smsi-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________________

FORM 10-Q

_____________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-35525

_____________________________

SMITH MICRO SOFTWARE, INC.

(Exact name of registrant as specified in its charter)

_____________________________


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

5800 Corporate Drive

Pittsburgh, PA 15237

(Address of principal executive offices, including zip code)

(412) 837-5300

(Registrant’s telephone number, including area code)

_____________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

SMSI

NASDAQ

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 x No o

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 x No o

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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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. o

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

As of August 9 2023, there were 66,752,487 shares of common stock outstanding.

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SMITH MICRO SOFTWARE, INC.

QUARTERLY REPORT ON FORM 10-Q

June 30, 2023

TABLE OF CONTENTS


Explanatory Note
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	2
	Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	2
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022	3
	Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	6
	Notes to the Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 4.	Controls and Procedures	25

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 6.	Exhibits	28

SIGNATURES		29

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SMITH MICRO SOFTWARE, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and par value data)


	June 30, 2023		December 31, 2022
	(unaudited)		(audited)
Assets
Current assets:
Cash and cash equivalents	$	6,417	$	14,026
Accounts receivable, net of allowance for doubtful accounts of $3 and $3 (2023 and 2022, respectively)	11,871		10,501
Prepaid expenses and other current assets	3,351		1,983
Total current assets	21,639		26,510
Equipment and improvements, net	1,117		1,498
Right-of-use assets	3,033		3,722

Other assets	485		490
Intangible assets, net	33,355		36,320
Goodwill	35,041		35,041
Total assets	$	94,670	$	103,581
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	3,343	$	3,236
Accrued payroll and benefits	2,708		3,883
Current operating lease liabilities	1,454		1,441
Other current liabilities	1,829		1,589
Current portion of convertible notes payable	7,062		9,007
Derivative liabilities	217		1,575
Total current liabilities	16,613		20,731
Non-current liabilities:

Warrant liabilities	1,194		3,317
Operating lease liabilities	2,196		2,976

Deferred tax liabilities, net	178		178

Total non-current liabilities	3,568		6,471
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 65,202,050 and 56,197,910 shares issued and outstanding (2023 and 2022, respectively)	65		56
Additional paid-in capital	368,527		357,875
Accumulated comprehensive deficit	(294,103)		(281,552)
Total stockholders’ equity	74,489		76,379
Total liabilities and stockholders' equity	$	94,670	$	103,581

See accompanying notes to the consolidated financial statements.

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SMITH MICRO SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues	$	10,338	$	12,674	$	21,268	$	25,409
Cost of revenues (including depreciation of $13, $27, $27, and $60 in the three and six months ended June 30, 2023 and 2022, respectively)	2,589		3,617		5,871		7,253
Gross profit	7,749		9,057		15,397		18,156
Operating expenses:
Selling and marketing	2,628		3,720		6,182		6,701
Research and development	3,705		8,080		9,573		15,346
General and administrative	3,040		3,753		6,515		7,677

Depreciation and amortization	1,620		1,877		3,305		3,844
Total operating expenses	10,993		17,430		25,575		33,568
Operating loss	(3,244)		(8,373)		(10,178)		(15,412)
Other income (expense):
Change in fair value of warrant and derivative liabilities	429		—		3,413		—

Loss on derecognition of debt	(775)		—		(1,402)		—
Interest (expense) income, net	(2,037)		2		(4,297)		(2)
Other expense, net	(36)		(91)		(76)		(32)
Loss before provision for income taxes	(5,663)		(8,462)		(12,540)		(15,446)
Provision for income tax expense	2		31		11		50
Net loss	$	(5,665)	$	(8,493)	$	(12,551)	$	(15,496)

Loss per share:
Basic and diluted	$	(0.09)	$	(0.15)	$	(0.21)	$	(0.28)

Weighted average shares outstanding:
Basic and diluted	62,453		55,183		59,726		55,844

See accompanying notes to the consolidated financial statements.

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SMITH MICRO SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)


	Common Stock			Additional Paid-in Capital		Accumulated Comprehensive Deficit		Total
	Shares	Amount
BALANCE, March 31, 2023 (unaudited)	60,596	$	61	$	362,262	$	(288,438)	$	73,885
Non-cash compensation recognized on stock options and ESPP	—	—		6		—		6
Restricted stock grants, net of cancellations	(2)	—		1,024		—		1,024
Cancellation of shares for payment of withholding tax	(68)	—		(80)		—		(80)
Common shares issued in settlement and prepayment of notes payable	4,676	4		5,315		—		5,319
Net loss	—	—		—		(5,665)		(5,665)
BALANCE, June 30, 2023 (unaudited)	65,202	$	65	$	368,527	$	(294,103)	$	74,489


	Common Stock			Additional Paid-in Capital		Accumulated Comprehensive Deficit		Total
	Shares	Amount
BALANCE, December 31, 2022 (audited)	56,198	$	56	$	357,875	$	(281,552)	$	76,379
Non-cash compensation recognized on stock options and ESPP	—	—		17		—		17
Restricted stock grants, net of cancellations	1,262	2		1,957		—		1,959
Employee stock purchase plan shares issued	8	—		8		—		8
Cancellation of shares for payment of withholding tax	(179)	—		(291)		—		(291)
Common shares issued in settlement and prepayment of notes payable	7,913	7		8,961		—		8,968
Net loss	—	—		—		(12,551)		(12,551)
BALANCE, June 30, 2023 (unaudited)	65,202	65		368,527		(294,103)		74,489

See accompanying notes to the consolidated financial statements.

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SMITH MICRO SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)


	Common Stock			Additional Paid-in Capital		Accumulated Comprehensive Deficit		Total
	Shares	Amount
BALANCE, March 31, 2022 (unaudited)	55,156	$	55	$	353,403	$	(259,275)	$	94,183
Non-cash compensation recognized on stock options and ESPP	—	—		23		—		23
Restricted stock grants, net of cancellations	127	—		1,665		—		1,665
Cancellation of shares for payment of withholding tax	(164)	—		(452)		—		(452)



Exercise of stock options	1	—		2		—		2
Net loss	—	—		—		(8,493)		(8,493)
BALANCE, June 30, 2022 (unaudited)	55,120	55		354,641		(267,768)		86,928


	Common Stock			Additional Paid-in Capital		Accumulated Comprehensive Deficit		Total
	Shares	Amount
BALANCE, December 31, 2021 (audited)	54,259	$	54	$	352,779	$	(252,273)	$	100,560

Restricted stock grants, net of cancellations	1,132	1		2,708		—		2,709
Cancellation of shares for payment of withholding tax	(285)	—		(925)		—		(925)
Employee stock purchase plan	6	—		19		—		19



Exercise of stock options	8	—		16		—		16
Net loss	—	—		—		(15,496)		(15,496)
BALANCE, June 30, 2022 (unaudited)	55,120	55		354,641		(267,768)		86,928

See accompanying notes to the consolidated financial statements.

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SMITH MICRO SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	For the Six Months Ended June 30,
	2023		2022
	(unaudited)		(unaudited)
Operating activities:
Net loss	$	(12,551)	$	(15,496)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	3,332		3,902
Non-cash lease expense	689		673

Change in fair value of warrant and derivative liabilities	(3,413)		—
Loss on derecognition of debt	1,402		—
Amortization of debt discount and issuance costs	4,055		—


Stock based compensation	1,975		2,754
Gain on disposal of assets	11		—
Changes in operating accounts:
Accounts receivable	(1,373)		(975)
Prepaid expenses and other assets	69		(527)
Accounts payable and accrued liabilities	(2,309)		(1,812)
Other liabilities	622		(146)
Net cash used in operating activities	(7,491)		(11,627)
Investing activities:

Capital expenditures, net	3		(112)
Other investing activities	71		83
Net cash provided by (used in) investing activities	74		(29)
Financing activities:




Proceeds from financing arrangements	442		1,291
Repayments of financing arrangements	(642)		(391)
Other financing activities	8		35
Net cash (used in) provided by financing activities	(192)		935
Net decrease in cash and cash equivalents	(7,609)		(10,721)
Cash and cash equivalents, beginning of period	14,026		16,078
Cash and cash equivalents, end of period	$	6,417	$	5,357

Supplemental disclosures of cash flow information:


Non-cash investing and financing activities:
Issuance of common stock in settlement and prepayment of notes payable	$	7,500	$	—

See accompanying notes to the consolidated financial statements.

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SMITH MICRO SOFTWARE, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

1. The Company

Smith Micro Software, Inc. (“Smith Micro” or “the Company”) 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, the Company strives to enrich today’s connected lifestyles while creating new opportunities to engage consumers via smartphones and consumer Internet of Things (“IoT”) devices. Smith Micro’s 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 various product sets.

Smith Micro’s solution portfolio is comprised of proven products that enable its customers to provide:

•In-demand digital services that connect today’s digital lifestyle, including family location services, parental controls, and consumer IoT devices to mobile consumers worldwide;

•Easy visual access to voice messages on mobile devices through visual voicemail and voice-to-text transcription functionality; and

•Strategic, consistent, and measurable digital demonstration experiences that educate retail shoppers, create awareness of products and services, drive in-store sales, and optimize retail experiences with actionable analytics derived from in-store customer behavior.

2. Accounting Policies

Basis of Presentation

The accompanying interim consolidated balance sheet as of June 30, 2023, and the related consolidated statements of operations and stockholders’ equity for the three and six months ended June 30, 2023 and 2022, and the consolidated statements of cash flows for the six months ended June 30, 2023 and 2022, 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 of America (“US 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 the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 23, 2023 (the "2022 Form 10-K").

Intercompany balances and transactions have been eliminated in consolidation.

Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2023.

New Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This updated guidance sets forth a current expected credit loss model based on expected losses. Under this model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions and forecasted information rather than the current methodology of delaying recognition of credit losses until it is probable a loss has been incurred. This guidance became effective for the Company beginning with interim periods starting in fiscal year 2023. The impact of adopting the new standard did not have a material impact on the Company's consolidated financial statements.

Reclassifications

Certain reclassifications have been made to the prior year financial statements to conform to the current presentation.

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3. Equity Transactions

In a registered direct offering concurrent with the 2022 Notes and Warrants Offering referred to in Note 4, on August 11, 2022, the Company entered into a Securities Purchase Agreement (the “Additional Purchase Agreement” and together with the Securities Purchase Agreement further discussed in Note 4, the “Purchase Agreements”) with certain accredited investors to sell at a purchase price of $2.65 per share an aggregate of 1,132,075 shares of the Company’s common stock and warrants to purchase up to an aggregate of 1,132,075 shares of the Company’s common stock (the “Additional Warrants”) (the “Stock and Additional Warrants Offering”). Each Additional Warrant is exercisable at a price of $2.65 per share and expires on February 14, 2028. The issuance of the Shares and the Additional Warrants were conducted as a registered direct offering pursuant to the Company’s currently effective Registration Statement on Form S-3, previously filed with and declared effective by the SEC, and prospectus supplements thereunder. The Stock and Additional Warrants Offering closed on August 12, 2022, and the Company raised net cash proceeds of $2.8 million.

The Additional Warrants were assessed and concluded to be liability instruments due to cash purchase settlement provisions, and as a result all changes in the fair value of the Additional Warrants will be recognized in the Company's consolidated statements of operations until they are either exercised or expire. The Additional Warrants are not traded in an active securities market and, as such, the estimated fair value at inception was $1.6 million determined utilizing a Black-Scholes option pricing model and is reflected on the balance sheet line "Warrant liabilities" and as an adjustment to Additional Paid-in Capital.

In accordance with the 2022 Notes and Warrants offering described further in Note 4, during the six months ended June 30, 2023 at the Company's election 6,420,519 shares were issued for the April 1, 2023 through the July 1, 2023 principal amortization installment date payments, which in total reduced the convertible notes principal balance by $6.0 million and is discussed further in Note 4. The payment for the July 1, 2023 principal amortization installment date was completed on June 30, 2023. During the three months ended June 30, 2023, at the Company's election, 1,492,540 shares were prefunded to the holders of the Notes (as defined below) for the August 1, 2023 principal amortization installment date, which is represented in the balance sheet line "Prepaid expenses and other current assets" as of June 30, 2023. There were no conversions by the holders of the Notes during the six months ended June 30, 2023.

4. Debt and Warrants Transactions

2022 Notes and Warrants Offering

On August 11, 2022, the Company entered into a Securities Purchase Agreement ("SPA") with certain accredited investors, and, pursuant to the SPA, sold a new series of senior secured convertible notes (the "Notes") with an aggregate original principal amount of $15.0 million and an initial conversion price of $3.35 per share, subject to adjustment as described in the Notes, and warrants to acquire up to an aggregate amount of 2,238,806 additional shares of the Company’s common stock (the "Warrants" and together with the Notes, the "Notes and Warrants Offering"). The Warrants are exercisable at a price of $3.35 per share and expire five years from the date of issuance on August 11, 2027. There is no established public trading market for the Warrants and the Company does not intend to list the Warrants on any national securities exchange or nationally recognized trading system. The closing of the Notes and Warrants Offering occurred on August 11, 2022.

The Notes accrue compounding interest at the rate of 6.0% per annum, which is payable in cash or shares of the Company's common stock at the Company's option, in arrears in accordance with the terms of the Notes. Upon the occurrence and during the continuance of an Event of Default (as defined in the Notes), the Notes will accrue interest at the rate of 15.0% per annum. Upon conversion and other designated events, holders of the Notes are also entitled to receive an interest make-whole payment. Upon a redemption due to a Change in Control (as defined in the Notes), holders of the Notes are entitled to cash settlement. The Notes mature on December 31, 2023, with amortization payments due monthly by the first business day of the month from April 2023 through December 2023, and the balance at maturity. There were principal installment payments of $6.0 million made during the six months ended June 30, 2023 as described in Note 3 above, and as such a portion of the debt and related derivative were derecognized.

The Warrants were assessed and concluded to be liability instruments due to cash settlement provisions, and as a result all changes in the fair value of warrants will be recognized in the Company's consolidated statements of operations until they are either exercised or expire. The Warrants are not traded in an active securities market and, as such, the estimated fair value at inception was $3.8 million, determined utilizing a Black-Scholes option pricing model and is reflected on the balance sheet line "Warrant liabilities" and as a discount on the Notes.

The Notes contain a make-whole feature and a redemption right payable in cash upon change in control feature, as well as certain other conversion and redemption features. These features are viewed as a compound embedded derivative that meets the criteria to be bifurcated and carried at fair value. This is classified in the balance sheet line as "Derivative liabilities" and as a discount on the Notes, with subsequent adjustments to fair value each reporting period with a charge to

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earnings. The derivative was initially recognized at a fair value of $4.2 million and is subsequently adjusted to fair value quarterly, as required, and immediately prior to any change in underlying debt balance. The change in valuation of the debt instrument as a whole, including the derivative, as a result of installment payments extinguishing an aggregate of $6.0 million in principal under the Notes, is reflected in the statement of operations line "Loss on derecognition of debt" totaling $0.8 million for the three months ended June 30, 2023 and $1.4 million for the six months ended June 30, 2023. Below are specific assumptions utilized:



Convertible Notes Derivative	March 31, 2023			May 1, 2023			May 31, 2023			June 30, 2023
Common stock market price	$	1.16		$	1.22		$	1.21		$	1.11
Risk-free interest rate	4.68		%	4.68		%	4.91		%	5.42		%
Expected dividend yield	—			—			—			—
Expected term (in years)	0.75			0.67			0.59			0.50
Expected volatility	84.34		%	81.57		%	86.20		%	90.68		%

During the three months ended June 30, 2023, the Company recognized interest expense of $2.1 million on the Notes and related instruments utilizing the effective interest rate of 155%, which includes amortization of debt issuance costs of $0.1 million, amortization of discount of $1.8 million, and contractual interest of $0.2 million.

During the six months ended June 30, 2023 the Company recognized interest expense of $4.5 million on the Notes and related instruments utilizing the effective interest rate of 155%, which includes amortization of debt issuance costs of $0.2 million, amortization of discount of $3.8 million, and contractual interest of $0.4 million.

The current balance of the Notes as of June 30, 2023 is as follows (unaudited, in thousands):


	Current
Gross Balance as of June 30, 2023	$	9,000
Unamortized Discount	(1,829)
Unamortized Issuance Costs	(109)
Net Balance as of June 30, 2023	$	7,062

The Notes contain certain customary affirmative and negative covenants regarding the incurrence of indebtedness, acquisition and investment transactions, the existence of liens, the repayment of indebtedness, the payment of cash in respect of dividends, distributions or redemptions, and the transfer of assets, among other matters. As of June 30, 2023, the Company was in compliance with all covenants.

Warrant Liabilities

As further discussed above, on August 11, 2022, warrants to purchase 2,238,806 shares of common stock were issued with an exercise price of $3.35 per share in conjunction with the Notes and Warrants Offering, at an initial fair value of $3.8 million. As further discussed in Note 3, Additional Warrants to purchase 1,132,075 shares of common stock were issued with an exercise price of $2.65 per share in conjunction with the Stock and Additional Warrants Offering.

All changes in the fair value of these warrant liabilities are recognized in the Company's consolidated statements of operations until they are either exercised or expire. Since issuance of the warrants, there have been no warrant exercises. The warrants are not traded in an active securities market and, as such, the estimated fair value was determined by using a Black-Scholes option pricing model that utilizes assumptions noted in the following table. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on the historical volatility over the expected term of the warrants. The Company has no reason to believe future volatility over the expected remaining

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life of the warrants is likely to differ materially from historical volatility. Expected life is based on the contractual term of the warrants. Below are the specific assumptions utilized:


Warrants	June 30, 2023
Common stock market price	$	1.11
Risk-free interest rate	3.95		%
Expected dividend yield	—
Expected term (in years)	4.12
Expected volatility	68.72		%


Additional Warrants	June 30, 2023
Common stock market price	$	1.11
Risk-free interest rate	3.95		%
Expected dividend yield	—
Expected term (in years)	4.62
Expected volatility	68.17		%

5. Fair Value of Financial Instruments

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 upon the sale of an asset or the amount that would be 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:

•Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

•Level 2 – Include other inputs that are directly or indirectly observable in the marketplace.

•Level 3 – Unobservable inputs which are supported by little or no market activity.

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.

The following table presents information about the financial liabilities that are measured at fair value on a recurring basis at June 30, 2023 (unaudited, in thousands):


	Level 3


Notes and Warrants Offering Derivative	$	217
Warrants	722
Additional Warrants	472
Total at June 30, 2023	$	1,411

There were no instruments measured at fair value during the six months ended June 30, 2022.

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The following table presents the changes in the fair value (unaudited, except for December 31, 2022, in thousands):


	Notes and Warrants Offering Derivative		Warrants		Additional Warrants		Total
Measurement at December 31, 2022	$	1,575	$	2,052	$	1,265	$	4,892
Change in fair value	(1,021)		(1,222)		(741)		(2,984)
Derecognition of debt	(22)		—		—		(22)
Measurement at March 31, 2023	$	532	$	830	$	524	$	1,886
Change in fair value	(270)		(108)		(52)		(430)
Derecognition of debt	(45)		—		—		(45)
Measurement at June 30, 2023	$	217	$	722	$	472	$	1,411

6. Goodwill and Intangible Assets

In accordance with FASB ASC Topic No. 350, Intangibles-Goodwill and Other, Smith Micro reviews the recoverability of the carrying value of goodwill at least annually or whenever events or circumstances indicate a potential impairment. For purposes of the goodwill impairment test, the Company operates as a single reporting unit. Different judgments relating to the determination of reporting units could significantly affect the testing of goodwill for impairment and the amount of any impairment recognized.

In the first quarter of 2023, management concluded that the written notice of termination of a U.S. Tier 1 customer agreement for the Company's family safety solution, as disclosed in Note 16 of the 2022 Form 10-K, represented a triggering event indicating possible impairment of goodwill and long-lived assets, including Customer relationships intangible assets. The estimated fair value of the Company's reporting unit exceeded the fair value of the other assets and liabilities as of February 2023, and as such there was not any impairment. The Company determined that there were no further goodwill impairment indicators through June 30, 2023 and there were no goodwill impairment indicators at December 31, 2022. If current projections, including revenue growth and operating results, are not achieved or specific valuation factors outside the Company's control, such as discount rates, economic or industry challenges, significantly change, goodwill could be subject to future impairment.

For intangibles, an impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The Company assessed the assets impacted as a result of the triggering event indicated above and performed a recoverability test on the Customer relationships intangible asset from the Avast Family Safety Mobile Business acquisition as of February 28, 2023 using Level 3 unobservable inputs including estimates of revenue growth, and EBITDA. The Company's estimated undiscounted future cash flows exceeded the carrying amount of the Customer relationships intangible asset, and therefore there was no impairment to the definite-lived intangible assets as a result of the triggering event. There were no further intangible asset impairment indicators through June 30, 2023.

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The components of the Company’s intangible assets were as follows for the periods presented:


	June 30, 2023 (unaudited)
	(in thousands, except for useful life data)
	Weighted Average Remaining Useful Life (in Years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Purchased technology	6	$	13,330	$	(6,463)	$	6,867
Customer relationships	11	27,548		(5,842)		21,706
Customer contracts	1	7,000		(6,005)		995
Software license	6	5,419		(1,953)		3,466
Patents	4	600		(279)		321
Total		$	53,897	$	(20,542)	$	33,355


	December 31, 2022 (audited)
	(in thousands, except for useful life data)
	Weighted Average Remaining Useful Life (in Years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Purchased technology	7	$	13,529	$	(5,835)	$	7,694
Customer relationships	12	27,548		(4,490)		23,058
Customer contracts	1	7,000		(5,673)		1,327
Software license	7	5,419		(1,552)		3,867
Non-compete	1	283		(273)		10
Patents	5	600		(236)		364
Total		$	54,379	$	(18,059)	$	36,320

The Company amortizes intangible assets over the pattern of economic benefit expected to be generated from the use of the assets, with a total weighted average amortization period of approximately nine years as of June 30, 2023 and ten years as of December 31, 2022. During the three months ended June 30, 2023 and 2022, intangible asset amortization expense was $1.5 million and $1.6 million, respectively. During the six months ended June 30, 2023 and 2022, intangible asset amortization expense was $3.0 million and $3.2 million, respectively.

As of June 30, 2023, estimated amortization expense for the remainder of 2023 and thereafter was as follows (unaudited, in thousands):


Year Ending December 31,	Amortization Expense
2023	$	2,908
2024	5,635
2025	5,402
2026	5,007
2027	4,131
2028 and thereafter	10,272
Total	$	33,355

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7. Earnings Per Share

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, warrants, and convertible notes 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 (unaudited, in thousands, except per share amounts):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022

Numerator:
Net loss	$	(5,665)	$	(8,493)	$	(12,551)	$	(15,496)
Denominator:
Weighted average shares outstanding – basic	62,453		55,183		59,726		55,844
Potential common shares – options / warrants (treasury stock method) and convertible notes (as if converted method)	—		—		—		—
Weighted average shares outstanding – diluted	62,453		55,183		59,726		55,844

Shares excluded (anti-dilutive)	9,021		639		9,469		869

Net loss per common share:
Basic	$	(0.09)	$	(0.15)	$	(0.21)	$	(0.28)
Diluted	$	(0.09)	$	(0.15)	$	(0.21)	$	(0.28)

The following shares were excluded from the computation of diluted net loss per share as the impact of including those shares would be anti-dilutive (unaudited, in thousands):


	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2023	2022	2023	2022


Convertible notes, as if converted	3,572	—	4,020	—
Outstanding stock options	84	140	84	147
Outstanding warrants	5,365	499	5,365	722
Total anti-dilutive shares

SEC Form 10-Q filed by Smith Micro Software Inc.