Phunware, Inc. 10-Q

Item 1. Financial Statements 1 Table of Contents Phunware, Inc. Condensed Consolidated Balance Sheet (In thousands, except share and per share information) March 31, 2021 December 31, 2020 ( Unaudited) Assets Current assets: Cash $ 23,469 $ 3,940 Accounts receivable, net of allowance for doubtful accounts of $ 122 and $ 356 at March 31, 2021 and December 31, 2020, respectively 937 664 Digital currencies 1,098 — Prepaid expenses and other current assets 794 304 Total current assets 26,298 4,908 Property and equipment, net 12 13 Goodwill 25,911 25,900 Intangible assets, net 79 111 Deferred tax asset 537 537 Restricted cash 91 91 Right-of-use asset 1,723 — Other assets 276 276 Total assets $ 54,927 $ 31,836 Liabilities and stockholders’ equity (deficit) Current liabilities: Accounts payable $ 7,781 $ 8,462 Accrued expenses 3,190 5,353 Accrued legal settlement 3,000 3,000 Lease liability 530 — Deferred revenue 2,180 2,397 PhunCoin deposits 1,202 1,202 Current maturities of long-term debt, net 10,012 4,435 Warrant liability 2,499 1,614 Total current liabilities 30,394 26,463 Long-term debt 3,741 3,762 Long-term debt - related party 195 195 Deferred tax liability 537 537 Deferred revenue 2,054 2,678 Lease liability 1,447 — Deferred rent — 180 Total liabilities 38,368 33,815 Commitments and contingencies Stockholders’ equity (deficit) Common stock, $ 0.0001 par value; 1,000,000,000 shares authorized at March 31, 2021 and December 31, 2020; 71,211,399 and 56,380,111 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively 7 6 Additional paid-in capital 175,046 144,156 Accumulated other comprehensive loss ( 328 ) ( 338 ) Accumulated deficit ( 158,166 ) ( 145,803 ) Total stockholders’ equity (deficit) 16,559 ( 1,979 ) Total liabilities and stockholders’ equity (deficit) $ 54,927 $ 31,836 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Table of Contents Phunware, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (In thousands, except per share information) (Unaudited) Three Months Ended March 31, 2021 2020 Net revenues $ 1,646 $ 2,640 Cost of revenues 692 1,091 Gross profit 954 1,549 Operating expenses: Sales and marketing 556 605 General and administrative 2,758 3,945 Research and development 1,052 861 Total operating expenses 4,366 5,411 Operating loss ( 3,412 ) ( 3,862 ) Other expense: Interest expense ( 2,219 ) ( 101 ) Loss on extinguishment of debt ( 5,768 ) — Loss on change in fair value of warrant liability ( 885 ) — Other expense ( 79 ) — Total other expense ( 8,951 ) ( 101 ) Loss before taxes ( 12,363 ) ( 3,963 ) Income tax expense — — Net loss ( 12,363 ) ( 3,963 ) Other comprehensive income (loss): Cumulative translation adjustment 10 ( 72 ) Comprehensive loss $ ( 12,353 ) $ ( 4,035 ) Net loss per common share, basic and diluted $ ( 0.19 ) $ ( 0.10 ) Weighted-average common shares used to compute net loss per share, basic and diluted 64,587 40,095 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents Phunware, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (In thousands) (Unaudited) Common Stock Additional Paid-in Capital Accumulated Deficit Other Comprehensive Loss Total Stockholders’ Equity (Deficit) Shares Amount Balance - December 31, 2020 56,371 $ 6 $ 144,156 $ ( 145,803 ) $ ( 338 ) $ ( 1,979 ) Exercise of stock options, net of vesting of restricted shares 120 — 65 — — 65 Release of restricted stock 183 — — — — — Issuance of common stock for payment of board of director fees 99 — 66 — — 66 Sales of common stock, net of issuance costs 14,431 1 29,704 — — 29,705 Stock-based compensation expense — — 1,055 — — 1,055 Cumulative translation adjustment — — — — 10 10 Net loss — — — ( 12,363 ) — ( 12,363 ) Balance - March 31, 2021 71,204 $ 7 $ 175,046 $ ( 158,166 ) $ ( 328 ) $ 16,559 Common Stock Additional Paid-in Capital Accumulated Deficit Other Comprehensive Loss Total Stockholders’ Equity Shares Amount Balance - December 31, 2019 39,811 $ 4 $ 128,008 $ ( 123,604 ) $ ( 382 ) $ 4,026 Exercise of stock options, net of vesting of restricted shares 33 — 16 — — 16 Vesting of restricted stock units 116 — — — — — Issuance of common stock for payment of legal and board of director fees 733 — 492 — — 492 Stock-based compensation expense — — 635 — — 635 Equity classified cash conversion feature of Senior Convertible Note — — 219 — — 219 Cumulative translation adjustment — — — — ( 72 ) ( 72 ) Net loss — — — ( 3,963 ) — ( 3,963 ) Balance - March 31, 2020 40,693 $ 4 $ 129,370 $ ( 127,567 ) $ ( 454 ) $ 1,353 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents Phunware, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Three Months Ended March 31, 2021 2020 Operating activities Net loss $ ( 12,363 ) $ ( 3,963 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 33 49 Amortization of debt discount and deferred financing costs 1,642 13 Amortization of right-of-use asset 114 — Loss on change in fair value of warrant liability 885 — Impairment of right-of-use asset 77 — Loss on extinguishment of debt 5,768 — Bad debt recovery ( 234 ) ( 16 ) Stock-based compensation 1,055 635 Changes in operating assets and liabilities: Accounts receivable ( 40 ) 783 Prepaid expenses and other assets ( 490 ) ( 108 ) Accounts payable ( 682 ) 851 Accrued expenses ( 2,287 ) 643 Lease liability 64 — Deferred revenue ( 841 ) ( 792 ) Net cash used in operating activities ( 7,299 ) ( 1,905 ) Investing activities Purchase of digital currencies ( 1,098 ) — Net cash provided by investing activities ( 1,098 ) — Financing activities Proceeds from borrowings, net of issuance costs 9,981 2,595 Proceeds from related party bridge loans — 560 Payments on senior convertible notes ( 11,835 ) — Net repayments on factoring agreement — ( 627 ) Proceeds from exercise of options to purchase common stock 65 15 Proceeds from sales of common stock, net of issuance costs 29,705 — Net cash provided by (used in) financing activities 27,916 2,543 Effect of exchange rate on cash and restricted cash 10 ( 76 ) Net increase (decrease) in cash and restricted cash 19,529 562 Cash and restricted cash at the beginning of the period 4,031 362 Cash and restricted cash at the end of the period $ 23,560 $ 924 5 Table of Contents Supplemental disclosure of cash flow information: Interest paid $ 567 $ 98 Income taxes paid $ — $ — Supplemental disclosures of non-cash financing activities: Issuance of common stock for payment of legal and board of director fees $ 66 $ 492 Equity classified cash conversion feature of Senior Convertible Note $ — $ 219 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents Phunware, Inc Notes to Unaudited Condensed Consolidated Financial Statements (In thousands, except share and per share information) (Unaudited) 1. The Company and Basis of Presentation The Company Phunware, Inc. and its subsidiaries (the “Company”, "we", "us", or "our") offers a fully integrated software platform that equips companies with the products, solutions and services necessary to engage, manage and monetize their mobile application portfolios globally at scale. Phunware’s Multiscreen-as-a-Service ("MaaS") platform provides the entire mobile lifecycle of applications and media in one login through one procurement relationship. The Company’s MaaS technology is available in software development kit form for organizations developing their own application, via customized development services and prepackaged solutions. Through its integrated mobile advertising platform of publishers and advertisers, the Company provides in-app application transactions for mobile audience building, user acquisition, application discovery, audience engagement and audience monetization. Founded in 2009, we are a Delaware corporation headquartered in Austin, Texas. Basis of Presentation The condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) and include the Company’s accounts and those of its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The balance sheet at December 31, 2020 was derived from our audited consolidated financial statements, but these interim condensed consolidated financial statements do not include all the annual disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, 2020, which are referenced herein. The accompanying interim condensed consolidated financial statements as of March 31, 2021 and for the three months ended March 31, 2021 and 2020, are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the audited financial statements, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to fairly state our financial position as of March 31, 2021 and the results of operations for the three months ended March 31, 2021 and 2020, and cash flows for the three months ended March 31, 2021 and 2020. The results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any future interim period. 2. Summary of Significant Accounting Policies There have been no changes in significant accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2020, except as set forth below. Recently Adopted Accounting Pronouncements In December 2019, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 includes the removal of certain exceptions to the general principles of ASC 740 and simplifies the accounting for income taxes by clarifying and amending existing guidance. We adopted the update January 1, 2021 and it did not have a material impact on our condensed consolidated financial statements and disclosures. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). We adopted ASU 2016-02 effective January 1, 2021. The core principle of ASU 2016-02 is that a lessee should recognize the assets and liabilities that arise from leases. For operating leases, a lessee is required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position. We have elected certain practical expedients permitted under the transition guidance that allows us to use the beginning of the period of adoption (January 1, 2021) as the date of initial recognition. As a result, prior period comparative financial information was not recast under the new 7 Table of Contents standard and continues to be presented under the prior lease accounting standards. Other practical expedients include our election to not separate non-lease components from lease components and to not reassess lease classification, treatment of initial direct costs or whether an existing or expired contract contains a lease. We have also elected to apply the short-term lease exception for all leases, which we will not recognize right-of-use assets or lease liabilities for leases that, at the commencement date, have a term of twelve (12) months or less. The adoption of the new lease standard on January 1, 2021, resulted in the recognition of right-of-use assets and operating lease liabilities of $ 2,101 on the condensed consolidated balance sheet. In connection with the adoption of this standard, short-term deferred rent of $ 8 , which was previously recorded in accrued expenses and long term deferred rent of $ 180 previously recorded in deferred rent on the condensed consolidated balance sheet was offset against the right-of-use asset. The details of our right-of-use asset and lease liability recognized upon adoption of ASC 842 are set forth below: January 1, 2021 Right-of-use asset $ 2,101 Straight-line rent accrual ( 188 ) $ 1,913 Lease liability, current $ 500 Lease liability, non-current 1,601 $ 2,101 Concentrations of Credit Risk Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and trade accounts receivable. Although we limit our exposure to credit loss by depositing our cash with established financial institutions that management believes have good credit ratings and represent minimal risk of loss of principal, our deposits, at times, may exceed federally insured limits. Collateral is not required for accounts receivable, and we believe the carrying value approximates fair value. The following table sets forth our concentration of accounts receivable, net of specific allowances for doubtful accounts. March 31, 2021 December 31, 2020 Customer A 20 % — % Customer B 19 % — % Customer C 18 % 16 % Customer D — % 55 % Customer E — % 13 % Customer F 25 % — % Digital Assets During the three months ended March 31, 2021, we purchased an aggregate of $ 1,098 in digital assets, comprised solely of bitcoin. We currently account for all digital assets held as a result of these transactions as indefinite-lived intangible assets in accordance with Accounting Standards Codification ("ASC") 350, Intangibles—Goodwill and Other . We have ownership of and control over our bitcoin and we may use third-party custodial services to secure it. The digital assets are initially recorded at cost and are subsequently remeasured on the condensed consolidated balance sheet at cost, net of any impairment losses incurred since acquisition. We determine the fair value of our bitcoin on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement , based on quoted prices on the active exchange(s) that we have determined is its principal market for bitcoin (Level 1 inputs). We perform an analysis each quarter to identify whether events or changes in circumstances, principally 8 Table of Contents decreases in the quoted prices on active exchanges, indicate that it is more likely than not that our digital assets are impaired. In determining if an impairment has occurred, we consider the lowest market price of one bitcoin quoted on the active exchange since acquiring the bitcoin. If the then current carrying value of a digital asset exceeds the fair value, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the fair value. The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains are not recorded until realized upon sale, at which point they are presented net of any impairment losses for the same digital assets held. In determining the gain to be recognized upon sale, we calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale. Impairment losses and gains or losses on sales are recognized within other expense in our condensed consolidated statements of operations and comprehensive loss. Impairment loss was immaterial and we did not sell any bitcoin during the three months ended March 31, 2021. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions 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 revenue and expenses during the reporting period. Items subject to the use of estimates include, but are not limited to, the standalone selling price for our products and services, stock-based compensation, useful lives of long-lived assets including intangibles, fair value of intangible assets and the recoverability or impairment of tangible and intangible assets, including goodwill, reserves and certain accrued liabilities, the benefit period of deferred commissions, assumptions used in Black-Scholes valuation method, such as expected volatility, risk-free interest rate and expected dividend rate, our incremental borrowing rate in determining the present value of remaining lease payments, and provision for (benefit from) income taxes. Actual results could differ from those estimates and such differences could be material to the condensed consolidated financial statements. Loss per Common Share Basic loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Restricted shares subject to repurchase provisions relating to early exercises under our 2009 Equity Incentive Plan were excluded from basic shares outstanding. Diluted loss per common share is computed by giving effect to all potential shares of common stock, including those related to our outstanding warrants and stock equity plans, to the extent dilutive. For all periods presented, these shares were excluded from the calculation of diluted loss per share of common stock because their inclusion would have been anti-dilutive. As a result, diluted loss per common share is the same as basic loss per common share for all periods presented. The following table sets forth common stock equivalents that have been excluded from the computation of dilutive weighted average shares outstanding as their inclusion would have been anti-dilutive: March 31, 2021 2020 Convertible notes 4,920,000 21,740 Warrants 5,996,112 3,836,112 Options 1,087,033 1,381,173 Restricted stock units 5,545,454 3,124,460 Restricted shares 574 4,689 Total 17,549,173 8,368,174 Fair Value of Financial Instruments We follow the guidance in ASC 820, Fair Value Measurement , to account for financial assets and liabilities measured on a recurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own 9 Table of Contents assumptions (unobservable inputs). The guidance requires fair value measurements be classified and disclosed in one of the following three categories: • Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities. • Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. • Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). Determining which category an asset or liability falls within the hierarchy requires significant judgment. Our financial instruments measured at fair value as of March 31, 2021 are set forth below: Level 1 Level 2 Level 3 Total Assets: Digital currencies $ 1,098 $ — $ — $ 1,098 Total $ 1,098 $ — $ — $ 1,098 Liabilities: Warrant liability $ — $ 2,499 $ — $ 2,499 Total $ — $ 2,499 $ — $ 2,499 Our financial instruments measured at fair value as of December 31, 2020 are set forth below: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ 1,614 $ — $ 1,614 Total $ — $ 1,614 $ — $ 1,614 The carrying value of accounts receivable, prepaid expenses, other current assets, accounts payable and accrued expenses are considered to be representative of their respective fair values because of the short-term nature of those instruments. Recent Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 introduces a model based on expected losses for most financial assets and certain other instruments. In addition, for available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a smaller reporting company, the standard is currently effective for us for annual reporting periods beginning after December 15, 2022, with early adoption permitted for annual reporting periods beginning after December 15, 2019. We currently intend to adopt this new standard effective January 1, 2023. We currently do not expect the adoption of ASU 2016-13 to have a material impact on our condensed consolidated financial statements and disclosures. In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40) , (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for smaller reporting companies for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the impact of this guidance on our condensed consolidated financial statements and disclosures. 10 Table of Contents 3. Revenue Disaggregation of Revenue The following table sets forth our net revenues by category: Three Months Ended March 31, 2021 2020 Net Revenues Platform subscriptions and services $ 1,521 $ 2,391 Application transaction 125 249 Net revenues $ 1,646 $ 2,640 We generate revenue in domestic and foreign regions and attribute net revenue to individual countries based on the location of the contracting entity. We derived 99 % and 90 % of our net revenues from within the United States for the three months ended March 31, 2021 and 2020, respectively. The following table sets forth our concentration of revenue sources as a percentage of total net revenues. Three Months Ended March 31, 2021 2020 Customer A 13 % — % Customer B 15 % — % Customer F 1 % 31 % Customer G 17 % 11 % Customer H 10 % 9 % Deferred Revenue Our deferred revenue balance consisted of the following: March 31, 2021 December 31, 2020 Current deferred revenue Platform subscriptions and services revenue $ 2,100 $ 2,317 Application transaction revenue 80 80 Total current deferred revenue $ 2,180 $ 2,397 Non-current deferred revenue Platform subscriptions and services revenue $ 2,054 $ 2,678 Total non-current deferred revenue $ 2,054 $ 2,678 Total deferred revenue $ 4,234 $ 5,075 Deferred revenue consists of customer billings or payments received in advance of the recognition of revenue under the arrangements with customers. We recognize deferred revenue as revenue only when revenue recognition criteria are met. During the three months ended March 31, 2021, we recognized revenue of $ 1,279 that was included in its deferred revenue balance as of December 31, 2020. 11 Table of Contents Remaining Performance Obligations Remaining performance obligations were $ 7,768 as of March 31, 2021, of which we expect to recognize 42 % as revenue over the next 12 months and the remainder thereafter. 4. Cash, Cash Equivalents, and Restricted Cash The following table sets forth our cash and restricted cash as of March 31, 2021 and December 31, 2020: Cash and restricted cash March 31, 2021 December 31, 2020 Cash $ 23,469 $ 3,940 Restricted cash 91 91 Total cash and restricted cash $ 23,560 $ 4,031 5. Debt The following table sets forth our various debt obligations: March 31, 2021 December 31, 2020 Series A Note (principal amount) $ — $ 2,481 Series B Note (principal amount) 11,071 3,585 Paycheck Protection Program Loan 2,850 2,850 Convertible notes 250 250 Promissory notes 905 905 Total debt $ 15,076 $ 10,071 Debt discount - warrants (2020 Convertible Notes) — ( 1,029 ) Debt discount - issuance costs (2020 Convertible Notes) ( 1,128 ) ( 650 ) Less: current maturities of long-term debt ( 10,012 ) ( 4,435 ) Less: related-party debt ( 195 ) ( 195 ) Long-term debt $ 3,741 $ 3,762 2020 Convertible Notes On July 15, 2020, we issued a Series A Senior Convertible Note (a “Series A Note”) to an institutional investor with an initial principal amount of $ 4,320 (reflecting an original issue discount of $ 320 ) in a private placement. We repaid in full the outstanding principal balance, accrued and unpaid interest and make-whole amount on a separate senior convertible note issued on March 20, 2020 to the same investor. After the payoff of the senior convertible note and deducting transaction costs, net cash proceeds to the Company was $ 1,751 . On the same date, we issued a Series B Senior Secured Convertible Note (a “Series B Note,” and together with the Series A Note, the “2020 Convertible Notes”) to the same investor with an initial principal amount of $ 17,280 (reflecting an original issue discount of $ 1,280 ). The investor paid for the Series B Note by delivering a secured promissory note (the “Investor Note”) with an initial principal amount of $ 16,000 . We received cash under the Series B Note only upon cash repayment of the corresponding Investor Note. The investor, at its option and at any time, had the right to voluntarily prepay the Investor Note, in whole or in part. Until the Investor Note was repaid, the principal (and related original issue discount) of the Series B Note was considered to be "restricted." The Series B Note and the Investor Note were subject to the terms of a Master Netting Agreement between us and the investor. Upon 12 Table of Contents repayment of the Investor Note, an equal amount of the Series B Note became "unrestricted" and recorded as debt in our condensed consolidated balance sheets. As a result of multiple offerings of sales of shares of our common stock as more fully described Note 9 below, the investor elected to require us to use forty percent ( 40 %) of the net proceeds from those offerings to satisfy obligations under the 2020 Convertible Notes. During January and February 2021, we paid approximately $ 11,507 , of which $ 5,717 was recorded as a loss on extinguishment of debt. In March 2021, the investor voluntarily prepaid an aggregate of $ 10,250 pursuant to the terms of the Investor Note. As a result, we received cash proceeds of $ 10,250 and this amount of principal of the Series B Note, along with $ 820 of original issue discount became "unrestricted" and outstanding. After the aggregate payments pursuant to the Investor Note by the investor to us, there was no balance outstanding under the Investor Note and no restricted balance under the Series B Note. On March 25, 2021, we delivered a Company Optional Redemption Notice (as defined in the Series B Note) to the holder of our Series B Note exercising our right to redeem and fully satisfy all obligations under the Series B Note on April 5, 2021. See Note 13 below. We recorded a loss on extinguishment of debt of $ 51 for the three months ended March 31, 2021 related to monthly installment payments made to the investor. Warrant In addition to the 2020 Convertible Notes, we issued a warrant exercisable for 3 years for the purchase of an aggregate of up to 2,160,000 shares of the Company's common stock, with a current exercise price of $ 2.25 per share, which decreased from $ 4.00 in February 2021 as a result of our underwritten public offering. The number of shares and exercise price are each subject to adjustment provided under the warrant. If, at the time of exercise of the warrant, there is no effective registration statement registering, or no current prospectus available for, the issuance of the shares, then the warrant may also be exercised, in whole or in part, by means of a “cashless exercise.” The warrant may not be exercised if, after giving effect to the exercise, the investor would beneficially own amounts in excess of those permissible under the terms of the warrant. Upon issuance of the warrant, we recorded a warrant liability as a discount to the 2020 Convertible Notes. We revalued the warrant as of March 31, 2021, and accordingly recorded a loss of $ 885 as a result of the change in the fair value of the warrant liability for the three months ended March 31, 2021. The following table sets forth the assumptions used to calculate the fair value of our warrant liability at the respective dates: March 31, 2021 December 31, 2020 Strike price per share $ 2.25 $ 4.00 Closing price per share $ 1.65 $ 1.26 Term (years) 2.28 2.53 Volatility 150 % 146 % Risk-free rate 0.17 % 0.17 % Dividend Yield — — Participation Rights In addition, the Company granted the investor participation rights in future equity and equity-linked offerings of securities, subject to certain limited exceptions, during the two years after the later of (a) the closing or (b) the date the Investor Note no longer remains outstanding, in an amount of up to 30 % of the securities being sold in such offerings. Paycheck Protection Program ("PPP") Loan On April 10, 2020, we received loan proceeds in the amount of $ 2,850 from JPMorgan Chase, N.A. pursuant to the PPP under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), which was enacted on March 27, 2020. The loan, which was in the form of a note dated April 9, 2020, matures on April 9, 2022 and bears interest at a rate of 0.98 % per annum. The Paycheck Protection Flexibility Act of 2020, extended the deferral period for loan payments to either (i) the date that SBA remits the borrower’s loan forgiveness amount to the lender or (ii) if the borrower does not apply for loan 13 Table of Contents forgiveness, ten months after the end of the borrower’s loan forgiveness covered period. The note may be prepaid by us at any time prior to the maturity with no prepayment penalties. The principal amount of our PPP loan is subject to forgiveness under the PPP upon our request and to the extent that PPP loan proceeds were used to pay expenses permitted by the PPP. Although we currently anticipate a portion of the loan to be forgiven, there can be no assurance that any part of the PPP loan will be forgiven. Convertible Notes During April 2019, our board of directors authorized the issuance of $ 20,000 of convertible promissory notes (the “Convertible Notes”). The Convertible Notes bear ordinary interest at a rate of 7 % per annum. Interest under the Convertible Notes is payable quarterly beginning on September 30, 2019, and interest and principal under the Convertible Notes is payable monthly beginning on June 30, 2021. The Convertible Notes are convertible into shares of the Company’s common stock at a price of $ 11.50 per share and mature on June 3, 2024. Additional information about our Convertible Notes is included in Note 8, " Debt " of the notes to the consolidated financial statements included in our Annual Report on Form 10-K. Promissory Notes In October 2019, our board of directors authorized the issuance of $ 20,000 of promissory notes (the “Notes”). The Notes bear ordinary interest at a rate of 10 % per annum. Interest under the Notes is payable monthly beginning on November 30, 2019. During the term of the Notes, we are required to maintain a restricted bank account with a minimum balance of one year of interest payments on the aggregate principal balance of all Notes, which will be available for use exclusively to satisfy any payments owed by the Company under the Notes. The principal and unpaid accrued interest on the Notes will be due and payable on demand by the majority Note holders on or after the date that is 60 months following November 15, 2019. Additional information about our Notes is included in Note 8, " Debt " of the notes to the consolidated financial statements included in our Annual Report on Form 10-K. During 2019, we issued a Note in the principal amount of $ 195 , in exchange for cash consideration, to Cane Capital, LLC, an entity owned in part by Alan S. Knitowski, our Chief Executive Officer and a member of our board of directors. Interest Expense The following table sets forth interest expense for our various debt obligations included on the condensed consolidated statements of operations: Three Months Ended March 31, 2021 2020 2020 Convertible Notes $ 452 $ — Accretion of debt discount - issuance costs 620 13 Accretion of debt discount - warrants 1,029 — All other debt and financing obligations 118 88 Total $ 2,219 $ 101 6. Leases As described in Note 2, we adopted ASU 2016-02, Leases (Topic 842) as of January 1, 2021. We lease our corporate offices under operating leases and determine if an arrangement is or contains a lease at inception. The initial terms of our real property lease agreements are generally five years and typically allows for renewals in five-year increments. We may, at times, negotiate a shorter lease renewal term. We generally do not account for any renewals at the lease adoption date. We maintain four corporate offices located in Austin, Texas; Irvine, California; San Diego, California; and Miami, Florida. The earliest of our lease agreements currently ends in March 2022 with the latest terminating in June 2025. Some of our leases include both lease and non-lease components, which we have elected not to account for separately. Lease components generally include rent, taxes and insurance, while non-lease components generally include common area or other maintenance. 14 Table of Contents The weighted-average remaining lease term for operating leases as of March 31, 2021 was 3.79 years. As our leases generally do not include an implicit rate, we compute our incremental borrowing rate based on information available at the lease commencement date applying a rate to each lease. We used incremental borrowing rates that match the duration of the remaining lease terms of our operating leases on a fully collateralized basis upon adoption as of January 1, 2021 to initially measure our lease liability. The weighted average incremental borrowing rate used to measure our lease liability as of March 31, 2021 was 19.13 %. We recognize lease expense on a straight-line basis over the lease term with variable lease expense recognized in the period in which the costs are incurred. The components of lease expense are included in general and administrative expense in our condensed consolidated statement of operations and comprehensive loss. Lease expense for the three months ended March 31, 2021 was $ 212 . Future minimum lease obligations are set forth below: Future minimum lease obligations years ending December 31, Lease Obligations 2021 (Remainder) $ 636 2022 725 2023 622 2024 609 2025 208 Thereafter — $ 2,800 Less: Portion representing interest ( 823 ) $ 1,977 On March 16, 2021, we entered into a sublease agreement pursuant to which we will sublease our existing office space in Irvine, California. The term of the sublease commences on April 1, 2021 and terminates on March 31, 2025. The subtenant will pay us initial base rent of approximately $ 17 per month, which is subject to certain discounts throughout the sublease, as well as rent escalations. We recognized an impairment of our right-to-use asset related to the sublease of $ 77 , which is recorded in other expense in our condensed consolidated statement of operations and comprehensive loss for the three months ended March 31, 2021. 7. Commitments and Contingencies Litigation There have been no changes to the disclosure related to our settlements with Uber Technologies, Inc. and Ellenoff Grossman & Schole LLP, as well as, the dismissal of claims brought by Sha-Poppin Gourmet Popcorn, LLC since the filing of our Annual Report on Form 10-K. See Note 9, " Commitments and Contingencies " in our Annual Report on Form 10-K filed with the SEC on March 31, 2021 for further information on the these matters. On December 17, 2019, certain stockholders filed a lawsuit against Phunware. The case, captioned Wild Basin Investments, LLC, et al. v. Phunware, Inc., et al.; Cause No. D-1-GN-19-008846 was filed in the 126th Judicial District Court of Travis County, Texas. The plaintiffs invested in various early rounds of financing while the Company was private and claim Phunware should not have subjected their shares to a 180 -day "lock up" period. According to the plaintiffs, the price of our stock dropped significantly during the lock up period. The plaintiffs seek unspecified damages in excess of $ 1,000 . We maintain the plaintiffs' claims are without merit and intends to contest vigorously the claims asserted in the lawsuit, but there can be no guarantees that a favorable resolution will be successful. All defendants have answered. The court has not yet set a trial date or pretrial deadlines. The case is in early stage of discovery. Given the preliminary stage of the case, we are unable to predict the outcome of this dispute, or estimate the loss or range of loss, if any, associated with this matter. On March 30, 2021, Phunware filed an action against its former counsel Wilson Sonsini Goodrich & Rosati, PC (“WSGR”). The matter is Phunware, Inc., v. Wilson Sonsini Goodrich & Rosati, Professional Corporation, Does 1-25, Case No. 21CV381517, filed in the Superior Court of the State of California for the County of Santa Clara. The complaint alleges a single cause of action for negligence related to services provided by WSGR to Phunware. We’re seeking compensatory and 15 Table of Contents consequential damages, attorney’s fees and costs, interest and other relief the Court deems just and proper. The case is in the early stages of litigation; the outcome is not certain. From time to time, we are and may become involved in various legal proceedings in the ordinary course of business. The outcomes of our legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular reporting period. In addition, for the matters disclosed above that do not include an estimate of the amount of loss or range of losses, such an estimate is not possible, and we may be unable to estimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies. 8. PhunCoin & PhunToken During 2018 and 2019, PhunCoin, Inc., our wholly-owned subsidiary, launched offerings of rights to acquire a token denominated as "PhunCoin" (the "Rights"). PhunCoin, Inc. accepts payment in the form of cash and digital currencies for purchases of the Rights. The amount of PhunCoin to be issued to the purchaser is equal to the dollar amount paid by the purchaser divided by the price of PhunCoin at the time of issuance of PhunCoin during the launch of the Token Ecosystem (as defined below) before taking into consideration an applicable discount rate, which is based on the time of the purchase. Through March 31, 2021, we received aggregate net cash proceeds from our Rights offerings of $ 1,202 . Proceeds from the Rights are recorded as PhunCoin deposits in the condensed consolidated balance sheet as of March 31, 2021 and December 31, 2020. PhunCoin is expected to be issued to Rights holders the earlier of (i) the launch of PhunCoin’s, Inc.’s blockchain technology enabled rewards marketplace and data exchange (“Token Ecosystem” or "Token Generation Event"), (ii) one ( 1 ) year after the issuance of the Rights to the purchaser or (iii) the date PhunCoin, Inc. determines that it has the ability to enforce resale restrictions with respect to PhunCoin pursuant to applicable federal securities laws. Proceeds from the Rights offering are generally not refundable if the Token Generation Event is not consummated. We currently anticipate that PhunCoin will be issued to the holders of the Rights in 2021; however, there can be no assurance as to when or if we will be able to successfully launch the Token Ecosystem. Additional information about PhunCoin is included in Note 10, " PhunCoin and PhunToken " of the notes to the consolidated financial statements included in our Annual Report on Form 10-K. PhunToken ("PHTK") During the second quarter of 2019, Phunware announced the launch of a separate token, PhunToken, which is meant to act as a medium of exchange within the Token Ecosystem. PhunToken will be issued through a separate, wholly-owned subsidiary, Phun Token International, available initially only to persons outside of the United States and Canada. Consumers may receive PhunToken for actively engaging in marketing campaigns; developers and publishers may receive PhunToken for utilizing Phunware’s loyalty software development kit in order to better engage, manage and monetize their consumers; and brands will gain access to more relevant, verifiable data by accessing Phunware’s data exchange and using Phun for their own loyalty programs. As of March 31, 2021, we had not issued or sold any PhunToken. 9. Stockholders’ Equity Common Stock Total common stock authorized to be issued as of March 31, 2021 was 1,000,000,000 shares, with a par value of $ 0.0001 per share. At March 31, 2021 and December 31, 2020, there were 71,211,399 and 56,380,111 shares outstanding, respectively, inclusive of 574 restricted shares subject to repurchase for unvested shares related to early option exercises under the Company’s stock equity plans. On August 14, 2020, we entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with Ascendiant Capital Markets, LLC (“Ascendiant”), as sales agent, pursuant to which the Company would offer and sell, from time to time, through Ascendiant shares of common stock for an aggregate offering price of up to $ 15,000 . In January 2021, we issued 2,670,121 shares of our common stock were sold for aggregate net cash proceeds of $ 5,058 . Transaction costs were $ 156 . We terminated the Sales Agreement with Ascendiant effective as of March 28, 2021. In February 2021, we entered into an underwriting agreement with Northland Securities, Inc. and Roth Capital Partners, LLC, relating to an underwritten public offering to which we issued 11,761,111 shares of our common stock at an 16 Table of Contents offering price of $ 2.25 per share. Aggregate cash proceeds at closing, net of transaction costs of $ 1,740 , totaled $ 24,722 . We incurred additional transaction costs paid outside of closing of $ 75 . Warrants We have various warrants outstanding. A summary of our outstanding warrants as of March 31, 2021 and December 31, 2020 is set forth below: Warrant Type Cash Exercise Price per share Warrants Outstanding 2020 Convertible Note warrants $ 2.25 2,160,000 Common stock warrant (Series D-1) $ 5.54 14,866 Common stock warrants (Series F) $ 9.22 377,402 Public Warrants (PHUNW) $ 11.50 1,761,291 Private Placement Warrants $ 11.50 1,658,381 Unit Purchase Option Warrants $ 11.50 24,172 Total 5,996,112 10. Stock-Based Compensation 2018 Equity Incentive Plan In 2018, our board of directors adopted, and our stockholders approved, the 2018 Equity Incentive Plan (the “2018 Plan”). The purposes of the 2018 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to employees, directors and consultants who perform services to the Company, and to promote the success of our business. These incentives are provided through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares. The number of shares of common stock available for issuance under the 2018 Plan will also include an annual increase on the first day of each fiscal year, equal to the lesser of: (i) 10 % of the post-closing outstanding shares of common stock; (ii) 5 % of the outstanding shares of common stock on the last day of the immediately preceding fiscal year; or (iii) such other amount as our board of directors may determine. In addition, the shares of common stock reserved for issuance under the 2018 Plan also will include any shares of common stock subject to stock options, restricted stock units or similar awards granted under the 2009 Equity Incentive Plan (the “2009 Plan”), that, on or after the adoption of the 2018 Plan, expire or otherwise terminate without having been exercised in full and shares of common stock issued pursuant to awards granted under the 2009 Plan that are forfeited to or repurchased by us. As of March 31, 2021, the maximum number of shares of common stock that may be added to the 2018 Plan pursuant to the foregoing equals 1,087,607 . Since its inception, restricted stock units have been the only stock-based incentives granted under the 2018 Plan. A summary of our restricted stock unit activity under the 2018 Plan for the three months ended March 31, 2021 is set forth below: Shares Weighted Average Grant Date Fair Value Outstanding as of December 31, 2020 1,677,060 $ 1.41 Granted 4,238,176 1.88 Released ( 280,788 ) 1.22 Forfeited ( 88,994 ) 1.47 Outstanding as of March 31, 2021 5,545,454 $ 1.78 17 Table of Contents Not including the maximum number of shares from the 2009 Plan that may be added to the 2018 Plan noted above, the 2018 Plan had 1,134,393 and 2,551,720 shares of common stock reserved for future issuances as of March 31, 2021 and December 31, 2020, respectively. During the first quarter of 2021, we granted 3,488,262 restricted stock unit awards to team members with an average grant date fair value of $ 2.03 per share. The awards granted to team members vest over range of 10 to 51 months with various installment and vesting dates, and are subject to service conditions. We also granted 652,170 restricted stock units to non-employee directors, each with a grant date fair value of $ 1.22 . The awards vest in four equal installments on March 4, 2021, June 4, 2021, September 4, 2021, and December 4, 2021, respectively, and are subject to service conditions. We also granted 97,744 restricted stock units to non-employee directors, with a grant date fair value of $ 1.22 per share in lieu of cash compensation board fees for services provided. These awards vested immediately. The restricted stock unit grants were valued based on the fair value of our common stock on the date of grant. 2018 Employee Stock Purchase Plan Also, in 2018, our board of directors adopted, and our stockholders approved, the 2018 Employee Stock Purchase Plan (the “2018 ESPP”). As of March 31, 2021, we had not consummated an enrollment or offering period related to the 2018 ESPP. The 2018 ESPP had 272,942 shares of common stock available for sale and reserved for issuance as of March 31, 2021 and December 31, 2020. Additional information about our 2018 ESPP can be found in Note 12, " Stock-Based Compensation" in our Annual Report on Form 10-K. 2009 Equity Incentive Plan In 2009, we adopted its 2009 Equity Incentive Plan (the “2009 Plan”), which allowed for the granting of incentive and non-statutory stock options, as defined by the Internal Revenue Code, to employees, directors, and consultants. The 2009 Plan allows for options to be immediately exercisable, subject to the Company’s right of repurchase for unvested shares at the original exercise price. The total amount received in exchange for these shares has been included in accrued expenses on the accompanying condensed consolidated balance sheets and is reclassified to equity as the shares vest. As of March 31, 2021 and December 31, 2020, 574 shares were unvested amounting to $ 1 in accrued expenses. Effective with the adoption of the 2018 Plan, no additional grants will be made under the 2009 Plan. A summary of our option activity under the 2009 Plan and related information is as follows: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value Outstanding as of December 31, 2020 1,208,740 $ 0.80 6.19 $ 700 Granted — Exercised ( 119,268 ) 0.55 Forfeited ( 2,439 ) 2.31 Outstanding as of March 31, 2021 1,087,033 $ 0.82 6.38 $ 986 Exercisable as of March 31, 2021 991,476 $ 0.78 6.33 $ 926 For the three months ended March 31, 2021, the aggregate intrinsic value of options exercised was $ 214 and the total fair value of options vested was $ 20 . Stock-Based Compensation Compensation costs that have been included in our condensed consolidated statements of operations and comprehensive loss for all stock-based compensation arrangements is set forth below: 18 Table of Contents Three Months Ended March 31, Stock-based compensation 2021 2020 Cost of revenues $ 210 $ 51 Sales and marketing 102 7 General and administrative 624 599 Research and development 119 ( 22 ) Total stock-based compensation $ 1,055 $ 635 We recognize forfeitures as they occur. As of March 31, 2021, the unamortized fair value of the restricted stock units under the 2018 Plan was approximately $ 8,852 . The weighted-average remaining recognition period over which these costs will be amortized was approximately 2.5 years. Unrecognized stock compensation expense for options granted under the 2009 Plan was $ 64 as of March 31, 2021. 11. Domestic and Foreign Operations Identifiable long-lived assets attributed to the United States and international geographies are based upon the country in which the asset is located or owned. As of March 31, 2021 and December 31, 2020, all of our identifiable long-lived assets were in the United States. 12. Related-Party Transactions Accounts Payable There are $ 255 included in accounts payables in our condensed consolidated balance sheet as of March 31, 2021 and December 31, 2020 for Nautilus Energy Management Corporation, an affiliate of a current member and former member of our board of directors. Debt As more fully discussed in Note 5, Debt , the Company entered into a Note (defined above) with a certain related party. 13. Subsequent Events We have evaluated subsequent events through the date the financial statements were issued. On April 5, 2021, we paid $ 13,902 in cash to the noteholder of our 2020 Convertible Notes in full satisfaction of all obligations under our Series B Note, which amounted to $ 11,718 of principal, interest and make-whole and $ 2,184 for the loss on extinguishment of debt. On April 7, 2021, we entered into an At Market Issuance Sales Agreement with B. Riley Securities, Inc. ("B. Riley"), pursuant to which we may offer and sell, from time to time, shares of our common stock through or to B. Riley, for an aggregate offering price of $ 25,000 . We will pay B. Riley a commission of 3 % of the gross proceeds of the sales price per share for sales of our common stock sold through or to B. Riley. The sales agreement with B. Riley will terminate the earlier of (i) the sale of all shares of our common stock permitted under the sales agreement; (ii) we and B. Riley may terminate by giving the other party five days notice to the other party; and (iii) any other termination permitted therein. We are not obligated to sell shares under the sales agreement with B. Riley and as of the date noted above, we have not done so. On May 11, 2021, we announced the commencement of the selling of PhunToken. As of the date the financial statements were issued, sales of PhunToken were immaterial. 19 Table of Contents