SMITH MICRO SOFTWARE, INC. Fair Value Disclosure
7. Fair Value of Financial Instruments
The Company measures and discloses fair value measurements as required by FASB ASC Topic No. 820: Fair Value Measurements and Disclosures. Fair value is an exit price, representing the amount that would be received upon the sale of an asset or the amount that would be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, the FASB establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
| • | Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
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| • | Level 2 – Include other inputs that are directly or indirectly observable in the marketplace. |
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| • | Level 3 – Unobservable inputs which are supported by little or no market activity. |
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following table presents information about the financial liabilities that are measured at fair value on a recurring basis at December 31, 2025 and 2024 (in thousands):
Level 3 |
| December 31, 2025 |
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| December 31, 2024 |
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Notes Warrants |
| $ | 41 |
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| $ | 197 |
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Additional Warrants |
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| 4 |
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| 27 |
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Total |
| $ | 45 |
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| $ | 224 |
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The following table presents the changes in the fair value of Level 3 instruments for the years ended December 31, 2025 and 2024. (in thousands):
| | Notes Warrants | | | Additional Warrants | | | Total | | |||
Measurement at December 31, 2023 | | $ | 334 | | | $ | 263 | | | $ | 597 | |
| | (137 | ) | | | (236 | ) | | | (373 | ) | |
Measurement at December 31, 2024 | | | 197 | | | | 27 | | | | 224 | |
| | (156 | ) | | | (23 | ) | | | (179 | ) | |
Measurement at December 31, 2025 | | $ | 41 | | | $ | 4 | | | $ | 45 | |
The carrying values for all other financial assets and liabilities approximated fair value for the years ended December 31, 2025 and 2024.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 5, 2026 | Showing above |
| 2023 | Feb 26, 2024 | |
| 2022 | Mar 23, 2023 | |
| 2016 | Mar 10, 2017 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.