What changed in SMITH MICRO SOFTWARE, INC.'s 2023 10-K compared to 2022?

Across the narrative sections we track, SMITH MICRO SOFTWARE, INC. (SMSI) added 187 paragraphs, removed 191, and edited 128 between the 2022 and 2023 10-K filings. The biggest movers are Item 1A. Risk Factors (+76/−85), Item 7. Management's Discussion & Analysis (+69/−62), Item 1. Business (+34/−35).

Did SMITH MICRO SOFTWARE, INC. add new Risk Factors in the 2023 10-K?

Yes — Item 1A Risk Factors shows 76 new/edited paragraphs and 85 removed paragraphs versus the 2022 10-K.

What changed in SMITH MICRO SOFTWARE, INC.'s MD&A (Item 7) in 2023?

Item 7 Management's Discussion & Analysis shows 69 new/edited paragraphs and 62 removed paragraphs year-over-year. Read the side-by-side diff to see exactly which revenue, margin, and outlook commentary was rewritten.

Did SMITH MICRO SOFTWARE, INC.'s Legal Proceedings (Item 3) change in 2023?

Item 3 shows 1 added/edited paragraphs and 1 removed paragraphs — usually indicating new litigation disclosed or settled cases removed.

Where does this SMSI 10-K diff come from?

The source filings are SMITH MICRO SOFTWARE, INC.'s official 2022 and 2023 Form 10-K annual reports from SEC EDGAR. 10q10k.net parses each filing, aligns paragraphs by section (Item 1, 1A, 1C, 2, 3, 7, 7A), and highlights every added, removed and edited sentence side-by-side.

What changed in SMITH MICRO SOFTWARE, INC.'s 10-K — 2022 vs 2023

Paragraph-level year-over-year comparison of SMITH MICRO SOFTWARE, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+187 added−191 removedSource: 10-K (2024-02-26) vs 10-K (2023-03-23)

Top changes in SMITH MICRO SOFTWARE, INC.'s 2023 10-K

187 paragraphs added · 191 removed · 128 edited across 6 sections

Item 1A. Risk Factors+76 / −85 · 54 edited
Item 7. Management's Discussion & Analysis+69 / −62 · 43 edited
Item 1. Business+34 / −35 · 24 edited
Item 2. Properties+3 / −4 · 2 edited
Item 5. Market for Registrant's Common Equity+4 / −4 · 4 edited

Item 1. Business

Business — how the company describes what it does

24 edited+10 added−11 removed13 unchanged

2022 filing

2023 filing

Biggest changeThese engaging demo experiences deliver consistent, secure, and targeted content that can be centrally managed and updated via ViewSpot Studio. With the feature set provided by ViewSpot, wireless carriers and other smartphone retailers can easily customize and optimize the content loops displayed on demo devices so that it resonates with in-store shoppers.

Biggest changeWith the feature set provided by the ViewSpot platform, wireless carriers and other smartphone retailers can easily customize and optimize the content loops displayed on demo devices so that it resonates with in-store shoppers. Interactive demos created in ViewSpot can be experienced on Android smart devices.

CommSuite ® – The CommSuite premium messaging platform helps mobile service providers deliver a next-generation voicemail experience to mobile subscribers, while monetizing a legacy cost-center. CommSuite Visual Voicemail (“VVM”) quickly and easily allows users to manage voice messages just like email or SMS with reply, forwarding and social sharing options.

CommSuite ® – The CommSuite premium messaging platform helps mobile service providers deliver a next-generation voicemail experience to mobile subscribers, while monetizing a legacy cost-center. CommSuite Visual Voicemail (“VVM”) and Premium Visual Voicemail ("PVVM") quickly and easily allows users to manage voice messages just like email or SMS with reply, forwarding and social sharing options.

CommSuite also enables multi-language Voice-to-Text (“VTT”) transcription messaging, which facilitates convenient message consumption for users by reading versus listening. CommSuite is available to both postpaid premium subscribers as well as prepaid subscribers and is installed on millions of Android handsets in the United States.

CommSuite also enables multi-language Voice-to-Text (“VTT”) transcription messaging, which facilitates convenient message consumption for users by reading versus listening. The CommSuite platform is available to both postpaid premium subscribers as well as prepaid subscribers and is installed on millions of Android handsets in the United States.

To address these challenges, Smith Micro offers the following solutions: Products SafePath® – Comprised of SafePath Family, SafePath IoT, and SafePath Home, the SafePath product suite provides comprehensive and easy-to-use tools to protect family digital lifestyles and manage connected devices both inside and outside the home.

To address these challenges, Smith Micro offers the following solutions: Products SafePath® – Comprised of SafePath Family™, SafePath IoT™, SafePath Home™, and SafePath Premium™, the SafePath product suite provides comprehensive and easy-to-use tools to protect family digital lifestyles and manage connected devices both inside and outside the home.

Information contained on our website does not constitute a part of this Report. Our common stock is traded on the NASDAQ under the symbol “SMSI.” Business Segments We currently have one reportable operating segment: Wireless.

Information contained on our website does not constitute a part of this Report. Our common stock is traded on the Nasdaq Capital Market under the symbol “SMSI.” Business Segments We currently have one reportable operating segment: Wireless.

Our future performance is therefore substantially dependent upon the extent to which existing customers elect to purchase software from us rather than designing and developing their own software. Proprietary Rights and Licenses We protect our intellectual property through a combination of patents, copyrights, trademarks, trade secrets, intellectual property laws, confidentiality procedures and contractual provisions.

Our future performance is therefore substantially dependent upon the extent to which existing customers elect to purchase software from us rather than designing and developing their own software. 7 Table of Contents Proprietary Rights and Licenses We protect our intellectual property through a combination of patents, copyrights, trademarks, trade secrets, intellectual property laws, confidentiality procedures and contractual provisions.

Marketing and Sales Strategy Because of our broad product portfolio, deep integration and product development experience and flexible business models, we can quickly bring to market innovative solutions that support our customers’ needs, which creates new revenue opportunities and differentiates their products and services from their competitors. Our marketing and sales strategy is as follows: Leverage Operator Relationships.

Marketing and Sales Strategy Because of our broad product portfolio, deep integration and product development experience and flexible business models we can quickly bring to market innovative solutions that support our customers’ needs, which creates new revenue opportunities and differentiates their products and services from their competitors. 6 Table of Contents Our marketing and sales strategy is as follows: Leverage Operator Relationships.

Wearable devices such as smartwatches, fitness trackers, pet trackers and GPS locators, as well as smart home devices, are now commonplace, enabling people, pets, and things to be connected to the “Internet of Everything.” These devices have created an entire ecosystem of over-the-top (“OTT”) apps, while expanding how communication service providers can provide value to mobile consumers. 5 Table of Contents Although there are numerous business opportunities associated with pervasive connectivity, there are also numerous challenges, including: • The average age by which most children use smartphones and other connected devices continues to decrease.

Wearable devices such as smartwatches, fitness trackers, pet trackers and GPS locators, as well as smart home devices, are now commonplace, enabling people, pets, and things to be connected to the “Internet of Everything.” These devices have created an entire ecosystem of over-the-top (“OTT”) apps that provide products over the Internet to bypass traditional distribution methods, while expanding how communication service providers can provide value to mobile consumers. 5 Table of Contents Although there are numerous business opportunities associated with pervasive connectivity, there are also numerous challenges, including: • The average age by which most children use smartphones and other connected devices continues to decrease.

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.

In addition to growing our business with current customers, we look to expand our MNO and MSO customers worldwide, as well as to expand into new partnerships as we extend the reach of our product platforms within the connected lifestyle ecosystem.

Expand our Customer Base. In addition to growing our business with current customers, we look to add new MNO and MSO customers worldwide, as well as to expand into new partnerships as we extend the reach of our product platforms within the connected lifestyle ecosystem.

Human Capital Resources As of December 31, 2022, we had a total of 315 employees within the following departments: 218 in engineering and operations, 60 in sales and marketing, and 37 in management and administration. We are not subject to any collective bargaining agreement, and we believe that our relationships with our employees are good.

Human Capital Resources As of December 31, 2023, we had a total of 231 employees within the following departments: 153 in engineering and operations, 55 in sales and marketing, and 23 in management and administration. We are not subject to any collective bargaining agreement, and we believe that our relationships with our employees are good.

As a carrier-grade, white-label platform, SafePath empowers MNO and cable operators to bring to market full-featured, on-brand family safety solutions that provide in-demand services to mobile subscribers. These solutions include location tracking, parental controls, and driver safety functionality.

From protecting and securing the family digital lifestyle to providing powerful voice messaging capabilities, we enrich today’s connected lifestyles while creating new opportunities to engage consumers through their smartphones and consumer Internet of Things (“IoT”) devices.

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.

Key Revenue Contributors In our business, we sell primarily to large MNOs and MSOs, so there are a limited number of actual and potential customers for our current products, resulting in significant customer concentration.

Key Revenue Contributors In our business, we market and sell our products primarily to large MNOs and MSOs, so there are a limited number of actual and potential customers for our current products, resulting in significant customer concentration. With the launch of SafePath Global, we plan to expand our customer reach more easily to smaller MNOs and MSOs.

Interactive demos created in ViewSpot can be experienced on Android smart devices. We continue to develop and expand functionality of ViewSpot in order to enhance the utility and usability of ViewSpot as well as giving MNOs greater control and autonomy over their content with Studio improvements.

We continue to develop and expand functionality of our ViewSpot solution in order to enhance the utility and usability of ViewSpot as well as giving MNOs greater control and autonomy over their content with ViewSpot Studio improvements.

Item 1. BUSINESS General Smith Micro develops software to simplify and enhance the mobile experience, providing solutions to leading wireless and cable service providers around the world.

Item 1. BUSINESS General Smith Micro provides software solutions that simplify and enhance the mobile experience to some of the leading wireless service providers around the globe.

We continue to capitalize on our strong relationships with the world’s leading MNOs and MSOs. These customers serve as our primary distribution channel, providing access to hundreds of millions of end-users around the world. Focus on High-Growth Markets. We continue to focus on providing digital lifestyle solutions, analytics/Big Data solutions, premium messaging services, and visual retail content management solutions.

Customer Service and Technical Support We provide technical support and customer service through our online knowledge base, email, and live chat. MNO and MSO customers generally provide their own primary customer support functions and rely on us for support to their technical support personnel.

We do not anticipate any further revenue from this contract in 2024. Customer Service and Technical Support We provide technical support and customer service through our online knowledge base, email, and live chat. Our operator customers generally provide their own primary customer support functions and rely on us for support to their technical support personnel.

We believe that our strength and competitive advantage is our people. We value the skills, strengths, and perspectives of our diverse team and foster a participatory workplace that enables people to get involved in making decisions. The Company provides training and development opportunities to ensure that our employees are creative thinkers who are driven, focused, and interested in ever-changing technology.

Our customer agreements contain restrictions on reverse engineering, duplication, disclosure, and transfer of licensed software, and restrictions on access and use of SaaS.

Our customers license our products and/or access our offerings pursuant to written agreements. Our customer agreements contain restrictions on reverse engineering, duplication, disclosure, and transfer of licensed software, and restrictions on access and use of software as a service ("SaaS").

As noted above, on February 21, 2023, one of the Company's Tier 1 carrier customers notified Smith Micro that it is terminating its family safety contract with Smith Micro, effective as of June 30, 2023, and electing to continue to receive services under the contract for a transitional period of up to 180 days following the effective date of termination.

As noted above, one of the Company's U.S. Tier 1 carrier customers terminated its family safety contract with Smith Micro, effective June 30, 2023, and elected to continue to receive services under the contract for a transitional period through November 30, 2023. The revenues associated with that customer contract were approximately 36% of our total revenues for 2023.

We believe our portfolio includes the most robust white-label family safety platform on the market, and a wide range of products for creating, sharing, and monetizing rich content, such as visual voice messaging, and retail display management.

Our portfolio includes family safety software solutions to support families in the digital age and a wide range of products for creating, sharing, and monetizing rich content, such as visual voice messaging, retail content display optimization and performance analytics on any product set.

We seek to 7 Table of Contents avoid unauthorized use and disclosure of our proprietary intellectual property by requiring employees and third parties with access to our proprietary information to execute confidentiality agreements with us and by restricting access to our source code. Our MNO/MSO customers license our products and/or access our offerings through written agreements.

We will continue to apply for such protections in the future as we deem necessary to protect our intellectual property. We seek to avoid unauthorized use and disclosure of our proprietary intellectual property by requiring employees and third parties with access to our proprietary information to execute confidentiality agreements with us and by restricting access to our source code.

The key to our longevity, however, is not simply technological innovation, but our focus on listening to our customers, understanding their unique needs and the needs of their customers, and delivering value.

The key to our longevity, however, is not simply technological innovation, but our focus on understanding our customers’ needs and delivering value. Historically we have provided white label Family Safety applications to all three Tier 1 wireless carriers in the United States; however, our Family Safety contract with one of our U.S.

Removed

For over 40 years, Smith Micro has provided software solutions for global businesses, evolving with the telecom industry, the internet and the shift to the wireless environment. Today the Company develops wireless standards-based software that is extensible, interoperable, scalable, and proven to meet the most dynamic and demanding mobile environments.

Added

Tier 1 customers terminated effective June 30, 2023, with post-termination services ending in November 2023. The revenues associated with that customer contract constituted approximately 36% of our total revenues for 2023. In 2024, we expect no further revenues related to that contract.

Removed

In 2021, Smith Micro completed the largest acquisition in Company history by acquiring substantially all of the assets of the Family Safety Mobile Software business of Avast plc, and its subsidiaries, together with all of the outstanding membership interests of its then subsidiary, Location Labs LLC (the “Family Safety Mobile Business acquisition” or “Family Safety Mobile Business").

Added

To address the impact of the contract termination, starting in the first quarter of 2023, we undertook restructuring efforts that resulted in the elimination of approximately 26% of the Company's global workforce. These actions, coupled with other cost reduction measures taken, have resulted in a 26% reduction in operating expenses in 2023 as compared to 2022.

Removed

The acquisition, which closed in April 2021, further expanded our family safety user base, positioning Smith Micro as a leading family safety software-as-a-service (“SaaS”) provider globally while adding critical headcount in the U.S. and Europe.

Added

Despite that contract termination, we continue to believe that we remain strategically positioned to offer our market-leading family safety platform to most U.S. mobile subscribers.

Removed

Since the acquisition, the Company has been focused on integrating all of its Tier 1 US Wireless carriers onto its SafePath 7 platform from legacy platforms. In 2022, Smith Micro successfully launched SafePath 7 with one of our Tier 1 US Wireless carrier customers.

Added

Since our acquisitions of Circle Media Labs, Inc.'s ("Circle") operator business in 2020 and the Family Safety Mobile Business from Avast plc ("Avast") in April 2021, we have been focused on migrating those customers from the acquired software platforms to our flagship SafePath ® platform, with the first such migration being completed during the first quarter of 2022 at one of our U.S.

Removed

Operating expenses increased in 2022 as a result of the investment into these development activities; however as the migrations neared completion, the Company was able to reduce its investment in the migrations in the second half of 2022.

Added

Tier 1 carrier customers. Another U.S. Tier 1 carrier customer was successfully launched on the SafePath platform during the third quarter of 2023. We believe that with these transitions to the SafePath platform now complete, we have an opportunity to increase the respective subscriber bases, and in turn, grow the revenues associated with the U.S.Tier 1 carriers.

Removed

In January 2023, Smith Micro entered into a new contract to continue to provide digital family safety solutions with an existing Tier 1 carrier customer.

Added

Further, we executed a new, multi-year Family Safety agreement with a major Tier 1 carrier in Europe in the fourth quarter of 2023, which is anticipated to launch in 2024. The Company was incorporated in California in November 1983 and reincorporated in Delaware in June 1995.

Removed

On February 21, 2023, one of the Company's other Tier 1 carrier customers notified Smith Micro that it is terminating its family safety contract with the Company, effective as of June 30, 2023, and electing to continue to receive services under the contract for a transitional period of up to 180 days following the effective date of termination.

Added

These solutions include location tracking, parental controls, driver safety functionality, and enhanced AI/machine learning to optimize and customize families' online experience, provide cyberbulling protection, social media intelligence, and public safety notifications for parents or guardiancs. Delivered to end-users as value-added services, SafePath-based solutions activate new revenue streams for MNOs while helping to increase brand affinity and reduce subscriber churn.

Removed

The Company is undertaking an evaluation of its cost structure, and expects to take various actions so as to reduce certain operational costs in light of this event. The Company was incorporated in California in November 1983 and reincorporated in Delaware in June 1995.

Added

In 2024, we plan to deploy and launch SafePath Global™, a new deployment and launch model that will allow MNOs to rapidly deliver SafePath to their users with faster time-to-market, minimal reliance on MNO's resources, and easy customer onboarding, and SafePath OS™, a software-only solution designed to be pre-installed and configured on mobile devices to enable MNOs to offer a kids phone with the features and protections of our SafePath digital family software solution out of the box.

Removed

Delivered to end-users as value-added services, SafePath-based solutions activate new revenue streams for MNOs while helping to increase brand affinity and reduce subscriber churn. ViewSpot® – Our retail display management platform provides wireless carriers and retailers with a way to bring powerful on-screen, interactive demos to life.

Added

ViewSpot® – Our retail display management platform provides wireless carriers and retailers with a way to bring powerful on-screen, interactive demos to life. These engaging in-store demo experiences deliver consistent, secure, and targeted content that can be centrally managed and updated via ViewSpot Studio.

Removed

We continue to focus on providing digital lifestyle solutions, analytics/Big Data solutions, premium messaging services, and visual retail content management solutions. Expand our Customer Base.

Added

The Company provides various training and development opportunities to foster an environment in which employees are encouraged to be creative thinkers who are driven, focused, and interested and able to advance their knowledge and skills in ever-changing technology.

Removed

We will continue to apply for such protections in the future as we deem necessary to protect our intellectual property.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

54 edited+22 added−31 removed101 unchanged

2022 filing

2023 filing

Biggest changeConversion of the Convertible Notes and exercise of the Warrants or Additional Warrants will dilute the ownership interest of our existing stockholders or may otherwise depress the price of our common stock.

Biggest changeExercise of the Warrants issued in connection with our 2022 Convertible Notes or the Additional Warrants issued in connection with the concurrent Stock and Additional Warrants Offering will dilute the ownership interest of our existing stockholders or may otherwise depress the price of our common stock. 17 Table of Contents The exercise of some or all of the Warrants issued along with the 2022 Convertible Notes or the Additional Warrants issued in connection with the concurrent Stock and Additional Warrants Offering will dilute the ownership interests of existing stockholders.

Additional risks associated with the continuing impact of these efforts include employee attrition beyond our intended reduction in force and adverse effects on employee morale, diversion of management attention, adverse effects to our reputation as an employer (which could make it more difficult for us to hire new employees in the future), and potential failure or delays to meet operational and growth targets due to the loss of qualified employees.

Additional continuing risks associated with the impact of these efforts include employee attrition beyond our intended reduction in force and adverse effects on employee morale, diversion of management attention, adverse effects to our reputation as an employer (which could make it more difficult for us to hire new employees in the future), and potential failure or delays to meet operational and growth targets due to the loss of qualified employees.

If we fail to meet the requirements for continued listing on the NASDAQ Stock Market, our common stock could be delisted from trading on NASDAQ, which would likely reduce the liquidity of our common stock and could cause our trading price to decline. Our common stock is currently listed for quotation on the NASDAQ Stock Market.

If we continue to fail to meet the requirements for continued listing on the Nasdaq Stock Market, our common stock could be delisted from trading on Nasdaq, which would likely reduce the liquidity of our common stock and could cause our trading price to decline. Our common stock is currently listed for quotation on the Nasdaq Stock Market.

In the event that we are unable to complete the necessary contract processes, or that our wireless carrier customers withhold or delay the commitment of resources or the completion of necessary internal processes or approvals, we may not be able to launch our new or updated products or services within the timeframes that we expected or at all, and our revenue and financial performance may be adversely affected.

In the event that we are unable to complete the necessary contract processes, or that our wireless carrier customers withhold or delay the commitment of resources or the completion of necessary internal processes or approvals, we may not be able to launch our new or updated products or services within the timeframes that we expect or at all, and our revenue and financial performance may be adversely affected.

During 2022, we began to undertake efforts to align our operating expenses with our projected revenue subsequent to these migrations, and in February 2023, following receipt of notice of termination of one of our Tier 1 customer contracts, we announced we would accelerate our efforts designed to reduce operating costs and continue advancing our ongoing commitment to profitable growth.

During 2022, we began to undertake efforts to align our operating expenses with our projected revenue subsequent to these migrations, and in February 2023, following receipt of notice of termination of one of our U.S. Tier 1 customer contracts, we announced we would accelerate our efforts designed to reduce operating costs and continue advancing our ongoing commitment to profitable growth.

Further, foreign privacy and data protection laws and regulations can be more restrictive than those in the United States. In the European Union, the GDPR includes operational and governance requirements for companies that collect or process personal data of residents of the European Union and provides for significant penalties for non-compliance.

Foreign privacy and data protection laws and regulations can be more restrictive than those in the United States. For example, in the European Union, the GDPR includes operational and governance requirements for companies that collect or process personal data of residents of the European Union and provides for significant penalties for non-compliance.

If our target markets do not develop as we anticipate, if our products do not gain widespread acceptance in these markets, or if we are unable to develop new versions of our software products that can operate on future wireless networks and PC and mobile device operating systems and interoperate with relevant third-party technology, our business, financial condition and results of operations could be materially and adversely affected.

If our target markets do not develop as we anticipate, if our products do not gain widespread acceptance in these markets, or if we are unable to develop new versions of our software products that can operate on future wireless networks and PC and mobile device operating systems 13 Table of Contents and interoperate with relevant third-party technology, our business, financial condition and results of operations could be materially and adversely affected.

If we or the third parties on which we rely fail, or are perceived to have failed, to address or comply with applicable privacy, data protection, and information security obligations, we could face significant consequences, including but not limited to significant fines, penalties, or liabilities for noncompliance, government enforcement actions, litigation (including class-action claims), additional reporting requirements and/or oversight, bans on processing personal information, and orders to destroy or not use personal information.

If we or the third parties on which we rely fail, or are perceived to have failed, to address or comply with applicable privacy, data protection, and information security 15 Table of Contents obligations, we could face significant consequences, including but not limited to significant fines, penalties, or liabilities for noncompliance, government enforcement actions, litigation (including class-action claims), additional reporting requirements and/or oversight, bans on processing personal information, and orders to destroy or not use personal information.

If we are unable to fully integrate acquired businesses, products, or technologies within existing operations, we may not receive the intended benefits of such acquisitions. We rely directly and indirectly on third-party intellectual property and licenses, which may not be available on commercially reasonable terms or at all.

If we are unable to fully integrate acquired businesses, products, or technologies within existing operations, we may not receive the intended benefits of such acquisitions. 18 Table of Contents We rely directly and indirectly on third-party intellectual property and licenses, which may not be available on commercially reasonable terms or at all.

Because mobile software applications are key components of our products and services, the success of our business is dependent on our ability and/or our customers’ ability to distribute our mobile software applications through mobile 10 Table of Contents software application stores, which are subject to terms and policies that are controlled by and subject to change in the discretion of the third-party operators of the application stores.

Because mobile software applications are key components of our products and services, the success of our business is dependent on our ability and/or our customers’ ability to distribute our mobile software applications through mobile software application stores, which are subject to terms and policies that are controlled by and subject to change in the discretion of the third-party operators of the application stores.

In addition, if we do not achieve certain revenue targets subsequent to these efforts, we may need to undertake further cost reduction actions, which may include further restructurings. The results of cost reduction efforts undertaken by the Company could negatively impact the Company's future operational goals and may negatively impact the Company.

In addition, if we do not achieve certain revenue targets subsequent to these efforts, we may need to undertake further cost reduction actions, which may include further restructurings. 12 Table of Contents The results of cost reduction efforts undertaken by the Company could negatively impact the Company's future operational goals and may negatively impact the Company.

If any of these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative 13 Table of Contents of our practices, we may be subject to investigation, enforcement actions by regulators, contractual penalties or indemnification obligations, or other adverse consequences.

If any of these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators, contractual penalties or indemnification obligations, or other adverse consequences.

The data privacy, data protection, and information security laws and regulations to which we are and may become subject address and will address a range of issues, including data privacy, cybersecurity and restrictions or technological requirements regarding the collection, use, storage, protection, retention, or transfer of personal information.

The data privacy, data protection, and information security laws and regulations to which we are and may become subject address and will address a range of issues, including data privacy, cybersecurity, age-appropriate design, and restrictions or technological requirements regarding the collection, use, storage, protection, retention, or transfer of personal information.

In addition, our customers and end users may use our products and services in a manner which violates security or data privacy laws in one or more jurisdictions.

In addition, our customers and end users may use our products and services in a manner which violates cybersecurity or data privacy laws in one or more jurisdictions.

In addition, we may raise additional capital to accommodate planned growth, hiring, and infrastructure needs or to consummate acquisitions of other businesses, products, or technologies. 15 Table of Contents The Company has a history of net losses and may incur substantial net losses in the future.

In addition, we may raise additional capital to accommodate planned growth, hiring, and infrastructure needs or to consummate acquisitions of other businesses, products, or technologies. The Company has a history of net losses and may incur substantial net losses in the future.

A security or privacy breach may: • cause our customers to lose confidence in our solutions; • cause our mobile device manufacturer partners to cease doing business with us; • harm our reputation; • expose us to material liability; and 9 Table of Contents • increase our expense from potential remediation costs.

A security or privacy breach may: • cause our customers to lose confidence in our solutions; • cause our mobile device manufacturer partners to cease doing business with us; • harm our reputation; • expose us to material liability; and • increase our expense from potential remediation costs.

International operations are subject to many inherent risks, including: • general political, social and economic instability; • trade restrictions; • the imposition of governmental controls; • exposure to different legal standards, particularly with respect to intellectual property; • burdens of complying with a variety of foreign laws, including without limitation data privacy laws, such as the General Data Protection Regulation (“GDPR”) in Europe; • import and export license requirements and restrictions of the United States and any other country in which we operate; • unexpected changes in regulatory requirements; • foreign technical standards; 12 Table of Contents • changes in tariffs; • difficulties in staffing and managing international operations; • difficulties in securing and servicing international customers; • difficulties in collecting receivables from foreign entities; • fluctuations in currency exchange rates and any imposition of currency exchange controls; and • potentially adverse tax consequences.

International operations are subject to many inherent risks, including: • general political, social and economic instability; • trade restrictions; • the imposition of governmental controls; • exposure to different legal standards, particularly with respect to intellectual property; • burdens of complying with a variety of foreign laws, including without limitation data privacy laws, such as the General Data Protection Regulation (“GDPR”) in Europe; • import and export license requirements and restrictions of the United States and any other country in which we operate; • unexpected changes in regulatory requirements; • foreign technical standards; • changes in tariffs; • difficulties in staffing and managing international operations; • difficulties in securing and servicing international customers; • difficulties in collecting receivables from foreign entities; • fluctuations in currency exchange rates and any imposition of currency exchange controls; and • potentially adverse tax consequences. 14 Table of Contents These conditions may increase our cost of doing business.

Risks Related to our Business Operations We derive a significant portion of our revenues from sales to a concentrated number of clients, and a reduction in sales to any of them may adversely impact our revenues and operating results.

Risks Related to our Business Operations We derive a significant portion of our revenues from sales to a concentrated number of clients, and a reduction in sales to any of them have adversely impacted, and in the future may adversely impact, our revenues and operating results.

These conditions may increase our cost of doing business. Moreover, as our customers are adversely affected by these conditions, our business with them may be disrupted and our results of operations could be adversely affected.

Moreover, as our customers are adversely affected by these conditions, our business with them may be disrupted and our results of operations could be adversely affected.

The timing of these additional expenses can significantly vary quarter to quarter and even from year to year. Our results of operations may be adversely affected if we fail to realize the full value of our goodwill and intangible assets. As of December 31, 2022, we had total goodwill and net intangible assets of $71.4 million.

The timing of these additional expenses can significantly vary quarter to quarter and even from year to year. Our results of operations may be adversely affected if we fail to realize the full value of our goodwill and intangible assets. As of December 31, 2023, we had total goodwill and net intangible assets of $64.6 million.

If we are required to enter into royalty or licensing agreements, they may not be on terms that are acceptable to us. An injunction or unfavorable royalty or 14 Table of Contents licensing agreements could seriously impair our ability to market our products and have an adverse effect on our business and financial results.

If we are required to enter into royalty or licensing agreements, they may not be on terms that are acceptable to us. An injunction or unfavorable royalty or licensing agreements could seriously impair our ability to market our products and have an adverse effect on our business.

Our financial condition could be harmed to the extent we incur substantial debt or use significant amounts of our cash resources in acquisitions. The issuance of equity securities for any acquisition could be substantially dilutive to our existing stockholders.

We may also have to incur debt or issue equity securities to finance future acquisitions. Our financial condition could be harmed to the extent we incur substantial debt or use significant amounts of our cash resources in acquisitions. The issuance of equity securities for any acquisition could be substantially dilutive to our existing stockholders.

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.

Financial, Investment and Indebtedness Risks 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.

In addition, the existence of the Convertible Notes may encourage short selling by market participants because the conversion of the Convertible Notes or exercise of the Warrants or Additional Warrants could be used to satisfy short positions, or anticipated conversion of the Convertible Notes into, or exercise of Warrants or Additional Warrants for, shares of our common stock could depress the price of our common stock.

In addition, the existence of these Warrants or Additional Warrants may encourage short selling by market participants because the exercise of the Warrants or Additional Warrants could be used to satisfy short positions, or the exercise of Warrants or Additional Warrants for, shares of our common stock could depress the price of our common stock.

Should our going concern assumption not be appropriate, or should we become unable to continue in the normal course of operations, adjustments would be required to the amounts and classifications of assets and liabilities within our consolidated financial statements, and these adjustments could be significant.

Should we become unable to continue in the normal course of operations, adjustments would be required to the amounts and classifications of assets and liabilities within our consolidated financial statements, and these adjustments could be significant.

We sell our wireless products and solutions primarily to large wireless carriers, so there are a limited number of actual and potential customers for our products, resulting in significant customer concentration. For the year ended December 31, 2022, sales to our two largest customers comprised 40% and 38% of our revenues.

We sell our wireless products and solutions primarily to large wireless carriers, so there are a limited number of actual and potential customers for our products, resulting in significant customer concentration. For the year ended December 31, 2023, sales to our three largest customers comprised 41%, 35%, and 13% of our revenues.

If we are not able to realize the value of the goodwill and net intangible assets, this could adversely affect our results of operations and financial condition, and also result in an impairment of those assets. See Note 16 for additional information regarding potential impairment in 2023.

We may encounter challenges in the execution of these efforts, and these challenges could impact our financial results.

We are continuing those efforts in 2024, however we may encounter challenges in the execution of these efforts, and these challenges could impact our financial results.

Due to all of the foregoing factors, and the other risks discussed in this Report, you should not rely on quarter-to-quarter comparisons of our operating results as an indication of future performance. Item 1B. UNRESOLVED STAFF COMMENTS None.

In that event, our business, financial condition, and results of operations would be materially and adversely affected. Due to all of the foregoing factors, and the other risks discussed in this Report, you should not rely on quarter-to-quarter comparisons of our operating results as an indication of future performance. Item 1B. UNRESOLVED STAFF COMMENTS None.

Any material decrease in our sales to any of these customers, including the termination of contracts with any of these customers, would materially affect our revenue and profitability. The reduction in sales or termination of relationships with any of these customers would also increase the customer concentration and risk as to our remaining large customers.

The reduction in sales or termination of relationships with any of these customers would also increase the customer concentration and risk as to our remaining large customers.

As a result of the pending June 30, 2023 termination of our family safety contract with our second largest customer from 2022, the percentage of our revenues that will be attributable to our other two largest customers are likely to grow in future years if we are not successful in attracting new customers.

No other customer was greater than 10% of our revenues individually. As a result of the termination of our family safety contract with our largest customer in 2023, the percentage of our revenues that will be attributable to our other two largest customers is likely to grow in future years if we are not successful in attracting new customers.

For example, if our software does not function well with a popular mobile device because we have not maintained a relationship with its manufacturer, carriers seeking to provide that device to their respective customers may choose an alternative solution. Even if we succeed in establishing and maintaining these relationships, they may not result in additional customers or revenues.

To the extent that revenues generated by our ongoing operations are insufficient to fund future requirements, we may need to raise additional funds through debt or equity financings or curtail our growth. The Convertible Notes contain limitations on our ability to raise money through equity offerings and to incur additional indebtedness.

The Company's current and potential future actions to reduce operating costs as a result of the receipt of notice of termination of one of our Tier 1 customer contracts will cause the Company to incur additional charges in the near term, which may include charges related to employee transition, severance payments, employee benefits, and stock-based compensation.

The Company's actions to reduce operating costs as a result of the receipt of the notice of termination of one of our U.S. Tier 1 customer contracts caused the Company to incur additional one-time charges in 2023, which included charges related to employee transition, severance payments, employee benefits, and stock-based compensation.

We have historically made targeted acquisitions of businesses or product lines with technology important to our business strategy and expect to continue to do so in the future. Most recently, we acquired the Family Safety Mobile Business from Avast plc and certain of its affiliates.

We have historically made targeted acquisitions of businesses or product lines with technology important to our business strategy and expect to continue to do so in the future.

If we do not realize the expected benefits of our cost reduction efforts on a timely basis or at all, our business, results of operations and financial condition could be adversely affected.

If we do not realize the expected benefits of our cost reduction efforts on a timely basis or at all, our business, results of operations and financial condition could be adversely affected. Our operating income or loss may continue to change due to shifts in our sales mix and variability in our operating expenses.

During 2021 and 2022, we have been in a net loss position, partially driven by the Family Safety Mobile Business acquisition and the elevated level of expenses at which we are currently operating as we continue to serve some of our carrier customers from the family safety platform that we acquired, and we continue to incur the expenses associated with operating the acquired platform.

Tier 1 customers, our Family Safety Mobile Business acquisition and the elevated level of expenses at which we have been operating as we continue to serve some of our carrier customers from the family safety platform that we acquired, and as we continued to incur the expenses associated with operating the acquired platform.

Any sales in the public market of our common stock issuable upon such conversion of the Convertible Notes or exercise of the Warrants or Additional Warrants could adversely affect prevailing market prices of our common stock.

Any sales in the public market of shares of our common stock that we issued pursuant to the conversion of the Convertible Notes in 2023 or that we may issue in connection with the exercise of the Warrants or Additional Warrants could adversely affect prevailing market prices of our common stock.

Acquisitions may cause disruptions in our operations and divert management’s attention from our Company’s day-to-day operations, which could impair our relationships with our existing employees, customers, and strategic partners. Acquisitions may also subject us to liabilities and risks that are not known or identifiable at the time of the acquisition.

If there are delays in the distribution of our products or if customer negotiations for our new products cannot occur on a timely basis, we may not be able to generate sufficient revenues to meet the needs of the business in the foreseeable future or at all. 8 Table of Contents Our growth depends in part on our customers’ ability and willingness to timely launch and deliver our products and services, to promote our products and services and to attract and retain new end user customers or achieve other goals outside of our control.

Significant sales may also occur earlier than expected, which could cause operating results for later quarters to compare unfavorably with operating results from earlier quarters. 19 Table of Contents Future orders may come from new customers or from existing customers for new products.

Significant sales may also occur earlier than expected, which could cause operating results for later quarters to compare unfavorably with operating results from earlier quarters. Future orders may come from new customers or from existing customers for new products. The sales cycles may be greater than what we have experienced in the past, increasing the difficulty to predict quarterly revenues.

Even if we are successful in hiring and training sales teams, customers in other vertical markets may not need or sufficiently value our current products or new product introductions.

Even if we are successful in hiring and training sales teams, customers in other vertical markets may not need or sufficiently value our current products or new product introductions. Technology and customer needs change rapidly in our market, which could render our products obsolete and negatively affect our business, financial condition, and results of operations.

Our inability in the future to obtain additional equity or debt capital on acceptable terms, or at all, could adversely impact our ability to execute our business strategy, which could adversely affect our growth prospects and future stockholder returns. 17 Table of Contents Our obligations to the holders of our Convertible Notes are secured by a security interest in substantially all of our assets, and if we default on those obligations, the note holders could foreclose on our assets.

We rely on 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.

Even if we succeed in establishing and maintaining these relationships, they may not result in additional customers or revenues. 10 Table of Contents We rely on 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.

Such breaches and attacks may cause interruptions to the services we provide, degrade the user experience, cause our customers and their users to lose confidence and trust in our products and services, impair our internal systems or the third-party systems that we use, and result in financial harm to us. 9 Table of Contents If we are unable to protect, or our customers and mobile device manufacturer partners perceive that we are unable to protect, the security and privacy of information, data and materials in our care, our growth could be materially adversely affected, and we could be subject to material liability.

Once we have migrated each of our continuing carrier customers to a consolidated family safety platform, we will focus our efforts on growing subscribers to the family safety product deployed at each of these carrier customers, which we expect will increase our revenues.

Once each of our continuing carrier customers has migrated to our SafePath family safety platform, we will focus our efforts on growing the customer's subscribers on the SafePath platform, which we expect will increase our revenues, however we cannot guarantee that our efforts will be successful or will result in an increase in our revenues in the manner that we expect or at all.

This indirect relationship delays feedback and blurs signals of change in the quick-to-evolve wireless ecosystem and is one of the reasons we have difficulty predicting demand. A large portion of our operating expenses, including rent, depreciation, and amortization, is fixed and difficult to reduce or change.

Because we sell primarily to large wireless carriers, we have no direct relationship with most end users of our products. This indirect relationship delays feedback and blurs signals of change in the quick-to-evolve wireless ecosystem and is one of the reasons we have difficulty predicting demand.

Our consolidated financial statements do not 16 Table of Contents reflect the adjustments or reclassifications of assets and liabilities that would be necessary if we were to become unable to continue as a going concern. Our operating income or loss may continue to change due to shifts in our sales mix and variability in our operating expenses.

Our consolidated financial statements do not reflect the adjustments or reclassifications of assets and liabilities that would be necessary if we were to become unable to continue as a going concern. We may raise additional capital through the issuance of equity or convertible debt securities or by entering into borrowing arrangements in order to meet our capital needs.

Accordingly, if our total revenue does not meet our expectations, we may not be able to adjust our expenses quickly enough to compensate for the shortfall in revenue. In that event, our business, financial condition, and results of operations would be materially and adversely affected.

A large portion of our operating expenses, including rent, depreciation, and amortization, is fixed and difficult to reduce or change. Accordingly, if our total revenue does not meet our expectations, we may not be able to adjust our expenses 19 Table of Contents quickly enough to compensate for the shortfall in revenue.

We could raise these funds by selling more stock to the public or to selected investors, or by entering into borrowing arrangements; provided that the terms of our existing Notes, Warrants and Additional Warrants permit our ability to access this additional capital (See "Risks Related to Our Convertible Notes").

We could raise these funds by selling more stock to the public or to selected investors, or by entering into borrowing arrangements. We may not be able to obtain additional funds on favorable terms, or at all.

We are required to meet specified financial requirements in order to maintain our listing on NASDAQ. If we fail to satisfy NASDAQ’s continued listing requirements, our common stock could be delisted from NASDAQ and our common stock would instead trade on the OTC Market.

We are required to meet specified financial requirements in order to maintain our listing on Nasdaq. We could lose our listing on Nasdaq if the closing bid 16 Table of Contents price of our common stock does not increase or if in the future we fail to meet any of the other Nasdaq listing requirements.

Our indebtedness under the Convertible Notes, and certain restrictions included within the terms of the Convertible Notes, may restrict, and otherwise impair our ability to obtain additional financing in the future for general corporate purposes, including working capital, capital expenditures, potential acquisitions and strategic transactions.

Our 2022 Convertible Notes retired at maturity effective December 31, 2023, however, the securities purchase agreement associated with the 2022 Notes and Warrants Offering includes certain restrictions which survive the retirement of the notes for a period of time, and may during such time restrict, and otherwise impair our ability to obtain additional financing from certain types of equity transactions, which would not be available to us as a means of raising capital for general corporate purposes, including working capital, capital expenditures, potential acquisitions and strategic transactions.

We believe that our cash and the cash we expect to generate from operations will be sufficient to meet our capital needs for the next twelve months. However, it is possible that we may need or choose to obtain additional financing or to modify existing financing arrangements to fund our future activities.

Additional funds to allow us to meet our capital needs may not be available on terms acceptable to us or at all. 11 Table of Contents It is likely that we may need or choose to obtain additional financing to fund our future activities.

Our ability to obtain a short-term loan or raise additional capital would be subject to our obligations and restrictions under our Notes, Warrants, and Additional Warrants. Our ability to continue as a going concern is substantially dependent upon multiple factors, which primarily include those factors set forth above.

While the business plans we have established may enable us to meet our financial obligations as they become due over the next twelve months and maintain our current level of operating activities, our ability to continue as a going concern is substantially dependent upon multiple factors, which primarily include those factors set forth above.

Removed

No other customer was greater than 10% of our revenues individually.

Added

In addition, because our contracts generally provide our customers with the right and license, but not the obligation, to deploy our solutions to their end users, the existence of a contract does not guarantee that our solutions will be deployed as widely as we expect or at all. 8 Table of Contents Any material decrease in our sales to any of these customers, including the termination of contracts with any of these customers or a customer's curtailment or cessation of offering our solutions to their end users, would materially affect our revenue and profitability.

Removed

If we are unable to protect, or our customers and mobile device manufacturer partners perceive that we are unable to protect, the security and privacy of information, data and materials in our care, our growth could be materially adversely affected, and we could be subject to material liability.

Added

Our growth depends in part on our customers’ ability and willingness to timely launch and deliver our products and services, to promote our products and services and to attract and retain new end user customers or achieve other goals outside of our control.

Removed

Our results of operations and financial condition may be adversely affected by public health epidemics, including the ongoing COVID-19 global health pandemic, and economic and business trends that emerge following such events. Since early 2020, the COVID-19 pandemic has significantly impacted economic activity and markets around the world.

Added

As indicated in the report provided from our independent registered public accounting firm, the Company's present financial situation raises substantial doubt about the Company's ability to continue as a going concern without additional capital becoming available to the Company.

Removed

Government regulations and shifting social behaviors have, at times, limited business activities and person-to-person interactions and consumer and business trends that originated during the pandemic continue to persist and may also have long-lasting adverse impact on us and our industry independently of the progress of the pandemic.

Added

While the accompanying financial statements have been prepared assuming that the Company will continue as a going concern, continued operations are dependent upon our ability to execute according to plans, which may include reducing expenditures, obtaining further operational efficiencies, completing equity or debt financings, or securing commercial lines of credit, and ultimately generating profitable operational results.

Removed

During the pandemic, many of our customers and suppliers have temporarily modified their business operations as a result of the coronavirus pandemic and related government restrictions. Additionally, rising interest rates may lead consumers to increasingly decrease or delay spending, including on the products that we supply to our customers, which may harm our business and operating results.

Added

Such financing or lines of credit may not be available on reasonable terms or at all.

Removed

Our customers have experienced and may continue to experience decreased demand for the value-added products and services that we provide to them and may seek to terminate, suspend, or delay existing or new initiatives involving our products and services.

Added

In order to preserve liquidity, we may also take one or more of the following additional actions: • Implement additional restructuring and cost reductions, • Secure a revolving line of credit, • Dispose of one or more product lines and/or, • Sell or license intellectual property.

Removed

A decrease in demand for our products and services or the termination, suspension, or delay of existing or new initiatives by our customers could materially adversely affect our business, financial condition, and results of operations.

Added

During 2022 and 2023, we have been in a net loss position, partially driven by the loss of one of our U.S.

Removed

To the extent the pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks set forth herein. We cannot predict the duration or direction of the pandemic or consumer or business trends or their sustained impact noted above.

Added

We will continue to operate with an elevated level of expenses until we are able to fully discontinue the acquired legacy platform, which is expected to be in the first half of 2024.

Removed

Ultimately, we will continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and attempt to accurately project demand and deploy our workforce and other resources accordingly.

Added

Similar events and/or operating cost reduction efforts in the future could cause the Company to take similar remedial actions, which could cause the Company to incur additional charges in the short-term period following such events or actions.

Removed

If we experience unfavorable market conditions, or if we do not maintain operations at a scope that is commensurate with such conditions, our business and financial results may be harmed. 11 Table of Contents Technology and customer needs change rapidly in our market, which could render our products obsolete and negatively affect our business, financial condition, and results of operations.

Added

We may also be or become subject to laws requiring age-appropriate design of online products accessed by children, which may require us to expend resources to make conforming updates to our products.

Removed

Any potential delisting of our common stock from NASDAQ would likely result in decreased liquidity and increased volatility of our common stock and would likely cause our trading price to decline.

Added

The loss of our Nasdaq listing would in all likelihood make our common stock significantly less liquid and adversely affect its value.

Removed

Financial, Investment and Indebtedness Risks We may raise additional capital through the issuance of equity or convertible debt securities or by entering into new or modifying existing borrowing arrangements in order to meet our capital needs. Additional funds to allow us to meet our capital needs may not be available on terms acceptable to us or at all.

Added

As initially disclosed on our Current Report on Form 8-K filed with the SEC on January 2, 2024, we received a letter from the Listing Qualifications Department, or the Staff, of The Nasdaq Stock Market LLC, or Nasdaq, on December 27, 2023, indicating that as result of the closing bid price of the Company’s common stock for the last 30 consecutive business days having been below the $1.00 minimum bid price requirement for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”) the Company was not in compliance with the Minimum Bid Price Requirement (the “Minimum Bid Price Notice”).

Removed

We may not be able to obtain additional funds on favorable terms, or at all, including if the holders of our Notes, Warrants, or Additional Warrants do not approve such a transaction or if they are unwilling to modify our existing financing arrangements with them.

Added

The Minimum Bid Price Notice has no immediate effect on the continued listing status of the Company’s common stock on The Nasdaq Capital Market, and, therefore, the Company’s listing remains fully effective.

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Item 2. Properties

Properties — owned and leased real estate

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2023 filing

Biggest changeItem 2. PROPERTIES Our corporate headquarters is located in Pittsburgh, Pennsylvania, where we currently lease approximately 35,621 square feet of space under a lease that expires on April 30, 2026. In January 2024, we executed a renewal on a lease where we occupy approximately 8,513 square feet of space in Aliso Viejo, California that now expires on February 29, 2028.

Internationally, we lease approximately 12,728 square feet in Belgrade, Serbia under a lease that expires July 31, 2026, we lease approximately 1,500 square feet in Stockholm, Sweden under a lease that expires September 30, 2023, and we lease approximately 3,200 square feet in Braga, Portugal under a lease that expires July 31, 2024.

Internationally, we lease approximately 12,728 square feet in Belgrade, Serbia under a lease that expires July 31, 2026, approximately 1,500 square feet in Stockholm, Sweden under a lease that expires September 30, 2026, and approximately 3,200 square feet in Braga, Portugal under a lease that expires July 31, 2024.

Removed

Prior to January 1, 2022, our leased space in Pittsburgh included an additional 19,965 square feet, which we subleased to a third party under an agreement that commenced on February 1, 2015 and expired on December 31, 2021.

Added

Each of the above properties is used by our sole reportable operating segment: Wireless.

Removed

We lease and occupy approximately 8,513 square feet of space in Aliso Viejo, California under a lease that expires on October 31, 2024.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 4. MINE SAFETY DISCLOSURES Not Applicable. 20 Table of Contents PART II

Biggest changeItem 4. MINE SAFETY DISCLOSURES Not Applicable. 21 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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2023 filing

Biggest changePurchases of Equity Securities by the Company The table set forth below shows all purchases of securities by us during the fourth quarter of fiscal year 2022: ISSUER PURCHASES OF EQUITY SECURITIES Period Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs October 1 - 31, 2022 19,839 $ 2.25 — — November 1 - 30, 2022 19,835 2.26 — — December 1 - 31, 2022 19,834 2.12 — — Total 59,508 $ 2.21 (a) Includes the acquisition of stock by the Company as payment of withholding taxes in connection with the vesting of restricted stock awards in an aggregate amount of 59,508 shares during the periods set forth in the table.

Biggest changePurchases of Equity Securities by the Company The table set forth below shows all purchases of securities by us during the fourth quarter of fiscal year 2023: ISSUER PURCHASES OF EQUITY SECURITIES Period Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs October 1 - 31, 2023 20,371 $ 1.15 0.00 0.00 November 1 - 30, 2023 20,358 0.82 0.00 0.00 December 1 - 31, 2023 88,228 0.76 0.00 0.00 Total 128,957 $ 0.91 (a) Includes the acquisition of stock by the Company as payment of withholding taxes in connection with the vesting of restricted stock awards in an aggregate amount of 128,957 shares during the periods set forth in the table.

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the NASDAQ Stock Market under the symbol “SMSI.” For information regarding Securities Authorized for Issuance under Equity Compensation Plans, please refer to Item 12 in Part III of this Annual Report on Form 10-K.

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the Nasdaq Capital Market under the symbol “SMSI.” For information regarding Securities Authorized for Issuance under Equity Compensation Plans, please refer to Item 12 in Part III of this Annual Report on Form 10-K.

All of the shares were canceled when they were acquired. Item 6. Reserved. 21 Table of Contents

All of the shares were canceled when they were acquired. Item 6. Reserved. 22 Table of Contents

Holders As of March 15, 2023, there were approximately 89 holders of record of our common stock based on information provided by our transfer agent. Dividends We have never declared or paid any cash dividends on our common stock. We do not expect to pay any cash dividends on our common stock for the foreseeable future.

Holders As of February 15, 2024, there were approximately 81 holders of record of our common stock based on information provided by our transfer agent. Dividends We have never declared or paid any cash dividends on our common stock. We do not expect to pay any cash dividends on our common stock in the foreseeable future.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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2023 filing

Biggest changeIn addition, we anticipate that certain costs of sales related to the acquired platforms will be eliminated once the SafePath migrations are complete, which is expected to result in an increase in our gross margins. 22 Table of Contents Results of Operations The following table sets forth certain consolidated statement operations data as a percentage of total revenues for the periods indicated: For the Year Ended December 31, 2022 2021 Revenues 100.0 % 100.0 % Cost of revenues 29.3 21.7 Gross profit 70.7 78.3 Operating Expenses Selling and marketing 26.6 19.8 Research and development 61.6 44.8 General and administrative 33.3 30.7 Change in fair value of contingent consideration — 22.0 Amortization of intangible assets 13.0 13.9 Total operating expenses 134.5 131.2 Operating loss (63.7) (53.0) Change in fair value of warrant and derivative liabilities 9.6 — Interest (expense) income, net (5.5) 0.1 Other (expense) income, net (0.2) 0.1 Loss before provision for income taxes (59.9) (52.8) Provision for income tax expense 0.5 0.4 Net loss (60.4) % (53.1) % Revenues and Expense Components The following is a description of the primary components of our revenues and expenses: Revenues.

Biggest changeRefer to section titled "Liquidity and Capital Resources" for discussion of significant material changes in cash, and Note 4 of our Notes to the Consolidated Financial Statements for discussion regarding the changes related to the notes payable, derivative liabilities, and warrant liabilities. 23 Table of Contents Results of Operations The following table sets forth certain consolidated statement operations data as a percentage of total revenues for the periods indicated: For the Year Ended December 31, 2023 2022 Revenues 100.0 % 100.0 % Cost of revenues 25.8 29.3 Gross profit 74.2 70.7 Operating expenses: Selling and marketing 27.1 26.6 Research and development 42.0 60.6 General and administrative 31.3 32.0 Depreciation and amortization 18.0 15.4 Total operating expenses 118.3 134.5 Operating loss (44.2) (63.7) Change in fair value of warrant and derivative liabilities 10.3 Loss on derecognition of debt (9.8) — Interest expense, net (15.5) (5.5) Other expense, net (0.1) (0.2) Loss before provision for income taxes (59.3) (69.6) Provision for income tax expense 0.4 0.5 Net loss (59.7) % (70.1) % Revenues and Expense Components The following is a description of the primary components of our revenues and expenses: Revenues.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. We measure our cash equivalents and short-term investments at fair value. Our cash equivalents and short-term investments are classified within Level 1 by using quoted market prices utilizing market observable inputs.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. We measure our cash equivalents at fair value. Our cash equivalents and short-term investments are classified within Level 1 by using quoted market prices utilizing market observable inputs.

This Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See “Special Note Regarding Forward-Looking Statements” and Part I, Item 1A, “Risk Factors.” Readers are also urged to carefully review and consider these, and other disclosures made by us which attempt to advise interested parties of the factors which affect our business.

Research and development expenses consist primarily of personnel costs, equipment costs, and external contract development costs required to conduct our software development efforts. General and administrative. General and administrative expenses consist primarily of personnel costs, professional services and fees paid for external service providers, space and occupancy costs, and legal and other public company costs.

The advance receipts were deferred and subsequently recognized ratably over the contract period. We also provide consulting services to configure ad hoc targeted promotional content for our customers upon request. These requests are driven by our customers’ marketing initiatives and tend to be short term “bursts” of activity.

The advance receipts were deferred and subsequently recognized ratably over the contract period. We also provide consulting services to configure new devices or ad hoc targeted promotional content for our customers upon request. These requests are driven by our customers’ marketing initiatives and tend to be short term “bursts” of activity.

We believe the following critical accounting policies affect our more significant estimates and assumptions used in the preparation of our consolidated financial statements: Business Combinations We apply the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic No. 805, Business Combinations , in the accounting for our acquisitions, which requires recognition of the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill.

We believe the following critical accounting policies affect our more significant estimates and assumptions used in the preparation of our consolidated financial statements: Business Combinations and Exit or Restructuring Costs We apply the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic No. 805, Business Combinations , in the accounting for our acquisitions, which requires recognition of the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill.

ASC 350, Intangibles- Goodwill and Other, We are required to periodically assess the recoverability of the carrying value of our goodwill at least annually during the fourth quarter of the fiscal year or whenever events or circumstances indicate a potential impairment.

ASC 350, Intangibles- Goodwill and Other, w e are required to periodically assess the recoverability of the carrying value of our goodwill at least annually during the fourth quarter of the fiscal year or whenever events or circumstances indicate a potential impairment.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our consolidated financial statements appear in a separate section of this Annual Report on Form 10-K beginning on page F-1. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.

For derivatives we may utilize fair value measurements which are categorized within Level 3 of the fair value hierarchy, and subsequent changes in fair value for designated items are required to be reported in earnings in the current period. e.

For warrant liabilities and derivatives, we may utilize fair value measurements which are categorized within Level 3 of the fair value hierarchy, and subsequent changes in fair value for designated items are required to be reported in earnings in the current period.

If the carrying amount of our single reporting unit exceeds its fair value, an impairment loss equal to the excess of carrying value over fair value is recorded. We have no indefinite-lived intangible assets.

If the carrying amount of our single reporting unit exceeds its fair value, an impairment loss equal to the excess of carrying value over fair value is recorded. 28 Table of Contents We have no indefinite-lived intangible assets.

Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the tangible and identifiable intangible assets acquired and liabilities assumed.

Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the 27 Table of Contents tangible and identifiable intangible assets acquired and liabilities assumed.

Financing activities Net cash provided by financing activities was $17.1 million for the year ended December 31, 2022, primarily attributable to proceeds from the Notes and Warrant Offering of $15.0 million and the Stock Offering of $3.0 million. Partially offsetting the proceeds from the Convertible Notes and Warrants were $1.2 million in transaction fees.

Net cash provided by financing activities was $17.1 million for the year ended December 31, 2022, primarily attributable to proceeds from the Notes and Warrants Offering of $15.0 million and the Stock and Additional Warrants Offering of $3.0 26 Table of Contents million. Partially offsetting the proceeds from the Notes and Warrants Offering were $1.2 million in transaction fees.

Internationally, we lease approximately 12,728 square feet in Belgrade, Serbia under a lease that expires July 31, 2026, we lease approximately 1,500 square feet in Stockholm, Sweden 25 Table of Contents under a lease that expires September 30, 2023, and we lease approximately 3,200 square feet in Braga, Portugal under a lease that expires July 31, 2024.

As such, fair value is a market- 26 Table of Contents based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability.

As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability.

Since our acquisitions of Circle Media Labs, Inc.'s ("Circle") operator business in 2020 and the Family Safety Mobile Business from Avast in April 2021, we have been focused on migrating those customers from the acquired software platforms to our flagship SafePath platform, with the first such migration being completed during the first quarter of 2022 at one of our U.S.

Since our acquisitions of Circle's operator business in 2020 and the Family Safety Mobile Business from Avast in April 2021, we have been focused on migrating those customers from the acquired software platforms to our flagship SafePath platform, with the first such migration being completed during the first quarter of 2022 at one of our U.S. Tier 1 carrier customers.

We recognize these revenues upon delivery of the configured promotional content to the cloud platform.

We recognize these revenues upon delivery of the configured promotional content to the cloud platform or upon certification of the new device.

Our portfolio includes a wide range of products for creating, sharing, and monetizing rich content, such as visual voice messaging, retail content display optimization and performance analytics on any product set.

Operating activities Net cash used in operating activities was $19.3 million for the year ended December 31, 2022. The primary uses of operating cash were a net loss of $29.3 million less non-cash expenses totaling $12.4 million, and a decrease in accounts payable and accrued liabilities of $2.6 million.

Net cash used in operating activities was $19.3 million for the year ended December 31, 2022. The primary uses of operating cash were a net loss of $29.3 million partially offset by net non-cash expenses totaling $10.9 million coupled with a decrease in accounts payable and accrued liabilities of $1.1 million.

Selling and marketing . Selling and marketing expenses were $12.9 million and $11.6 million for the years ended December 31, 2022 and 2021, respectively. This increase of $1.3 million was primarily due to charges for severance costs of $0.8 million, including stock based compensation in 2022 combined with increases in personnel related costs. Research and development .

Selling and marketing expenses were $11.1 million and $12.9 million for the years ended December 31, 2023 and 2022, respectively. This decrease of $1.8 million was primarily due to decreases in personnel related costs of $1.2 million coupled with a reduction of $0.8 million of severance and reorganization related costs, including stock based compensation. Research and development .

Real Property Leases Our corporate headquarters is located in Pittsburgh, Pennsylvania, where we currently lease approximately 35,621 square feet of space under a lease that expires on April 30, 2026. In January 2024, we executed a renewal on a lease where we occupy approximately 8,513 square feet of space in Aliso Viejo, California that now expires on February 29, 2028.

Recent Accounting Pronouncements See Note 1 of our Notes to Consolidated Financial Statements for information regarding recent accounting pronouncements. Off-Balance Sheet Arrangements As of December 31, 2022 , we did not have any off-balance sheet arrangements.

Each of the above properties is used by our sole reportable operating segment: Wireless. Recent Accounting Pronouncements See Note 1 of our Notes to Consolidated Financial Statements for information regarding recent accounting pronouncements. Off-Balance Sheet Arrangements As of December 31, 2023 , we did not have any off-balance sheet arrangements.

We recognize our usage-based revenue when we have completed our performance obligation and have the right to invoice the customer. This revenue is generally recognized monthly or quarterly.

We recognize our usage-based revenue when we have completed our performance obligation and have the right to invoice the customer. This revenue is generally recognized monthly or quarterly. Finally, we ratably recognize revenue over the contract period when customers pay in advance of our service delivery.

Amortization of intangible assets was $6.3 million and $8.1 million for the years ended December 31, 2022 and 2021, respectively.

Depreciation and amortization . Depreciation expense was $0.6 million and $1.2 million for the years ended December 31, 2023 and 2022, respectively. Amortization expense was $6.8 million and $6.3 million for the years ended December 31, 2023 and 2022, respectively.

Finally, we ratably recognize revenue over the contract period when customers pay in advance of our service delivery. 27 Table of Contents We also provide consulting services to develop customer-specified functionality that are generally not on our software development roadmap. We recognize revenue from our consulting services upon delivery and acceptance by the customer of our software enhancements and upgrades.

We also provide consulting services in connection with our development of customer-specified functionality that are generally not on our software development roadmap. We recognize revenue from our consulting services upon delivery and acceptance by the customer of our software enhancements and upgrades.

Amortization of intangible assets consists of the amortization expense based on the pattern of economic benefit generated from the use of the related assets. Change in fair value of warrant and derivative liabilities.

Depreciation is the expensing of a fixed asset as it is used to reflect its anticipated deterioration. Amortization of intangible assets consists of the amortization expense based on the pattern of economic benefit generated from the use of the related assets. Change in fair value of warrant and derivative liabilities.

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

Gross profit was $34.3 million, or 70.7% of revenues, for the years ended December 31, 2022 , compared to $45.7 million, or 78.3% of revenues, for the year ended December 31, 2021 . The decrease of $11.4 million in gross profit was a result of the year-over-year decline in revenue volume combined with the product mix underlying the revenues.

Gross profit was $30.3 million, or 74.2% of revenues, for the year ended December 31, 2023 , compared to $34.3 million, or 70.7% of revenues, for the year ended December 31, 2022 . The decrease of $4.0 million in gross profit was a result of the year-over-year decline in revenue volume. Selling and marketing .

Net cash used in operating activities was $12.9 million for the year ended December 31, 2021. The net loss of $31.0 million for the quarter was offset by net non-cash expenses totaling $28.2 million. The primary source of operating cash was a decrease in accounts receivable of $7.9 million.

Operating activities Net cash used in operating activities was $7.0 million for the year ended December 31, 2023. The primary uses of operating cash were a net loss of $24.4 million less non-cash expenses totaling $17.8 million, and a decrease in accounts payable and accrued liabilities of $2.8 million, partially offset by a decrease in accounts receivable of $2.6 million.

General and administrative . G eneral and administrative expenses were $16.2 million and $17.9 million for the years ended December 31, 2022 and 2021 , respectively.

G eneral and administrative expenses were $12.8 million and $15.5 million for the years ended December 31, 2023 and 2022 , respectively.

After consideration of the Company’s cumulative loss position as of December 31, 2022, the Company retained a valuation allowance related to its U.S.-based deferred tax assets of $62.7 million at December 31, 2022.

Because of our cumulative loss position, the current provision for income tax expense consists of state income taxes, foreign tax withholdings, and foreign income taxes. After consideration of the Company’s cumulative loss position as of December 31, 2023, the Company retained a full valuation allowance related to its U.S.-based deferred tax assets of $58.5 million at December 31, 2023.

In 2022, we provided white label Family Safety applications to all three Tier 1 wireless carriers in the United States, however one of our Tier 1 customers notified us in February 2023 that it is terminating its Family Safety contract with us, effective as of June 30, 2023.

Historically, we have provided white label Family Safety applications to all three Tier 1 wireless carriers in the United States; however, our Family Safety contract with one of our Tier 1 customers terminated effective June 30, 2023, with post-termination services ending in November 2023. The revenues associated with that customer contract were approximately 36% of our total revenues for 2023.

Interest income is primarily related to interest earned on cash equivalents. Other (expense) income, net. Other income is primarily related to fixed asset disposals and other non-operating gains or losses. Provision for income tax expense. Income tax expense is primarily related to the provision for federal, state, and foreign taxes imposed upon our results of operations.

Interest expense is primarily related to interest associated with our convertible notes and financing arrangements and the amortization of debt issuance costs and discount. Interest income is primarily related to interest earned on cash equivalents. Other (expense) income, net. Other (expense) income, net is primarily related to fixed asset disposals and other non-operating gains or losses.

Goodwill and Intangible Assets Goodwill represents purchase consideration from a business combination that exceeds the value assigned to the net assets of the acquired businesses. As per Topic No.

They are tested for recoverability using undiscounted cash flows to determine whether or not impairment to such value has occurred as per ASC Topic No. 360, Property, Plant, and Equipment. Goodwill and Intangible Assets Goodwill represents purchase consideration from a business combination that exceeds the value assigned to the net assets of the acquired businesses. As per Topic No.

The change in fair value of warrant and derivative liabilities of $4.7 million f or the years ended December 31, 2022 resulted from valuation related impacts to warrant and derivative liabilities which were added in 2022. Interest (expense) income, net. Interest expense was $2.7 million in 2022. Interest income was nominal in 2021.

The change in fair value of warrant and derivative liabilities of $4.2 million and $4.7 million f or the years ended December 31, 2023 and 2022, respectively, resulted from valuation related impacts to warrant and derivative liabilities including changes in remaining balance, stock price, risk-free interest rate, expected term, and expected volatility. Loss on derecognition of debt.

Despite that termination, we continue to believe that we remain strategically positioned to offer our market-leading family safety platform to the majority of U.S. mobile subscribers.

The net loss for 2023 was $24.4 million, resulting in a net loss of $0.38 per basic and diluted share. Despite the termination of one of our Family Safety contracts during 2023, we continue to believe that we remain strategically positioned to offer our market-leading family safety platform to most U.S. mobile subscribers.

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 Revenues . Revenues were $48.5 million and $58.4 million for the years ended December 31, 2022 and 2021, respectively, representing a decrease of $9.9 million, or 17%.

Revenues were $40.9 million and $48.5 million for the years ended December 31, 2023 and 2022, respectively, representing a decrease of $7.7 million, or 16%. This decrease was driven by declines in Family Safety revenues of approximately $5.3 million and in CommSuite revenues of approximately $2.0 million.

Change in fair value of contingent consideration .

Change in fair value of warrant and derivative liabilities.

Cost of revenues were $14.2 million and $12.7 million for the years ended December 31, 2022 and 2021, respectively. This increase of $1.5 million was primarily due to higher costs associated with operating the acquired legacy Family Safety Mobile Business. Gross profit .

Cost of revenues were $10.6 million and $14.2 million for the years ended December 31, 2023 and 2022, respectively. This decrease of approximately $3.7 million was primarily due to cost reduction efforts in 2023 and the year-over-year decline in revenue. Gross profit .

Change in fair value of warrant and derivative liabilities is from valuation related impacts to warrant and derivative liabilities which were added in 2022. 23 Table of Contents Interest (expense) income, net. Interest expense is primarily related to interest associated with our convertible notes and financing arrangements and the amortization of debt issuance costs and discount.

Change in fair value of warrant and derivative liabilities results from valuation related impacts to the warrant and derivative liabilities. Loss on derecognition of debt. Adjustments to fair value at each period end as the result of installment payments extinguishing principal associated with the convertible notes, including derivatives. 24 Table of Contents Interest (expense) income, net.

Impairment or Disposal of Long-Lived Assets Long-lived assets to be held are reviewed for events or changes in circumstances which indicate that their carrying value may not be recoverable. They are tested for recoverability using undiscounted cash flows to determine whether or not impairment to such value has occurred as per ASC Topic No. 360, Property, Plant, and Equipment. .

For goodwill and other intangibles impairment analysis, we may utilize fair value measurements which are categorized within Level 3 of the fair value hierarchy. Impairment or Disposal of Long-Lived Assets Long-lived assets to be held are reviewed for events or changes in circumstances which indicate that their carrying value may not be recoverable.

This decrease of $1.8 million was primarily due to $1.7 million in transaction and professional service costs associated with our acquisition of the Family Safety Mobile Business in 2021 and costs related to the acquisition of certain non-development intellectual property of $1.0 million incurred in 2021 , partially offset by transaction costs related to the Notes and Warrant Offering and Stock Offering in August 2022 and an increase in personnel related costs.

This decrease of $2.7 million was primarily related to declines in personnel-related costs of approximately $1.4 million associated with the workforce reduction efforts undertaken, a reduction of $0.6 million due to transaction fees incurred related to the Note and Stock Offering in August 2022, a decrease in travel costs of approximately $0.2 million and a reduction in consulting and professional fees of approximately $0.4 million.

This decrease was driven by declines in CommSuite revenues of approximately $8.9 million and in Family Safety revenues of approximately $1.2 million primarily as a result of the migration of legacy Sprint customers onto the T-Mobile network. Partially offsetting this decline was an increase in ViewSpot product line of approximately $0.3 million. Cost of revenues .

This decline in revenues was primarily as a result of the migration of legacy Sprint customers onto the T-Mobile network, which has impacted our revenues associated with legacy Sprint subscribers for both Family Safety and CommSuite. There was no legacy Sprint subscriber revenue for CommSuite in the second half of 2023.

Investing activities Net cash provided by investing activities was $0.1 million for the year ended December 31, 2022 driven by proceeds received from installment payments for the sale assets of legacy software products, which was completed in 2020.

Investing activities Net cash provided by investing activities was $0.1 million for both the years ended December 31, 2023 and 2022. Financing activities Net cash used by financing activities of $0.1 million for the year ended December 31, 2023 was primarily attributable to the timing of borrowings and repayments from short-term insurance premium financing arrangements.

Removed

In 2022, our revenues declined by 17% to $48.5 million, primarily d riven by the $8.9 million decline in revenues in our CommSuite product line during the year as T-Mobile wound down Sprint’s legacy premium visual voicemail service.

Added

The key to our longevity, however, is not simply technological innovation, but our focus on understanding our customers’ needs and delivering value.

Removed

Principally as a result of this decline in revenues, we did experience a decrease in our gross profit to $34.3 million during 2022, a decrease o f $11.4 million compared to 2021.

Added

In 2024, we expect no further revenues related to that contract. To address the impact of the contract termination, starting in the first quarter of 2023, we undertook restructuring efforts that resulted in the elimination of approximately 26% of the Company's global workforce.

Removed

Our operating expenses decreased during the year by $11.4 million, due to a non-recurring $12.9 million charge resulting from the earn-out provisions of the Family Safety Mobile Business acquisition incurred during 2021, partially offset by an increase in development costs in 2022 related to the migration of our carrier customers onto our SafePath Family Safety platform.

Added

These actions, coupled with other cost reduction measures taken, have resulted in a 26% reduction in operating expenses in 2023 as compared 2022. In 2023, our revenues declined by 16% to $40.9 million, primarily driven by a $5.3 million decline in revenues in our Family Safety product line, coupled with a $2.0 million decline in CommSuite revenues.

Removed

The net loss for 2022 was $29.3 million , resulting in a net loss per diluted share of $0.53.

Added

These revenue declines were primarily associated with T-Mobile's efforts to migrate legacy Sprint subscribers to the T-Mobile network, which has impacted our revenues associated with legacy Sprint subscribers for both Family Safety and CommSuite, as well as the impact of the Family Safety contract termination identified above.

Removed

Tier 1 carrier customers. We believe that as we complete our development efforts associated with the migration to the SafePath platform, our development costs should decline.

Added

As a result of this decrease in revenue, gross profit declined to $30.3 million in 2023, a decrease of $4.0 million compared to prior year. Operating expenses decreased in 2023 by approximately $16.9 million, primarily due to a year-over-year reduction in Research and Development expenses of $12.2 million as SafePath migration efforts have now been substantially completed.

Removed

As a result of nearing the finalization of our migration efforts our Research & Development costs have decreased by approximately $1.5 million, or 18%, in the fourth quarter as compared to the second quarter of 2022.

Added

Another U.S. Tier 1 carrier customer was successfully launched on the SafePath platform during the third quarter of 2023. We believe that with these transitions to the SafePath platform now complete, we have an opportunity to increase the respective subscriber bases, and in turn, grow the revenues associated with these Tier 1 carriers.

Removed

Change in fair value of contingent consideration. Change in fair value of contingent consideration consists of a contract extension becoming probable with a given customer designated in the earn-out provision of an acquisition purchase agreement. Amortization of intangible assets.

Added

Further, we executed a new, multi-year Family Safety agreement with a major Tier 1 carrier in Europe in the fourth quarter of 2023, which is anticipated to launch in 2024.

Removed

Research and development expenses were $29.9 million and $26.2 million for the years ended December 31, 2022 and 2021 , respectively. This increase of $3.7 million was primarily due to an increase in contractor costs associated with supporting SafePath development and personnel related expenses as a result of the acquisition of the Family Safety Mobile Business .

Added

Provision for income tax expense. Income tax expense is primarily related to the provision for federal, state, and foreign taxes imposed upon our results of operations. Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 Revenues .

Removed

The change in fair value of contingent consideration of $12.9 million for the year ended December 31, 2021 resulted from a contract extension becoming probable with a given customer designated in the earn-out provision of the Purchase Agreement for the Family Safety Mobile Business, resulting in an increase in the contingent consideration due to Avast. Amortization of intangible assets .

Added

Also contributing to the decline in Family Safety revenues was the impact of the Family Safety contract termination, as the post-termination transition period concluded at the end of November 2023. The ViewSpot product line's revenues decreased by approximately $0.4 million due to a decrease in device launches in 2023. Cost of revenues .

Removed

This decrease of $1.8 million was primarily attributable to the period-over-period decrease in amortization expense recognized associated with the intangible assets acquired as part of the Circle acquisition as there was an impairment charge in 2021 of $1.5 million and an acceleration of the remaining intangibles. Change in fair value of warrant and derivative liabilities.

Added

Research and development expenses were $17.1 million and $29.4 million for the years ended December 31, 2023 and 2022 , respectively.

Removed

The $2.7 million increase is due to the financing transaction from August of 2022 and the related amortization of deferred financing fees and the discount associated with the Convertible Notes. Provision for income tax expense. Because of our cumulative loss position, the current provision for income tax expense consists of state income taxes, foreign tax withholdings, and foreign income taxes.

Added

This decrease of approximately $12.2 million was primarily due to the decline in personnel-related costs of approximately $9.0 million associated with the workforce reduction efforts coupled with reductions in contractor costs of $2.9 million due to the substantial completion of SafePath migration efforts during 2023. General and administrative .

Removed

During fiscal year 2022, both our valuation allowance and the related deferred tax assets increased by $5.4 million. 24 Table of Contents Liquidity and Capital Resources The Company’s principal sources of liquidity are its existing cash and cash equivalents, and cash generated by operations.

Added

The total decrease in depreciation expense of approximately $0.6 million was primarily due to certain fixed assets that have now been fully depreciated. Amortization expense is recognized based on the pattern of economic benefit expected to be generated from the use of the intangible asset, and as such it increased approximately $0.5 million.

Removed

The Company's primary needs for liquidity relate to working capital requirements for operations and its debt service requirements. As of December 31, 2022, the Company's cash and cash equivalents were approximately $14.0 million. As noted above, we believe that we will be able to meet our financial obligations as they become due over the next twelve months.

Added

The loss recognized on derecognition of debt for the year ended December 31, 2023 was $4.0 million.

Removed

The primary uses of operating cash were a decrease in accounts payable and accrued liabilities of $16.3 million, and a decrease in deferred revenue of $1.4 million.

Added

This resulted from installment payments made on the convertible notes issued under the Note and Stock offering in August 2022 (the "Notes") in the form of shares, and the required derecognition of the net debt position related to that principal balance, including the derivative, and discounts.

Removed

Net cash used in investing activities for year ended December 31, 2021 of $57.5 million was primarily attributable to the Family Safety Mobile Business acquisition.

Added

There was nothing commensurate in the year ended December 31, 2022 as the Notes did not begin to amortize until 2023. 25 Table of Contents Interest expense, net. Interest expense was $6.4 million and $2.7 million for the years ended December 31, 2023 and 2022, respectively.

Removed

Net cash provided by financing activities was $60.7 million for the year ended December 31, 2021, relating primarily to the March 2021 common stock offering, the proceeds of which were used, in part, to finance the Family Safety Mobile Business acquisition.

Added

The increase in interest expense of $3.7 million was primarily related to the amortization of the discount and debt issuance costs and stated interest expense related to the August 2022 Notes and Warrants Offering, with the Notes issued thereunder being outstanding for the full year in 2023 versus less than five months during 2022. Provision for income tax expense.

Removed

Added

Liquidity and Capital Resources Our principal sources of liquidity are our existing cash and cash equivalents, and cash generated by operations. We have in the past also generated cash from equity and debt financings. Our primary needs for liquidity relate to working capital requirements for operations.

Removed

We lease and occupy approximately 8,513 square feet of space in Aliso Viejo, California under a lease that expires on October 31, 2024.

Added

Our working capital requirements will depend on many factors, including the ability to obtain sufficient subscribers, and therefore revenue, from our customers to cover the current level of operating expenses to achieve a level of profitability. As of December 31, 2023, our cash and cash equivalents were approximately $7.1 million and we had no outstanding debt.

Removed

For goodwill and other intangibles impairment analysis, we may utilize fair value measurements which are categorized within Level 3 of the fair value hierarchy. We measure acquisition-related contingent consideration at fair value on a recurring basis and may include the use of significant unobservable inputs, and therefore, these instruments represent Level 3 measurements within the fair value hierarchy.

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Top changes in SMITH MICRO SOFTWARE, INC.'s 2023 10-K

Item 1. Business

Item 1A. Risk Factors

Item 2. Properties

Item 3. Legal Proceedings

Item 5. Market for Registrant's Common Equity

Item 7. Management's Discussion & Analysis

Other SMSI 10-K year-over-year comparisons