Smith Micro Software(US:SMSI)2025-08-07 20:26markdown [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the company's unaudited consolidated financial statements, management's discussion and analysis, and controls and procedures [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for Smith Micro Software, Inc. for the periods ended June 30, 2025, and December 31, 2024 (balance sheets), and for the three and six months ended June 30, 2025 and 2024 (statements of operations, stockholders' equity, and cash flows). It includes detailed financial figures and accompanying notes that provide context on the company's operations, accounting policies, financial health, and recent corporate actions [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This statement presents the company's financial position, including assets, liabilities, and equity, at specific points in time Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | Percentage Change | | :-------------------------------- | :------------ | :---------------- | :----- | :------------------ | | Total Assets | $29,582 | $48,046 | $(18,464) | -38.4% | | Total Liabilities | $7,168 | $7,290 | $(122) | -1.7% | | Total Stockholders' Equity | $22,414 | $40,756 | $(18,342) | -45.0% | | Cash and Cash Equivalents | $1,401 | $2,808 | $(1,407) | -50.1% | | Accounts Receivable, net | $2,867 | $5,721 | $(2,854) | -49.9% | | Goodwill | $— | $11,052 | $(11,052) | -100.0% | | Intangible Assets, net | $21,044 | $23,597 | $(2,553) | -10.8% | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This statement details the company's revenues, expenses, and net loss over specific reporting periods Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Revenues | $4,420 | $5,140 | $(720) | $9,041 | $10,938 | $(1,897) | | Gross Profit | $3,249 | $3,533 | $(284) | $6,612 | $7,343 | $(731) | | Operating Loss | $(14,953) | $(6,979) | $(7,974) | $(20,164) | $(38,425) | $18,261 | | Goodwill Impairment | $11,052 | $— | $11,052 | $11,052 | $23,989 | $(12,937) | | Net Loss | $(15,062) | $(6,929) | $(8,133) | $(20,240) | $(37,936) | $17,696 | | Basic and Diluted Loss per Share | $(0.78) | $(0.66) | $(0.12) | $(1.08) | $(3.79) | $2.71 | - The company recorded a goodwill impairment charge of **$11.1 million** for the three and six months ended June 30, 2025, contributing significantly to the operating and net loss. This compares to a **$24.0 million** goodwill impairment charge for the six months ended June 30, 2024[12](index=12&type=chunk) - A gain on the sale of ViewSpot, net, of **$1.3 million** was recognized for the three and six months ended June 30, 2025[12](index=12&type=chunk) [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) This statement shows changes in the company's equity accounts, including net loss and stock transactions, over time Changes in Stockholders' Equity (in thousands) | Metric | Balance, Dec 31, 2024 | Net Loss (6M 2025) | Restricted Stock Grants, net | Non-cash Compensation | Cancellation of Shares | Balance, June 30, 2025 | | :-------------------------------- | :-------------------- | :------------------- | :--------------------------- | :-------------------- | :--------------------- | :--------------------- | | Common Stock (Amount) | $18 | $— | $1 | $— | $— | $19 | | Additional Paid-in Capital | $395,383 | $— | $2,170 | $11 | $(286) | $397,280 | | Accumulated Comprehensive Deficit | $(354,645) | $(20,240) | $— | $— | $— | $(374,885) | | Total Stockholders' Equity | $40,756 | $(20,240) | $2,171 | $11 | $(286) | $22,414 | - Total stockholders' equity decreased from **$40.8 million** at December 31, 2024, to **$22.4 million** at June 30, 2025, primarily due to a net loss of **$20.2 million**[14](index=14&type=chunk) - The number of issued and outstanding common shares increased from **17,673,404** at December 31, 2024, to **19,382,014** at June 30, 2025, largely due to restricted stock grants[9](index=9&type=chunk)[14](index=14&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes the cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :----- | | Net Cash Used in Operating Activities | $(2,870) | $(5,553) | $2,683 | | Net Cash Provided by Investing Activities | $956 | $187 | $769 | | Net Cash Provided by Financing Activities | $507 | $3,869 | $(3,362) | | Net Decrease in Cash and Cash Equivalents | $(1,407) | $(1,497) | $90 | | Cash and Cash Equivalents, End of Period | $1,401 | $5,628 | $(4,227) | - Net cash used in operating activities decreased by **$2.7 million**, from **$5.6 million** in H1 2024 to **$2.9 million** in H1 2025, primarily due to a lower net loss and changes in working capital[18](index=18&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk) - Net cash provided by investing activities increased significantly to **$1.0 million** in H1 2025, driven by **$987 thousand** from the sale of ViewSpot, compared to **$187 thousand** in H1 2024[18](index=18&type=chunk)[146](index=146&type=chunk) - Net cash provided by financing activities decreased substantially from **$3.9 million** in H1 2024 to **$0.5 million** in H1 2025, mainly due to the absence of large common stock offerings seen in the prior year[18](index=18&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) [Notes to the Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the consolidated financial statements [Note 1. The Company (Business Overview & Reverse Stock Split)](index=9&type=section&id=Note%201.%20The%20Company) This note describes the company's business, recent corporate actions, and significant events like product sales and stock splits - Smith Micro Software, Inc. develops software to simplify and enhance the mobile experience, offering family safety solutions (e.g., SafePath) and visual voice messaging to wireless service providers globally[21](index=21&type=chunk)[27](index=27&type=chunk) - On June 3, 2025, the Company sold its ViewSpot product for **$1.3 million**, with **$1.0 million** received at closing and the remainder in installments[22](index=22&type=chunk) - A one-for-eight (1:8) reverse stock split was effected on April 10, 2024, reducing outstanding shares from approximately **76.8 million** to **9.6 million**, with all share and per share amounts retroactively adjusted[23](index=23&type=chunk)[25](index=25&type=chunk) [Note 2. Accounting Policies](index=9&type=section&id=Note%202.%20Accounting%20Policies) This note outlines the significant accounting principles and methods used in preparing the financial statements - The unaudited consolidated financial statements are prepared in accordance with SEC rules and U.S. GAAP, reflecting all normal and recurring adjustments[26](index=26&type=chunk)[28](index=28&type=chunk) - The Company adopted ASU 2023-07 (Segment Reporting) with no material effect other than additional disclosures in Note 11[30](index=30&type=chunk) - The Company is evaluating ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures), which are not anticipated to have a significant impact other than new disclosures[31](index=31&type=chunk)[32](index=32&type=chunk) [Note 3. Going Concern](index=10&type=section&id=Note%203.%20Going%20Concern) This note addresses the company's ability to continue operations and management's plans to mitigate financial risks - Substantial doubt exists about the Company's ability to continue as a going concern within one year due to recurring operating losses and negative cash flows[33](index=33&type=chunk) - Management's plans to alleviate this doubt include expanding subscriber growth, acquiring new customers, expanding offerings, and raising additional capital through equity or debt financings[34](index=34&type=chunk) - Additional actions to preserve liquidity may include further restructuring, cost reductions, securing a revolving line of credit, disposing of product lines, or selling/licensing intellectual property[34](index=34&type=chunk)[40](index=40&type=chunk) [Note 4. Common Stock (Nasdaq Compliance & Offerings)](index=11&type=section&id=Note%204.%20Common%20Stock) This note details common stock activities, including Nasdaq compliance, stock offerings, and share changes - The Company received Nasdaq notices regarding non-compliance with the **$1.00** minimum bid price requirement on December 27, 2023, November 26, 2024, and June 23, 2025. Compliance was regained in April 2024 and January 2025, but a new notice was received in June 2025, providing a compliance period until December 22, 2025[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) - In May 2024, the Company completed a registered direct offering and private placement, selling **1,065,000** shares of Common Stock and pre-funded warrants, generating **$3.4 million** in net cash proceeds[39](index=39&type=chunk)[41](index=41&type=chunk)[44](index=44&type=chunk) - In October 2024, the Company completed two securities offerings (registered direct offering and private placement), raising aggregate gross proceeds of **$6.9 million** (**$6.6 million** net cash proceeds), including participation from the CEO[45](index=45&type=chunk)[49](index=49&type=chunk) [Note 5. Warrant Liabilities](index=14&type=section&id=Note%205.%20Warrant%20Liabilities) This note explains the company's warrant obligations and their fair value measurement - The Company has Notes Warrants and Additional Warrants issued in 2022, which are measured at fair value and recognized in the consolidated statements of operations[50](index=50&type=chunk)[51](index=51&type=chunk)[53](index=53&type=chunk) - The fair value of these warrant liabilities is determined using a Black-Scholes option pricing model, considering factors like common stock market price, risk-free interest rate, expected term, and volatility[53](index=53&type=chunk) Warrant Liabilities Fair Value (in thousands) | Warrant Type | June 30, 2025 | December 31, 2024 | | :------------- | :------------ | :---------------- | | Notes Warrants | $107 | $197 | | Additional Warrants | $14 | $27 | | **Total** | **$121** | **$224** | [Note 6. Fair Value of Financial Instruments](index=15&type=section&id=Note%206.%20Fair%20Value%20of%20Financial%20Instruments) This note describes the valuation hierarchy and changes in fair value for financial instruments - Fair value measurements are categorized into a three-tier hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[55](index=55&type=chunk)[57](index=57&type=chunk) - The Company's warrant liabilities are classified as Level 3 fair value measurements[56](index=56&type=chunk) Changes in Fair Value of Warrant Liabilities (in thousands) | Metric | Notes Warrants | Additional Warrants | Total | | :-------------------------- | :------------- | :------------------ | :---- | | Measurement at Dec 31, 2024 | $197 | $27 | $224 | | Change in fair value (Q1 2025) | $(107) | $(16) | $(123) | | Measurement at Mar 31, 2025 | $90 | $11 | $101 | | Change in fair value (Q2 2025) | $17 | $3 | $20 | | Measurement at June 30, 2025 | $107 | $14 | $121 | [Note 7. Goodwill and Intangible Assets](index=16&type=section&id=Note%207.%20Goodwill%20and%20Intangible%20Assets) This note discusses the company's goodwill and intangible assets, including impairment charges and amortization - The Company recorded a full goodwill impairment charge of **$11.1 million** for the three and six months ended June 30, 2025, due to recent financial performance, stock valuation trends, equity raise pricing, and a Nasdaq minimum bid price notice[61](index=61&type=chunk)[125](index=125&type=chunk)[136](index=136&type=chunk) - An interim quantitative impairment test in Q1 2024 resulted in a goodwill impairment charge of **$24.0 million**[60](index=60&type=chunk)[136](index=136&type=chunk) Intangible Assets, Net (in thousands) | Asset Type | June 30, 2025 Net Book Value | December 31, 2024 Net Book Value | | :-------------------- | :--------------------------- | :------------------------------- | | Purchased technology | $3,849 | $4,568 | | Customer relationships | $14,921 | $16,268 | | Customer contracts | $190 | $275 | | Software license | $1,934 | $2,293 | | Patents | $150 | $193 | | **Total** | **$21,044** | **$23,597** | - Intangible asset amortization expense was **$1.3 million** for Q2 2025 (down from **$1.5 million** in Q2 2024) and **$2.6 million** for H1 2025 (down from **$3.3 million** in H1 2024)[62](index=62&type=chunk)[123](index=123&type=chunk)[134](index=134&type=chunk) [Note 8. Earnings Per Share](index=18&type=section&id=Note%208.%20Earnings%20Per%20Share) This note presents the calculation of basic and diluted earnings per share, including anti-dilutive adjustments Basic and Diluted Loss Per Share (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Loss | $(15,062) | $(6,929) | $(20,240) | $(37,936) | | Weighted Average Shares Outstanding (Basic & Diluted) | 19,417 | 10,567 | 18,820 | 10,016 | | Loss Per Share (Basic & Diluted) | $(0.78) | $(0.66) | $(1.08) | $(3.79) | - For periods with a net loss, dilutive common stock equivalents (options, warrants) are excluded from the diluted EPS calculation as their effect would be anti-dilutive[66](index=66&type=chunk) Anti-Dilutive Shares Excluded from EPS Calculation (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Outstanding Stock Options | 31 | 9 | 27 | 10 | | Outstanding Warrants | 8,382 | 1,477 | 8,382 | 949 | | **Total Anti-Dilutive Shares** | **8,413** | **1,486** | **8,409** | **959** | [Note 9. Stock-Based Compensation](index=19&type=section&id=Note%209.%20Stock-Based%20Compensation) This note details the company's stock-based compensation plans, grants, and associated expenses - Stockholders approved an increase of **3.0 million** shares to the Omnibus Equity Incentive Plan (OEIP) on June 3, 2025, bringing total available shares for future grants to approximately **3.2 million** as of June 30, 2025[68](index=68&type=chunk) - During the first six months of 2025, the Company granted **2.0 million** shares of restricted stock and **25,000** stock options under the OEIP[69](index=69&type=chunk) Non-Cash Stock-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sales and marketing | $263 | $345 | $498 | $653 | | Research and development | $204 | $245 | $418 | $509 | | General and administrative | $629 | $548 | $1,267 | $1,110 | | **Total** | **$1,096** | **$1,138** | **$2,183** | **$2,272** | - As of June 30, 2025, there was approximately **$2.9 million** in unrecognized compensation costs related to unvested stock options and restricted stock awards[73](index=73&type=chunk) [Note 10. Revenues (Revenue Recognition & Disaggregation)](index=20&type=section&id=Note%2010.%20Revenues) This note explains the company's revenue recognition policies and disaggregation of revenue by type - Revenue is recognized based on a five-step analysis, depicting the transfer of promised goods or services to customers in an amount reflecting expected consideration. The majority of revenue is generated from usage-based fees[76](index=76&type=chunk) - The Company considers software licenses and cloud services provided to MNO customers as a single performance obligation, recognizing revenue based on active subscribers' access and usage[77](index=77&type=chunk) Disaggregated Revenues (in thousands) | Revenue Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :-------------------------- | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | License and service fees | $795 | $761 | $34 | $1,590 | $1,538 | $52 | | Hosted environment usage fees | $777 | $531 | $246 | $1,511 | $1,196 | $315 | | Cloud based usage fees | $2,835 | $3,645 | $(810) | $5,921 | $7,670 | $(1,749) | | Consulting services and other | $13 | $203 | $(190) | $19 | $534 | $(515) | | **Total Revenues** | **$4,420** | **$5,140** | **$(720)** | **$9,041** | **$10,938** | **$(1,897)** | [Note 11. Segment, Customer Concentration and Geographical Information](index=21&type=section&id=Note%2011.%20Segment,%20Customer%20Concentration%20and%20Geographical%20Information) This note provides insights into the company's operating segments, major customers, and revenue by region - The Company operates as a single primary business unit: Wireless, which includes Family Safety (SafePath®), CommSuite®, and ViewSpot® products[80](index=80&type=chunk) Wireless Revenues by Product Line (in thousands) | Product Line | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :------------- | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Family Safety | $3,626 | $4,221 | $(595) | $7,414 | $8,685 | $(1,271) | | CommSuite | $777 | $531 | $246 | $1,511 | $1,196 | $315 | | ViewSpot | $17 | $388 | $(371) | $116 | $1,057 | $(941) | | **Total Wireless Revenues** | **$4,420** | **$5,140** | **$(720)** | **$9,041** | **$10,938** | **$(1,897)** | - Customer concentration is high: for Q2 2025, three customers accounted for **61%**, **21%**, and **18%** of revenues. For H1 2025, three customers made up **61%**, **20%**, and **17%** of revenues[88](index=88&type=chunk) Revenues by Geographical Location (in thousands) | Region | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :------- | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Americas | $4,407 | $4,943 | $(536) | $9,022 | $10,420 | $(1,398) | | EMEA | $13 | $197 | $(184) | $19 | $518 | $(499) | | **Total Revenues** | **$4,420** | **$5,140** | **$(720)** | **$9,041** | **$10,938** | **$(1,897)** | [Note 12. Commitments and Contingencies](index=23&type=section&id=Note%2012.%20Commitments%20and%20Contingencies) This note outlines the company's potential legal liabilities, indemnities, and guarantees - The Company may be involved in various legal proceedings, but management does not believe their ultimate disposition will have a material adverse impact on consolidated results, cash flows, or financial position[91](index=91&type=chunk) - The Company has made indemnities, commitments, and guarantees related to products, facility leases, vendors, and directors/officers, for which no liability has been recorded in the consolidated balance sheets[92](index=92&type=chunk) [Note 13. Leases](index=23&type=section&id=Note%2013.%20Leases) This note describes the company's lease arrangements, related expenses, and future lease payment maturities - The Company leases office space and equipment, recording leases with terms greater than twelve months on the balance sheet, with lease expense recognized on a straight-line basis[93](index=93&type=chunk)[94](index=94&type=chunk) - Operating lease costs were **$0.4 million** for each of the three months ended June 30, 2025 and 2024, and **$0.8 million** for each of the six months ended June 30, 2025 and 2024[95](index=95&type=chunk) Maturity of Operating Lease Liabilities (in thousands, as of June 30, 2025) | Year Ending December 31, | Amortization Expense | | :----------------------- | :------------------- | | 2025 | $796 | | 2026 | $977 | | 2027 | $377 | | 2028 | $62 | | **Total Lease Payments** | **$2,212** | | Less Imputed Interest | $148 | | **Present Value of Lease Liabilities** | **$2,064** | [Note 14. Income Taxes](index=24&type=section&id=Note%2014.%20Income%20Taxes) This note discusses the company's income tax provisions, deferred tax assets, and valuation allowances - The Company has determined it is more likely than not that it will not realize its U.S.-based deferred tax assets, totaling **$70.2 million** as of June 30, 2025, due to cumulative losses and uncertain market conditions[98](index=98&type=chunk)[99](index=99&type=chunk) - The provision for income tax expense consists of state income taxes, foreign tax withholdings, and foreign income taxes, with no material period-to-period changes[127](index=127&type=chunk)[139](index=139&type=chunk) [Note 15. Subsequent Events](index=24&type=section&id=Note%2015.%20Subsequent%20Events) This note reports significant events that occurred after the balance sheet date but before the financial statements were issued - On July 18, 2025, the Company closed a registered direct offering of **1,612,903** shares of Common Stock and a concurrent private placement of unregistered warrants, generating approximately **$1.5 million** in gross proceeds[102](index=102&type=chunk) - The warrants issued have an exercise price of **$1.20** per share (subject to adjustments) and are immediately exercisable, though subject to limitations until stockholder approval for issuance of more than **19.9%** of outstanding shares[102](index=102&type=chunk)[103](index=103&type=chunk) - The Company paid Chardan Capital Markets LLC a cash fee of **6.5%** of the total gross proceeds for its financial advisory services[103](index=103&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations for the three and six months ended June 30, 2025, compared to the same periods in 2024. It covers revenue trends, cost management, profitability, liquidity, and capital resources, highlighting key drivers and challenges, including the impact of goodwill impairment and strategic product divestitures [Forward-Looking Statements and Risk Factors](index=26&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factors) This section discusses forward-looking statements and key risk factors that could materially affect the company's actual results - The report contains forward-looking statements based on current expectations, estimates, and projections, which are subject to risks and uncertainties that could cause actual results to differ materially[106](index=106&type=chunk) - Key risk factors include customer concentration, ability to maintain strategic relationships, dependency on third-party platforms, security breaches, ability to remain a going concern, profitability, rapid technological evolution, and intense competition[106](index=106&type=chunk)[113](index=113&type=chunk) - Management does not undertake any obligation to update these statements to reflect events or circumstances occurring after the filing date[108](index=108&type=chunk) [Overview](index=28&type=section&id=Overview) This section provides a high-level summary of the company's business, recent financial performance, and strategic positioning - Smith Micro provides software solutions like Digital Family Lifestyle™ and visual voice messaging to wireless service providers, focusing on innovation in digital lifestyle services, online safety, and consumer IoT[109](index=109&type=chunk)[110](index=110&type=chunk) - Q2 2025 revenues decreased by **14.0%** to **$4.4 million**, primarily due to declines in Family Safety (**$0.6 million**) and ViewSpot (**$0.4 million**) revenues, leading to a **$0.3 million** decrease in gross profit[111](index=111&type=chunk) - The Company recorded an **$11.1 million** non-cash goodwill impairment charge in Q2 2025 and sold its ViewSpot product for **$1.3 million**. Net loss for Q2 2025 was **$15.1 million**, or **$0.78** per share[111](index=111&type=chunk) - The Company believes it is strategically positioned to grow Family Safety revenues with Tier 1 carriers through existing platforms and new product expansions like SafePath Kids, SafePath OS, and the upcoming SafePath 8[112](index=112&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section analyzes the company's revenues, gross profit, operating expenses, and net loss for the reported periods - Revenues decreased by **$0.7 million** (**14.0%**) for Q2 2025 and **$1.9 million** (**17.3%**) for H1 2025, primarily due to declines in Family Safety (Sprint Safe & Found migration) and ViewSpot (contract conclusion and sale), partially offset by CommSuite growth[118](index=118&type=chunk)[128](index=128&type=chunk) - Gross profit decreased by **$0.3 million** for Q2 2025 and **$0.7 million** for H1 2025, driven by lower revenue volume, despite cost reduction efforts[120](index=120&type=chunk)[130](index=130&type=chunk) - Operating expenses increased significantly in Q2 2025 due to the **$11.1 million** goodwill impairment, offset by a **$1.3 million** gain on ViewSpot sale and reductions in selling & marketing and R&D expenses from cost reduction initiatives[111](index=111&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) - Net loss for Q2 2025 was **$15.1 million** (vs. **$6.9 million** in Q2 2024) and for H1 2025 was **$20.2 million** (vs. **$37.9 million** in H1 2024), with the H1 2024 loss being higher due to a larger goodwill impairment charge[12](index=12&type=chunk)[111](index=111&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its short-term and long-term financial obligations and fund operations - As of June 30, 2025, cash and cash equivalents were approximately **$1.4 million**. The Company's principal liquidity sources are existing cash and cash generated by operations[140](index=140&type=chunk) - The Company's cash and cash equivalents may be insufficient to fund operations over the next twelve months, raising substantial doubt about its ability to continue as a going concern[141](index=141&type=chunk)[142](index=142&type=chunk) - Subsequent to June 30, 2025, a registered direct offering and concurrent private placement provided gross proceeds of approximately **$1.5 million**, enhancing liquidity[140](index=140&type=chunk) [Cash Flows](index=33&type=section&id=Cash%20Flows) This section analyzes the company's cash generation and usage from operating, investing, and financing activities Net Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(2,870) | $(5,553) | | Net cash provided by investing activities | $956 | $187 | | Net cash provided by financing activities | $507 | $3,869 | | **Net decrease in cash and cash equivalents** | **$(1,407)** | **$(1,497)** | - Operating cash usage decreased in H1 2025 due to a lower net loss and changes in accounts receivable, partially offset by decreases in accounts payable and accrued liabilities[144](index=144&type=chunk)[145](index=145&type=chunk) - Investing activities provided cash in H1 2025 primarily from the sale of ViewSpot, contrasting with H1 2024 which saw proceeds from patent licensing[146](index=146&type=chunk) - Financing cash inflows significantly decreased in H1 2025 compared to H1 2024, as the prior year included substantial proceeds from common stock offerings[147](index=147&type=chunk)[148](index=148&type=chunk) [Recent Accounting Guidance & Critical Accounting Estimates](index=33&type=section&id=Recent%20Accounting%20Guidance%20%26%20Critical%20Accounting%20Estimates) This section provides updates on new accounting standards and any material changes to critical accounting estimates - Information regarding recent accounting guidance is provided in Note 2 to the Consolidated Financial Statements[149](index=149&type=chunk) - There have been no material changes to the Company's critical accounting estimates since the 2024 Form 10-K[150](index=150&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the Company's disclosure controls and procedures and management's responsibility for financial statements. It confirms the effectiveness of disclosure controls as of June 30, 2025, and states that no material changes occurred in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[151](index=151&type=chunk) - Management is responsible for the integrity and objectivity of the financial statements, which are prepared in conformity with U.S. GAAP and reflect management's best estimates and judgments[152](index=152&type=chunk) - There have been no material changes in internal control over financial reporting during the quarter ended June 30, 2025[154](index=154&type=chunk) [PART II. OTHER INFORMATION](index=35&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section contains additional disclosures not included in the financial statements, such as legal proceedings and risk factors [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) This section addresses potential legal proceedings the Company may face. Management believes that the ultimate resolution of these matters will not materially impact the Company's financial position, but acknowledges the inherent unpredictability of litigation - The Company may be involved in various legal proceedings arising from its business activities[156](index=156&type=chunk) - Management does not believe the ultimate disposition of these matters will have a material adverse impact on the Company's consolidated results of operations, cash flows, or financial position[156](index=156&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the risk factors discussed in the Company's 2024 Form 10-K and highlights the ongoing risk of delisting from Nasdaq due to failure to meet the minimum bid price requirement, and the potential consequences of such an event - The Company received a Nasdaq notice on June 23, 2025, indicating non-compliance with the **$1.00** minimum bid price requirement, providing a compliance period until December 22, 2025[159](index=159&type=chunk)[160](index=160&type=chunk) - Failure to regain compliance could lead to delisting from Nasdaq, reducing stock liquidity, adversely affecting its value, and potentially making it harder to raise capital[158](index=158&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) - A reverse stock split, if pursued, offers no assurance of sustained price increase and could trigger immediate delisting proceedings if non-compliance recurs within one year[161](index=161&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on the Company's repurchases of equity securities during the three months ended June 30, 2025, specifically detailing shares acquired for the payment of withholding taxes related to restricted stock awards Issuer Purchases of Equity Securities (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :----------------- | :------------------------------- | :--------------------------- | | April 1 - 30, 2025 | 44,929 | $0.81 | | May 1 - 31, 2025 | 114,098 | $0.94 | | June 1 - 30, 2025 | 40,898 | $0.95 | | **Total** | **199,925** | **$0.91** | - These repurchases were for the payment of withholding taxes in connection with the vesting of restricted stock awards, and all acquired shares were cancelled[165](index=165&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) This section confirms that no directors or officers adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2025 - No directors or officers adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2025[166](index=166&type=chunk) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including forms of warrants, securities purchase agreements, offer letters, amendments to equity incentive plans, and certifications required by the Sarbanes-Oxley Act - Exhibits include the form of Common Stock Purchase Warrant dated July 17, 2025, and the Securities Purchase Agreement for the registered shelf takedown offering[167](index=167&type=chunk) - Also included are an offer letter for Timothy C. Huffmyer and an amendment to the Amended and Restated Omnibus Equity Incentive Plan[167](index=167&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are provided[167](index=167&type=chunk) [SIGNATURES](index=38&type=section&id=SIGNATURES) This section contains the formal declarations by authorized officers confirming the accuracy and completeness of the report - The report is signed by William W. Smith, Jr., Chairman of the Board, President and Chief Executive Officer, and Timothy C. Huffmyer, Vice President, Chief Operating Officer, Chief Financial Officer and Treasurer, on August 7, 2025[171](index=171&type=chunk)