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 May ~~7, 2020,~~6, 2021, there were ~~41,420,954~~53,200,076 shares of common stock outstanding.

	March 31,			December 31,			March 31,			December 31,
	2020			2019			2021			2020
	(unaudited)			(audited)			(unaudited)			(audited)
Assets
Current assets:
Cash and cash equivalents	$	19,456		$	28,268		$	89,247		$	25,754
Accounts receivable, net of allowances for doubtful accounts and other adjustments of $247 (2020) and $253 (2019)		11,882			10,894
Accounts receivable, net of allowance for doubtful accounts and other adjustments of $5 and $10 (2021 and 2020, respectively)								8,333			12,347
Prepaid expenses and other current assets		591			802			908			1,189
Total current assets		31,929			39,964			98,488			39,290
Equipment and improvements, net		2,152			2,109			2,161			2,170
Right-of-use assets		6,349			6,464			5,690			5,785
Deferred tax assets, net		94			94
Other assets		458			234			679			694
Intangible assets, net		15,875			4,535			10,400			12,698
Goodwill		11,493			7,797			12,266			12,266
Total assets	$	68,350		$	61,197		$	129,684		$	72,903
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	3,463		$	2,050		$	2,640		$	2,282
Accrued payroll and benefits		2,285			2,107			3,150			2,867
Current operating lease liabilities		1,273			1,221			1,427			1,433
Other accrued liabilities		271			244			188			216
Deferred revenue		1,690			98			1,027			1,572
Total current liabilities		8,982			5,720			8,432			8,370
Non-current liabilities:
Operating lease liabilities		5,548			5,774			4,627			4,805
Deferred rent		850			885			845			887
Deferred tax liabilities, net								59			59
Other long term liabilities		117			134			66			66
Total non-current liabilities		6,515			6,793			5,597			5,817
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.001 per share; 5,000,000 shares authorized; 5,500 shares issued (2020 and 2019); 0 shares outstanding (2020 and 2019)		—			—
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 40,383,056 and 38,475,084 shares issued and outstanding (2020 and 2019, respectively)		40			38
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 51,645,718 and 41,232,804 shares issued and outstanding (2021 and 2020, respectively)								52			41
Additional paid-in capital		276,163			274,041			340,058			279,905
Accumulated comprehensive deficit		(223,350	)		(225,395	)		(224,455	)		(221,230	)
Total stockholders’ equity		52,853			48,684			115,655			58,716
Total liabilities and stockholders' equity	$	68,350		$	61,197		$	129,684		$	72,903

	For the Three Months Ended					For the Three Months Ended
	March 31,					March 31,
	2020		2019			2021			2020
	(unaudited)		(unaudited)			(unaudited)			(unaudited)
Revenues	$	13,322	$	8,432		$	11,381		$	13,322
Cost of revenues		1,173		916			1,545			1,173
Gross profit		12,149		7,516			9,836			12,149
Operating expenses:
Selling and marketing		2,787		1,968			4,232			2,787
Research and development		3,729		2,682			5,183			3,729
General and administrative		3,668		2,700			3,658			3,668
Restructuring expense		6		104			—			6
Total operating expenses		10,190		7,454			13,073			10,190
Operating income		1,959		62
Other income (expense):
Operating income (loss)							(3,237	)		1,959
Other income:
Interest income, net		86		—			8			86
Other expense		—		(10	)
Income before provision for income taxes		2,045		52
Other income							4			—
Income (loss) before provision for income taxes							(3,225	)		2,045
Provision for income tax expense		—		4			—			—
Net income	$	2,045	$	48
Net income (loss)						$	(3,225	)	$	2,045

Earnings per share:
Basic	$	0.05	$	0.00
Diluted	$	0.05	$	0.00
Earnings (loss) per share:
Basic and diluted						$	(0.07	)	$	0.05

Weighted average shares outstanding:
Basic		39,482		31,297			43,368			39,482
Diluted		42,194		31,323			43,368			42,194

Preferred dividends per share	$	—	$	25.00

										Additional			Accumulated
	Series B Preferred Stock				Common Stock					Paid-in			Comprehensive
	Shares		Amount		Shares			Amount		Capital			Deficit			Total
BALANCE, December 31, 2019 (audited)		—	$	—		38,475		$	38	$	274,041		$	(225,395	)	$	48,684
Non-cash compensation recognized on stock options and ESPP		—		—		—			—		13			—			13
Restricted stock grants, net of cancellations		—		—		1,000			1		618			—			619
Cancellation of shares for payment of withholding tax		—		—		(110	)		—		(571	)		—			(571	)
Employee stock purchase plan		—		—		2			—		5			—			5
Exercise of warrants		—		—		1,009			1		2,044			—			2,045
Exercise of stock options		—		—		7			—		13			—			13
Net income		—		—		—			—		—			2,045			2,045
BALANCE, March 31, 2020 (unaudited)		—	$	—		40,383		$	40	$	276,163		$	(223,350	)	$	52,853

																								Additional			Accumulated
										Additional			Accumulated						Common Stock					Paid-in			Comprehensive
	Series B Preferred Stock				Common Stock					Paid-in			Comprehensive						Shares			Amount		Capital			Deficit			Total
	Shares		Amount		Shares			Amount		Capital			Deficit			Total
BALANCE, December 31, 2018 (audited)		1	$	—		28,242		$	28	$	256,626		$	(236,091	)	$	20,563
BALANCE, December 31, 2020 (audited)																				41,233		$	41	$	279,905		$	(221,230	)	$	58,716
Non-cash compensation recognized on stock options and ESPP		—		—		—			—		9			—			9			—			—		18			—			18
Restricted stock grants, net of cancellations		—		—		1,225			1		445			—			446			970			1		997			—			998
Cancellation of shares for payment of withholding tax		—		—		(103	)		—		(207	)		—			(207	)		(121	)		—		(824	)		—			(824	)
Employee stock purchase plan		—		—		2			—		5			—			5			4			—		15			—			15
Common shares issued in stock offering, net of offering costs		—		—		—			—		(14	)		—			(14	)		9,521			10		59,888			—			59,898
Common shares issued in connection with Smart Retail acquisition, net		—		—		2,699			3		5,126			—			5,129
Preferred stock dividends		—		—		—			—		—			(34	)		(34	)
Cumulative effect of adoption of ASC 842		—		—		—			—		—			93			93
Net income		—		—		—			—		—			48			48
BALANCE, March 31, 2019 (unaudited)		1	$	—		32,065		$	32	$	261,990		$	(235,984	)	$	26,038
Exercise of common stock warrants																				33			—		40			—			40
Exercise of stock options																				6			—		19			—			19
Net loss																				—			—		—			(3,225	)		(3,225	)
BALANCE, March 31, 2021 (unaudited)																				51,646		$	52	$	340,058		$	(224,455	)	$	115,655


						Additional			Accumulated
	Common Stock					Paid-in			Comprehensive
	Shares			Amount		Capital			Deficit			Total

BALANCE, December 31, 2019 (audited)		38,475		$	38	$	274,041		$	(225,395	)	$	48,684
Non-cash compensation recognized on stock options and ESPP		—			—		13			—			13
Restricted stock grants, net of cancellations		1,000			1		618			—			619
Cancellation of shares for payment of withholding tax		(110	)		—		(571	)		—			(571	)
Employee stock purchase plan		2			—		5			—			5
Exercise of common stock warrants		1,009			1		2,044			—			2,045
Exercise of stock options		7			—		13			—			13
Net income		—			—		—			2,045			2,045
BALANCE, March 31, 2020 (unaudited)		40,383		$	40	$	276,163		$	(223,350	)	$	52,853

	For the Three Months Ended						For the Three Months Ended
	March 31,						March 31,
	2020			2019			2021			2020
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Operating activities:
Net income	$	2,045		$	48
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net income (loss)							$	(3,225	)	$	2,045
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		644			321			2,497			644
Non-cash lease expense		244			194			307			244
Restructuring costs		6			104			—			6
Provision for doubtful accounts and other adjustments to accounts receivable		(4	)		(9	)		(3	)		(4	)
Provision for excess and obsolete inventory		—			1			(97	)		—
Loss on disposal of fixed assets		—			(1	)
Stock based compensation		632			455			1,016			632
Changes in operating accounts:
Accounts receivable		(983	)		(1,759	)		4,018			(983	)
Prepaid expenses and other assets		215			194			381			215
Accounts payable and accrued liabilities		(840	)		(117	)		(649	)		(840	)
Deferred revenue		302			(85	)		(545	)		302
Net cash provided by (used in) operating activities		2,261			(654	)
Net cash provided by operating activities								3,700			2,261
Investing activities:
Acquisition of Smart Retail business, net		—			(3,974	)
Acquisition of Circle operator business, net		(12,150	)		—			—			(12,150	)
Capital expenditures		(771	)		(110	)		(190	)		(771	)
Other investing activities		(215	)		—			11			(215	)
Net cash used in investing activities		(13,136	)		(4,084	)		(179	)		(13,136	)
Financing activities:
Proceeds from common stock offering, net of offering expenses								59,898			—
Proceeds from exercise of common stock warrants		2,045			—			40			2,045
Dividends paid on preferred stock		—			(34	)
Other financing activities		18			(9	)		34			18
Net cash provided by (used in) financing activities		2,063			(43	)
Net decrease in cash and cash equivalents		(8,812	)		(4,781	)
Net cash provided by financing activities								59,972			2,063
Net increase (decrease) in cash and cash equivalents								63,493			(8,812	)
Cash and cash equivalents, beginning of period		28,268			12,159			25,754			28,268
Cash and cash equivalents, end of period	$	19,456		$	7,378		$	89,247		$	19,456

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	19		$	9		$	23		$	19

Supplemental disclosures of non-cash activities:
Issuance of common stock in connection with Smart Retail acquisition	$	—		$	5,129

Smith Micro Software, Inc. (“Smith Micro”, the “Company”, “we”, “us”, or “our”) develops software to simplify and enhance the mobile experience, providing solutions to some of the leading wireless and cable service providers around the world. From enabling the family digital lifestyle to providing powerful voice messaging capabilities, we strive to enrich today’s connected lifestyles while creating new opportunities to engage consumers via smartphones and consumer IoT devices. Our portfolio includes a wide range of products for creating, sharing and monetizing rich content, such as visual voice messaging, retail content display optimization and performance analytics on any product set.

The accompanying interim consolidated balance sheet as of March 31, ~~2020,~~2021, and the related consolidated statements of operations, stockholders’ equity, and cash flows for ~~each of~~ the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, 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, ~~2019~~2020 filed with the SEC on March ~~13, 2020.~~8, 2021.

Operating results for the three months ended March 31, ~~2020~~2021 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, ~~2020.~~2021.

In March 2020, the World Health Organization categorized coronavirus disease 2019 (COVID-19) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. We continue to monitor the spread of COVID-19 throughout the United States and other countries across the world. The duration and severity of its effects continue to be uncertain. While the response to the COVID-19 outbreak continues to rapidly evolve, it has led to stay-at-home orders and social distancing guidelines that have seriously disrupted, and continue to disrupt, activities in large segments of the economy.

During the past four quarters, we saw a reduction in the number of SafePath® platform subscribers compared to March 2020, which we believe was largely driven by the COVID-19 related economic slowdown. The Company’s consolidated financial statements presented herein reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented.The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, all of which are uncertain and cannot be predicted.

As the impact of the COVID-19 pandemic on the economy and the Company’s operations continue to evolve, we will continue to monitor the impact on the Company’s operations and, if needed, postpone non-essential capital expenditures, reduce operating costs, and substantially reduce discretionary spending.

~~The Company adopted~~In accordance with FASB ASC Topic No. 606, Revenue from Contracts with Customers, ~~as of January 1, 2018, and~~ the Company recognizes the sale of goods and services based on the five-step analysis of transactions as provided in Topic 606, which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods and services.

~~In our Wireless segment, we~~We transfer software licenses to our customers on a royalty free, non-exclusive, non-transferrable, limited use basis during the term of the agreement. In some instances, we perform customization services to ensure the software operates within our ~~customer’s~~customers’ operating platforms as well as the operating platforms of 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~~customers’ 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. Finally, in this segment, we ratably recognize revenue over the contract period when customers pay in advance of our service delivery.

On February 12, 2020, we acquired certain assets from Circle (as defined in Note 3 below), including a source code license to Circle’s parental control software solution and ~~two~~2 customer contracts. Pursuant to these contracts, the customer parties thereto license the parental control software solution for distribution to their respective subscribers in designated markets. In each case, the contracts allow the customer to take possession of the software solution and to host it on their platform or with an independent third party hosting service provider without significant cost. We also provide significant services that are required by the customer to ensure they have the utility of the license. As the license to the software solution and the services we provide are highly interrelated, we have concluded that the license and our services are a single performance obligation. The license fee is earned and recognized on a pro-rata basis over the contract term based on our customer’s continued use of the license and our services.

We also provide consulting services to develop customer-specified functionality that ~~are~~is generally not on our software development roadmap. We recognize revenue from our consulting services upon delivery and acceptance by the customer of our software enhancements and upgrades. For certain ~~Wireless segment~~ customers we provide maintenance and technology support services for which the 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.

We receive upfront payments from customers from services to be provided under our ~~ViewSpot arrangements.~~ViewSpot® contracts. 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 upon delivery of the configured promotional content to the cloud platform.

For our Graphics products 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 the customer downloads the software from our website or website of our resellers. We offer a 30 day return option to our customers; a return reserve is established at the time revenue is recorded and the reserve is monitored and adjusted based on actual experience. Historically, returns have been insignificant.

The Company measures and discloses fair value measurements as required by FASB 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. 350, for goodwill and other intangibles impairment analysis, we utilize fair value measurements which are categorized within Level 3 of the fair value hierarchy.

On February 12, 2020, the Company acquired the operator business of Circle Media Labs Inc. (“Circle”) pursuant to a certain Asset Purchase Agreement by and between the Company and Circle.

The following table summarizes the consideration paid for the Circle acquisition in 2020 (unaudited, in thousands):

Fair value of assets acquired	$	14,966	$	14,966
Fair value of liabilities assumed		1,466		1,466
Total purchase price	$	13,500	$	13,500

Components of purchase price:
Cash	$	12,150	$	13,500
Cash holdback		1,350
Total purchase price	$	13,500	$	13,500

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

Assets:
Inventory, net	$	14	$	14
Intangible assets		11,256		10,483
Goodwill		3,696		4,469
Total assets	$	14,966	$	14,966
Liabilities:
Deferred revenue	$	1,290	$	1,290
Amounts due to seller		176		176
Total liabilities		1,466		1,466
Total purchase price	$	13,500	$	13,500

Pursuant to the transaction, Smith Micro acquired certain assets related to the Circle operator business, including ~~two~~2 new customer contracts and a source code license to Circle’s ~~currently~~then deployed parental control software and related technology.

Unaudited pro forma results of operations for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 are included below as if the Circle acquisition occurred on January 1, 2019. 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 the operator business of Circle been acquired at the beginning of 2019, nor does it purport to represent results of operations for any future periods.

	For the Three Months Ended March 31,					For the Three Months Ended March 31,
	2020		2019			2021			2020
	(unaudited, in thousands, except per share amounts)					(unaudited, in thousands, except per share amounts)
Revenues	$	13,789	$	9,266		$	11,381		$	13,789
Net income (loss)		2,105		(889	)		(3,225	)		2,105
Earnings (loss) per share:
Basic	$	0.05	$	(0.03	)	$	(0.07	)	$	0.05
Diluted	$	0.05	$	(0.03	)	$	(0.07	)	$	0.05

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 performed annually aton 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 no0 goodwill impairment at March 31, ~~2020~~2021 and December 31, ~~2019.~~2020.

During the first quarter of 2021, we received a customer contract termination notice related to a customer contract acquired in the acquisition of Circle’s operator business (as discussed in Note 3), which was otherwise set to expire in the second quarter of 2024. The contract was terminated effective April 15, 2021; however, in accordance with its terms, we continue to deliver wind-down services under the contract. While the terms of the contract allow for a wind-down period of up to two years post termination, the Company expects to continue services under this contract through the second quarter of 2022. The Company determined the customer contract should be accounted for under the contract modification guidance in Topic 606. As a result, the Company recognized deferred revenue of $0.6 million which was being amortized over the customer contract term and will amortize the remaining $0.3 million over the remaining service period. Additionally, the Company reviewed its customer contract intangible asset associated with this customer contract and determined that the carrying value was in excess of its fair value. Accordingly, the Company recorded a $1.5 million impairment charge within “selling and marketing expenses” in the consolidated statements of operations during the three months ended March 31, 2021 and will amortize the remaining $0.4 million over the remaining service period.

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 March 31,					For the Three Months Ended March 31,
	2020		2019			2021			2020
	(unaudited, in thousands, except per share amounts)					(unaudited, in thousands, except per share amounts)
Numerator:
Net income	$	2,045	$	48
Dividends paid to preferred stockholders		—		(34	)
Net income available to common stockholders	$	2,045	$	14
Net income (loss)						$	(3,225	)	$	2,045
Denominator:
Weighted average shares outstanding – basic		39,482		31,297			43,368			39,482
Potential common shares – options / warrants (treasury stock method)		2,712		26			—			2,712
Weighted average shares outstanding – diluted		42,194		31,323			43,368			42,194

Shares excluded (anti-dilutive)		77		11,213			2,559			77

Net earnings per common share:
Net earnings (loss) per common share:
Basic	$	0.05	$	0.00		$	(0.07	)	$	0.05
Diluted	$	0.05	$	0.00		$	(0.07	)	$	0.05

During the three months ended March 31, ~~2020,~~2021, the Company granted 1,000,000 shares of restricted stock and incentive stock options exercisable for ~~5,000~~10,000 shares under the Company’s 2015 Omnibus Equity Incentive Plan, as ~~amended.~~amended (the “2015 Plan”). As of March 31, ~~2020,~~2021, there were approximately ~~74,000~~3.9 million shares available for future grants under the Company’s 2015 ~~Omnibus Equity Incentive~~ Plan.

We primarily sell our software solutions, 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~~is 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~~customers’ use of perpetual licenses, transactions processed on our hosted environment, advertisement placements on our service platform, and activity on our ~~cloud based~~cloud-based service platform. As discussed in Note 3, on February 12, 2020, we purchased two customer contracts, among other assets, from Circle. Under these contracts, we provide our customers with licenses to software solutions and related services, for which we earn license fees, managed and hosting service fees, and consulting services which are provided throughout the life of the licensing arrangement.

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. Our cloud-based service includes a software solution license integrated with cloud-based 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. Since we do not allow our customers to take possession of the software solution, and since the utility of the license comes from the could-based services that we provide, we consider the software license and the cloud services to be a single performance obligation. We provide the Circle software solution license together with highly integrated consulting services to generate the utility of the license to the customers. Since the software solution and consulting services provided are highly interrelated, we consider the license and the consulting services to be a single performance obligation.

We also provide consulting services to configure ad hoc targeted promotional content to be presented on our solutions, as well as consulting services to provide additional functionality for our software solutions based on our ~~customer’s~~customers’ request. These requests are driven by our ~~customer’s~~customers’ marketing initiatives and tend to be short term “bursts” of activity or specific incremental functionality to existing software solutions. We recognize these revenues upon delivery and acceptance of the configured promotional content or additional functionality to the software solution.

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. As of March 31, ~~2020,~~2021, our total deferred revenue balance was ~~$1.7~~$1.0 million, of which ~~$1.3~~$0.9 million was related to the acquisition of the Circle operator business.

As also discussed in Note 4, during the first quarter of 2021, we received a customer contract termination notice related to a customer contract acquired in the acquisition of Circle’s operator business (as discussed in Note 3), which was otherwise set to expire in the second quarter of 2024. The contract was terminated effective April 15, 2021; however, in accordance with its terms, we continue to deliver wind-down services under the contract. While the terms of the contract allow for a wind-down period of up to two years post termination, the Company expects to continue services under this contract through the second quarter of 2022. The Company determined the customer contract should be accounted for under the contract modification guidance in Topic 606. As a result, the Company recognized deferred revenue of $0.6 million which was being amortized over the customer contract term and will amortize the remaining $0.3 million over the remaining service period. Additionally, the Company reviewed its customer contract intangible asset associated with this customer contract and determined that the carrying value was in excess of its fair value. Accordingly, the Company recorded

a $1.5 million impairment charge within “selling and marketing expenses” in the consolidated statements of operations during the three months ended March 31, 2021 and will amortize the remaining $0.4 million over the remaining service period.

	For the Three Months Ended March 31,				For the Three Months Ended March 31,
	2020		2019		2021		2020
	(unaudited)				(unaudited)
Wireless:
License and service fees	$	555	$	—	$	1,587	$	555
Hosted environment usage fees		4,549		4,653		4,141		4,549
Cloud based usage fees		7,478		2,920		4,963		7,647
Consulting services and other		633		599		690		571
Total wireless	$	13,215	$	8,172
Graphics:
Software		107		260
Total revenues	$	13,322	$	8,432	$	11,381	$	13,322

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 ~~one~~1 primary business unit based on how management internally evaluates separate financial information, business activities and management responsibility: Wireless. The Wireless segment includes our SafePath®, CommSuite®, ~~ViewSpot®,~~ and ~~NetWise® family~~ViewSpot® families of products.

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.

	For the Three Months Ended March 31,				For the Three Months Ended March 31,
	2020		2019		2021		2020
	(unaudited)				(unaudited)
SafePath	$	7,848	$	1,987	$	6,267	$	7,848
CommSuite		4,539		4,357		4,128		4,539
ViewSpot		745		1,057		930		745
Netwise		55		538
Other		28		233		56		83
Total wireless revenues	$	13,215	$	8,172	$	11,381	$	13,215

~~Revenues generated from our sales to Sprint and their respective affiliates in the Wireless business segment accounted for 88% and 77%~~The Company has certain customers whose revenues individually represented 10% or more of the Company’s total revenues, ~~for~~or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:

For the three months ended March 31, 2021 and 2020, 3 customers accounted for 91% and ~~2019,~~1 customer accounted for 91% of revenues, respectively. ~~This customer comprised 84% and 77% of our accounts receivable as~~As of March 31, 2021, two customers accounted for 80% of accounts receivable, and at March 31, 2020, ~~and 2019, respectively.~~one customer accounted for 84% of accounts receivable.

During the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, the Company operated in ~~three~~3 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):

	For the Three Months Ended March 31,				For the Three Months Ended March 31,
	2020		2019		2021		2020
	(unaudited)				(unaudited)
Americas	$	13,304	$	8,392	$	10,144	$	13,304
EMEA		8		19		1,237		8
Asia Pacific		10		21		—		10
Total revenues	$	13,322	$	8,432	$	11,381	$	13,322

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.

	For the Three Months Ended March 31,						For the Three Months Ended March 31,
	2020			2019			2021			2020
	(unaudited)
Lease cost	$	527		$	397		$	558		$	527
Sublease income		(151	)		(151	)		(151	)		(151	)
Total lease cost	$	376		$	246		$	407		$	376

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

	As of March 31, 2020			As of March 31, 2021
	(unaudited)			(unaudited)
2020	$	1,270
2021		1,669		$	1,386
2022		1,413			1,615
2023		1,425			1,600
2024		1,182			1,226
2025					867
Thereafter		1,158			291
Total lease payments		8,117			6,985
Less imputed interest		(1,296	)		(931	)
Present value of lease liabilities	$	6,821		$	6,054

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 was in a five-year historical cumulative loss as of the end of fiscal 2018. 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, ~~2019,~~2020, and after consideration of the Company’s cumulative loss position as of December 31, ~~2019,~~2020, the Company will continue to reserve its U.S.-based deferred tax amounts, which total ~~$50.4~~$49.4 million as of March 31, ~~2020.~~2021.

The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. Currently there are no audits in process or pending from Federal or state tax authorities. State income tax returns are subject to examination for a period of three to four years after filing. As of December 31, ~~2019,~~2020, the company had no0 outstanding tax audits. 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.

On March 27, 2020, ~~President Trump signed into U.S. federal law~~ the Coronavirus Aid, Relief and Economic Security Act ~~(the “CARES Act”), which is aimed at providing emergency assistance and health care for individuals, families and businesses affected by~~(CARES Act) was enacted in response to the COVID-19 ~~pandemic and generally supporting the U.S. economy.~~pandemic. The CARES Act, among other things, ~~includes provisions relating~~permits NOL carryovers and carrybacks to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methodsoffset taxable income for ~~qualified improvement property. In particular, under the CARES Act, (i) for taxable~~ years beginning before ~~2021, net operating loss carryforwards and carrybacks may offset 100%~~2021. The CARES Act also made modifications to IRC Sec. 163(j) to increase the allowable interest from 30% of adjusted taxable income (ii) NOLs arising in 2018, 2019 and 2020 taxable years may be carried back to each of the preceding five years to generate a refund and (iii) for taxable years beginning in 2019 and 2020, the base for interest deductibility is increased from 30% to 50% of ~~EBITDA.~~adjusted taxable income. The CARES Act changes in NOL carrybacks interest expense limitation had no impact on the Company’s tax provision. We ~~are analyzing~~continue to analyze the different aspects of the CARES Act to determine whether any specific provisions may impact us.

On March 15, 2021, the Company completed a registered public offering (“Offering”), wherein a total of 9,520,787 shares of the Company’s common stock were issued at a purchase price of $6.85 per share, for a total purchase price of $65.2 million. The Offering raised net cash proceeds of approximately $59.9 million after deducting the underwriting discount and fees and expenses of the Offering. The Company used the net cash proceeds from the Offering to fund, in part, the acquisition of Avast plc’s Family Safety Mobile business completed on April 16, 2021 (see Note 13 for additional information).

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~~

On April 16, 2021, the Company completed the acquisition of Avast plc’s Family Safety Mobile business. Pursuant to the terms of the ~~date~~transaction, the Company paid an aggregate purchase price of ~~this filing~~$66.0 million, net of an escrow of $5.0 million, consisting of $51.1 million in cash (excluding any adjustments for working capital and ~~no further disclosures are required.~~

~~During April 2020, certain holders~~other closing adjustments) and the issuance of 1,460,131 unregistered shares of the Company’s common stock ~~warrants exercised the warrants for approximately 1.0~~valued at $8.4 million ~~common shares, resulting in cash proceeds of approximately $2.3 million.~~

In March 2020, the World Health Organization categorized coronavirus disease 2019 (COVID-19) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continues to spread throughout the United States and other countries across the world, and the duration and severity of its effects are currently unknown. While the response to the COVID-19 outbreak continues to rapidly evolve, it has led to stay-at-home orders and social distancing guidelines that have seriously disrupted activities in large segments of the economy.

In April 2020, we saw a reduction in the number of SafePath platform subscribers compared to March 2020, which we believe was driven by the COVID-19 related economic slowdown. The Company considers the outbreak of COVID-19 as a non-recognized subsequent event in accordance with accounting standards codification Topic 855, ~~Subsequent Events~~, requiring disclosure in these unaudited condensed consolidated financial Statements. The Company’s consolidated financial statements presented herein reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented.

~~As the impact of the COVID-19 pandemic~~ on the economy and the Company’s operations evolves, we will continue to monitor the impact on the Company’s operations and, if needed, postpone non-essential capital expenditures, reduce operating costs, and substantially reduce discretionary spending.transaction date.

Item 2. Management’s Discussion and ~~Analysis~~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”) contains forward-looking statements regarding Smith Micro which include, but are not limited to, statements concerning customer concentration, projected revenues, market acceptance of products, the success and timing of new product introductions, the competitive factors affecting our business, our ability to raise additional capital, gross profit and income, our ability to remain a going concern, our expenses, and the protection of our intellectual property. 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 from those expressed or implied in any forward-looking statements as a result of various factors. Such factors include, but are not limited to, the following:

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

Smith Micro develops software to simplify and enhance the mobile experience, providing solutions to some of the leading wireless and cable service providers around the world. From enabling the family digital lifestyle to providing powerful voice messaging capabilities, we strive to enrich today’s connected lifestyles while creating new opportunities to engage consumers via smartphones and consumer IoT devices. Our portfolio includes a wide range of products for creating, sharing and monetizing rich content, such as visual voice messaging, retail content display optimization and performance analytics on any product set.

We continue to innovate and evolve our business to respond to industry trends and maximize opportunities in emerging markets, such as digital lifestyle services and online safety, “Big Data” analytics, automotive telematics, and the consumer IoT marketplace. The key to our longevity, however, is not simply technological innovation, but our never-ending focus on understanding our customers’ needs and delivering value.

~~Revenues generated~~In future quarters, we expect our Family Safety platform revenue, inclusive of both our SafePath product and the Family Safety Mobile business that we acquired from Avast plc on April 16, 2021, to increase based on the newly acquired business, offset by a reduced number of SafePath subscribers from a lack of marketing initiatives sponsored by our sales to Sprint and their respective affiliates in the Wireless business segment accounted for 88% and 77% of the Company’s total revenues for the three months ended March 31, 2020 and 2019, respectively. Thislargest customer ~~comprised 84% and 77% of our accounts receivable~~ as ~~of March 31, 2020 and 2019, respectively.~~it continues its acquisition integration.

The table below sets forth certain statements of operations and comprehensive loss data expressed as a percentage of revenues for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020. Our historical results are not necessarily indicative of the operating results that may be expected in the future.

	For the Three Months Ended March 31,							For the Three Months Ended March 31,
	2020			2019				2021				2020
Revenues		100.0	%		100.0		%		100.0		%		100.0	%
Cost of revenues		8.8			10.9				13.6				8.8
Gross profit		91.2			89.1				86.4				91.2
Operating expenses:
Selling and marketing		20.9			23.3				37.2				20.9
Research and development		28.0			31.8				45.5				28.0
General and administrative		27.5			32.0				32.1				27.5
Restructuring expense		—			1.2				—				—
Total operating expenses		76.4			88.3				114.8				76.4
Operating income		14.8			0.8
Operating income (loss)									(28.4	)			14.8
Interest income, net		0.6			—				0.1				0.6
Other expense		—			(0.1	)
Income before provision for income taxes		15.4			0.7
Other income									—				—
Income (loss) before provision for income taxes									(28.3	)			15.4
Provision for income tax expense		—			0.0				—				0.0
Net income		15.4	%		0.7		%
Net income (loss)									(28.3	)	%		15.4	%

Three Months Ended March 31, ~~2020~~2021 Compared to the Three Months Ended March 31, ~~2019~~2020

Revenues. Revenues were ~~$13.3~~$11.4 million and ~~$8.4~~$13.3 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, representing ~~an increase~~a decrease of ~~$4.9~~$1.9 million, or ~~58%~~15%. ~~Wireless revenue of $13.2 million increased $5.0 million, or 62%, primarily~~This decline is a due to ~~increased~~a reduced number of SafePath subscribers, which we believe were due to store closures related to the COVID-19 pandemic, and a recent customer merger resulting ~~revenues~~in a lack of marketing initiatives by the customer on the current product, offset by a full quarter of revenue from ~~our largest customer, Sprint, associated with growth in~~ the ~~SafePath product. This increase included revenue~~acquisition of the Circle operator business and an acceleration of $0.6 million ~~related~~of deferred revenue associated with a UK-based contract subjected to early termination which reduced the ~~newly acquired Circle operator business. Graphics revenue decreased~~service period by ~~$0.2 million, or 28% over last year, primarily due to lower demand as a result of reduced strategic focus and marketing efforts in the segment.~~two years.

Cost of revenues. Cost of revenues were ~~$1.2~~$1.5 million and ~~$0.9~~$1.2 million for the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively. This increase was primarily due to higher external costs associated with maintaining the newer SafePath platform.

Gross profit. Gross profit was $9.8 million, or 86% of revenues, for the three months ended March 31, 2021, compared to $12.1 million, or 91% of revenues, for the three months ended March 31, ~~2020, compared to $7.5 million, or 89%~~2020. The decrease in gross profit is a result of lower revenues ~~for the three months ended March 31, 2019. This increase was due primarily to lower variable~~and higher operational costs ~~in conjunction~~associated with the ~~revenue mix during~~legacy SafePath platform and the ~~quarter.~~now fully integrated SafePath and Circle operator business application.

Selling and marketing. Selling and marketing expenses were ~~$2.8~~$4.2 million and ~~$2.0~~$2.8 million for the three months ended March 31, 2021 and 2020, respectively. This increase was primarily due to approximately $1.5 million of accelerated amortization of an intangible asset related to the acquisition of the Circle operator business (see Note 4 for additional information). The amortization of intangible assets in selling and ~~2019,~~marketing expense was $2.0 million and $0.3 million for the three months ended March 31, 2021 and 2020, respectively.

Research and development. Research and development expenses were $5.2 million and $3.7 million for the three months ended March 31, 2021 and 2020, respectively. This increase was primarily due to additional headcount related expenses ~~an increase in marketing event participation,~~ and increased intangibles amortization. The amortization of intangible assets in selling and marketing expense was $267 thousand and $91 thousand for the three months ended March 31, 2020 and 2019, respectively.

~~Research and~~external contract development~~. Research and development expenses were $3.7 million and $2.7 million for the three months ended March 31, 2020 and 2019, respectively. This increase was primarily due~~ costs to ~~additional headcount related expenses for~~support SafePath ~~development, as well as increased intangibles amortization.~~development. The amortization of intangible assets in research and development expense was ~~$248 thousand~~$0.3 million and ~~$105 thousand~~$0.2 million for the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively.

General and administrative. General and administrative expenses were $3.7 million ~~and $2.7 million~~ for each of the three months ended March 31, ~~2020~~2021 and ~~2019, respectively. This increase was primarily due to $0.9 million of acquisition expenses incurred in 2020 and an increase in non-cash stock compensation.~~

~~Restructuring expense.~~ Restructuring expense was $6 thousand and $104 thousand for the three months ended March 31, 2020 and 2019, respectively. Restructuring charges in both periods related primarily to one-time employee termination costs.

~~Interest income (expense), net. Interest income of $86 thousand for the three months ended March 31, 2020 related primarily to interest earned on cash equivalents.~~2020.

At March 31, ~~2020,~~2021, we had ~~$19.5~~$89.2 million in cash and cash equivalents and ~~$22.9~~$90.1 million of working capital. On April 16, 2021, the Company paid cash of $56.1 million (excluding any adjustments for working capital and other closing adjustments) to complete the acquisition of Avast plc’s Family Safety Mobile business.

Net cash provided by operating activities was $3.7 million for the three months ended March 31, 2021. The primary sources of operating cash were net add-backs of non-cash expenses totaling $3.7 million, a decrease in accounts receivable of $4.0 million, and a decrease in prepaid expenses and other assets of $0.4 million. The primary uses of operating cash were a net loss of $3.2 million, a decrease in accounts payable and accrued expenses of $0.6 million, and a decrease in deferred revenue of $0.5 million.

Net cash provided by operating activities was $2.3 million for the three months ended March 31, 2020. The primary sources of operating cash were income from operations of $2.0 million, an add-back of non-cash expenses totaling $1.5 million, a decrease in prepaid expenses and other assets of $0.2 million, and an increase in deferred revenue of $0.3 million. The primary uses of operating cash were an increase in accounts receivable of $1.0 million and a decrease in accounts payable and accrued expenses of $0.8 million.

Net cash used in ~~operating~~investing activities was ~~$0.7~~$0.2 million for the three months ended March 31, 2019. The primary uses of operating cash were an increase in accounts receivable of $1.8 million, a decrease in accounts payable and accrued expenses of $0.1 million, and a decrease in deferred revenue of $0.1 million. This usage was partially offset by a decrease in prepaid expenses and other assets of $0.2 million, and an add-back of non-cash expenses totaling $1.1 million.

Net cash used in investing activities was $13.1 million for the three months ended March 31, 2020, relating primarily to a $12.2 million net cash payment for the Circle operator business acquisition and $0.8 million of capital expenditures.

Net cash ~~used in investing~~provided by financing activities was ~~$4.1~~$60.0 million for the three months ended March 31, ~~2019,~~2021, relating primarily to ~~a $4.0 million net cash payment for~~ the ~~Smart Retail acquisition and $0.1 million of capital expenditures.~~

Net cash provided by financing activities was $2.1 million for the three months ended March 31, 2020, due primarily to $2.0 million from proceeds from the exercise of common stock warrants.

~~Net cash used in financing activities was $43 thousand for the three months ended March 31, 2019, of which $34 thousand related to a payment of dividends on preferred stock.~~

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 ~~2019~~2020 Annual Report on Form 10-K, filed with the SEC on March ~~13, 2020~~8, 2021 (“Annual Report”).

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 March 31, ~~2020.~~2021. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have determined that as of March 31, ~~2020,~~2021, 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. 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 March 31, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

In addition to the other information included in this Report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report, and the factors identified at the beginning of Part I, Item 2 of this Report, under the heading, ~~“Management’s~~ ~~Discussion and Analysis of Financial Condition and Results of Operations,”~~ which could materially affect our business, financial condition, cash flows, or results of operations. The risks described in the Annual Report are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently considers immaterial also may materially adversely affect its business, financial condition, and/or operating results. There have been no material changes to the risk factors included in our Annual Report for the year ended December 31, 2019, other than as described below.

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

In our Wireless business segment, we sell primarily to large wireless carriers, cable operators, and OEMs, so there are a limited number of actual and potential customers for our products, resulting in significant customer concentration. For the year ended December 31, 2019, sales to Sprint and its affiliates comprised 84% of our total revenues.

Because of our relatively high customer concentration, a small number of significant customers possess a relative level of pricing and negotiating power over us, enabling them to achieve advantageous pricing and other contractual terms, including the ability to terminate their agreements with us with a limited amount of notice. Any material decrease in our sales to any of these customers would materially affect our revenue and profitability.

On April 1, 2020, Sprint Corporation and T-Mobile (US), Inc. (“T-Mobile”) completed their previously announced merger transaction, with the combined company continuing to operate as T-Mobile. In the event that the combined company does not elect to continue using the solutions that we currently deliver, or that our sales to the combined company materially decrease as compared with our sales to Sprint pre-merger, our revenues and profitability would be materially and adversely affected. In addition and in connection with the Sprint/T-Mobile merger, the combined company has agreed to divest certain assets to DISH Network Corporation, including Sprint’s Boost Mobile pre-paid wireless services business (“Boost”). A portion of our solutions sales to Sprint includes sales to Boost. In the event that the divested business does not elect to continue using the solutions that we currently deliver to it, or that our sales to the divested business materially decrease as compared with our sales for Boost pre-divestiture, our revenues and profitability may be materially and adversely affected.

If there are delays in the distribution of our products or if customer negotiations for our new products cannot occur on a timely basis, we may not be able to generate revenues sufficient to meet the needs of the business in the foreseeable future or at all.

~~Our results of operations and financial condition may be adversely affected by public health epidemics, including the ongoing COVID-19 global health pandemic.~~

On March 11, 2020, the World Health Organization declared the global outbreak of COVID-19 to be a pandemic. The COVID-19 pandemic has significantly impacted economic activity and markets around the world. The circumstances relating to the pandemic are complex and evolving, with a broad number of governmental and commercial efforts to contain the spread of the virus globally. We have implemented a number of measures in an effort to protect our employees’ health and well-being, including having office workers work remotely, suspending employee travel, and withdrawing from certain industry events. The duration and extent of the impact of the coronavirus pandemic on our business, operations and financial results depends on factors that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions, the impact on economic activity, including the possibility of recession or financial market instability, and the impact of these and other factors on our employees, customers, industry partners, and suppliers.

In the event of illnesses to key employees or a significant portion of our workforce resulting from COVID-19, we may experience inefficiencies, delays, and/or disruptions in research and development activities and increased costs resulting from our efforts to mitigate the impact of COVID-19, all of which may adversely affect our business, operations and financial results.

Additionally, government reaction to the pandemic and restrictions and limitations applied by the government as a result, continued widespread growth in infections, travel restrictions, quarantines, or other business and industry closures as a result of the pandemic could, among other things, impact the ability of our employees and contractors to perform their duties, cause increased technology and security risk due to extended and company-wide telecommuting, lead to disruptions with our suppliers, hamper our ability to integrate recent technology acquisitions and cause disruption in our relationship with our customers or prospective customers. Many of our customers and suppliers have temporarily modified their business operations as a result of the coronavirus pandemic and government reaction. Our customers may experience decreased demand for the value-added products and services that we provide to them and may seek to suspend or delay existing or new initiatives involving our products and services. A decrease in demand for our products and services or the suspension or delay of existing or new initiatives by our customers could materially adversely affect our business, financial condition, and results of operations.

To the extent the pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks set forth in Item 1A “Risk Factors” in our Annual Report and those additional risks set forth above.

The table set forth below shows all repurchases of securities by us during the three months ended March 31, ~~2020:~~2021:

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
January 1 - 31, 2020			14,812		$	4.70		—		—
February 1 - 29, 2020			14,377			6.41		—		—
March 1 - 31, 2020			80,399			5.14		—		—
January 1 - 31, 2021													24,841		$	5.99		—		—
February 1 - 28, 2021													24,168			7.72		—		—
March 1 - 31, 2021													72,064			6.80		—		—
Total			109,588	(1)	$	5.25							121,073	(1)	$	6.81

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this 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 March 31, ~~2020~~2021 and December 31, ~~201~~20920	2
	Consolidated Statements of Operations for the Three Months Ended March 31, ~~2020~~2021 and ~~201~~20209	3
	Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, ~~2020~~2021 and ~~201~~20209	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020	5
	Notes to the Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1415
Item 4.	Controls and Procedures	1718

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	18
~~Item 1A.~~	~~Risk Factors~~	1819
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 6.	Exhibits	20

SIGNATURES		21

	As of March 31, ~~2020~~2021
	(unaudited)
Weighted average remaining lease term (years)		~~5.22~~4.27
Weighted average discount rate		~~6.89~~6.75	%

Exhibit		Description

2.1	Membership Interest and Asset Purchase Agreement by and among Smith Micro Software, Inc., Avast, and certain subsidiaries of Avast, dated ~~as of February 12, 2020, between the Company and Circle Media Labs Inc.,~~March 8, 2021, incorporated by reference to Exhibit 2.1 toon the ~~Registrant’s~~Company’s Current Report on Form ~~8-K,~~8-K/A filed ~~on February 19, 2020~~March 9, 2021.

10.1	Underwriting Agreement, dated March 10, 2021, by and among Smith Micro Software, Inc. and B. Riley Securities, Inc., as representative of the several underwriters named therein, incorporated by reference to Exhibit 1.1 on the Company’s Current Report on Form 8-K filed March 15, 2021.

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	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its Inline XBRL tags are embedded within the Inline XBRL document

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

	SMITH MICRO SOFTWARE, INC.

May ~~11, 2020~~12, 2021	By /s/	William W. Smith, Jr.
	William W. Smith, Jr.
	Chairman of the Board, President and Chief Executive Officer
	(Principal Executive Officer)

May ~~11, 2020~~12, 2021	By /s/	Timothy C. Huffmyer
	Timothy C. Huffmyer
	Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company