# Smith Micro Software, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Smith Micro Software, Inc.](/companies/smsi.md) (CIK 948708)
- Form: 10-Q
- Filed: 2024-11-14
- Accepted by EDGAR: Nov 13, 2024, 17:32 ET
- Period: 2024-09-30
- Accession: 0000948708-24-000035
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/948708/000094870824000035/smsi-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/948708/000094870824000035/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $4.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $15.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $3.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $10.7m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-07-01 to 2024-09-30 | $3.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2024-01-01 to 2024-09-30 | $11.3m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$6.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$44.9m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $39.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$6.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$44.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.54 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$4.17 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.54 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$4.17 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 11,832,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 10,626,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$9.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-09-30 | $1.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $6.4m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $46.2m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $6.4m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2024-09-30 | $37.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 29,629 characters.

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

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

- our customer concentration, given that the majority of our sales currently depend on a few large client relationships;
- our ability to establish and maintain strategic relationships with our customers and mobile device manufacturers, their ability to attract customers, and their willingness to promote our products;
- our ability and/or customers’ ability to distribute our mobile software applications to their end users through third party mobile software application stores, which we do not control;
- our dependency upon effective operation with operating systems, devices, networks and standards that we do not control and on our continued relationships with mobile operating system providers, device manufacturers and mobile software application stores on commercially reasonable terms or at all;
- our ability to hire and retain key personnel;
- the possibility of security and privacy breaches in our systems and in the third-party software and/or systems that we use, damaging client relations and inhibiting our ability to grow;
- interruptions or delays in the services we provide from our data center hosting facilities that could harm our business;
- the existence of undetected software defects in our products and our failure to resolve detected defects in a timely manner;
- our ability to remain a going concern;
- our ability to raise additional capital and the risk of such capital not being available to us at commercially reasonable terms or at all;
- our ability to be profitable;
- changes in our operating income due to shifts in our sales mix and variability in our operating expenses;
- our current client concentration within the vertical wireless carrier market, and the potential impact to our business resulting from changes within this vertical market, or failure to penetrate new markets;
- rapid technological evolution and resulting changes in demand for our products from our key customers and their end users;
- intense competition in our industry and the core vertical markets in which we operate, and our ability to successfully compete;
- the risks inherent with international operations;
- the impact of evolving information security and data privacy laws on our business and industry;
- the impact of governmental regulations on our business and industry;
- our ability to protect our intellectual property and our ability to operate our business without infringing on the rights of others;
- the risk of being delisted from Nasdaq if we fail to meet any of its applicable listing requirements;
- our ability to assimilate acquisitions without diverting management attention and impacting current operations;
- failure to realize the expected benefits of prior acquisitions;
- the availability of third-party intellectual property and licenses needed for our operations on commercially reasonable terms, or at all;
- the difficulty of predicting our quarterly revenues and operating results and the chance of such revenues and results falling below analyst or investor expectations, which could cause the price of our Common Stock to fall; and
- those additional factors which are listed under Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 26, 2024 (the "2023 Form 10-K") under the caption “RISK FACTORS.”

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

### Overview

Smith Micro provides software solutions that simplify and enhance the mobile experience to some of the leading wireless service providers around the globe. From enabling the Digital Family Lifestyle™ to providing powerful voice messaging capabilities, we strive to enrich today’s connected lifestyles while creating new opportunities to engage consumers via smartphones and consumer Internet of Things ("IoT") devices. Our portfolio includes family safety software solutions to support families in the digital age and a wide range of products for creating, sharing, and monetizing rich content, such as visual voice messaging, retail content display optimization and performance analytics on any product set.

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

In the third quarter of 2024, our revenues declined by 58% to $4.6 million compared to the third quarter of 2023, primarily driven by a $5.2 million decrease in our Family Safety product line, coupled with a $1.0 million decrease in ViewSpot revenues. These revenue declines primarily resulted from the losses of a Family Safety contract with a Tier 1 carrier during 2023 and two ViewSpot contracts coupled with decreases associated with legacy Sprint Safe & Found revenue as subscribers migrate to the T-Mobile network. As a result of the decline in revenues, our gross profit decreased during the third quarter of 2024 to $3.3 million, representing a decrease of $5.1 million as compared to the third quarter of the prior year. Our operating expenses decreased during the third quarter of 2024 compared to the third quarter of 2023 by approximately $0.8 million, primarily due to quarter-over-quarter reductions in sales and marketing expenses coupled with a decline in general and administrative costs. The net loss for the third quarter of 2024 was $6.4 million, resulting in a net loss of $0.54 per basic and diluted share.

We currently provide white label Family Safety applications to two Tier 1 wireless carriers in the United States and believe that we remain strategically positioned to offer our market-leading family safety platform to the majority of U.S. mobile subscribers. We believe that we have an opportunity to increase the respective subscriber bases, and in turn, grow the revenues associated with these Tier 1 carriers. Further, we executed new, multi-year Family Safety agreements with a Tier 1 carrier in Europe in the fourth quarter of 2023 and a U.S.-based carrier in the first quarter of 2024. The new Family Safety solution with the U.S. based carrier launched on our SafePath Global platform during the second quarter of 2024, and associated marketing activities for that product have begun. Additionally, the Family Safety solution for the Tier 1 European carrier is expected to launch in the near term, and we are anticipating this carrier to conduct robust marketing activities related to that solution.

Refer to the section titled "Liquidity and Capital Resources" for discussion of material changes in cash, Note 4 of our Notes to the Consolidated Financial Statements for discussion regarding the changes related to Common Stock, Note 5 for discussion regarding changes related to the warrant liabilities, Note 7 for discussion regarding changes to goodwill.

### Results of Operations

On April 3, 2024, we filed a certificate of amendment to our Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a one-for-eight (1:8) reverse stock split of the shares of the Company's Common Stock, par value $0.001 per share, with an effective time of 11:59 p.m., Eastern Time on April 10, 2024 (the "Reverse Stock Split"). At the effective time, every eight shares of our Common Stock, whether issued and outstanding or held by the Company as treasury stock were automatically combined and converted (without any further act) into one share of fully paid and nonassessable Common Stock, with any fractional shares resulting from the Reverse Stock Split rounded up to the nearest whole share. See further information in Note 1. All shares and per share amounts in this Report have been retroactively adjusted for all periods presented to give effect to the Reverse Stock Split.

The table below sets forth certain statements of operations and comprehensive loss data expressed as a percentage of revenues for the three and nine months ended September 30, 2024 and 2023. 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, 2024 | 2023 | For the Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Revenues | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of revenues | 28.4 | 23.0 | 31.5 | 26.0 |
| Gross profit | 71.6% | 77.0% | 68.5% | 74.0% |
| Operating expenses: |  |  |  |  |
| Selling and marketing | 44.3 | 22.3 | 46.2 | 26.7 |
| Research and development | 78.2 | 33.7 | 72.7 | 41.1 |
| General and administrative | 58.4 | 26.7 | 52.7 | 29.3 |
| Depreciation and amortization | 30.6 | 14.2 | 31.3 | 15.1 |
| Goodwill impairment | — | — | 153.9 | — |
| Total operating expenses | 211.6% | 96.8% | 356.8% | 112.3% |
| Operating loss | (140.0) | (19.8) | (288.3) | (38.3) |
| Change in fair value of warrant and derivative liabilities | 4.8 | 0.7 | 2.9 | 10.8 |
| Loss on derecognition of debt | — | (14.4) | — | (9.3) |
| Interest (expense) income, net | (0.3) | (13.1) | 0.6 | (17.8) |
| Other (expense) income, net | (1.5) | 0.1 | 0.8 | (0.2) |
| Loss before provision for income taxes | (137.0)% | (46.5)% | (284.0)% | (54.7)% |
| Provision for income tax expense | — | 0.1 | 0.3 | 0.1 |
| Net loss | (137.0)% | (46.7)% | (284.3)% | (54.8)% |

### Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

*Revenues*. Revenues were $4.6 million and $11.0 million for the three months ended September 30, 2024 and 2023, respectively, representing a decrease of $6.4 million, or 58%. This decrease was primarily related to declines associated with our Family Safety product line of $5.2 million, which was primarily resulting from the loss of revenue from a Family Safety contract with a Tier 1 carrier that concluded during the fourth quarter of 2023 and the legacy Sprint Safe & Found revenue declining as legacy Sprint subscribers migrated to the T-Mobile network coupled with a decline in ViewSpot revenue of $1.0 million that was primarily due to two of our contracts that concluded since September 2023.

*Cost of revenues*. Cost of revenues were $1.3 million and $2.5 million for the three months ended September 30, 2024 and 2023, respectively. This decrease of $1.2 million was primarily due to the period-over-period decline in revenue coupled with cost reduction efforts.

*Gross profit*. Gross profit was $3.3 million, or 71.6% of revenues, for the three months ended September 30, 2024, compared to $8.5 million, or 77.0% of revenues, for the three months ended September 30, 2023. The decrease of approximately $5.1 million in gross profit was primarily driven by the period-over-period decline in revenue volume.

*Selling and marketing*. Selling and marketing expenses were $2.1 million and $2.4 million for the three months ended September 30, 2024 and 2023, respectively. This decrease of approximately $0.4 million was primarily due to decreases in personnel related costs due to cost reduction activities undertaken by the Company.

*Research and development*. Research and development expenses were $3.6 million and $3.7 million for the three months ended September 30, 2024 and 2023, respectively. Decreases in personnel related costs of $0.3 million were partially offset by increases in severance related costs of $0.2 million.

*General and administrative*. General and administrative expenses were $2.7 million and $2.9 million for the three months ended September 30, 2024 and 2023, respectively. This decrease of approximately $0.2 million was primarily related to declines in personnel related costs of approximately $0.1 million and decreases in stock-based compensation of approximately $0.1 million.

*Depreciation and amortization*. Depreciation expense was $0.1 million for both the three months ended September 30, 2024 and 2023. Amortization expense was $1.3 million and $1.5 million for the three months ended September 30, 2024 and 2023, respectively. Amortization expense is recognized based on the pattern of economic benefit expected to be generated from the use of the intangible assets, and as such it decreased by approximately $0.2 million period-over-period.

*Change in fair value of warrant and derivative liabilities.* Change in fair value of warrant and derivative liabilities was $0.2 million and $0.1 million for the three months ended September 30, 2024 and 2023, respectively. The total increase in income of approximately $0.1 million resulted from valuation related impacts to the warrant and derivative liabilities in the respective periods.

*Loss on derecognition of debt.* The loss recognized on derecognition of debt was $1.6 million for the three months ended September 30, 2023, resulting from installment payments made on the convertible notes issued under the Note and Stock offering in August 2022 (the "Notes") in the form of shares, and the required derecognition of the net debt position related to that principal balance, including the derivative and discounts. There was nothing commensurate in the three months ended September 30, 2024 as the convertible notes were retired at maturity as of December 31, 2023.

*Interest (expense) income, net.* Interest expense, net was nominal for the three months ended September 30, 2024 and $1.4 million for the three months ended September 30, 2023. The period-over-period change of $1.4 million was primarily related to the amortization of the discount and debt issuance costs and stated interest expense related to the Notes, which were fully retired effective December 31, 2023.

*Other (expense) income, net.* Other expense, net was $0.1 million for the three months ended September 30, 2024 and nominal for the three months ended September 30, 2023.

*Provision for income tax expense.* Because of our cumulative loss position, the provision for income tax expense consists of state income taxes, foreign tax withholdings, and foreign income taxes for the three months ended September 30, 2024 and 2023. There were no material changes in the period-to-period comparison.

### Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

*Revenues*. Revenues were $15.6 million and $32.3 million for the nine months ended September 30, 2024 and 2023, respectively, representing a decrease of $16.7 million, or 52%. This decrease was primarily related to declines associated with our Family Safety product line of $14.4 million, which was primarily resulting from the loss of revenue from a Family Safety contract with a Tier 1 carrier that concluded during the fourth quarter of 2023 coupled with legacy Sprint Safe & Found revenue declining as legacy Sprint subscribers migrated to the T-Mobile network. Also contributing to the period-over-period revenue decrease was a decline in ViewSpot revenue of $1.8 million primarily due to two of our contracts concluding subsequent to the end of September 2023.

*Cost of revenues*. Cost of revenues were $4.9 million and $8.4 million for the nine months ended September 30, 2024 and 2023, respectively. This decrease of $3.5 million was primarily due to the period-over-period decline in revenue coupled with cost reduction efforts.

*Gross profit*. Gross profit was $10.7 million, or 68.5% of revenues, for the nine months ended September 30, 2024, compared to $23.9 million, or 74.0% of revenues, for the nine months ended September 30, 2023. The decrease of $13.2 million in gross profit was primarily driven by the period-over-period decline in revenue volume.

*Selling and marketing*. Selling and marketing expenses were $7.2 million and $8.6 million for the nine months ended September 30, 2024 and 2023, respectively. This decrease of $1.4 million was primarily due to decreases in personnel-related costs of $1.0 million coupled with a period-over-period decline in marketing costs of $0.6 million and a decrease in travel costs of $0.1 million, partially offset by an increase in stock-based compensation of approximately $0.3 million.

*Research and development*. Research and development expenses were $11.3 million and $13.3 million for the nine months ended September 30, 2024 and 2023, respectively. This decrease of approximately $1.9 million was primarily due to a decline in personnel-related costs of approximately $1.6 million and reductions in contractor costs of $0.2 million coupled with a decline in severance related costs of approximately $0.2 million, partially offset by an increase in stock-based compensation of approximately $0.1 million.

*General and administrative*. General and administrative expenses were $8.2 million and $9.4 million for the nine months ended September 30, 2024 and 2023, respectively. This decrease of $1.2 million was primarily related to declines in personnel-related costs of approximately $0.7 million, a decrease in professional fees of approximately $0.2 million and a reduction in occupancy costs of approximately $0.2 million.

*Depreciation and amortization*. Depreciation expense was $0.3 million and $0.5 million for the nine months ended September 30, 2024 and 2023, respectively. Amortization expense was $4.6 million and $4.4 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease in depreciation expense of approximately $0.2 million was primarily due to certain fixed assets that have now been fully depreciated. Amortization expense is recognized based on the pattern of economic benefit expected to be generated from the use of the intangible assets, and as such it increased by approximately $0.2 million period-over-period.

*Goodwill impairment.* The impairment charge for the nine months ended September 30, 2024 occurred during the first quarter of 2024 and was based on a quantitative valuation which led to the conclusion that that the carrying value of our single reporting unit exceeded its fair value by $24.0 million.

*Change in fair value of warrant and derivative liabilities.* Change in fair value of warrant and derivative liabilities was $0.4 million of income for the nine months ended September 30, 2024 and $3.5 million for the nine months ended September 30, 2023, a decrease of approximately $3.0 million. The fair value adjustments resulted from valuation related impacts to the warrant and derivative liabilities combined with the settlements of the Notes in the nine months ended September 30, 2023. The Notes were retired at maturity in December 2023, and thus there were no changes in the fair value of the derivative liability in 2024.

*Loss on derecognition of debt.* The loss recognized on derecognition of debt was $3.0 million for the nine months ended September 30, 2023. The $3.0 million loss recognized for the nine months ended September 30, 2023 resulted from installment payments made on the Notes in the form of shares, and the required derecognition of the net debt position related to that principal balance, including the derivative and discounts. There was nothing commensurate in the nine months ended September 30, 2024 as the convertible notes were retired at maturity as of December 31, 2023.

*Interest (expense) income, net.* Interest income, net was $0.1 million for the nine months ended September 30, 2024 and interest expense, net was $5.7 million for the nine months ended September 30, 2023. The period-over-period change in interest income (expense), net of $5.8 million was primarily related to the amortization of the discount and debt issuance costs and stated interest expense related to the Notes, which were fully retired effective December 31, 2023.

*Other (expense) income, net.* Other income, net was $0.1 million for the nine months ended September 30, 2024 and Other expense, net was $0.1 million for the nine months ended September 30, 2023. The period-over-period change was primarily related to income derived from the licensing of several of our patents in February 2024.

*Provision for income tax expense.* Because of our cumulative loss position, the provision for income tax expense consists of state income taxes, foreign tax withholdings, and foreign income taxes for the nine months ended September 30, 2024 and 2023. There were no material changes in the period-to-period comparison.

### Liquidity and Capital Resources

The Company’s principal sources of liquidity are its existing cash and cash equivalents, and cash generated by operations.

As of September 30, 2024, the Company's cash and cash equivalents were approximately $1.5 million. Subsequent to September 30, 2024, as more fully described in Note 15 of our Notes to the Consolidated Financial Statements included in this Report, in order to fund working capital and for other general corporate purposes, we received net cash proceeds of approximately $6.5 million through the issuance of our Common Stock pursuant to a registered direct offering and a concurrent private placement, in each case, with accompanying unregistered warrants.

Our liquidity is being adversely impacted by the effect of the aforementioned loss during 2023 of our Family Safety contract with a Tier 1 carrier on our results of operations since we are receiving no revenue from that contract during 2024.

While we have adjusted our cost structure and we anticipate marketing efforts to expand for one of our existing Tier 1 carrier customers in order to drive subscriber growth on our Family Safety product, and we expect to generate additional revenues from our launch with a carrier customer in the U.S. and our upcoming launch with a Tier 1 carrier in Europe, the timing of that anticipated revenue growth versus the immediate and current impact of the contract loss could cause the cash and cash equivalents on hand and expected to be generated in the next twelve months and beyond to be insufficient to fund operations at the current levels.

This adverse impact on liquidity does not trigger a violation of any covenants in our material agreements, particularly as all our outstanding debt was retired as of December 31, 2023. The availability of sufficient funds will depend to an extent on the timing of subscriber growth and the related cash generation thereof, and/or the ability to obtain the necessary capital to meet our obligations and fund our working capital requirements to maintain normal business operations. To meet future cash needs, the Company may determine to take additional actions, as noted in the Risk Factor appearing in our 2023 Form 10-K under the heading, "If we are unable to meet our obligations as they become due over the next twelve months, the Company may not be able to continue as a going concern." There can be no assurance that any such potential actions will be available or will be available on satisfactory terms. Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, our performance and investor sentiment with respect to us and our industry. As a result of these uncertainties, and notwithstanding management's plans and efforts to date, we have been unable to alleviate substantial doubt about our ability to continue as a going concern within one year from the date that the financial statements are issued.

### Cash Flows

Changes in cash and cash equivalents are as follows:

*(in thousands)*

|  | For the Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(9,368) | $(5,950) |
| Net cash provided by investing activities | 181 | 66 |
| Net cash provided by (used in) financing activities | 3,571 | (160) |
| Net decrease in cash and cash equivalents | $(5,616) | $(6,044) |

#### Operating activities

Net cash used in operating activities was $9.4 million for the nine months ended September 30, 2024. The primary uses of operating cash were a net loss of $44.3 million less non-cash expenses totaling $31.7 million, including a goodwill impairment charge of $24.0 million, depreciation and amortization of $4.9 million and stock compensation expense of $3.5 million, coupled with a decrease in accounts payable and accrued liabilities of $1.4 million primarily due to the timing and change in payments for accounts payable and payroll, partially offset by a decrease in accounts receivable of $4.5 million due to the timing of cash collections from customers.

Net cash used in operating activities was $6.0 million for the nine months ended September 30, 2023. The primary uses of operating cash were the net loss of $17.7 million less non-cash expenses totaling $13.0 million, and a decrease in accounts payable and accrued liabilities of $2.2 million partially offset by an increase in other liabilities of $0.6 million, a decrease in accounts receivable of $0.2 million and a decrease in prepaid expenses and other assets of $0.2 million.

#### Investing activities

Net cash provided by investing activities of $0.2 million for the nine months ended September 30, 2024 was primarily attributable to the net proceeds from licensing several of our patents in February 2024. Net cash provided by investing activities for nine months ended September 30, 2023 was $0.1 million.

#### Financing activities

Net cash provided by financing activities of $3.6 million for the nine months ended September 30, 2024 was primarily attributable to the net cash proceeds of $3.4 million from the Registered Direct Offering and Private Placement conducted in May 2024 and borrowings of $1.0 million less repayments of $0.8 million from short-term insurance premium financing arrangements.

Net cash used by financing activities was $0.2 million for the nine months ended September 30, 2023.

### Recent Accounting Guidance

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

### Critical Accounting Estimates

Our discussion and analysis of results of operations, financial condition, and liquidity are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may materially differ from these estimates under different assumptions or conditions. On an ongoing basis, we review our estimates to ensure that they appropriately reflect changes in our business or new information as it becomes available. See Note 1 of our Notes to the Consolidated Financial Statements in our 2023 Form 10-K for information regarding our critical accounting estimates. There have been no material changes to the Company's critical accounting estimates since the 2023 Form 10-K.

## Controls and procedures

As filed, 2,829 characters.

#### Evaluation of disclosure controls and procedures

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 Rule 13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of September 30, 2024. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have determined that as of September 30, 2024, 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 SEC’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.

#### Management’s responsibility for financial statements

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.

#### Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 852 characters.

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 2023 Form 10-K, 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 2023 Form 10-K 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 2023 Form 10-K.

Filed Nov 14, 2024.
Source: SEC EDGAR, the filing index for accession 0000948708-24-000035. Last ingested by Listed: Oct 24, 2026, 15:01 ET. No prices; not investment advice.