10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10‑Q

(Mark One)

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

For the quarterly period ended September 30, 2018

OR

☐ 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.)

51 COLUMBIA

ALISO VIEJO, CA 92656

(Address of principal executive offices, including zip code)

(949) 362-5800

(Registrant’s telephone number, including area code)

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.

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. ☐

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

As of October 23, 2018, there were 25,027,129 shares of common stock outstanding.

SMITH MICRO SOFTWARE, INC.

QUARTERLY REPORT ON FORM 10-Q

September 30, 2018

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	2
	Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017	2
	Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2018 and 2017	3
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017	4
	Notes to the Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 4.	Controls and Procedures	18
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 6.	Exhibits	21
SIGNATURES		22

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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)

	September 30,			December 31,
	2018			2017
	(unaudited)			(audited)
Assets
Current assets:
Cash and cash equivalents	$	8,387		$	2,205
Accounts receivable, net of allowances for doubtful accounts and other adjustments of    $161 (2018) and $221 (2017)		6,328			5,145
Prepaid expenses and other current assets		745			576
Total current assets		15,460			7,926
Equipment and improvements, net		940			1,229
Deferred tax assets, net		404			404
Other assets		140			146
Intangible assets, net		297			487
Goodwill		3,685			3,685
Total assets	$	20,926		$	13,877
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,139		$	1,333
Accrued payroll and benefits		1,843			1,994
Related-party notes payable		—			1,000
Other accrued liabilities		438			416
Deferred revenue		120			73
Total current liabilities		3,540			4,816
Non-current liabilities:
Related-party notes payable		1,200			1,200
Notes payable, net of discount & issuance costs of $245 (2018) and $442 (2017)		1,755			1,558
Warrant liability		9,918			—
Deferred rent		784			970
Other long term liabilities		591			766
Total non-current liabilities		14,248			4,494
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.001 per share; 5,000,000 shares authorized; 5,500    shares issued (2018 and 2017); 1,370 and 5,500 shares outstanding (2018 and    2017, respectively)		—			—
Common stock, par value $0.001 per share; 100,000,000 shares authorized;    25,005,199 and 14,268,765 shares issued and outstanding (2018 and    2017, respectively)		25			14
Additional paid-in capital		241,970			237,486
Accumulated comprehensive deficit		(238,857	)		(232,933	)
Total stockholders’ equity		3,138			4,567
Total liabilities and stockholders' equity	$	20,926		$	13,877

See accompanying notes to the consolidated financial statements.

2

SMITH MICRO SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues	$	6,525		$	5,804		$	18,933		$	17,242
Cost of revenues		979			1,159			3,404			3,727
Gross profit		5,546			4,645			15,529			13,515
Operating expenses:
Selling and marketing		1,311			1,413			4,488			4,667
Research and development		2,049			2,100			6,499			6,771
General and administrative		2,048			2,220			6,299			6,648
Restructuring expense		83			(146	)		135			568
Total operating expenses		5,491			5,587			17,421			18,654
Operating income (loss)		55			(942	)		(1,892	)		(5,139	)
Other expense:
Interest expense, net		(128	)		(315	)		(445	)		(928	)
Change in fair value of warrant liability		(902	)		—			(3,126	)		—
Loss on debt extinguishment		—			(405	)		—			(405	)
Other expense		(1	)		(2	)		(48	)		(10	)
Loss before provision for income taxes		(976	)		(1,664	)		(5,511	)		(6,482	)
Provision for income tax expense		7			6			30			19
Net loss	$	(983	)	$	(1,670	)	$	(5,541	)	$	(6,501	)
Net loss per share:
Basic and diluted	$	(0.04	)	$	(0.12	)	$	(0.28	)	$	(0.49	)
Weighted average shares outstanding:
Basic and diluted		25,020			14,297			20,771			13,221
Preferred dividends per share	$	31.58		$	—		$	105.54		$	—

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 Nine Months Ended
	September 30,
	2018			2017
	(unaudited)			(unaudited)
Operating activities:
Net loss	$	(5,541	)	$	(6,501	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		651			694
Amortization of debt discounts and financing issuance costs		197			394
Restructuring costs		—			(146	)
Loss on related party debt extinguishment		—			405
Provision for doubtful accounts and other adjustments to accounts receivable		6			78
Provision for excess and obsolete inventory		(18	)		—
Gain on disposal of fixed assets		—			(6	)
Stock based compensation		674			1,002
Change in fair value of warrant liability		3,126			—
Change in operating accounts:
Accounts receivable		(1,189	)		(325	)
Prepaid expenses and other assets		(145	)		7
Accounts payable and accrued liabilities		(838	)		(1,564	)
Deferred revenue		47			269
Net cash used in operating activities		(3,030	)		(5,693	)
Investing activities:
Capital expenditures		(172	)		(68	)
Net cash used in investing activities		(172	)		(68	)
Financing activities:
Proceeds from stock sale for employee stock purchase plan		5			2
Proceeds from common stock offering, net of expenses		10,749			2,056
Proceeds from preferred stock offering, net of expenses		—			2,413
Proceeds from (payments of) short-term secured promissory notes		(1,000	)		3,000
Dividends paid on preferred stock		(370	)		—
Net cash provided by financing activities		9,384			7,471
Net increase in cash and cash equivalents		6,182			1,710
Cash and cash equivalents, beginning of period		2,205			2,229
Cash and cash equivalents, end of period	$	8,387		$	3,939
Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	4		$	5
Cash paid for interest expense		334			552
Supplemental schedule of non-cash financing activities:
Issuance of common stock warrants in connection with stock offering	$	6,792		$	2,292

See accompanying notes to the consolidated financial statements.

4

SMITH MICRO SOFTWARE, INC.

Notes to the Consolidated Financial Statements

1. The Company

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

2. Accounting Policies

Basis of Presentation

The accompanying interim consolidated balance sheet as of September 30, 2018, and the related consolidated statements of operations and comprehensive loss and cash flows for each of the three and nine months ended September 30, 2018 and 2017, 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 have been omitted.

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

Intercompany balances and transactions have been eliminated in consolidation.

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

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820), which is designed to improve the effectiveness of disclosures related to fair value measurements. This ASU is effective for annual periods beginning after December 15, 2019 and early adoption is allowed in any interim reporting periods within those annual reporting periods. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company will be evaluating the impact of this guidance on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This updated standard supersedes nearly all existing revenue recognition guidance under the accounting principles generally accepted in the United States of America (“U.S. GAAP”). The core principle of this Topic is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. This Topic defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In July 2015, the FASB deferred the effective date of Topic 606 to annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial

5

application. The Company adopted the provisions of Topic 606 during the first quarter of 2018, and there was no impact on the consolidated financial statements.

Revenue Recognition

We currently report our net revenues under two operating groups: Wireless and Graphics. Generally, we recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed and determinable, and collectability is probable.  We recognize revenues from sales of our software (or software that we are licensed to distribute) to our customers or end users as completed products are shipped and title passes, or from royalties generated as authorized customers duplicate our software, if the other requirements are met. If the requirements are not met as of the date of shipment, revenue is not recognized until these elements are known or resolved.

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

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

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.

Revenues on a disaggregated basis are as follows (in thousands):

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2018			2017		2018		2017
	(unaudited)					(unaudited)
Wireless:
Software	$	48		$	193	$	311	$	264
Platform		5,908			3,603		15,780		10,858
Services		339			593		1,406		1,954
Contract		(12	)		301		108		602
Total wireless	$	6,283		$	4,690	$	17,605	$	13,678
Graphics:
Software		242			1,114		1,328		3,564
Total revenues	$	6,525		$	5,804	$	18,933	$	17,242

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Fair Value Measurements

The Company measures and discloses fair value measurements as required by FASB Accounting Standards Codification (“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:

• 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.

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

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

As required by FASB ASC Topic No. 820, we utilize quoted market prices to estimate the fair value of our fixed rate debt, when available. If quoted market prices are not available, we calculate the fair value of our fixed rate debt based on a currently available market rate, assuming the loans are outstanding through maturity and considering the collateral securing the loans. In determining the current market rate for fixed rate debt, a market spread is added to the quoted yields on federal government treasury securities with similar terms to the debt.

3. Going Concern Evaluation

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

The Company considered the historical operating loss and negative cash flow from operating activities trends.  

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

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

• In May 2017, the Company raised $2.2 million of new capital in a private placement offering of its common stock.

• In September 2017, the Company closed on a $5.5 million preferred stock transaction which converted $2.8 million of long and short-term debt, and raised $2.7 million of new capital.

• On March 5, 2018, the Company raised $5.0 million of new capital in a private placement offering of its common stock.  

• On May 3, 2018, the Company raised $7.0 million of new capital in a private placement offering of its common stock.  

In addition to the recent capital raised, management also believes that the Company will generate enough cash from operations to satisfy its obligations for the next twelve months from the issuance date.

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

• Raise additional funds through short-term loans.

• Implement additional restructuring and cost reductions.

7

• Raise additional capital through a private placement.

• Secure a commercial bank line of credit.

• Dispose of one or more product lines.

• Sell or license intellectual property.

4. Goodwill

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

5.Debt and Fair Value of Financial Instruments

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

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

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

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

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

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

Warrant Liability

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

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

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

8

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

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

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

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

Debt

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

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

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

6. 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, 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.

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
	(unaudited, in thousands, except per share amounts)						(unaudited, in thousands, except per share amounts)
Numerator:
Net loss	$	(983	)	$	(1,670	)	$	(5,541	)	$	(6,501	)
Dividends paid to preferred stockholders		(43	)		—			(370	)		—
Net loss available to common stockholders	$	(1,026	)	$	(1,670	)	$	(5,911	)	$	(6,501	)
Denominator:
Weighted average shares outstanding – basic		25,020			14,297			20,771			13,221
Potential common shares – options / warrants    (treasury stock method)		—			—			—			—
Weighted average shares outstanding – diluted		25,020			14,297			20,771			13,221
Shares excluded (anti-dilutive)		—			—			—			—
Shares excluded due to an exercise price greater    than weighted average stock price for the period		126			1,973			1,086			1,869
Net loss per common share:
Basic	$	(0.04	)	$	(0.12	)	$	(0.28	)	$	(0.49	)
Diluted	$	(0.04	)	$	(0.12	)	$	(0.28	)	$	(0.49	)

7. Stock-Based Compensation

Stock Plans

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

8. Segment, Customer Concentration and Geographical Information

Segment Information

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

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

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2018		2017		2018		2017
	(unaudited)				(unaudited)
Wireless	$	6,283	$	4,690	$	17,605	$	13,678
Graphics		242		1,114		1,328		3,564
Total revenues	$	6,525	$	5,804	$	18,933	$	17,242

Customer Concentration Information

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017				2018			2017
	(unaudited)						(unaudited)
Wireless:
Sprint (& affiliates)		86	%		59	%			81	%		60	%
Graphics:
FastSpring		3	%		13	%			5	%		14	%

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

Geographical Information

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2018		2017		2018		2017
	(unaudited)				(unaudited)
Americas	$	6,483	$	5,713	$	18,724	$	16,949
EMEA		18		43		77		124
Asia Pacific		24		48		132		169
Total revenues	$	6,525	$	5,804	$	18,933	$	17,242

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

9. Commitments and Contingencies

Litigation

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.

Other Contingent Contractual Obligations

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

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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.

10. Equity Transactions

March 2018 Offering

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

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

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

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

May 2018 Offering

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

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

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

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

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

11. Income Taxes

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

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

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

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

The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. Federal income tax returns of the Company are currently subject to IRS examination for the 2013 – 2017 tax years. State income tax returns are subject to examination for a period of three to four years after filing.  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.

12. Subsequent Events

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

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

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

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

• our ability to remain a going concern;

• our ability to raise additional capital to fund our operations and the risk of such capital not being available to us at commercially reasonable terms or at all;

• our customer concentration given that the majority of our sales depend on a few large client relationships, including Sprint;

• our ability to become and remain profitable;

• 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;

• 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 our ability to successfully compete;

• the pace at which the markets for new products develop;

• our ability to hire and retain key personnel;

• the availability of third party intellectual property and licenses needed for our operations on commercially reasonable terms or at all;

• our ability to establish and maintain strategic relationships with our customers and mobile device manufacturers;

• our ability to assimilate acquisitions without diverting management attention and impacting current operations;

• the existence of undetected software defects in our products;

• the impact of governmental regulations on our business and our industry;

• our ability to protect our intellectual property and our ability to operate our business without infringing on the rights of others;

• the risks inherent with international operations;

• the possibility of security and privacy breaches in our systems 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; and

• the risk of being delisted from NASDAQ if we fail to meet any of its listing requirements.

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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. 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 develops software to simplify and enhance the mobile experience, providing solutions to leading wireless service providers, device manufacturers, and enterprise businesses around the world. From optimizing wireless networks to uncovering customer experience insights, and from streamlining Wi-Fi access to ensuring family safety, our solutions enrich connected lifestyles while creating new opportunities to engage consumers via smartphones. Our portfolio also includes a wide range of products for creating, sharing, and monetizing rich content, such as visual messaging, video streaming, and 2D/3D graphics applications. With this as a focus, it is Smith Micro’s mission to help our customers thrive in a connected world.

Over the past three decades, Smith Micro has developed deep expertise in embedded software for mobile devices, policy-based management platforms, and highly scalable client and server applications. Tier 1 mobile network operators, cable providers, original equipment manufacturers (“OEMs”), device manufacturers, and enterprise businesses across a wide range of industries use our software to capitalize on the growth of connected consumers and the IoT.

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
Wireless:
Sprint (& affiliates)		86	%		59	%		81	%		60	%
Graphics:
FastSpring		3	%		13	%		5	%		14	%

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

Results of Operations

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

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

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Segment Revenues

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2018		2017		2018		2017
Wireless	$	6,283	$	4,690	$	17,605	$	13,678
Graphics		242		1,114		1,328		3,564
Total revenues		6,525		5,804		18,933		17,242
Cost of revenues		979		1,159		3,404		3,727
Gross profit	$	5,546	$	4,645	$	15,529	$	13,515

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

Revenues. Revenues were $6.5 million and $5.8 million for the three months ended September 30, 2018 and 2017, respectively, representing an increase of $0.7 million, or 12.4%. Wireless revenue of $6.3 million increased $1.6 million, or 34.0%, primarily due to increased revenues from our largest customer, Sprint, associated with growth in both the CommSuite and SafePath products. Graphics revenue decreased by $0.9 million or 78.3% over last year, primarily related to the termination of our reseller agreement with Japanese software developer Celsys, which permitted us to market, license and provide support for the English-language version of Clip Studio Paint (formerly Manga Studio), in 2017.

Cost of revenues. Cost of revenues were $1.0 million and $1.2 million for the three months ended September 30, 2018 and 2017, respectively, representing a decrease of $0.2 million, or 15.5%, primarily related to lower internal and external variable costs in conjunction with the mix of revenue.

Gross profit. Gross profit was $5.5 million, or 85% of revenues, for the three months ended September 30, 2018, compared to $4.6 million, or 80% of revenues, for the three months ended September 30, 2017. 

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

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

General and administrative. General and administrative expenses were $2.0 million and $2.2 million for the three months ended September 30, 2018 and 2017, respectively. This decrease was primarily due to cost reduction activities announced in the second quarter of 2018.

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

Interest expense, net. Interest expense was $0.1 million for the three months ended September 30, 2018, which consisted of interest on notes payable and amortization of the debt discount and issuance costs. Interest expense on notes payable was $0.3 million for the three months ended September 30, 2017. This decrease was due to a reduction in outstanding debt from the previous year.

Change in fair value of warrant liability. The change in the fair value of warrant liability was $0.9 million and $0 for the three months ended September 30, 2018 and 2017, respectively.

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

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

Revenues. Revenues were $18.9 million and $17.2 million for the nine months ended September 30, 2018 and 2017, respectively, representing an increase of $1.7 million, or 9.8%. Wireless revenue of $17.6 million increased $3.9 million, or 28.7%, primarily due to increased revenues from our largest customer, Sprint, associated with growth in both the CommSuite and SafePath products. Graphics revenue decreased by $2.2 million or 62.7% over last year, primarily related to the termination of our reseller agreement with Celsys.

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

Gross profit. Gross profit was $15.5 million, or 82% of revenues, for the nine months ended September 30, 2018, compared to $13.5 million, or 78% of revenues, for the nine months ended September 30, 2017. 

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

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

General and administrative. General and administrative expenses were $6.3 million and $6.6 million for the nine months ended September 30, 2018 and 2017, respectively. This decrease was primarily due to cost reduction activities announced in the second quarter of 2018 and a reduction of professional service fees.

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

Interest expense, net. Interest expense was $0.4 million for the nine months ended September 30, 2018, which consisted of interest on notes payable and amortization of the debt discount and issuance costs. Interest expense on notes payable was $0.9 million for the nine months ended September 30, 2017. This decrease was due to a reduction in outstanding debt from the previous year.

Change in fair value of warrant liability. The change in the fair value of warrant liability was $3.1 million and $0 for the nine months ended September 30, 2018 and 2017, respectively.

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

Liquidity and Capital Resources

See Note 3 of the consolidated financial statements for management’s going concern evaluation of the Company.

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

Operating activities

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

Net cash used in operating activities was $5.7 million for the nine months ended September 30, 2017. The primary uses of operating cash were to fund our net loss of $6.5 million, adding back non-cash net expenses of $2.4 million, decreases in accounts payable and accrued expenses of $1.6 million, and an increase in accounts receivable of $0.3 million. This usage was partially offset by an increase in deferred revenue of $0.3 million.

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Investing activities

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

Financing activities

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

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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

Recent Accounting Guidance

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

Critical Accounting Policies and 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 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.

Item 4. Controls and Procedures

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 Rules 13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of September 30, 2018. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have determined that as of September 30, 2018, 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

18

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 controls over financial reporting during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

19

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

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

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
July 1 - 31, 2018		30,498	(1)	$	2.57		—		—
August 1 - 31, 2018		8,583	(2)		2.53		—		—
September 1 - 30, 2018		8,583	(2)		2.44		—		—
Total		47,664		$	2.54

⁽¹⁾ Comprised of 21,997 shares of stock repurchased by the Company in connection with a warrant holder’s cashless exercise of warrants, and 8,501 shares of stock repurchased by the Company as payment of withholding taxes in connection with the vesting of restricted stock awards. All of the shares were cancelled when they were acquired by the Company.

⁽²⁾ Shares of stock repurchased by the Company as payment of withholding taxes in connection with the vesting of restricted stock awards during the applicable period. All of the shares were cancelled when they were acquired by the Company.

20

Item 6. Exhibits

Exhibit		Description
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Management contract or compensatory plan or arrangement

21

SIGNATURES

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.

	SMITH MICRO SOFTWARE, INC.
October 26, 2018	By /s/	William W. Smith, Jr.
	William W. Smith, Jr.
	Chairman of the Board, President and Chief Executive Officer
	(Principal Executive Officer)
October 26, 2018	By /s/	Timothy C. Huffmyer
	Timothy C. Huffmyer
	Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

22

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, William W. Smith, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Smith Micro Software, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 26, 2018	/s/ William W. Smith, Jr.
	William W. Smith, Jr.
	Chairman of the Board, President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Timothy C. Huffmyer, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Smith Micro Software, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 26, 2018	/s/ Timothy C. Huffmyer
	Timothy C. Huffmyer
	Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATIONS OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned hereby certifies, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Smith Micro Software, Inc., that, to his knowledge, the Quarterly Report on Form 10-Q for the period ended September 30, 2018 of Smith Micro Software, Inc. (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of Smith Micro Software, Inc.

October 26, 2018	By	/s/ William W. Smith, Jr.
	William W. Smith, Jr.
	Chairman of the Board, President and Chief Executive Officer
	(Principal Executive Officer)
October 26, 2018	By	/s/ Timothy C. Huffmyer
	Timothy C. Huffmyer
	Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to Smith Micro Software, Inc. and will be retained by Smith Micro Software, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Oct. 23, 2018
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Trading Symbol	SMSI
Entity Registrant Name	SMITH MICRO SOFTWARE, INC
Entity Central Index Key	0000948708
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		25,027,129

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 8,387	$ 2,205
Accounts receivable, net of allowances for doubtful accounts and other adjustments of $161 (2018) and $221 (2017)	6,328	5,145
Prepaid expenses and other current assets	745	576
Total current assets	15,460	7,926
Equipment and improvements, net	940	1,229
Deferred tax assets, net	404	404
Other assets	140	146
Intangible assets, net	297	487
Goodwill	3,685	3,685
Total assets	20,926	13,877
Current liabilities:
Accounts payable	1,139	1,333
Accrued payroll and benefits	1,843	1,994
Related-party notes payable		1,000
Other accrued liabilities	438	416
Deferred revenue	120	73
Total current liabilities	3,540	4,816
Non-current liabilities:
Related-party notes payable	1,200	1,200
Notes payable, net of discount & issuance costs of $245 (2018) and $442 (2017)	1,755	1,558
Warrant liability	9,918
Deferred rent	784	970
Other long term liabilities	591	766
Total non-current liabilities	14,248	4,494
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.001 per share; 5,000,000 shares authorized; 5,500 shares issued (2018 and 2017); 1,370 and 5,500 shares outstanding (2018 and 2017, respectively)
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 25,005,199 and 14,268,765 shares issued and outstanding (2018 and 2017, respectively)	25	14
Additional paid-in capital	241,970	237,486
Accumulated comprehensive deficit	(238,857)	(232,933)
Total stockholders’ equity	3,138	4,567
Total liabilities and stockholders' equity	$ 20,926	$ 13,877

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Statement Of Financial Position [Abstract]
Allowances for doubtful accounts receivable	$ 161	$ 221
Notes payable, discount & issuance costs	$ 245	$ 442
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	5,500	5,500
Preferred stock, shares outstanding	1,370	5,500
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	25,005,199	14,268,765
Common stock, shares outstanding	25,005,199	14,268,765

XML

Consolidated Statements of Operations and Comprehensive Loss - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income Statement [Abstract]
Revenues	$ 6,525	$ 5,804	$ 18,933	$ 17,242
Cost of revenues	979	1,159	3,404	3,727
Gross profit	5,546	4,645	15,529	13,515
Operating expenses:
Selling and marketing	1,311	1,413	4,488	4,667
Research and development	2,049	2,100	6,499	6,771
General and administrative	2,048	2,220	6,299	6,648
Restructuring expense	83	(146)	135	568
Total operating expenses	5,491	5,587	17,421	18,654
Operating income (loss)	55	(942)	(1,892)	(5,139)
Other expense:
Interest expense, net	(128)	(315)	(445)	(928)
Change in fair value of warrant liability	(902)		(3,126)
Loss on debt extinguishment		(405)		(405)
Other expense	(1)	(2)	(48)	(10)
Loss before provision for income taxes	(976)	(1,664)	(5,511)	(6,482)
Provision for income tax expense	7	6	30	19
Net loss	$ (983)	$ (1,670)	$ (5,541)	$ (6,501)
Net loss per share:
Basic and diluted	$ (0.04)	$ (0.12)	$ (0.28)	$ (0.49)
Weighted average shares outstanding:
Basic and diluted	25,020	14,297	20,771	13,221
Preferred dividends per share	$ 31.58		$ 105.54

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Operating activities:
Net loss	$ (5,541)	$ (6,501)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	651	694
Amortization of debt discounts and financing issuance costs	197	394
Restructuring costs		(146)
Loss on related party debt extinguishment		405
Provision for doubtful accounts and other adjustments to accounts receivable	6	78
Provision for excess and obsolete inventory	(18)
Gain on disposal of fixed assets		(6)
Stock based compensation	674	1,002
Change in fair value of warrant liability	3,126
Change in operating accounts:
Accounts receivable	(1,189)	(325)
Prepaid expenses and other assets	(145)	7
Accounts payable and accrued liabilities	(838)	(1,564)
Deferred revenue	47	269
Net cash used in operating activities	(3,030)	(5,693)
Investing activities:
Capital expenditures	(172)	(68)
Net cash used in investing activities	(172)	(68)
Financing activities:
Proceeds from stock sale for employee stock purchase plan	5	2
Proceeds from common stock offering, net of expenses	10,749	2,056
Proceeds from preferred stock offering, net of expenses		2,413
Proceeds from (payments of) short-term secured promissory notes	(1,000)	3,000
Dividends paid on preferred stock	(370)
Net cash provided by financing activities	9,384	7,471
Net increase in cash and cash equivalents	6,182	1,710
Cash and cash equivalents, beginning of period	2,205	2,229
Cash and cash equivalents, end of period	8,387	3,939
Supplemental disclosures of cash flow information:
Cash paid for income taxes	4	5
Cash paid for interest expense	334	552
Supplemental schedule of non-cash financing activities:
Issuance of common stock warrants in connection with stock offering	$ 6,792	$ 2,292

XML

The Company

9 Months Ended

Sep. 30, 2018

Organization Consolidation And Presentation Of Financial Statements [Abstract]

The Company

1. The Company

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

XML

Accounting Policies

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Accounting Policies

2. Accounting Policies

Basis of Presentation

The accompanying interim consolidated balance sheet as of September 30, 2018, and the related consolidated statements of operations and comprehensive loss and cash flows for each of the three and nine months ended September 30, 2018 and 2017, 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 have been omitted.

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

Intercompany balances and transactions have been eliminated in consolidation.

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

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820), which is designed to improve the effectiveness of disclosures related to fair value measurements. This ASU is effective for annual periods beginning after December 15, 2019 and early adoption is allowed in any interim reporting periods within those annual reporting periods. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company will be evaluating the impact of this guidance on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This updated standard supersedes nearly all existing revenue recognition guidance under the accounting principles generally accepted in the United States of America (“U.S. GAAP”). The core principle of this Topic is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. This Topic defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In July 2015, the FASB deferred the effective date of Topic 606 to annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company adopted the provisions of Topic 606 during the first quarter of 2018, and there was no impact on the consolidated financial statements.

Revenue Recognition

We currently report our net revenues under two operating groups: Wireless and Graphics. Generally, we recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed and determinable, and collectability is probable.  We recognize revenues from sales of our software (or software that we are licensed to distribute) to our customers or end users as completed products are shipped and title passes, or from royalties generated as authorized customers duplicate our software, if the other requirements are met. If the requirements are not met as of the date of shipment, revenue is not recognized until these elements are known or resolved.

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

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

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.

Revenues on a disaggregated basis are as follows (in thousands):

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2018			2017		2018		2017
	(unaudited)					(unaudited)
Wireless:
Software	$	48		$	193	$	311	$	264
Platform		5,908			3,603		15,780		10,858
Services		339			593		1,406		1,954
Contract		(12	)		301		108		602
Total wireless	$	6,283		$	4,690	$	17,605	$	13,678
Graphics:
Software		242			1,114		1,328		3,564
Total revenues	$	6,525		$	5,804	$	18,933	$	17,242

Fair Value Measurements

The Company measures and discloses fair value measurements as required by FASB Accounting Standards Codification (“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:

• 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.

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

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

As required by FASB ASC Topic No. 820, we utilize quoted market prices to estimate the fair value of our fixed rate debt, when available. If quoted market prices are not available, we calculate the fair value of our fixed rate debt based on a currently available market rate, assuming the loans are outstanding through maturity and considering the collateral securing the loans. In determining the current market rate for fixed rate debt, a market spread is added to the quoted yields on federal government treasury securities with similar terms to the debt.

XML

Going Concern Evaluation

9 Months Ended

Sep. 30, 2018

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Going Concern Evaluation

3. Going Concern Evaluation

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

The Company considered the historical operating loss and negative cash flow from operating activities trends.  

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

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

• In May 2017, the Company raised $2.2 million of new capital in a private placement offering of its common stock.

• In September 2017, the Company closed on a $5.5 million preferred stock transaction which converted $2.8 million of long and short-term debt, and raised $2.7 million of new capital.

• On March 5, 2018, the Company raised $5.0 million of new capital in a private placement offering of its common stock.  

• On May 3, 2018, the Company raised $7.0 million of new capital in a private placement offering of its common stock.  

In addition to the recent capital raised, management also believes that the Company will generate enough cash from operations to satisfy its obligations for the next twelve months from the issuance date.

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

• Raise additional funds through short-term loans.

• Implement additional restructuring and cost reductions.

• Raise additional capital through a private placement.

• Secure a commercial bank line of credit.

• Dispose of one or more product lines.

• Sell or license intellectual property.

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Goodwill

9 Months Ended

Sep. 30, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill

4. Goodwill

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

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Debt and Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Debt and Fair Value of Financial Instruments

5.Debt and Fair Value of Financial Instruments

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

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

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

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

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

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

Warrant Liability

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

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

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

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

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

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

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

Debt

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

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

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

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Earnings Per Share

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

Earnings Per Share

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

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
	(unaudited, in thousands, except per share amounts)						(unaudited, in thousands, except per share amounts)
Numerator:
Net loss	$	(983	)	$	(1,670	)	$	(5,541	)	$	(6,501	)
Dividends paid to preferred stockholders		(43	)		—			(370	)		—
Net loss available to common stockholders	$	(1,026	)	$	(1,670	)	$	(5,911	)	$	(6,501	)
Denominator:
Weighted average shares outstanding – basic		25,020			14,297			20,771			13,221
Potential common shares – options / warrants    (treasury stock method)		—			—			—			—
Weighted average shares outstanding – diluted		25,020			14,297			20,771			13,221
Shares excluded (anti-dilutive)		—			—			—			—
Shares excluded due to an exercise price greater    than weighted average stock price for the period		126			1,973			1,086			1,869
Net loss per common share:
Basic	$	(0.04	)	$	(0.12	)	$	(0.28	)	$	(0.49	)
Diluted	$	(0.04	)	$	(0.12	)	$	(0.28	)	$	(0.49	)

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2018

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

7. Stock-Based Compensation

Stock Plans

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

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Segment, Customer Concentration and Geographical Information

9 Months Ended

Sep. 30, 2018

Segment Reporting [Abstract]

Segment, Customer Concentration and Geographical Information

8. Segment, Customer Concentration and Geographical Information

Segment Information

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

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

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2018		2017		2018		2017
	(unaudited)				(unaudited)
Wireless	$	6,283	$	4,690	$	17,605	$	13,678
Graphics		242		1,114		1,328		3,564
Total revenues	$	6,525	$	5,804	$	18,933	$	17,242

Customer Concentration Information

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017				2018			2017
	(unaudited)						(unaudited)
Wireless:
Sprint (& affiliates)		86	%		59	%			81	%		60	%
Graphics:
FastSpring		3	%		13	%			5	%		14	%

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

Geographical Information

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2018		2017		2018		2017
	(unaudited)				(unaudited)
Americas	$	6,483	$	5,713	$	18,724	$	16,949
EMEA		18		43		77		124
Asia Pacific		24		48		132		169
Total revenues	$	6,525	$	5,804	$	18,933	$	17,242

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

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

9. Commitments and Contingencies

Litigation

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.

Other Contingent Contractual Obligations

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.

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Equity Transactions

9 Months Ended

Sep. 30, 2018

Equity [Abstract]

Equity Transactions

10. Equity Transactions

March 2018 Offering

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

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

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

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

May 2018 Offering

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

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

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

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

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

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Income Taxes

9 Months Ended

Sep. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

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

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

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

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

The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. Federal income tax returns of the Company are currently subject to IRS examination for the 2013 – 2017 tax years. State income tax returns are subject to examination for a period of three to four years after filing.  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.

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Subsequent Events

9 Months Ended

Sep. 30, 2018

Subsequent Events [Abstract]

Subsequent Events

12. Subsequent Events

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

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Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying interim consolidated balance sheet as of September 30, 2018, and the related consolidated statements of operations and comprehensive loss and cash flows for each of the three and nine months ended September 30, 2018 and 2017, 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 have been omitted.

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

Intercompany balances and transactions have been eliminated in consolidation.

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

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820), which is designed to improve the effectiveness of disclosures related to fair value measurements. This ASU is effective for annual periods beginning after December 15, 2019 and early adoption is allowed in any interim reporting periods within those annual reporting periods. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company will be evaluating the impact of this guidance on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This updated standard supersedes nearly all existing revenue recognition guidance under the accounting principles generally accepted in the United States of America (“U.S. GAAP”). The core principle of this Topic is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. This Topic defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In July 2015, the FASB deferred the effective date of Topic 606 to annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company adopted the provisions of Topic 606 during the first quarter of 2018, and there was no impact on the consolidated financial statements.

Revenue Recognition

Revenue Recognition

We currently report our net revenues under two operating groups: Wireless and Graphics. Generally, we recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed and determinable, and collectability is probable.  We recognize revenues from sales of our software (or software that we are licensed to distribute) to our customers or end users as completed products are shipped and title passes, or from royalties generated as authorized customers duplicate our software, if the other requirements are met. If the requirements are not met as of the date of shipment, revenue is not recognized until these elements are known or resolved.

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

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

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.

Revenues on a disaggregated basis are as follows (in thousands):

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2018			2017		2018		2017
	(unaudited)					(unaudited)
Wireless:
Software	$	48		$	193	$	311	$	264
Platform		5,908			3,603		15,780		10,858
Services		339			593		1,406		1,954
Contract		(12	)		301		108		602
Total wireless	$	6,283		$	4,690	$	17,605	$	13,678
Graphics:
Software		242			1,114		1,328		3,564
Total revenues	$	6,525		$	5,804	$	18,933	$	17,242

Fair Value Measurements

Fair Value Measurements

The Company measures and discloses fair value measurements as required by FASB Accounting Standards Codification (“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:

• 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.

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

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

As required by FASB ASC Topic No. 820, we utilize quoted market prices to estimate the fair value of our fixed rate debt, when available. If quoted market prices are not available, we calculate the fair value of our fixed rate debt based on a currently available market rate, assuming the loans are outstanding through maturity and considering the collateral securing the loans. In determining the current market rate for fixed rate debt, a market spread is added to the quoted yields on federal government treasury securities with similar terms to the debt.

Going Concern Evaluation

Going Concern Evaluation

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

The Company considered the historical operating loss and negative cash flow from operating activities trends.  

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

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

• In May 2017, the Company raised $2.2 million of new capital in a private placement offering of its common stock.

• In September 2017, the Company closed on a $5.5 million preferred stock transaction which converted $2.8 million of long and short-term debt, and raised $2.7 million of new capital.

• On March 5, 2018, the Company raised $5.0 million of new capital in a private placement offering of its common stock.  

• On May 3, 2018, the Company raised $7.0 million of new capital in a private placement offering of its common stock.  

In addition to the recent capital raised, management also believes that the Company will generate enough cash from operations to satisfy its obligations for the next twelve months from the issuance date.

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

• Raise additional funds through short-term loans.

• Implement additional restructuring and cost reductions.

• Raise additional capital through a private placement.

• Secure a commercial bank line of credit.

• Dispose of one or more product lines.

• Sell or license intellectual property.

Goodwill

Goodwill

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

Earnings Per Share

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

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
	(unaudited, in thousands, except per share amounts)						(unaudited, in thousands, except per share amounts)
Numerator:
Net loss	$	(983	)	$	(1,670	)	$	(5,541	)	$	(6,501	)
Dividends paid to preferred stockholders		(43	)		—			(370	)		—
Net loss available to common stockholders	$	(1,026	)	$	(1,670	)	$	(5,911	)	$	(6,501	)
Denominator:
Weighted average shares outstanding – basic		25,020			14,297			20,771			13,221
Potential common shares – options / warrants    (treasury stock method)		—			—			—			—
Weighted average shares outstanding – diluted		25,020			14,297			20,771			13,221
Shares excluded (anti-dilutive)		—			—			—			—
Shares excluded due to an exercise price greater    than weighted average stock price for the period		126			1,973			1,086			1,869
Net loss per common share:
Basic	$	(0.04	)	$	(0.12	)	$	(0.28	)	$	(0.49	)
Diluted	$	(0.04	)	$	(0.12	)	$	(0.28	)	$	(0.49	)

Segment Information

Segment Information

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

Income Taxes

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.

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Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Schedule of Revenues on Disaggregated Basis

Revenues on a disaggregated basis are as follows (in thousands):

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2018			2017		2018		2017
	(unaudited)					(unaudited)
Wireless:
Software	$	48		$	193	$	311	$	264
Platform		5,908			3,603		15,780		10,858
Services		339			593		1,406		1,954
Contract		(12	)		301		108		602
Total wireless	$	6,283		$	4,690	$	17,605	$	13,678
Graphics:
Software		242			1,114		1,328		3,564
Total revenues	$	6,525		$	5,804	$	18,933	$	17,242

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Debt and Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Aggregate Fair Value and Carrying Value of Warrant Liability and Short and Long-term Debt

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

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

Schedule of Roll Forward of Warrant Liability Classified as Level 3 and Measured at Fair Value on a Recurring Basis

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

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

Fair Value of Warrants Determined by Using Option Pricing Model

The warrants are not traded in an active securities market and, as such, the estimated fair value as of September 30, 2018 was determined by using an option pricing model (Black-Scholes) with the following assumptions:

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

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

Details of Basic and Diluted Earnings Per Share

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
	(unaudited, in thousands, except per share amounts)						(unaudited, in thousands, except per share amounts)
Numerator:
Net loss	$	(983	)	$	(1,670	)	$	(5,541	)	$	(6,501	)
Dividends paid to preferred stockholders		(43	)		—			(370	)		—
Net loss available to common stockholders	$	(1,026	)	$	(1,670	)	$	(5,911	)	$	(6,501	)
Denominator:
Weighted average shares outstanding – basic		25,020			14,297			20,771			13,221
Potential common shares – options / warrants    (treasury stock method)		—			—			—			—
Weighted average shares outstanding – diluted		25,020			14,297			20,771			13,221
Shares excluded (anti-dilutive)		—			—			—			—
Shares excluded due to an exercise price greater    than weighted average stock price for the period		126			1,973			1,086			1,869
Net loss per common share:
Basic	$	(0.04	)	$	(0.12	)	$	(0.28	)	$	(0.49	)
Diluted	$	(0.04	)	$	(0.12	)	$	(0.28	)	$	(0.49	)

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Segment, Customer Concentration and Geographical Information (Tables)

9 Months Ended

Sep. 30, 2018

Segment Reporting [Abstract]

Revenues Generated by Each Business Unit

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2018		2017		2018		2017
	(unaudited)				(unaudited)
Wireless	$	6,283	$	4,690	$	17,605	$	13,678
Graphics		242		1,114		1,328		3,564
Total revenues	$	6,525	$	5,804	$	18,933	$	17,242

Company's Customers that Represent 10% or More of Company's Net Revenues

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017				2018			2017
	(unaudited)						(unaudited)
Wireless:
Sprint (& affiliates)		86	%		59	%			81	%		60	%
Graphics:
FastSpring		3	%		13	%			5	%		14	%

Company Revenue in Different Geographic Locations

Revenues attributed to the geographic location of the customers’ bill-to address were as follows (in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2018		2017		2018		2017
	(unaudited)				(unaudited)
Americas	$	6,483	$	5,713	$	18,724	$	16,949
EMEA		18		43		77		124
Asia Pacific		24		48		132		169
Total revenues	$	6,525	$	5,804	$	18,933	$	17,242

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Accounting Policies - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2018 Business_Unit
Accounting Policies [Abstract]
Number of operating groups	2
Sales return period	30 days

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Accounting Policies - Schedule of Revenues on Disaggregated Basis (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Disaggregation Of Revenue [Line Items]
Revenues	$ 6,525	$ 5,804	$ 18,933	$ 17,242
Wireless [Member]
Disaggregation Of Revenue [Line Items]
Revenues	6,283	4,690	17,605	13,678
Wireless [Member] | Software [Member]
Disaggregation Of Revenue [Line Items]
Revenues	48	193	311	264
Wireless [Member] | Platform [Member]
Disaggregation Of Revenue [Line Items]
Revenues	5,908	3,603	15,780	10,858
Wireless [Member] | Services [Member]
Disaggregation Of Revenue [Line Items]
Revenues	339	593	1,406	1,954
Wireless [Member] | Contract [Member]
Disaggregation Of Revenue [Line Items]
Revenues	(12)	301	108	602
Graphics [Member]
Disaggregation Of Revenue [Line Items]
Revenues	242	1,114	1,328	3,564
Graphics [Member] | Software [Member]
Disaggregation Of Revenue [Line Items]
Revenues	$ 242	$ 1,114	$ 1,328	$ 3,564

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Going Concern Evaluation - Additional Information (Detail) - USD ($) $ in Millions			1 Months Ended		9 Months Ended
	May 03, 2018	Mar. 05, 2018	Sep. 30, 2017	May 31, 2017	Sep. 30, 2018
Going Concern Evaluation [Line Items]
Substantial doubt about going concern, management's evaluation					In connection with preparing consolidated financial statements for the three and nine months ended September 30, 2018, management evaluated whether there were conditions and events that, when considered in the aggregate, raised substantial doubt about the Company’s ability to continue as a going concern within one year from the date that the financial statements are issued. The Company considered the historical operating loss and negative cash flow from operating activities trends. Ordinarily, conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern relate to the entity’s ability to meet its obligations as they become due. The Company evaluated its ability to meet its obligations as they become due within one year from the date that the financial statements are issued by considering the following:  In May 2017, the Company raised $2.2 million of new capital in a private placement offering of its common stock.  In September 2017, the Company closed on a $5.5 million preferred stock transaction which converted $2.8 million of long and short-term debt, and raised $2.7 million of new capital.  On March 5, 2018, the Company raised $5.0 million of new capital in a private placement offering of its common stock.  On May 3, 2018, the Company raised $7.0 million of new capital in a private placement offering of its common stock. In addition to the recent capital raised, management also believes that the Company will generate enough cash from operations to satisfy its obligations for the next twelve months from the issuance date.
Preferred stock transaction			$ 5.5
Debt instrument, principal amount			2.8
New equity capital raised			$ 2.7
Substantial doubt about going concern, management's plans, substantial doubt not alleviated					The Company will take the following actions, if it starts to trend unfavorably against its internal profitability and cash flow projections, in order to mitigate conditions or events that would raise substantial doubt about its ability to continue as a going concern:  Raise additional funds through short-term loans.  Implement additional restructuring and cost reductions.  Raise additional capital through a private placement.  Secure a commercial bank line of credit.  Dispose of one or more product lines.  Sell or license intellectual property.
Private Placement [Member]
Going Concern Evaluation [Line Items]
Common stock raised of new capital, value	$ 7.0	$ 5.0		$ 2.2

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Goodwill - Additional Information (Detail) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Goodwill And Intangible Assets Disclosure [Abstract]
Goodwill impairment	$ 0	$ 0

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Debt and Fair Value of Financial Instruments - Aggregate Fair Value and Carrying Value of Warrant Liability and Short and Long-term Debt (Detail) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Carrying Amount [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Warrant liability	$ 9,918
Short-term debt, related party		$ 1,000
Long-term debt, related party	1,200	1,200
Long-term debt	1,755	1,558
Total	12,873	3,758
Fair Value [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Warrant liability	9,918
Short-term debt, related party		1,000
Long-term debt, related party	1,200	1,200
Long-term debt	1,755	1,558
Total	$ 12,873	$ 3,758

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Debt and Fair Value of Financial Instruments - Schedule of Roll Forward of Warrant Liability Classified as Level 3 and Measured at Fair Value on a Recurring Basis (Detail) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Change in fair value of warrant liability	$ 902	$ 3,126
Ending balance	9,918	9,918
Fair Value, Measurements, Recurring [Member] | Basis of Fair Value Measurements, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Warrants issued		6,792
Change in fair value of warrant liability		3,126
Ending balance	$ 9,918	$ 9,918

XML

Debt and Fair Value of Financial Instruments - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Millions	May 03, 2018	Mar. 06, 2018	Jan. 30, 2018	Jan. 29, 2018	Sep. 30, 2018
Secured Promissory Note [Member] | Steven L. and Monique P. Elfman [Member]
Debt And Fair Value Of Financial Instruments [Line Items]
Notes due date			Feb. 11, 2018	Aug. 18, 2017
Secured Promissory Note [Member] | William W. Smith, Jr. and Dieva L. Smith [Member]
Debt And Fair Value Of Financial Instruments [Line Items]
Notes due date			Jul. 25, 2018	Jun. 26, 2017
Debt instrument extended maturity date		Mar. 25, 2020
Secured Promissory Note [Member] | Next Generation TC FBO Andrew Arno IRA 1663 [Member]
Debt And Fair Value Of Financial Instruments [Line Items]
Notes due date			Jul. 25, 2018	Aug. 24, 2017
Debt instrument extended maturity date		Mar. 25, 2020
Secured Promissory Note [Member] | Andrew Arno [Member]
Debt And Fair Value Of Financial Instruments [Line Items]
Notes due date			Jul. 25, 2018	Aug. 24, 2017
Debt instrument extended maturity date		Mar. 25, 2020
March Offering [Member]
Debt And Fair Value Of Financial Instruments [Line Items]
Gross proceeds before deducting placement agent fee and offering expenses		$ 5.0
Warrant liability		$ 2.9			$ 4.7
March Offering [Member] | Common Stock [Member]
Debt And Fair Value Of Financial Instruments [Line Items]
Common shares issued in stock offering, net offering costs, shares		2,857,144
Common stock, price per share		$ 1.75
Common stock exercise price		$ 2.17
May Offering [Member]
Debt And Fair Value Of Financial Instruments [Line Items]
Gross proceeds before deducting placement agent fee and offering expenses	$ 7.0
Warrant liability	$ 3.9				$ 5.2
May Offering [Member] | Common Stock [Member]
Debt And Fair Value Of Financial Instruments [Line Items]
Common shares issued in stock offering, net offering costs, shares	3,170,000
Common stock, price per share	$ 2.21
Common stock exercise price	$ 2.11

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Debt and Fair Value of Financial Instruments - Fair Value of Warrants Determined by Using Option Pricing Model (Detail) - Warrant Liability [Member]	May 03, 2018 $ / shares	Mar. 05, 2018 $ / shares
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Common stock market price	$ 2.52	$ 2.52
Resulting fair value (per warrant)	$ 1.66	$ 1.58
Expected Term [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair value assumptions	5 years 29 days	4 years 11 months 1 day
Risk-Free Interest Rate [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair value assumptions	2.89	2.89
Expected Volatility [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair value assumptions	74.0	70.6

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Earnings Per Share - Details of Basic and Diluted Earnings Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Numerator:
Net loss	$ (983)	$ (1,670)	$ (5,541)	$ (6,501)
Dividends paid to preferred stockholders	(43)		(370)
Net loss available to common stockholders	$ (1,026)	$ (1,670)	$ (5,911)	$ (6,501)
Denominator:
Weighted average shares outstanding – basic	25,020	14,297	20,771	13,221
Weighted average shares outstanding – diluted	25,020	14,297	20,771	13,221
Shares excluded due to an exercise price greater than weighted average stock price for the period	126	1,973	1,086	1,869
Net loss per common share:
Basic	$ (0.04)	$ (0.12)	$ (0.28)	$ (0.49)
Diluted	$ (0.04)	$ (0.12)	$ (0.28)	$ (0.49)

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Stock-Based Compensation - Additional Information (Detail)	3 Months Ended	9 Months Ended
	Sep. 30, 2018 shares	Sep. 30, 2018 shares
2015 Omnibus Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares available for future grants	2,800,000	2,800,000
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock, granted	0	1,125,000
Incentive Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Incentive stock options, granted	15,000	15,000

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Segment, Customer Concentration and Geographical Information - Additional Information (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2018 Location	Sep. 30, 2017 Location	Sep. 30, 2018 Business_Unit Location	Sep. 30, 2017 Location
Revenue, Major Customer [Line Items]
Number of primary business units | Business_Unit			2
Number of geographic locations | Location	3	3	3	3
Customer Concentration Risk [Member] | Accounts Receivable [Member] | Sprint and Fast Spring [Member]
Revenue, Major Customer [Line Items]
Concentration percentage			88.00%	68.00%

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Segment, Customer Concentration and Geographical Information - Revenues Generated by Each Business Unit (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenue from External Customer [Line Items]
Total revenues	$ 6,525	$ 5,804	$ 18,933	$ 17,242
Wireless [Member]
Revenue from External Customer [Line Items]
Total revenues	6,283	4,690	17,605	13,678
Graphics [Member]
Revenue from External Customer [Line Items]
Total revenues	$ 242	$ 1,114	$ 1,328	$ 3,564

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Segment, Customer Concentration and Geographical Information - Company's Customers that Represent 10% or More of Company's Net Revenues (Detail) - Revenues [Member] - Customer Concentration Risk [Member]	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Wireless [Member] | Sprint and Affiliates [Member]
Revenue, Major Customer [Line Items]
Customer concentrating on 10% or more of net revenue	86.00%	59.00%	81.00%	60.00%
Graphics [Member] | FastSpring [Member]
Revenue, Major Customer [Line Items]
Customer concentrating on 10% or more of net revenue	3.00%	13.00%	5.00%	14.00%

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Segment, Customer Concentration and Geographical Information - Company Revenue in Different Geographic Locations (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenue from External Customer [Line Items]
Total revenues	$ 6,525	$ 5,804	$ 18,933	$ 17,242
Americas [Member]
Revenue from External Customer [Line Items]
Total revenues	6,483	5,713	18,724	16,949
EMEA [Member]
Revenue from External Customer [Line Items]
Total revenues	18	43	77	124
Asia Pacific [Member]
Revenue from External Customer [Line Items]
Total revenues	$ 24	$ 48	$ 132	$ 169

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Equity Transactions - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands				3 Months Ended	9 Months Ended
	May 03, 2018	Apr. 19, 2018	Mar. 06, 2018	Mar. 31, 2018	Sep. 30, 2018	Sep. 30, 2017
Class Of Stock [Line Items]
Cash proceeds from issuance of common stock, net of offering costs					$ 10,749	$ 2,056
Preferred stock, dividend rate			10.00%
Preferred stock liquidation damage payments		$ 48
Roth Capital Partners, LLC [Member]
Class Of Stock [Line Items]
Percentage of gross proceeds of offering	2.00%
Warrants [Member]
Class Of Stock [Line Items]
Triggering event charges				$ 11
March Offering [Member]
Class Of Stock [Line Items]
Gross proceeds before deducting placement agent fee and offering expenses			$ 5,000
Cash proceeds from issuance of common stock, net of offering costs			$ 4,500
March Offering [Member] | Common Stock [Member]
Class Of Stock [Line Items]
Common stock, issued and sold to investors			2,857,144
Common stock, price per share			$ 1.75
Common stock exercise price			2.17
May Offering [Member]
Class Of Stock [Line Items]
Gross proceeds before deducting placement agent fee and offering expenses	$ 7,000
Cash proceeds from issuance of common stock, net of offering costs	$ 6,300
May Offering [Member] | Common Stock [Member]
Class Of Stock [Line Items]
Common stock, issued and sold to investors	3,170,000
Common stock, price per share	$ 2.21
Common stock exercise price	$ 2.11
Chardan Capital Markets, LLC [Member]
Class Of Stock [Line Items]
Common stock exercise price			$ 2.365
Percentage of gross proceeds of offering	7.00%		8.00%
Percentage of warrants to purchase shares of common stock on number of shares sold			3.00%
Warrants term			5 years 6 months
Offering [Member] | Unterberg Koller Capital Fund L.P. [Member] | Maximum [Member]
Class Of Stock [Line Items]
Common stock exercise price			$ 2.14
Offering [Member] | Unterberg Koller Capital Fund L.P. [Member] | Minimum [Member]
Class Of Stock [Line Items]
Common stock exercise price			$ 2.07

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Income Taxes - Additional Information (Detail) $ in Millions	9 Months Ended
	Sep. 30, 2018 USD ($)
Income Tax Examination [Line Items]
Reserve on US-based deferred tax amounts	$ 52.9
Federal [Member] | IRS [Member]
Income Tax Examination [Line Items]
Income tax years under examination	2013 2014 2015 2016 2017