock-based compensation of $0.2 million.

Research and development. Research and development expenses were $3.2 million and $5.6 million for the six months ended June 30, 2026 and 2025, respectively. This decrease of approximately $2.4 million was primarily due to decreases in personnel-related costs of $1.7 million, a one-time cost reduction of $0.3 million, stock-based compensation of $0.3 million, and other costs of $0.1 million.

General and administrative. General and administrative expenses were $4.1 million and $5.4 million for each of the six months ended June 30, 2026 and 2025, respectively. This decrease of approximately $1.3 million was primarily due to decreases in personnel-related costs of $0.3 million, stock-based compensation of $0.9 million, and lower rent costs of $0.2 million, partially offset by higher costs associated with corporate transactions.

Depreciation and amortization. Depreciation expense was $0.2 million and $0.1 million for the six months ended June 30, 2026 and 2025, respectively. Amortization expense was $2.4 million and $2.6 million for the six months ended June 30, 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.

Gain on Sale of ViewSpot. 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 paid in two installments, the first of which was collected on July 1, 2025, and the final balance was collected October 1, 2025.

Goodwill impairment. A goodwill impairment charge of $11.1 million was recorded for the six 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.

Change in fair value of warrant liabilities. Change in fair value of warrant liabilities was nominal and $0.1 million for the six months ended June 30, 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.

Interest expense, net. Interest expense was $0.7 million and nominal for the six months ended June 30, 2026 and 2025, respectively. The increase in interest expense of $0.7 million was primarily related to the amortization of the debt discount and issuance costs and stated interest expense related to the financing transactions in the six months ended June 30, 2026, which is discussed in further detail in Notes 5.

Other expense, net. Other expense, net was nominal and $0.1 million for the six months ended June 30, 2026 and 2025, respectively.

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, 2026 and 2025. There were no material changes in the period-to-period comparison.

Liquidity and Capital Resources

The Company's principal sources of liquidity are its existing cash and cash equivalents, and cash generated by operations. As of June 30, 2026, the Company's cash and cash equivalents were approximately $2.8 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 1.9 million additional shares of the Company's common stock. In the second quarter ended June 30, 2026, the Company entered into Inducement Letter Agreements for the exercise of certain October 2024 Warrants to purchase a total of 0.5 million shares of common stock at $3.35 share with proceeds to the company of approximately $1.6 million.

The timing of our anticipated revenue growth relative to the costs of operating, maintaining, innovating and evolving our business to respond to industry trends and maximize growth opportunities may result in cash and cash equivalents being insufficient to fund operations at current levels over the next twelve months and beyond.

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 revenue and 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.

Cash Flows

Changes in cash and cash equivalents are as follows:

		For the Six Months Ended
		June 30,
(in thousands)		2026				2025
Net cash used in operating activities		$	(4,634	)		$	(2,870	)
Net cash (used in) provided by investing activities			(23)				956
Net cash provided by financing activities			5,958				507
Net increase (decrease) in cash and cash equivalents		$	1,301			$	(1,407	)

Operating activities

Net cash used in operating activities was $4.6 million for the six months ended June 30, 2026. The primary uses of operating cash were a net loss of $6.5 million less non-cash expenses totaling $3.8 million, including depreciation and amortization of $2.5 million, amortization of debt discount and financing issuance costs of $0.5 million, and stock compensation expense of $0.8 million, offset by an increase in accounts receivable of $0.8 million and a decrease in accounts payable and accrued liabilities of $0.9 million.

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, partially offset by a decrease in accounts receivable of $3.1 million.

Investing activities

Net cash used in investing activities was nominal for the six months ended June 30, 2026.

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.

Financing activities

Net cash provided by financing activities of $6.0 million for the six months ended June 30, 2026 was attributable to the cash proceeds to the Company of $1.0 million from the February 2026 loan transaction, the March 2026 gross cash proceeds of $3.0 million from sale of secured convertible notes, the June 2026 gross proceeds of approximately $1.6 million from the exercise of October 2024 Warrants, and the timing of borrowings of $0.8 million less repayments of $0.4 million from short-term insurance premium financing arrangements.

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

Recent Accounting Guidance

See Note 2 of our Notes to the Consolidated Financial Statements for information regarding our recent accounting guidance.

Critical Accounting Estimates

Our discussion and analysis of results of operations, financial condition, and liquidity are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may materially differ from these estimates under different assumptions or conditions. On an ongoing basis, we review our estimates to ensure that they appropriately reflect changes in our business or new information as it becomes available. See Note 1 of our Notes to the Consolidated Financial Statements in our 2025 Form 10-K for information regarding our critical accounting estimates. There have been no material changes to the Company's critical accounting estimates since the 2025 Form 10-K.