Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October ~~23, 2018,~~30, 2019, there were ~~25,027,129~~38,502,511 shares of common stock outstanding.

	September 30,			December 31,			September 30,			December 31,
	2018			2017			2019			2018
	(unaudited)			(audited)			(unaudited)			(audited)
Assets
Current assets:
Cash and cash equivalents	$	8,387		$	2,205		$	23,870		$	12,159
Accounts receivable, net of allowances for doubtful accounts and other adjustments of $161 (2018) and $221 (2017)		6,328			5,145
Accounts receivable, net of allowances for doubtful accounts and other adjustments of $244 (2019) and $135 (2018)								11,087			7,130
Prepaid expenses and other current assets		745			576			763			795
Total current assets		15,460			7,926			35,720			20,084
Equipment and improvements, net		940			1,229			1,392			865
Right-of-use assets								6,459			—
Deferred tax assets, net		404			404			191			191
Other assets		140			146			239			140
Intangible assets, net		297			487			4,761			238
Goodwill		3,685			3,685			7,797			3,685
Total assets	$	20,926		$	13,877		$	56,559		$	25,203
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,139		$	1,333		$	1,536		$	1,160
Accrued payroll and benefits		1,843			1,994			2,128			1,745
Related-party notes payable		—			1,000
Current operating lease liabilities								1,154			—
Other accrued liabilities		438			416			212			450
Deferred revenue		120			73			105			28
Total current liabilities		3,540			4,816			5,135			3,383
Non-current liabilities:
Related-party notes payable		1,200			1,200
Notes payable, net of discount & issuance costs of $245 (2018) and $442 (2017)		1,755			1,558
Warrant liability		9,918			—
Operating lease liabilities								5,809			—
Deferred rent		784			970			677			723
Other long term liabilities		591			766			151			534
Total non-current liabilities		14,248			4,494			6,637			1,257
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.001 per share; 5,000,000 shares authorized; 5,500 shares issued (2018 and 2017); 1,370 and 5,500 shares outstanding (2018 and 2017, respectively)		—			—
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 25,005,199 and 14,268,765 shares issued and outstanding (2018 and 2017, respectively)		25			14
Preferred stock, par value $0.001 per share; 5,000,000 shares authorized; 5,500 shares issued (2019 and 2018); 0 and 1,345 shares outstanding (2019 and 2018, respectively)								—			—
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 38,487,090 and 28,241,129 shares issued and outstanding (2019 and 2018, respectively)								38			28
Additional paid-in capital		241,970			237,486			273,815			256,626
Accumulated comprehensive deficit		(238,857	)		(232,933	)		(229,066	)		(236,091	)
Total stockholders’ equity		3,138			4,567			44,787			20,563
Total liabilities and stockholders' equity	$	20,926		$	13,877		$	56,559		$	25,203

	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues	$	6,525		$	5,804		$	18,933		$	17,242		$	11,782		$	6,525		$	31,068		$	18,933
Cost of revenues		979			1,159			3,404			3,727			1,011	��		979			2,902			3,404
Gross profit		5,546			4,645			15,529			13,515			10,771			5,546			28,166			15,529
Operating expenses:
Selling and marketing		1,311			1,413			4,488			4,667			1,793			1,311			5,529			4,488
Research and development		2,049			2,100			6,499			6,771			3,063			2,049			8,487			6,499
General and administrative		2,048			2,220			6,299			6,648			2,396			2,048			7,522			6,299
Restructuring expense		83			(146	)		135			568			39			83			154			135
Total operating expenses		5,491			5,587			17,421			18,654			7,291			5,491			21,692			17,421
Operating income (loss)		55			(942	)		(1,892	)		(5,139	)		3,480			55			6,474			(1,892	)
Other expense:
Interest expense, net		(128	)		(315	)		(445	)		(928	)
Other income (expense):
Interest income (expense), net														87			(128	)		117			(445	)
Change in fair value of warrant liability		(902	)		—			(3,126	)		—			—			(902	)		—			(3,126	)
Loss on debt extinguishment		—			(405	)		—			(405	)
Gain on sale of software product														—			—			483			—
Other expense		(1	)		(2	)		(48	)		(10	)		—			(1	)		(15	)		(48	)
Loss before provision for income taxes		(976	)		(1,664	)		(5,511	)		(6,482	)
Income (loss) before provision for income taxes														3,567			(976	)		7,059			(5,511	)
Provision for income tax expense		7			6			30			19			—			7			8			30
Net loss	$	(983	)	$	(1,670	)	$	(5,541	)	$	(6,501	)
Net income (loss)													$	3,567		$	(983	)	$	7,051		$	(5,541	)

Net loss per share:
Basic and diluted	$	(0.04	)	$	(0.12	)	$	(0.28	)	$	(0.49	)
Net earnings (loss) per share:
Basic													$	0.10		$	(0.04	)	$	0.21		$	(0.28	)
Diluted													$	0.09		$	(0.04	)	$	0.20		$	(0.28	)

Weighted average shares outstanding:
Basic and diluted		25,020			14,297			20,771			13,221
Basic														36,094			25,020			33,170			20,771
Diluted														39,472			25,020			35,287			20,771

Preferred dividends per share	$	31.58		$	—		$	105.54		$	—		$	70.50		$	31.58		$	104.58		$	105.54

											Additional			Accumulated
	Series B Preferred Stock					Common Stock					Paid-in			Comprehensive
	Shares			Amount		Shares			Amount		Capital			Deficit			Total
BALANCE, June 30, 2019 (unaudited)		1		$	—		32,042		$	32	$	262,215		$	(232,581	)	$	29,666
Non-cash compensation recognized on stock options and ESPP		—			—		—			—		10			—			10
Restricted stock grants, net of cancellations		—			—		—			—		340			—			340
Cancellation of shares for payment of withholding tax		—			—		(38	)		—		(191	)		—			(191	)
Employee stock purchase plan		—			—		2			—		6			—			6
Exercise of warrants		—			—		5,301			5		11,398			—			11,403
Exercise of stock options		—			—		10			—		38			—			38
Conversion of preferred stock to common stock		(1	)		—		1,171			1		(1	)		—			—
Preferred stock dividends		—			—		—			—		—			(52	)		(52	)
Other		—			—		—			—		—			—			—
Comprehensive loss		—			—		—			—		—			3,567			3,567
BALANCE, September 30, 2019 (unaudited)		—		$	—		38,488		$	38	$	273,815		$	(229,066	)	$	44,787


											Additional			Accumulated
	Series B Preferred Stock					Common Stock					Paid-in			Comprehensive
	Shares			Amount		Shares			Amount		Capital			Deficit			Total
BALANCE, December 31, 2018 (audited)		1		$	—		28,242		$	28	$	256,626		$	(236,091	)	$	20,563
Non-cash compensation recognized on stock options and ESPP		—			—		—			—		30			—			30
Restricted stock grants, net of cancellations		—			—		1,225			1		1,108			—			1,109
Cancellation of shares for payment of withholding tax		—			—		(176	)		—		(506	)		—			(506	)
Employee stock purchase plan		—			—		4			—		10			—			10
Common shares issued in stock offering, net of offering costs		—			—		—			—		(14	)		—			(14	)
Common shares issued in connection with Smart Retail acquisition, net		—			—		2,699			3		5,126			—			5,129
Exercise of warrants		—			—		5,304			5		11,398			—			11,403
Exercise of stock options		—			—		10			—		38			—			38
Conversion of preferred stock to common stock		(1	)		—		1,180			1		(1	)		—			—
Preferred stock dividends		—			—		—			—		—			(119	)		(119	)
Cumulative effect of adoption of ASC 842		—			—		—			—		—			93			93
Comprehensive loss		—			—		—			—		—			7,051			7,051
BALANCE, September 30, 2019 (unaudited)		—		$	—		38,488		$	38	$	273,815		$	(229,066	)	$	44,787

											Additional			Accumulated
	Series B Preferred Stock					Common Stock					Paid-in			Comprehensive
	Shares			Amount		Shares			Amount		Capital			Deficit			Total
BALANCE, June 30, 2018 (unaudited)		1		$	—		25,004		$	25	$	241,790		$	(237,831	)	$	3,984
Non-cash compensation recognized on stock options and ESPP		—			—		—			—		10			—			10
Restricted stock grants, net of cancellations		—			—		—			—		254			—			254
Cancellation of shares for payment of withholding tax		—			—		(26	)		—		(64	)		—			(64	)
Employee stock purchase plan		—			—		2			—		2			—			2
Common shares issued in stock offering, net of offering costs		—			—		—			—		(10	)		—			(10	)
Issuance of warrants in stock offering		—			—		—			—		(12	)		—			(12	)
Exercise of warrants		—			—		25			—		—			—			—
Preferred stock dividends		—			—		—			—		—			(43	)		(43	)
Other		—			—		—			—		—			—			—
Comprehensive loss		—			—		—			—		—			(983	)		(983	)
BALANCE, September 30, 2018 (unaudited)		1		$	—		25,005		$	25	$	241,970		$	(238,857	)	$	3,138


											Additional			Accumulated
	Series B Preferred Stock					Common Stock					Paid-in			Comprehensive
	Shares			Amount		Shares			Amount		Capital			Deficit			Total
BALANCE, December 31, 2017 (audited)		5		$	—		14,269		$	14	$	237,486		$	(232,933	)	$	4,567
Non-cash compensation recognized on stock options and ESPP		—			—		—			—		31			—			31
Restricted stock grants, net of cancellations		—			—		1,124			1		642			—			643
Cancellation of shares for payment of withholding tax		—			—		(68	)		—		(151	)		—			(151	)
Employee stock purchase plan		—			—		5			—		5			—			5
Common shares issued in stock offering, net of offering costs		—			—		6,027			6		10,742			—			10,748
Issuance of warrants in stock offering		—			—		—			—		(6,792	)		—			(6,792	)
Conversion of preferred stock to common stock		(4	)		—		3,623			4		(4	)		—			—
Exercise of warrants		—			—		25			—		—			—			—
Preferred stock dividends		—			—		—			—		—			(370	)		(370	)
Other		—			—		—			—		11			(12	)		(1	)
Comprehensive loss		—			—		—			—		—			(5,542	)		(5,542	)
BALANCE, September 30, 2018 (unaudited)		1		$	—		25,005		$	25	$	241,970		$	(238,857	)	$	3,138

	For the Nine Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2018			2017			2019			2018
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Operating activities:
Net loss	$	(5,541	)	$	(6,501	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net income (loss)							$	7,051		$	(5,541	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		651			694			997			651
Non-cash lease expense								730			—
Amortization of debt discounts and financing issuance costs		197			394			—			197
Restructuring costs		—			(146	)		154			135
Loss on related party debt extinguishment		—			405
Provision for doubtful accounts and other adjustments to accounts receivable		6			78			127			6
Provision for excess and obsolete inventory		(18	)		—			1			(18	)
Gain on disposal of fixed assets		—			(6	)
Loss on disposal of fixed assets								6			—
Stock based compensation		674			1,002			1,139			674
Change in fair value of warrant liability		3,126			—			—			3,126
Gain on sale of software product								(483	)		—
Change in operating accounts:
Accounts receivable		(1,189	)		(325	)		(4,031	)		(1,189	)
Prepaid expenses and other assets		(145	)		7			52			(145	)
Accounts payable and accrued liabilities		(838	)		(1,564	)		(701	)		(973	)
Deferred revenue		47			269			(214	)		47
Net cash used in operating activities		(3,030	)		(5,693	)
Net cash provided by (used in) operating activities								4,828			(3,030	)
Investing activities:
Acquisition of Smart Retail business, net								(3,974	)		—
Proceeds from sale of software product								363			—
Capital expenditures		(172	)		(68	)		(824	)		(172	)
Net cash used in investing activities		(172	)		(68	)		(4,435	)		(172	)
Financing activities:
Proceeds from stock sale for employee stock purchase plan		5			2			10			5
Proceeds from common stock offering, net of expenses		10,749			2,056
Proceeds from preferred stock offering, net of expenses		—			2,413
Proceeds from (payments of) short-term secured promissory notes		(1,000	)		3,000
Proceeds from (payments related to) the issuance of common stock								(14	)		10,749
Proceeds from exercise of common stock warrants								11,403			—
Proceeds from exercise of stock options								38			—
Repayments of short-term secured promissory notes								—			(1,000	)
Dividends paid on preferred stock		(370	)		—			(119	)		(370	)
Net cash provided by financing activities		9,384			7,471			11,318			9,384
Net increase in cash and cash equivalents		6,182			1,710			11,711			6,182
Cash and cash equivalents, beginning of period		2,205			2,229			12,159			2,205
Cash and cash equivalents, end of period	$	8,387		$	3,939		$	23,870		$	8,387

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	4		$	5		$	60		$	4
Cash paid for interest expense		334			552			—			334

Supplemental schedule of non-cash financing activities:
Supplemental disclosures of non-cash activities:
Issuance of common stock in connection with Smart Retail acquisition							$	5,129		$	—
Issuance of common stock warrants in connection with stock offering	$	6,792		$	2,292			—			6,792
Cancellation of shares for payment of withholding tax								(506	)		(151	)

Smith Micro Software, Inc. (“Smith ~~Micro,” “Company,” “we,” “us,” and “our”~~Micro” or the “Company”) develops software to simplify and enhance the mobile experience, providing solutions to some of the leading wireless service providers ~~device manufacturers,~~ and ~~wireless users~~cable multiple service operators (“MSOs”) around the world. From ~~optimizing wireless networks~~enabling the family digital lifestyle to ~~uncovering customer experience insights, and from~~ providing ~~visual access to wireless voicemail to ensuring family safety,~~powerful voice messaging capabilities, our solutions enrich today’s connected lifestyles while creating new opportunities to engage consumers via ~~smartphones. We also provide a services platform for the Internet~~smartphones and consumer internet of ~~Things~~things (“IoT”) ~~that enables comprehensive device management and firmware over-the-air (“FOTA”) updates for various types of connected~~ devices. Our portfolio also includes a wide range of products for creating, sharing and monetizing rich content, such as visual messaging, optimizing retail content display, analytics capabilities, and ~~2D/3D~~ graphics applications. ~~With this as a focus, it is Smith Micro’s mission to help our customers thrive in a connected world.~~

The accompanying interim consolidated balance sheet as of September 30, ~~2018,~~2019, and the related consolidated statements of operations, ~~and comprehensive loss~~stockholders’ equity and cash flows for each of the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, are unaudited. The unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted.

In the opinion of management, the accompanying unaudited consolidated financial statements for the periods presented reflect all adjustments which are normal and recurring, and necessary to fairly state the financial position, results of operations, and cash flows of the Company. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018 filed with the SEC on March ~~30, 2018 and amended April 17, 2018.~~27, 2019.

Operating results for the three and nine months ended September 30, ~~2018~~2019 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, ~~2018.~~2019.

~~In August 2018,~~The Company adopted the Financial Accounting Standards Board (“FASB”) ~~issued~~ Accounting Standards ~~Update~~Codification (“~~ASU”~~ASC”) Topic No. ~~2018-13,~~842, ~~Fair Value Measurement (Topic 820)~~Leases,~~, which is designed~~ and related amendments, as of January 1, 2019, utilizing the modified retrospective approach through a cumulative-effect adjustment to ~~improve~~equity. We elected the ~~effectiveness~~package of ~~disclosures related to fair value measurements. This ASU is effective for annual periods beginning after December 15, 2019 and early adoption is allowed in any interim reporting periods~~practical expedients permitted under the transition guidance within ~~those annual reporting periods. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~, to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard ~~retrospectively~~which allowed us to ~~all periods presented or retrospectively using a cumulative effect adjustment~~carry forward the historical lease classification. Adoption of the new standard resulted in the ~~year~~recording of ~~adoption.~~ additional net lease assets and lease liabilities of approximately $3.1 million as of January 1, 2019, and an adjustment to retained earnings of $0.1 million. The standard did not materially impact our consolidated net income or earnings per share and had no impact on cash flows. See Note 11 for further details.

The Company ~~will be evaluating the impact of this guidance on our consolidated financial statements.~~

~~In May 2014, the~~adopted FASB ~~issued ASU~~ASC Topic No. ~~2014-09,~~606, Revenue from Contracts with Customers, ~~(Topic 606). This updated standard supersedes nearly all existing revenue recognition guidance under~~ as of January 1, 2018, and recognizes the ~~accounting principles generally accepted~~sale of goods and services based on the five step analysis of transactions as provided in ~~the United States of America (“U.S. GAAP”). The core principle of this~~ Topic is606, which requires an entity to recognize ~~revenues when~~revenue to depict the transfer of promised goods or services ~~are transferred~~ to customers in an amount that reflects the consideration ~~that is expected~~to which the entity expects to be ~~received~~entitled in exchange for ~~those~~such goods orand services. ~~This Topic defines~~

In our Wireless segment, we transfer software licenses to our customers on a ~~five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within~~royalty free, non-exclusive, non-transferrable, limited use basis during the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In July 2015, the FASB deferred the effective date of Topic 606 to annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized asterm of the ~~date~~agreement. In some instances, we perform customization services to ensure the software operates within our customer’s operating platforms as well as the operating platforms of ~~initial~~the mobile devices used by their end customers, before transferring the license. Revenue related to these services is recognized at a point in time upon acceptance of the software license by the customer. We also earn usage based revenue on our platforms. Usage based revenue is generated based on active licenses used by our customer’s end customers, the provision of hosting services, revenue share based on media placements on our platform, and use of our cloud based services. 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 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

~~application. The Company adopted~~enhancements and upgrades. For certain Wireless segment customers we provide maintenance and technology support services for which the ~~provisions of Topic 606~~customer either pays upfront or as we provide the services. When the customer pays upfront, we record the payments as contract liabilities and recognize revenue ratably over the contract period as this is our stand ready performance obligation that is satisfied ratably over the maintenance and technology services period.

As discussed in Note 3, during the first quarter of ~~2018,~~2019 we acquired the net assets of ISM Connect, LLC associated with the Smart Retail product suite, later branded ViewSpot™. Our ViewSpot contracts with Tier 1 customers include promises to provide multiple products and ~~there was no impact~~services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. When a cloud-based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud services, primarily ViewSpot, depend on a significant level of integration, interdependency, and interrelation between the ~~consolidated financial statements.~~

on-premise applications and cloud services, and are accounted for together as a single performance obligation. Revenue ~~Recognition~~from ViewSpot is recognized ratably over the period in which the cloud services are provided.

We ~~currently report~~receive upfront payments from customers from services to be provided under our ~~net~~ViewSpot arrangements. The advance receipts are 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. We recognize these revenues ~~under two operating groups: Wireless and Graphics. Generally,~~upon delivery of the configured promotional content to the cloud platform.

In our Graphics segment where we sell off-the-self software products with no customization or post sale technology support services, we recognize revenue at the time we transfer control of the product to the customer. This occurs upon shipment of the product or when ~~persuasive evidence of an arrangement exists, delivery has occurred,~~ the ~~price is fixed and determinable, and collectability is probable. We recognize revenues~~customer downloads the software from ~~sales~~our website or website of our ~~software (or software that we are licensed to distribute)~~resellers. We offer a 30 day return option to our ~~customers or end users as completed products are shipped and title passes, or from royalties generated as authorized customers duplicate our software, if~~customers; a return reserve is established at the ~~other requirements are met. If the requirements are not met as of the date of shipment,~~time revenue is ~~not recognized until these elements are known or resolved.~~

~~For Wireless, we recognize revenue using several different methods beyond~~recorded and the ~~method previously mentioned. First, we provide some customers a subscription service arrangement (the “Platform”). This Platform~~reserve is then deployed to their customers, the end users, either directly by our customer or by the end user initiating a download of the Platform. Our service arrangement can include the use of the software application, hosting services,monitored and ~~maintenance and support services for the Platform. This type of arrangement is recognized on a point in time basis separately for each billing cycle (i.e. monthly or quarterly)~~adjusted based on the individual metrics within that period, and results in either a fixed fee per end user or a revenue sharing arrangement based on amounts received by our customers. Second, we provide other related services to some customers specific to hosting services, and maintenance and support services. These arrangements are recognized on a per period basis (i.e. typically monthly or quarterly) based on the individual arrangements agreed upon with our customers. These arrangements typically include a fixed fee for services offered within the period. Sometimes these types of services include up-front, non-refundable set-up fees. Revenue is recognized for these fees over the term of the agreement. Third, we provide a limited custom software development services under a fixed fee arrangement. This revenue is recognized based on agreed-upon deliverables and milestones – when value is provided to the customer a portion of the revenue is recognized. There are no significant judgments required for this revenue. However, we do make some estimates to accrue revenue through the fiscal quarter ends.

For Graphics, we review available retail channel information and make a determination of a return provision for sales made to distributors and retailers based on current channel inventory levels and historical return patterns. Certain sales to distributors or retailers are made on a consignment basis. Revenues for consignment sales are not recognized until sell-through to the final customer is established. Certain revenues are booked net of revenue sharing payments. Sales directly to end users are recognized upon shipment. End usersactual experience. Historically, returns have ~~a thirty-day return period, but such returns are reasonably estimable and have historically been minimal. We also provide technical support to our customers. Such costs have historically~~ been insignificant.

The Company measures and discloses fair value measurements as required by FASB ~~Accounting Standards Codification (“ASC”)~~ASC Topic No. 820, Fair Value Measurements and Disclosures.

Fair value is an exit price, representing the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. 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. As a basis for considering such assumptions, the FASB establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

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.

As required by FASB ASC Topic No. 820, we measure our cash and cash equivalents at fair value. Our cash equivalents are classified within Level 1 by using quoted market prices utilizing market observable inputs.

As required by FASB ASC Topic No. 820, we ~~measure~~measured our warrant liability at fair value. Our warrant liability iswas classified within Level 3 as some of the inputs to our valuation model are either not observable quoted prices or are not derived principally from, or corroborated by, observable market data by correlation or other means.

As required by FASB ASC Topic No. ~~820,~~350, for goodwill and other intangibles impairment analysis, we utilize ~~quoted market prices to estimate~~fair value measurements which are categorized within Level 3 of the fair value hierarchy.

In December 2018, the Company entered into a definitive agreement to acquire the net assets of ISM Connect, LLC’s Smart Retail product suite (“Smart Retail”). The transaction closed on January 9, 2019.

The following table summarizes the consideration paid for the Smart Retail acquisition in 2019 (unaudited, in thousands):

The Company’s preliminary allocation of the purchase price is summarized as follows (unaudited, in thousands):

The primary goal of the Smart Retail acquisition was to acquire a new growing and profitable revenue stream while deepening the relationships with our ~~fixed rate debt, when available. If quoted market prices are not available,~~customers. The Smart Retail platform, which we ~~calculate~~now call ViewSpot, enables wireless carriers and retailers to offer powerful on-screen, interactive device demos that deliver consistent, secure and targeted content that showcase the ~~fair value~~features of ~~our fixed rate debt based on~~the devices that consumers want to see and learn more about. ViewSpot also provides analytics capabilities, which allow customers to gain valuable insights into buying behaviors. The platform is a currently available market rate, assuming the loans are outstanding through maturity and considering the collateral securing the loans. In determining the current market rate for fixed rate debt, a market spread is addedlogical addition to the ~~quoted yields~~Company’s existing product line that reaches wireless carriers and provides them with services that can attract and retain customers.

Unaudited pro forma results of operations for the three and nine months ended September 30, 2019 and 2018 are included below as if the Smart Retail acquisition occurred on ~~federal government treasury securities with similar terms~~January 1, 2018. This summary of the unaudited pro forma results of operations is not necessarily indicative of what the Company’s results of operations would have been had Smart Retail been acquired at the beginning of 2018, nor does it purport to ~~the debt.~~represent results of operations for any future periods.

In connection with preparing consolidated financial statements for the three and nine months ended September 30, ~~2018,~~2019, management evaluated whether there were conditions and events that, when considered in the aggregate, raised substantial doubt about the Company’s ability to continue as a going concern within one year from the date that the financial statements are issued.

The Company considered the historical operating loss and negative cash flow from operating activities ~~trends.~~trends, including the positive trends occurring in the recent year.

Ordinarily, conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern relate to the entity’s ability to meet its obligations as they become due.

The Company evaluated its ability to meet its obligations as they become due within one year from the date that the financial statements are issued by considering the following:

Management believes ~~that~~ the Company will generate enough cash from operations to satisfy its obligations for the next twelve months from the issuance date.

The Company will take the following actions, if it starts to trend unfavorably against its internal profitability and cash flow projections, in order to mitigate conditions or events that would raise substantial doubt about its ability to continue as a going concern:

In accordance with FASB ASC Topic No. 350, Intangibles-Goodwill and Other, we review the recoverability of the carrying value of goodwill at least annually or whenever events or circumstances indicate a potential impairment. The Company’s impairment testing will be ~~done~~performed annually at December 31. Recoverability of goodwill is determined by comparing the fair value of the Company’s reporting units to the carrying value of the underlying net assets in the reporting units. If the fair value of a reporting unit is determined to be less than the carrying value of its net assets, goodwill is deemed impaired and an impairment loss is recognized to the extent that the carrying value of goodwill exceeds the difference between the fair value of the reporting unit and the fair value of its other assets and liabilities. The Company determined that there was no goodwill impairment at September 30, ~~2018~~2019 and December 31, ~~2017.~~

~~At September 30, 2018 and December 31, 2017, the carrying value and the aggregate fair value of the Company’s warrant liability and short- and long-term debt were as follows (in thousands):~~

The warrants were accounted for as liabilities, with changes in the fair value included in net loss for the respective periods. Because some of the inputs to our valuation model were either not observable or not derived principally from or corroborated by observable market data by correlation or other means, the warrant liability is classified as Level 3 in the fair value hierarchy.

~~Our stock price can be volatile and there could be material fluctuations in the value of the warrants in future periods.~~

~~A roll forward of our warrant liability classified as Level 3 and measured at fair value on a recurring basis follows (in thousands):~~

As further discussed in Note 10, on March 6, 2018, the Company completed a private placement with several investors (the “March Offering”), wherein a total of 2,857,144 shares of the Company’s common stock were issued at a purchase price of $1.75 per share, for a total purchase price of $5.0 million. Each investor also received a warrant to purchase up to a number of shares of common stock equal to the number of shares of common stock purchased by such investor in the March Offering at an exercise price of $2.17 per share.

~~The initial fair value of the warrant liability associated with the March Offering was $2.9 million, and the fair value has increased to $4.7 million as of September 30,~~ 2018.

As further discussed in Note 10, on May 3, 2018, the Company completed a private placement with several investors (the “May Offering”), wherein a total of 3,170,000 shares of the Company’s common stock were issued at a purchase price of $2.21 per share, for a total purchase price of $7.0 million. Each investor also received a warrant to purchase up to a number of shares of common stock equal to the number of shares of common stock purchased by such investor in the May Offering at an exercise price of $2.11 per share.

~~The initial fair value of the warrant liability associated with the May Offering was $3.9 million, and the fair value has increased to $5.2 million as of September 30, 2018.~~

All changes in the fair value of warrants will be recognized in our consolidated statements of operations until they either are exercised or expire. The warrants are not traded in an active securities market and, as such, the estimated fair value as of September 30, 2018 was determined by using an option pricing model (Black-Scholes) with the following assumptions:

Expected volatility is based on historical volatility. Historical volatility was computed using monthly pricing observations for recent periods that correspond to the expected term of the warrants. We believe this method produces an estimate that is representative of our expectations of future volatility over the expected term of these warrants. We currently have no reason to believe future volatility over the expected remaining life of these warrants is likely to differ materially from historical volatility. The expected life is based on the remaining contractual term of the warrants. The risk-free interest rate is the U.S. Treasury bond rate as of the valuation date.

On January 30, 2018, the Company amended certain of its existing Secured Promissory Notes (the “Notes”) for the sole purpose of extending the relevant maturity dates. The Note dated August 18, 2017 issued to Steven L. Elfman and Monique P. Elfman was amended to extend its maturity date to February 11, 2018 and was subsequently paid in full. The Note dated June 26, 2017 issued to William W. Smith, Jr. and Dieva L. Smith was amended to extend its maturity date to July 25, 2018. The Notes dated August 24, 2017 issued to Next Generation TC FBO Andrew Arno IRA 1663 and Andrew Arno were amended to extend the maturity date of each to July 25, 2018.

As a condition to closing of the March Offering, the following Notes were further amended for the sole purpose of extending the maturity dates of each to March 25, 2020: (i) Secured Promissory Note dated June 26, 2017, issued to William W. Smith and Dieva L. Smith, as amended; (ii) Secured Promissory Note dated August 24, 2017, issued to Next Generation TC FBO Andrew Arno IRA 1663, as amended; and (iii) Secured Promissory Note, dated August 24, 2017 issued to Andrew Arno, as amended.

~~The Company evaluated the conversion of the debt under FASB ASU Topic No. 470-60,~~ ~~Troubled Debt Restructurings~~, for determining whether the modification of the debt instruments would be considered a troubled debt restructuring, using the two-step decision tree. The two steps included an assessment of whether the company is experiencing financial difficulties and if the creditors have provided concessions. Upon completion of this review, the Company concluded that the refinancing did not qualify as troubled debt restructuring.

The Company calculates earnings per share (“EPS”) as required by FASB ASC Topic No. 260, Earnings Per Share. Basic EPS is calculated by dividing the net income available to common stockholders by the weighted average number of common shares outstanding for the period, excluding common stock equivalents. Diluted EPS is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding for the period, plus the weighted average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. For periods with a net loss, the dilutive common stock equivalents are excluded from the diluted EPS calculation. For purposes of this calculation, common stock

subject to repurchase by the Company, options, and warrants are considered to be common stock equivalents and are only included in the calculation of diluted earnings per share when their effect is dilutive.

The following table sets forth the details of basic and diluted earnings per share:

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2018

2017

2018

2017

(unaudited, in thousands, except per share amounts)

(unaudited, in thousands, except per share amounts)

Numerator:

Net loss

$
(983
)

$
(1,670
)

$
(5,541
)

$
(6,501
)
Dividends paid to preferred stockholders

(43
)

—

(370
)

—

Net loss available to common stockholders

$
(1,026
)

$
(1,670
)

$
(5,911
)

$
(6,501
)
Denominator:

Weighted average shares outstanding – basic

25,020

14,297

20,771

13,221

Potential common shares – options / warrants
(treasury stock method)

—

—

—

—

Weighted average shares outstanding – diluted

25,020

14,297

20,771

13,221

Shares excluded (anti-dilutive)

—

—

—

—

Shares excluded due to an exercise price greater
than weighted average stock price for the period

126

1,973

1,086

1,869

Net loss per common share:

Basic

$
(0.04
)

$
(0.12
)

$
(0.28
)

$
(0.49
)
Diluted

$
(0.04
)

$
(0.12
)

$
(0.28
)

$
(0.49
)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2019			2018			2019			2018
	(unaudited, in thousands, except per share amounts)						(unaudited, in thousands, except per share amounts)
Numerator:
Net income (loss)	$	3,567		$	(983	)	$	7,051		$	(5,541	)
Dividends paid to preferred stockholders		(52	)		(43	)		(119	)		(370	)
Net income (loss) available to common stockholders	$	3,515		$	(1,026	)	$	6,932		$	(5,911	)
Denominator:
Weighted average shares outstanding – basic		36,094			25,020			33,170			20,771
Potential common shares – options / warrants (treasury stock method)		3,378			—			2,117			—
Weighted average shares outstanding – diluted		39,472			25,020			35,287			20,771

Shares excluded (anti-dilutive)		67			126			131			1,086

Net earnings (loss) per common share:
Basic	$	0.10		$	(0.04	)	$	0.21		$	(0.28	)
Diluted	$	0.09		$	(0.04	)	$	0.20		$	(0.28	)

During the three and nine months ended September 30, ~~2018,~~2019, the Company granted 0 and ~~1,125,000~~1,250,000 shares of restricted stock, ~~respectively. During the three~~ and ~~nine months ended September 30, 2018, the Company granted 15,000~~0 and 55,000 incentive stock ~~options.~~options, respectively, under the Company’s 2015 Omnibus Equity Incentive Plan, as amended. As of September 30, ~~2018,~~2019, there were ~~2.8~~1.3 million shares available for future grants under the 2015 Omnibus Equity Incentive Plan.

We sell products and services to customers in our Wireless and Graphics segments. In our Wireless segment, we sell our software solution, cloud based services and consulting services to major wireless network and cable operators. We sell our off-the-shelf Graphics software products directly to end users as well as through our distribution and reseller channel partners.

We recognize sales of goods and services based on the five-step analysis of transactions as provided in Topic 606. For all contracts with customers, we first identify the contract which usually is established when a contract is fully executed by each party and consideration is expected to be received. Next, we identify the performance obligations in the contract. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. We then determine the transaction price in the arrangement and allocate the transaction price, if necessary, to each performance obligation identified in the contract. The allocation of the transaction price to the performance obligations are based on the relative standalone selling prices for the goods and services contained in a particular performance obligation. The transaction price is adjusted for the Company’s estimate of variable consideration which may include certain incentives and discounts, product returns, distributor fees, and storage fees. We evaluate the total amount of variable consideration expected to be earned by using the expected value method, as we believe this method represents the most appropriate estimate for this consideration, based on historical service trends, the individual contract considerations and our best judgment at the time. We include estimates of variable consideration in revenues only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We also generate the majority of our revenue on usage based fees which are variable and depend entirely on our customers use of perpetual licenses, transactions processed on our hosted environment, advertisement placements on our service platform, and activity on our cloud based service platform.

During the first quarter of 2019, we acquired the Smart Retail assets from ISM Connect, LLC. Our contracts with the Tier 1 customers include promises to transfer multiple products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. When a cloud based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud services, primarily ViewSpot, depend on a significant level of integration, interdependency, and interrelation between the on-premise applications and cloud services, and are accounted for together as one performance obligation. Revenue from ViewSpot is recognized ratably over the period in which the cloud services are provided.

We receive upfront payments from customers from services to be provided under our ViewSpot arrangements. The advance receipts are 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 customer’s marketing initiatives and tend to be short term “bursts” of activity. We recognize these revenues upon delivery of the configured promotional content to the cloud platform.

We have made accounting policy elections to exclude all taxes by governmental authorities from the measurement of the transaction price, and since our standard payment terms are less than one year, we have elected the practical expedient not to assess whether a contract has a significant financing component.

Deferred revenue represents amounts billed to customers for which revenue has not been recognized. Deferred revenue primarily consists of the unearned portion of monthly, quarterly and annually billed service fees and prepayments made by customers for a future period. We recognize revenue upon transfer of control. During the three and nine months ended September 30, 2019, we recognized $0 and $27 thousand, respectively, in our consolidated statements of operations that was previously recorded as deferred revenue in the consolidated balance sheet at January 1, 2019. As of September 30, 2019, our total deferred revenue balance was $0.1 million.

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2019		2018		2019		2018
	(unaudited)				(unaudited)
Wireless:
CommSuite & Netwise	$	4,916	$	4,958	$	14,863	$	13,721
SafePath		5,200		1,028		11,108		2,106
ViewSpot		450		—		1,971		—
Consulting services and other		1,035		287		2,442		1,485
Legacy software licenses		13		10		38		293
Total wireless		11,614		6,283	$	30,422	$	17,605
Graphics:
Software		168		242		646		1,328
Total revenues	$	11,782	$	6,525	$	31,068	$	18,933

Public companies are required to report financial and descriptive information about their reportable operating segments as required by FASB ASC Topic No. 280, Segment Reporting. The Company has two primary business units based on how management internally evaluates separate financial information, business activities and management responsibility. Wireless includes our NetWise®, CommSuite®, SafePath®, and ~~QuickLink®~~ViewSpot™ family of products. Graphics includes our consumer-based products: ~~Poser®,~~ Moho®, MotionArtist®, Rebelle, PhotoDonut and StuffIt®,. Graphics also included the Poser® 3D animation software until our divestiture of that product line in June 2019, and through April 2018 included third-party software products under the Clip Studio® brand, which we distributed under an agreement which expired in October 2017 and permitted certain post-termination distribution rights until April 2018.

The Company does not separately allocate operating expenses to these business units, nor does it allocate specific assets. Therefore, business unit information reported includes only revenues.

The following table shows the revenues generated by each business unit (in thousands):

A summary of the Company’s customers that represent 10% or more of the Company’s net revenues is as follows:

The ~~two customers~~customer listed above comprised ~~88%~~80% and ~~68%~~86% of our accounts receivable as of September 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

During the three ~~and nine~~ months ended September 30, ~~2018~~2019 and ~~2017,~~2018, the Company operated in three geographic locations; the Americas, EMEA (Europe, the Middle East, and Africa), and Asia Pacific. Revenues attributed to the geographic location of the customers’ bill-to address were as follows (in thousands):

The Company does not separately allocate specific assets to these geographic locations.

The Company may become involved in various legal proceedings arising from its business activities. While management does not believe the ultimate disposition of these matters will have a material adverse impact on the Company’s consolidated results of operations, cash flows, or financial position, litigation is inherently unpredictable, and depending on the nature and timing of these proceedings, an unfavorable resolution could materially affect the Company’s future consolidated results of operations, cash flows, or financial position in a particular period.

During its normal course of business, the Company has made certain indemnities, commitments, and guarantees under which it may be required to make payments in connection with certain transactions. These include: intellectual property indemnities to the Company’s customers and licensees in connection with the use, sale, and/or license of Company products; indemnities to various lessors in connection with facility leases for certain claims arising from use of such facility or under such lease; indemnities to vendors and service providers pertaining to claims based on the negligence or willful misconduct of the Company; indemnities involving the accuracy of representations and warranties in certain contracts; and indemnities to directors and officers of the Company to the

maximum extent permitted under the laws of the State of Delaware. In addition, the Company has made contractual commitments to employees providing for severance payments upon the occurrence of certain prescribed events. The Company may also issue a guarantee in the form of a

standby letter of credit as security for contingent liabilities under certain customer contracts. The duration of these indemnities, commitments, and guarantees varies, and in certain cases may be indefinite. The majority of these indemnities, commitments, and guarantees may not provide for any limitation of the maximum potential for future payments the Company could be obligated to make. The Company has not recorded any liability for these indemnities, commitments, and guarantees in the accompanying consolidated balance sheets.

The Company leases office space and equipment, and certain office space is subleased. Management determines if a contract is a lease at the inception of the arrangement and reviews all options to extend, terminate, or purchase its right-of-use assets at the inception of the lease and accounts for these options when they are reasonably certain of being exercised.

Leases with an initial term of greater than twelve months are recorded on the consolidated balance sheet. Lease expense is recognized on a straight-line basis over the lease term.

The Company’s lease contracts generally do not provide a readily determinable implicit rate. For these contracts, the estimated incremental borrowing rate is based on information available at the inception of the lease.

During the second quarter of 2019, the Company extended the lease term on its Pittsburgh, PA headquarters, which resulted in a net increase in right-of-use assets and lease liabilities of approximately $3.0 million. Additionally, an office lease in Aliso Viejo, CA commenced during the second quarter, which increased right-of-use assets and lease liabilities by approximately $1.5 million.

Operating lease assets and liabilities are summarized as follows (in thousands):

The maturity of operating lease liabilities is presented in the following table (in thousands):

~~On March 6, 2018,~~In January 2019, the Company ~~completed the March Offering, wherein a total of 2,857,144~~issued 2,699,531 shares of the Company’s common stock were issued at a purchase price of $1.75 per share, for a total purchase price of $5.0 million, with each investor also receiving a warrant to purchase up to a number of shares of common stock equal to the number of shares of common stock purchased by such investor in the offering at an exercise price of $2.17 per share. The March Offering raised net cash proceeds of approximately $4.5 million (after deducting the placement agent fee and expenses of the March Offering). The Company is using the net cash proceeds from the March Offering for working capital purposes, to fund required dividend payments, payment of principal and interest payments under short-term borrowing obligations, and payment of interest (but not principal) under long-term borrowing obligations.

The Company engaged Chardan Capital Markets, LLC (“Chardan”) as placement agent for the March Offering pursuant to an engagement letter agreement. The Company agreed to pay Chardan a cash placement fee equal to 8.0% of the gross proceeds of the March Offering, and issued to Chardan a warrant to purchase shares of common stock equal to 3.0% of the number of shares sold in the March Offering (the “Chardan Warrant”). The Chardan Warrant has an exercise price of $2.365 per share, a term of 5.5 years from the closing date of the March Offering, and otherwise has identical terms to the warrants issued to the investors in the March Offering.

~~Pursuant to the purchase agreement entered~~Common Stock in connection with ~~the March Offering (the “March Purchase Agreement”), the Company used~~ its ~~best efforts to cause the conversion of all shares~~acquisition of the ~~Company’s Series B 10% Convertible Preferred Stock (the “Series B Preferred Stock”) into shares~~Smart Retail product suite of common stock pursuant to the terms of the Company’s Certificate of Designation (the “Certificate of Designation”) with respect to the Series B Preferred Stock. In connection therewith, the Company entered into letter agreements with each of William W. Smith, Jr. (“Smith”) and Andrew Arno (“Arno”), whereby each of Smith and Arno agreed to take certain action to convert the shares of Series B Preferred Stock held by them pursuant to terms outlined in the March Purchase Agreement, andISM Connect, LLC. See Note 3 for further agreed that the shares of common stock issued upon such conversion shall not be subject to resale registration rights. Each of Smith and Arno completed the conversion of their shares of Series B Preferred Stock in accordance with such letter agreements.

The Company prepared and filed a registration statement with the SEC for the purpose of registering the resale of shares of common stock issued in the March Offering, and such registration statement became effective within the time period agreed by the parties to the March Offering.

On May 3, 2018, the Company completed the May Offering, wherein a total of 3,170,000 shares of the Company’s common stock were issued at a purchase price of $2.21 per share, for a total purchase price of approximately $7.0 million, with each investor also receiving a warrant to purchase up to a number of shares of common stock equal to the number of shares of common stock purchased by such investor in the Offering at an exercise price of $2.11 per share. The May Offering raised net cash proceeds of approximately $6.3 million (after deducting the placement agent fee and expenses). The Company is using the net cash proceeds from the May Offering for working capital purposes, and to fund required dividend payments, payment of principal and interest payments under short-term borrowing obligations, and payment of interest (but not principal) under long-term borrowing obligations.

The Company engaged Chardan as placement agent for the May Offering pursuant to an engagement letter agreement. The Company agreed to pay Chardan a cash placement fee equal to 7.0% of the gross proceeds of the May Offering. The Company also engaged Roth Capital Partners, LLC (“Roth”) as its financial advisor for the May Offering. The Company agreed to pay Roth a cash fee equal to 2.0% of the gross proceeds of the May Offering.

The Company prepared and filed a registration statement with the SEC for the purpose of registering the resale of shares of common stock issued in the May Offering, and such registration statement became effective within the time period agreed by the parties to the May Offering.

The Company has outstanding warrants issued pursuant to an agreement entered into on September 6, 2016 with Unterberg Koller Capital Fund L.P. (the “Unterberg Warrant Agreement”). The March Offering caused a Triggering Event as defined in the Unterberg Warrant Agreement, and the warrants were repriced from an exercise price of $2.14 to $2.07. The Triggering Event charges of $11 thousand were recorded to Stockholders’ Equity during the first quarter of 2018.details.

In connection with the Company’s September 2017 offering of Series B Preferred Stock (the “Series B Transaction”) to certain investors (the “Series B Stockholders”), the Company entered into a Registration Rights Agreement with investors (the “Series B Registration Rights Agreement”) under which the Company agreed to prepare and file a registration statement with the SEC within 30 days after closing of the Series B Transaction for the purpose of registering the resale of shares of common stock issuable upon conversion of the Series B Preferred Stock (the “Conversion Shares”). The Company agreed to use its reasonable best efforts to cause such resale registration statement to be declared effective by the SEC within 90 days after the closing of the Series B Transaction (120 days in the event the registration statement is reviewed by the SEC) and agreed to pay liquidated damages to the Series B Stockholders if such resale registration statement were not to become effective within the applicable time period. The Conversion Shares were included in the registration statement filed in connection with the March Offering, and such registration statement became effective on April 19, 2018, which was later than the deadline specified in the Series B Registration Rights Agreement, resulting in liquidated damage payments of $48 thousand to Series B Stockholders. Certain Series B Stockholders, including without limitation, Smith and Arno, waived their rights to receive such liquidated damage payments.

We account for income taxes as required by FASB ASC Topic No. 740, Income Taxes. This Topic clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Topic also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Topic requires an entity to recognize the financial statement impact of a tax position when it is more likely than not that the position will be sustained upon examination. The amount recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. In addition, the Topic permits an entity to recognize interest and penalties related to tax uncertainties as either income tax expense or operating expenses. The Company has chosen to recognize interest and penalties related to tax uncertainties as income tax expense.

The Company assesses whether a valuation allowance should be recorded against its deferred tax assets based on the consideration of all available evidence, using a “more likely than not” realization standard. The four sources of taxable income that must be considered in determining whether deferred tax assets will be realized are: (1) future reversals of existing taxable temporary differences (i.e., offset of gross deferred tax liabilities against gross deferred tax assets); (2) taxable income in prior carryback years, if carryback is permitted under the applicable tax law; (3) tax planning strategies; and (4) future taxable income exclusive of reversing temporary differences and carryforwards.

In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively verified. A significant factor in the Company’s assessment is that the Company has been in a five-year historical cumulative loss as of the end of fiscal 2017. These facts, combined with uncertain near-term market and economic conditions, reduced the Company’s ability to rely on projections of future taxable income in assessing the realizability of its deferred tax assets.

After a review of the four sources of taxable income as of December 31, ~~2017 (as~~2018 as described ~~above),~~above, and after consideration of the Company’s continuing cumulative loss position as of December 31, ~~2017,~~2018, the Company will continue to reserve its U.S.-based deferred tax amounts, which total ~~$52.9~~$52.4 million as of September 30, ~~2018.~~2019.

The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. Federal income tax returns of the Company are currently subject to IRS examination for the ~~2013~~2015 – 2017 tax years. State income tax returns are subject to examination for a period of three to four years after ~~filing.~~filing and currently the 2014-2017 tax years are open for audit. The outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. We may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our consolidated financial results. It is the Company’s policy to classify any interest and/or penalties in the consolidated financial statements as a component of income tax expense.

In June 2019, pursuant to an Asset Purchase Agreement entered earlier in the same month, the Company sold certain assets of its Poser 3D animation software product to Bondware, Inc. for $500,000, of which $350,000 was paid at closing, with the remainder to be paid in quarterly installments over three years. The Company recorded a gain on the transaction in the amount of approximately $483,000, which is presented as Other Income in the consolidated statements of operations.

The Company evaluates and discloses subsequent events as required by FASB ASC Topic No. 855, Subsequent Events. The Topic establishes general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or are available to be issued. Subsequent events have been evaluated as of the date of this filing and no further disclosures are required.

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

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

This Quarterly Report on Form 10-Q (“~~report”~~Report”) contains forward-looking statements regarding Smith Micro which include, but are not limited to, statements concerning ~~our ability to remain a going concern, our ability to raise more funds,~~ customer concentration, projected revenues, ~~expenses, gross profit and income, the competitive factors affecting our business,~~ market acceptance of products, the success and timing of new product introductions, the competitive factors affecting our business, our ability to raise additional capital, gross profit and income, our ability to remain a going concern, our expenses, and the protection of our intellectual property. We are including this cautionary statement in this report to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of us. With the exception of historical matters, the matters discussed in this report are forward-looking statements (as defined in Section 21E of the Exchange Act) that involve risks and uncertainties that could cause actual results to differ materially from projected results. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by us. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “potential,” “believes,” “seeks,” “estimates,” “should,” “may,” “will,” and variations of these words or similar expressions are intended to identify forward-looking statements. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, our actual results could differ materially ~~and adversely~~ from those expressed or implied in any forward-looking statements as a result of various ~~factors, and investors should not place undue reliance on forward-looking statements as a prediction of actual results.~~factors. Such factors include, but are not limited to, the following:

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

Smith Micro develops software to simplify and enhance the mobile experience, providing solutions to some of the leading wireless service providers ~~device manufacturers,~~ and ~~enterprise businesses~~cable multiple service operators (“MSOs”) around the world. From ~~optimizing wireless networks~~enabling the family digital lifestyle to ~~uncovering customer experience insights, and from streamlining Wi-Fi access to ensuring family safety,~~providing powerful voice messaging capabilities, our solutions enrich today’s connected lifestyles while creating new opportunities to engage consumers via ~~smartphones.~~smartphones and consumer devices for the Internet of Things (“IoT”). Our portfolio also includes a wide range of products for creating, sharing and monetizing rich content, such as visual messaging, ~~video streaming,~~optimizing retail content display, analytics capabilities, and ~~2D/3D~~ graphics applications. ~~With this~~

We continue to innovate and evolve our business to take advantage of industry trends and opportunities in emerging markets, such as ~~a focus, it is Smith Micro’s mission to help our customers thrive in a connected world.~~

~~Over the past three decades, Smith Micro has developed deep expertise in embedded software for mobile devices, policy-based management platforms,~~digital lifestyle services and highly scalable client and server applications. Tier 1 mobile network operators, cable providers, original equipment manufacturers (“OEMs”), device manufacturers, and enterprise businesses across a wide range of industries use our software to capitalize on the growth of connected consumersonline safety, “Big Data” analytics, automotive telematics, and the ~~IoT.~~consumer IoT marketplace. The key to our longevity, however, is not simply technological innovation, but a never-ending focus on customer value.

A summary of the Company’s customers that represent 10% or more of the Company’s net revenues is as follows:

The ~~two customers~~customer listed above comprised ~~88%~~80% and ~~68%~~86% of our accounts receivable as of September 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

The table below sets forth certain statements of operations and comprehensive loss data expressed as a percentage of revenues for ~~each of~~ the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018. Our historical results are not necessarily indicative of the operating results that may be expected in the future.

	For the Three Months Ended September 30,								For the Nine Months Ended September 30,								For the Three Months Ended September 30,							For the Nine Months Ended September 30,
	2018				2017				2018				2017				2019			2018				2019			2018
Revenues		100.0		%		100.0		%		100.0		%		100.0		%		100.0	%		100.0		%		100.0	%		100.0		%
Cost of revenues		15.0				20.0				18.0				21.6				8.6			15.0				9.3			18.0
Gross profit		85.0				80.0				82.0				78.4				91.4			85.0				90.7			82.0
Operating expenses:
Selling and marketing		20.1				24.3				23.7				27.1				15.2			20.1				17.8			23.7
Research and development		31.4				36.2				34.3				39.3				26.0			31.4				27.3			34.3
General and administrative		31.4				38.2				33.3				38.6				20.3			31.4				24.2			33.3
Restructuring expense		1.3				(2.5	)			0.7				3.3				0.3			1.3				0.5			0.7
Total operating expenses		84.2				96.2				92.0				108.3				61.8			84.2				69.8			92.0
Operating income (loss)		0.8				(16.2	)			(10.0	)			(29.9	)			29.6			0.8				20.9			(10.0	)
Interest expense, net		(2.0	)			(5.4	)			(2.4	)			(5.4	)
Interest income (expense), net																		0.7			(2.0	)			0.4			(2.4	)
Change in fair value of warrant liability		(13.8	)			—				(16.5	)			—				—			(13.8	)			—			(16.5	)
Loss on debt extinguishment		—				(7.0	)			—				(2.3	)
Other income (expense)		—				—				(0.3	)			(0.1	)
Loss before provision for income taxes		(15.0	)			(28.6	)			(29.2	)			(37.7	)
Gain on sale of software product																		—			—				1.6			—
Other expense																		—			—				—			(0.3	)
Income (loss) before provision for income taxes																		30.3			(15.0	)			22.9			(29.2	)
Provision for income tax expense		0.1				0.1				0.2				0.1				—			0.1				—			0.2
Net loss		(15.1	)	%		(28.7	)	%		(29.4	)	%		(37.8	)	%
Net income (loss)																		30.3	%		(15.1	)	%		22.9	%		(29.4	)	%

The following table shows the revenues generated by each business segment for ~~each of~~ the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):

Three Months Ended September 30, ~~2018~~2019 Compared to the Three Months Ended September 30, ~~2017~~2018

Revenues. Revenues were ~~$6.5~~$11.8 million and ~~$5.8~~$6.5 million for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, representing an increase of ~~$0.7~~$5.3 million, or ~~12.4%~~81%. Excluding the ViewSpot acquisition, revenue growth was 61% compared to the same period in 2018. Wireless revenue of ~~$6.3~~$11.6 million increased ~~$1.6~~$5.3 million, or ~~34.0%~~85%, primarily due to increased subscribers and resulting revenues from our largest customer, Sprint, associated with growth in ~~both~~ the ~~CommSuite and~~ SafePath ~~products.~~product. Our newly acquired product, ViewSpot, generated approximately $1.3 million in revenues during the quarter. Graphics revenue decreased by ~~$0.9~~$0.1 million, or ~~78.3%~~31% over last year, primarily ~~related~~due to lower demand as a result of reduced strategic focus and marketing efforts in the termination of our reseller agreement with Japanese software developer Celsys, which permitted us to market, license and provide support for the English-language version of Clip Studio Paint (formerly Manga Studio), in 2017.segment.

Cost of revenues. Cost of revenues were $1.0 million for each of the three months ended September 30, 2019 and ~~$1.2~~2018.

Gross profit. Gross profit was $10.8 million, or 91% of revenues, for the three months ended September 30, ~~2018 and 2017, respectively, representing a decrease of $0.2 million, or 15.5%, primarily related~~2019, compared to ~~lower internal and external variable costs in conjunction with the mix of revenue.~~

~~Gross profit. Gross profit was~~ $5.5 million, or 85% of revenues, for the three months ended September 30, ~~2018, compared~~2018. This increase was due primarily to ~~$4.6 million, or 80% of revenues, for~~lower variable costs in conjunction with the ~~three months ended September 30, 2017.~~ revenue mix during the quarter.

Selling and marketing. Selling and marketing expenses were ~~$1.3~~$1.8 million and ~~$1.4~~$1.3 million for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. This ~~decrease~~increase was primarily due to an increase in headcount for ViewSpot and ~~other cost reduction activities announced in the second quarter of 2018.~~commissions due to increased performance levels. The amortization of intangible assets was $0.1 million for each of the three months ended September 30, ~~2018~~2019 and ~~2017.~~2018.

Research and development. Research and development expenses were ~~$2.0~~$3.1 million and ~~$2.1~~$2.0 million for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. This ~~decrease~~increase was primarily due to additional headcount related expenses for ViewSpot and ~~other cost reduction activities announced in the second quarter of 2018.~~SafePath development.

General and administrative. General and administrative expenses were ~~$2.0~~$2.4 million and ~~$2.2~~$2.0 million for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. This ~~decrease~~increase was primarily due to ~~cost reduction activities announced~~an increase in ~~the second quarter of 2018.~~non-cash stock compensation and variable compensation expense.

Restructuring expense. Restructuring expense was ~~less than $0.1 million~~$39 thousand and ~~income of $0.1 million~~$83 thousand for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Restructuring charges in ~~2017 related primarily to one-time employee terminations of $0.2 million and the accelerated vesting of stock awards of $0.2 million. Restructuring charges in 2018~~both periods related primarily to one-time employee termination costs.

Interest ~~expense,~~income (expense), net. Interest income of $87 thousand for the three months ended September 30, 2019 related primarily to interest earned on cash equivalents. Interest expense was $0.1 million for the three months ended September 30, 2018, which consisted of interest on notes payable and amortization of the debt discount and issuance costs. ~~Interest expense on notes payable was $0.3 million for the three months ended September 30, 2017.~~ This period to period decrease was due to a reduction in outstanding debt from the previous year.

Change in fair value of warrant liability. The change in the fair value of warrant liability was ~~$0.9~~$1.0 million ~~and $0~~ for the three months ended September 30, 2018. The warrants were reclassified from liabilities to equity in connection with the November 2018 ~~and 2017, respectively.~~stock offering.

~~Loss on related party debt extinguishment. The loss on related party debt extinguishment of $0.4 million in 2017 was due to the extinguishment of related party long-term debt exchanged for Series B Preferred Stock.~~

Nine Months Ended September 30, ~~2018~~2019 Compared to the Nine Months Ended September 30, ~~2017~~2018

Revenues. Revenues were ~~$18.9~~$31.1 million and ~~$17.2~~$18.9 million for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, representing an increase of ~~$1.7~~$12.1 million, or ~~9.8%~~64%. Excluding the ViewSpot acquisition, revenue growth was 45% compared to the same period in 2018. Wireless revenue of ~~$17.6~~$30.4 million increased ~~$3.9~~$12.8 million, or ~~28.7%~~73%, primarily due to increased subscribers and resulting revenues from our largest customer, Sprint, associated with growth in ~~both~~ the ~~CommSuite and~~ SafePath product. Our newly acquired product, ViewSpot,

generated approximately $3.7 million in revenues during the period. The growth in Wireless revenues from these products was slightly offset by a reduced strategic focus on the NetWise products. Graphics revenue decreased by ~~$2.2~~$0.6 million, or ~~62.7%~~56% over last year, primarily related to the termination of our reseller agreement with ~~Celsys.~~Japanese software developer Celsys in October 2017, which permitted certain post-termination distribution rights for the English-language version of Clip Studio Paint (formerly Manga Studio), through April 2018. Graphics revenues also declined during the period due to lower demand as a result of reduced strategic focus and marketing efforts in the segment.

Cost of revenues. Cost of revenues were ~~$3.4~~$2.9 million and ~~$3.7~~$3.4 million for the nine months ended September 30, 2019 and 2018, ~~and 2017, respectively. The~~respectively, representing a decrease ~~in cost is~~of $0.5 million, or 15%, primarily related to lower internal and external variable costs in conjunction with the mix of revenue.

Gross profit. Gross profit was $28.2 million, or 91% of revenues, for the nine months ended September 30, 2019, compared to $15.5 million, or 82% of revenues, for the nine months ended September 30, ~~2018, compared~~2018. This increase was due primarily to ~~$13.5 million, or 78% of revenues, for~~lower variable costs in conjunction with the ~~nine months ended September 30, 2017.~~ revenue mix during the quarter.

Selling and marketing. Selling and marketing expenses were ~~$4.5~~$5.5 million and ~~$4.7~~$4.5 million for the nine months ended September 30, 2019 and 2018, ~~and 2017, respectively, representing a decrease of $0.2 million, or 3.8%.~~respectively. This ~~decrease~~increase was primarily due to an increase in headcount for ViewSpot and ~~other cost reduction activities announced in the second quarter of 2018.~~commissions due to increased performance levels. The amortization of intangible assets was $0.3 million and $0.1 million for ~~each of~~ the nine months ended September 30, 2019 and 2018, ~~and 2017.~~respectively.

Research and development. Research and development expenses were ~~$6.5~~$8.5 million and ~~$6.8~~$6.5 million for the nine months ended September 30, 2019 and 2018, ~~and 2017, respectively, representing a decrease of $0.3 million, or 4.0%.~~respectively. This ~~decrease~~increase was primarily due to additional headcount related expenses for ViewSpot and ~~other cost reduction activities announced in the second quarter of 2018.~~SafePath development.

General and administrative. General and administrative expenses were ~~$6.3~~$7.5 million and ~~$6.6~~$6.3 million for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. This ~~decrease~~increase was primarily due to ~~cost reduction activities announced~~an increase in ~~the second quarter of 2018~~non-cash stock compensation, variable compensation expense, consulting fees, and ~~a reduction of professional service~~acquisition fees.

Restructuring expense. Restructuring expense was ~~$0.1 million~~$154 thousand and ~~$0.6 million~~$135 thousand for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Restructuring charges in ~~2017 related primarily to one-time employee terminations of $0.2 million and the accelerated vesting of stock awards of $0.2 million, offset by~~ ~~an increase in sublease income due to the signing of a new sublease extension. Restructuring charges in 2018~~both periods related primarily to one-time employee termination costs.

Interest ~~expense,~~income (expense), net. Interest income of $117 thousand for the nine months ended September 30, 2019 related primarily to interest earned on cash equivalents. Interest expense was $0.4 million for the nine months ended September 30, 2018, which consisted of interest on notes payable and amortization of the debt discount and issuance costs. ~~Interest expense on notes payable was $0.9 million for the nine months ended September 30, 2017.~~ This period to period decrease was due to a reduction in outstanding debt from the previous year.

Gain on sale of software product. The gain on sale of software product of $0.5 million resulted from the sale of the Company’s Poser 3D animation software in June 2019.

Change in fair value of warrant liability. The change in the fair value of warrant liability was $3.1 million ~~and $0~~ for the nine months ended September 30, 2018. The warrants were reclassified from liabilities to equity in connection with the November 2018 ~~and 2017, respectively.~~

See Note 34 of the consolidated financial statements for management’s going concern evaluation of the Company.

At September 30, ~~2018,~~2019, we had ~~$8.4~~$23.9 million in cash and cash equivalents and ~~$11.9~~$30.6 million of working capital.

Net cash used in operating activities was $4.8 million for the nine months ended September 30, 2019. The primary uses of operating cash were an increase in accounts receivable of $4.0 million, a decrease in prepaid expenses and other assets of $54 thousand, a decrease in accounts payable and accrued expenses of $0.7 million, and a decrease in deferred revenue of $0.2 million. This usage was partially offset by an add-back of non-cash expenses totaling $2.6 million.

Net cash used in operating activities was $3.0 million for the nine months ended September 30, 2018. The primary uses of operating cash were to fund our net loss of $5.5 million, adding back non-cash net expenses of $4.6 million, an increase in accounts receivable of $1.2 million, an increase in prepaid expenses and other assets of $0.1 million, and a decrease in accounts payable and accrued expenses of $0.8 million. This usage was partially offset by an increase in deferred revenue of ~~less than $0.1 million.~~$47 thousand.

Net cash used in ~~operating~~investing activities was ~~$5.7~~$4.4 million for the nine months ended September 30, ~~2017. The primary uses~~2019, relating to a $4.0 million net cash payment for the Smart Retail acquisition, proceeds of ~~operating cash were to fund our net loss~~$0.4 million from the sale of ~~$6.5~~the Poser 3D animation software product, and $0.8 million ~~adding back non-cash net expenses~~ of $2.4 million, decreases in accounts payable and accrued expenses of $1.6 million, and an increase in accounts receivable of $0.3 million. This usage was partially offset by an increase in deferred revenue of $0.3 million.

Net cash used in investing activities was $172 thousand ~~and $68 thousand~~ for the nine months ended September 30, 2018, ~~and 2017, respectively,~~ which ~~in each case was~~ related to capital expenditures.

Net cash used in financing activities was $11.3 million for the nine months ended September 30, 2019, relating primarily to $11.4 million from proceeds from the exercise of common stock warrants and $119 thousand in payments of dividends on preferred stock.

Net cash provided by financing activities was $9.4 million for the nine months ended September 30, 2018. We received net proceeds of approximately $10.7 million from the sale of our common stock in two private placements, which was partially offset by payments of $1.0 million of related party notes payable and $0.4 million of dividends on preferred stock.

Net cash provided by financing activities was $7.5 million for the nine months ended September 30, 2017, resulting from short-term loans from two of our Board members and proceeds from the sale of our common stock in a private placement.

During our normal course of business, we have made certain indemnities, commitments, and guarantees under which we may be required to make payments in relation to certain transactions. These include: intellectual property indemnities to our customers and licensees in connection with the use, sale and/or license of our products; indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease; indemnities to vendors and service providers pertaining to claims based on negligence or willful misconduct; indemnities involving the accuracy of representations and warranties in certain contracts; and indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of Delaware. We may also issue a guarantee in the form of a standby letter of credit as security for contingent liabilities under certain customer contracts. The duration of these indemnities, commitments and guarantees varies, and in certain cases, may be indefinite. The majority of these indemnities, commitments, and guarantees may not provide for any limitation of the maximum potential for future payments we could be obligated to make. We have not recorded any liability for these indemnities, commitments, and guarantees in the accompanying consolidated balance sheets. There were no material changes in our contractual obligations and other commercial commitments that would require an update to the disclosure provided in our ~~2017~~2018 Annual Report on Form 10-K, filed with the SEC on March ~~30, 2018, as amended April 17, 2018.~~27, 2019.

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

Our discussion and analysis of results of operations, financial condition, and liquidity are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may materially differ from these estimates under different assumptions or conditions. On an on-going basis, we review our estimates to ensure that they appropriately reflect changes in our business or new information as it becomes available. See Note 2 of our Notes to the Consolidated Financial Statements for information regarding our critical accounting policies and estimates.

We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of September 30, ~~2018.~~2019. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have determined that as of September 30, ~~2018,~~2019, our disclosure controls and procedures were effective to ensure that the information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can

provide only reasonable assurance of achieving the desired control objectives and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management is responsible for the integrity and objectivity of all information presented in this ~~report.~~Report. The consolidated financial statements were prepared in conformity with U.S. GAAP and include amounts based on management’s best estimates and judgments. Management believes the consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements fairly represent the Company’s financial position and results of operations for the periods and as of the dates stated therein.

The Audit Committee of the Company’s Board of Directors, which is composed solely of independent directors, meets regularly with our independent registered public accounting firm, SingerLewak LLP, and representatives of management to review accounting, financial reporting, internal control, and audit matters, as well as the nature and extent of the audit effort. The Audit Committee is responsible for the engagement of the independent auditors. The independent auditors have free access to the Audit Committee.

There have been no changes in our internal controls over financial reporting during the quarter ended September 30, ~~2018~~2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

The table set forth below shows all repurchases of securities by us during the three months ended September 30, ~~2018:~~2019:

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this ~~report~~Report to be signed on its behalf by the undersigned thereunto duly authorized.

DELAWARE	33‑0029027
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	2
	Consolidated Balance Sheets as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018	2
	Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, ~~2018~~2019 and ~~2017~~2018	3
	Consolidated Statement of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2018~~2019 and ~~2017~~2018	46
	Notes to the Consolidated Financial Statements	57
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1416
Item 4.	Controls and Procedures	1821

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	2022
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2022
Item 6.	Exhibits	2123

SIGNATURES		2224

Fair value of assets acquired	$	9,394
Fair value of liabilities assumed		291
Total purchase price	$	9,103

Components of purchase price:
Cash	$	3,974
Common stock		5,129
Total purchase price	$	9,103

	March 5, 2018			May 3, 2018
	Warrants			Warrants
Expected term		4.92			5.08
Common stock market price	$	2.52		$	2.52
Risk-free interest rate		2.89	%		2.89	%
Expected volatility		70.6	%		74.0	%
Resulting fair value (per warrant)	$	1.58		$	1.66

	For the Three Months Ended September 30,			For the Nine Months Ended September 30,
	(unaudited)			(unaudited)
Lease cost	$	518		$	1,553
Sublease income		(151	)		(452	)
Total lease cost	$	367		$	1,101

Assets:
Costs incurred on projects not complete	$	53
Intangible assets		5,229
Goodwill		4,112
Total assets	$	9,394
Liabilities:
Deferred revenue	$	291
Total liabilities		291
Total purchase price	$	9,103

	As of September 30, 2018				As of December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Warrant liability	$	9,918	$	9,918	$	—	$	—
Short-term debt, related party		—		—		1,000		1,000
Long-term debt, related party		1,200		1,200		1,200		1,200
Long-term debt		1,755		1,755		1,558		1,558
Total	$	12,873	$	12,873	$	3,758	$	3,758

Balance at December 31, 2017 (audited)	$	—
Warrants issued		6,792
Change in fair value of warrant liability		3,126
Balance at September 30, 2018 (unaudited)	$	9,918

	As of September 30, 2019
	(unaudited)
Right-of-use assets	$	6,459

Current lease liabilities	$	1,154
Long-term lease liabilities		5,809
Total lease liabilities	$	6,963

ISSUER PURCHASES OF EQUITY SECURITIES	ISSUER PURCHASES OF EQUITY SECURITIES										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			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
July 1 - 31, 2018			30,498	⁽¹⁾	$	2.57		—		—
August 1 - 31, 2018			8,583	⁽²⁾		2.53		—		—
September 1 - 30, 2018			8,583	⁽²⁾		2.44		—		—
July 1 - 31, 2019													14,920	(1)	$	3.41		—		—
August 1 - 31, 2019													12,784	(2)		6.27		—		—
September 1 - 30, 2019													12,783	(2)		5.67		—		—
Total			47,664		$	2.54							40,487		$	5.03

Exhibit		Description

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

	SMITH MICRO SOFTWARE, INC.

~~October 26, 2018~~November 1, 2019	By /s/	William W. Smith, Jr.
	William W. Smith, Jr.
	Chairman of the Board, President and Chief Executive Officer
	(Principal Executive Officer)

~~October 26, 2018~~November 1, 2019	By /s/	Timothy C. Huffmyer
	Timothy C. Huffmyer
	Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

	As of September 30, 2019
	(unaudited)
2019	$	354
2020		1,654
2021		1,631
2022		1,220
2023		1,231
Thereafter		2,338
Total lease payments		8,428
Less imputed interest		1,465
Present value of lease liabilities	$	6,963

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company