What changed in this filing

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Item 1. Financial Statements

2021-08-13 compared with 2021-05-14 · 211 added, 142 removed, 440 unchanged (45% of the section changed)

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(In thousands, except share and per share information)

2021 December 31,

June 30, 2021 December 31, 2020

Current assets:

Cash $ 2,714 $ 3,940

Accounts receivable, net of allowance for doubtful accounts of $ 122 and $ 356 at March 31, 2021 and December 31, 2020, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 242 and $ 356 at June 30, 2021 and December 31, 2020, respectively

Digital currencies 773 —

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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

1,000,000,000 shares authorized at June 30, 2021 and December 31, 2020;

72,742,689 and 56,380,111 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 177,254 144,156

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Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Net revenues $ 1,436 $ 2,213 $ 3,082 $ 4,853

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Loss on extinguishment of debt ( 2,184 ) ( 81 ) ( 7,952 ) ( 81 )

Loss on change in fair value of warrant liability ( 885 ) —

Other expense ( 79 ) —

Impairment of digital currency ( 776 ) — ( 776 ) —

Gain (loss) on change in fair value of warrant liability 663 — ( 222 ) —

Other income (expense) 43 — ( 36 ) —

Total other expense ( 4,099 ) ( 541 ) ( 13,050 ) ( 642 )

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Comprehensive

Stockholders’

Loss Total Stockholders’

Equity (Deficit)

Shares Amount

Balance - March 31, 2021 71,204 $ 7 $ 175,046 $ ( 158,166 ) $ ( 328 ) $ 16,559

Exercise of stock options, net of vesting of restricted shares 11 — 5 — — 5

Release of restricted stock 829 — — — — —

Sales of common stock, net of issuance cost 692 — 832 — — 832

Stock-based compensation expense — — 1,371 — — 1,371

Cumulative translation adjustment — — — — 5 5

Net loss — — — ( 8,293 ) — ( 8,293 )

Balance - June 30, 2021 72,736 $ 7 $ 177,254 $ ( 166,459 ) $ ( 323 ) $ 10,479

Balance - December 31, 2020 56,371 $ 6 $ 144,156 $ ( 145,803 ) $ ( 338 ) $ ( 1,979 )

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Net loss — — — ( 20,656 ) — ( 20,656 )

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

Balance - June 30, 2021 72,736 $ 7 $ 177,254 $ ( 166,459 ) $ ( 323 ) $ 10,479

Common Stock Additional

Capital Accumulated

Deficit Other

Comprehensive

Stockholders’

Equity (Deficit)

Shares Amount

Balance - March 31, 2020 40,693 $ 4 $ 129,370 $ ( 127,567 ) $ ( 454 ) $ 1,353

Exercise of stock options, net of vesting of restricted shares 120 — 70 — — 70

Release of restricted stock 578 — — —

Issuance of common stock for payment of legal, earned bonus, and board of director fees 400 — 523 — — 523

Stock-based compensation expense — — 1,115 — — 1,115

Issuance of common stock upon partial conversions of Senior Convertible Note 1,764 — 2,266 — — 2,266

Reacquisition of equity component of Senior Convertible Note — — ( 1,299 ) — — ( 1,299 )

Cumulative translation adjustment — — — — ( 3 ) ( 3 )

Net loss — — — ( 3,511 ) — ( 3,511 )

Balance - June 30, 2020 43,555 $ 4 $ 132,045 $ ( 131,078 ) $ ( 457 ) $ 514

Balance - December 31, 2019 39,811 $ 4 $ 128,008 $ ( 123,604 ) $ ( 382 ) $ 4,026

Exercise of stock options, net of vesting of restricted shares 153 — 87 — — 87

Vesting of restricted stock units 116 — — — — —

Issuance of common stock for payment of legal and board of director fees 733 — 492 — — 492

Release of restricted stock 694 — — — — —

Issuance of common stock for payment of legal, earned bonus, and board of director fees 1,133 — 1,014 — 1,014

Stock-based compensation expense — — 1,750 — — 1,750

Equity classified cash conversion feature of Senior Convertible Note — — 219 — — 219

Issuance of common stock upon partial conversions of Senior Convertible Note 1,764 — 2,266 — — 2,266

Reacquisition of equity component of Senior Convertible Notes — — ( 1,299 ) — — ( 1,299 )

Equity classified cash conversion feature of Senior Convertible Notes — — 219 — — 219

Cumulative translation adjustment — — — ( 75 ) ( 75 )

Net loss — — — ( 7,474 ) — ( 7,474 )

Balance - March 31, 2020 40,693 $ 4 $ 129,370 $ ( 127,567 ) $ ( 454 ) $ 1,353

Balance - June 30, 2020 43,555 $ 4 $ 132,045 $ ( 131,078 ) $ ( 457 ) $ 514

The accompanying notes are an integral part of these condensed consolidated financial statements.

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(In thousands)

Three Months Ended

Six Months Ended

Operating activities

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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 2,770 227

Amortization of right-of-use asset 114 —

Loss on change in fair value of warrant liability 222 —

Impairment of right-of-use asset 77 —

Loss on extinguishment of debt 7,952 81

Bad debt recovery ( 234 ) ( 16 )

Impairment of digital currencies 776 —

Stock-based compensation 2,438 1,750

Other adjustments 142 79

Changes in operating assets and liabilities:

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Accrued expenses ( 3,334 ) 877

Lease liability 64 —

Accrued legal settlement ( 1,500 ) —

Lease liability payments ( 434 ) —

Deferred revenue ( 1,286 ) ( 1,268 )

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Purchase of digital currencies ( 1,497 ) —

Net cash provided by investing activities ( 1,098 ) —

Net cash used in investing activities ( 1,497 ) —

Financing activities

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Payments on senior convertible notes ( 25,095 ) ( 455 )

Payments on related party notes — ( 200 )

Net repayments on factoring agreement — ( 714 )

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Proceeds from sales of common stock, net of issuance costs 29,670 —

Net cash provided by (used in) financing activities 27,916 2,543

Net cash provided by financing activities 14,626 4,712

Effect of exchange rate on cash and restricted cash 16 ( 79 )

Net increase (decrease) in cash and restricted cash 19,529 562

Net decrease in cash and restricted cash ( 1,226 ) ( 117 )

Cash and restricted cash at the beginning of the period 4,031 362

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Supplemental disclosures of non-cash financing activities:

Issuance of common stock for payment of legal and board of director fees $ 66 $ 492

Proceeds not received related to sales of common stock $ 867 $ —

Issuance of common stock for payment of legal, earned bonus and board of director fees $ 66 $ 1,014

Issuance of common stock upon partial conversions of Senior Convertible Note $ — $ 2,266

Reacquisition of equity component of Senior Convertible Note $ — $ ( 1,299 )

Equity classified cash conversion feature of Senior Convertible Note $ — $ 219

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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 accompanying interim condensed consolidated financial statements as of June 30, 2021 and for the three and six months ended June 30, 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.

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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.

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 June 30, 2021 and the results of operations for the three and six months ended June 30, 2021 and 2020, and cash flows for the six months ended June 30, 2021 and 2020.

The results for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any future interim period.

Certain reclassifications have been made to our condensed consolidated statement of cash flows for the six months ended June 30, 2020.

We combined individual line items that we considered to be immaterial and recorded these in our condensed consolidated statement of cash flows as other adjustments to conform to current year presentation.

These reclassifications had no impact on previously reported operating, investing or financing cash flows.

Going Concern, Liquidity and Management’s Plan

Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern ("ASC 205-40") requires management to evaluate whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations as they become due within one year after the date that the financial statements are issued.

As required by this standard, management’s evaluation shall initially not take into consideration the potential mitigating effects of management’s plans that have not been fully implemented as of the date the financial statements are issued.

Total revenues for the three and six months ended June 30, 2021 and total backlog and cash-on-hand for the period then ended did not meet our expectations, as a result of the continuing, but evolving, uncertainty of the COVID-19 pandemic.

As of June 30, 2021, we have an accumulated deficit of $ 166,459 , and for the six months then ended we incurred a net loss of $ 20,656 and used $ 14,371 in cash for operations.

We also have negative net working capital.

As a result, we anticipate that we will need to raise additional capital, through our at-the-market offering (see Note 9) or by other means, to fund operations.

These conditions raise substantial doubt about our ability to continue as a going concern.

However, management believes that substantial doubt about our ability to meet our obligations for the next twelve months from the date of these financial statements were issued has been alleviated due to, but not limited to, (i) increased activity in our sales pipeline, (ii) growth in channel partner relationships, (iii) the ability to sell our digital currency holdings for cash and (iv) the ability to sale shares of our common stock under our at-the-market offering.

We currently anticipate continuing to sell common stock through our at-the-market offering.

We may also sell additional securities, including common stock, preferred stock, warrants and units through private placement transactions or public offerings.

The predictability of future sales and channel relationships requires significant judgement.

Management cannot provide any assurances that it will be successful in accomplishing any of the Company’s plans.

There can be no assurance that we will be able to obtain additional funding on satisfactory terms or at all.

In addition, no assurance can be given that any such financing, if obtained, will be adequate to meet our capital needs and support growth.

If additional funding cannot be obtained on a timely basis and/or on satisfactory terms, our operations could be materially impacted.

The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

They do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a going concern.

Summary of Significant Accounting Policies

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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

standard and continues to be presented under the prior lease accounting standards.

As a result, prior period comparative financial information was not recast under the new 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.

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The following table sets forth our concentration of accounts receivable, net of specific allowances for doubtful accounts.

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Customer A 23 % 16 %

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Customer D — % 13 %

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.

During the six months ended June 30, 2021, we purchased an aggregate of $ 1,497 in digital assets, and we were paid $ 69 in digital assets by various customers.

Our purchases of digital assets were comprised solely of bitcoin, while payments by customers to us were made in bitcoin and ethereum.

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.

We have ownership of and control over our digital assets and we may use third-party custodial services to secure them.

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

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.

We determine the fair value of our digital assets 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 the principal market for bitcoin and ethereum (Level 1 inputs).

We perform an analysis each quarter to identify whether events or changes in circumstances, principally 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 or ethereum quoted on the active exchange since acquiring the respective digital asset.

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.

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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.

In determining the gain or loss 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.

Impairment loss was $ 776 for the three and six months ended June 30, 2021 and we did not sell any digital assets during the six months ended June 30, 2021.

Use of Estimates

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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

assumptions (unobservable inputs).

The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs).

The guidance requires fair value measurements be classified and disclosed in one of the following three categories:

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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:

Our financial instruments measured at fair value as of June 30, 2021 are set forth below:

Level 1 Level 2 Level 3 Total

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The following table sets forth our net revenues by category:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Platform subscriptions and services $ 1,180 $ 2,023 $ 2,701 $ 4,414

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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.

We derived 99 % of our net revenues from within the United States for the three and six months ended June 30, 2021.

During the three and six months ended June 30, 2020, 99 % and 94 % of our net revenues were from within the United States.

The following table sets forth our concentration of revenue sources as a percentage of total net revenues.

Three Months Ended March 31,

Customer A 13 % — %

Customer B 15 % — %

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Customer E — % 36 % 1 % 33 %

Customer F 21 % 13 % 19 % 12 %

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Our deferred revenue balance consisted of the following:

2021 December 31,

June 30, 2021 December 31, 2020

Current deferred revenue

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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.

During the six months ended June 30, 2021, we recognized revenue of $ 2,211 that was included in our deferred revenue balance as of December 31, 2020.

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.

Remaining performance obligations were $ 7,990 as of June 30, 2021, of which we expect to recognize 34 % as revenue over the next 12 months and the remainder thereafter.

PhunToken ("PHTK")

In 2019, we announced the launch of a PhunToken, which is meant to act as a medium of exchange within the Company's blockchain technology enabled rewards marketplace and data exchange (the "Token Ecosystem").

On May 11, 2021, we announced the commencement of the selling of PhunToken.

PhunToken will initially be issued through a separate, wholly-owned subsidiary, Phun Token International.

We follow the guidance of ASC 606, Revenue from Contracts with Customers, in determination the revenue recognition of our PhunToken sales.

As of June 30, 2021, we sold $ 78 of PhunToken for which we received both cash and digital currency from customers.

PhunToken sales are recorded within " Application transaction" revenue in the table above.

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

The following table sets forth our cash and restricted cash as of June 30, 2021 and December 31, 2020:

Cash and restricted cash June 30, 2021

December 31, 2020

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The following table sets forth our various debt obligations:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Series A Note (principal amount) $ — $ 2,481

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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 ).

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 .

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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.

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.

Upon 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.

During the first quarter of 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.

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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.

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.

During the six months ended June 30, 2021, we also recorded a loss on extinguishment of debt of $ 51 related to monthly installment payments made to the investor.

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.

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 registration statement registering the shares of our common stock issuable pursuant to the terms of the warrant was declared effective by the SEC on October 27, 2020.

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.

We revalued the warrant as of June 30, 2021, and accordingly we recorded the change in the fair value of the warrant liability for the reporting period.

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

June 30, 2021 December 31, 2020

Strike price per share $ 2.25 $ 4.00

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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.

In addition, the Company granted the 2020 Convertible Notes 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 2020 Convertible Notes no longer remains outstanding, in an amount of up to 30 % of the securities being sold in such offerings.

Paycheck Protection Program ("PPP") Loan

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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

forgiveness, ten months after the end of the borrower’s loan forgiveness covered period.

The Paycheck Protection Flexibility Act of 2020, extended the deferral period for loan payments to either (i) the date that the Small Business Administration ("SBA") remits the borrower’s loan forgiveness amount to the lender or (ii) if the borrower does not apply for loan 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.

The principal amount of our PPP loan is subject to forgiveness under the PPP.

On July 7, 2021, we submitted our request to the SBA to forgive the full principal amount of the loan.

The SBA is currently reviewing our forgiveness application.

Although we currently anticipate 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”).

In 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.

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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,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

2020 Convertible Notes $ 659 $ — $ 1,111 $ —

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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.

The initial terms of our real property lease agreements are generally five years and typically allow for renewals in five-year increments.

We may, at times, negotiate a shorter lease renewal term.

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and Miami, Florida.

The earliest of our lease agreements currently ends in March 2022 with the latest terminating in June 2025.

As of June 30, 2021, 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.

The weighted-average remaining lease term for operating leases as of March 31, 2021 was 3.79 years.

The weighted-average remaining lease term for operating leases as of June 30, 2021 was 3.36 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 %.

The weighted average incremental borrowing rate used to measure our lease liability 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 .

Lease expense for the three and six months ended June 30, 2021 was $ 209 and $ 421 , respectively.

Future minimum lease obligations are set forth below:

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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.

The term of the sublease commenced 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.

Commitments and Contingencies

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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.

On December 17, 2019, certain stockholders filed a lawsuit against Phunware and its individual officers and directors.

The case, captioned Wild Basin Investments, LLC, et al.

Phunware, Inc., et al.;

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.

Phunware, Inc., et al., was filed in the 126th Judicial District Court of Travis County, Texas (Cause No.

D-1-GN-19-008846).

Plaintiffs alleged that they invested in various early rounds of financing while the Company was private and that Phunware should not have subjected their shares to a 180 -day “lock up” period.

Plaintiffs also allege that Phunware’s stock price dropped significantly during the lock up period and seek unspecified damages, costs, and professional fees.

On June 23, 2021, Defendants filed a motion to dismiss the petition based on the mandatory forum-selection clause in Phunware’s Articles of Incorporation, which require Plaintiffs’ claims to be filed in Delaware Chancery Court.

We intend to vigorously defend against the lawsuit.

We have not recorded an expense related to this matter because any potential loss is not currently probable or reasonably estimable.

Additionally, we cannot presently estimate the range of loss, if any, that may result from the matter.

It is possible that the ultimate resolution of the foregoing matter, or other similar matters, if resolved in a manner unfavorable to us, may be materially adverse to our business, financial condition, results of operations or liquidity.

On March 30, 2021, Phunware filed an action against its former counsel Wilson Sonsini Goodrich & Rosati, PC (“WSGR”).

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The complaint alleges a single cause of action for negligence related to services provided by WSGR to Phunware.

We’re seeking compensatory and

consequential damages, attorney’s fees and costs, interest and other relief the Court deems just and proper.

On July 30, 2021, we filed a second action against WSGR in the Superior Court of the State of California for the County of Santa Clara.

As of August 10, 2021, the Court was processing the filing to issue a case number.

The second complaint alleges causes of action for negligence, breach of fiduciary duty, and negligent misrepresentation related to services provided by WSGR to Phunware.

We’re seeking compensatory and 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;

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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.

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").

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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.

Through June 30, 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 June 30, 2021 and December 31, 2020.

PhunCoin is expected to be issued to Rights holders the earlier of (i) the launch of the 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.

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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.

Stockholders’ Equity

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.

Total common stock authorized to be issued as of June 30, 2021 was 1,000,000,000 shares, with a par value of $ 0.0001 per share.

At June 30, 2021 and December 31, 2020, there were 72,742,689 and 56,380,111 shares of our common stock 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 .

In January 2021, 2,670,121 shares of our common stock were sold for aggregate net cash proceeds of $ 5,058 .

Transaction costs were $ 156 .

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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

offering price of $ 2.25 per share.

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 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 .

On April 7, 2021, we entered into an At Market Issuance Sales Agreement with B.

Riley Securities, Inc.

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 up to $ 25,000 .

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.

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) the date we or B.

Riley elect to terminate by giving the other party five days ' notice to the other party;

and (iii) the exercise of any other termination right permitted therein.

We are not obligated to sell shares under the sales agreement with B.

As of June 30, 2021, 691,584 shares of our common stock has been sold and we have received aggregate net cash proceeds of $ 979 , of which $ 112 had been received by us in cash as of June 30, 2021.

We received the balance subsequent to the end of the quarter, and accordingly, we recorded $ 867 in prepaid expenses and other current assets as of June 30, 2021.

Transaction costs were $ 30 .

We also incurred additional transaction costs paid outside of closing of $ 147 .

We have various warrants outstanding.

A summary of our outstanding warrants as of March 31, 2021 and December 31, 2020 is set forth below:

A summary of our outstanding warrants as of June 30, 2021 and December 31, 2020 is set forth below:

Warrant Type Cash Exercise

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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.

In 2018, our board of directors adopted, and our stockholders approved, our 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.

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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:

As of June 30, 2021, the maximum number of shares of common stock that may be added to the 2018 Plan pursuant to the foregoing is 1,072,356 .

As of June 30, 2021, 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 six months ended June 30, 2021 is set forth below:

Shares Weighted Average Grant Date Fair Value

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Forfeited ( 194,515 ) 1.43

Outstanding as of March 31, 2021 5,545,454 $ 1.78

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.

Outstanding as of June 30, 2021 4,665,060 $ 1.82

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 1,190,332 and 2,551,720 shares of common stock reserved for future issuances as of June 30, 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.

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These awards vested immediately.

During the second quarter of 2021, we granted 54,000 restricted stock unit awards to team members with an average grant date fair value of $ 1.23 per share.

The awards granted to team members vest over range of 47 months with various installment and vesting dates, and are subject to service conditions.

The restricted stock unit grants were valued based on the fair value of our common stock on the date of grant.

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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.

The total shares of common stock initially reserved under the 2018 ESPP is limited to 272,942 shares.

The purpose of the 2018 ESPP is to provide eligible employees with an opportunity to purchase shares of our common stock at a discount through accumulated contributions generally in the form of payroll deductions of up to 15 % of eligible compensation, subject to caps of $ 25,000 in any calendar year and 4,000 shares on any purchase date.

The 2018 ESPP provides for 24 -month offering periods, generally beginning in December and June of each year, and each offering period consists of four six-month purchase periods.

The initial offering period began on June 1, 2021 and will end in May 2023.

The first purchase under the 2018 ESPP will be in December 2021.

Participation ends automatically upon termination of employment with the Company.

On each purchase date, participating employees will purchase shares of our common stock at price per share equal to 85 % of the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of each purchase period in the applicable offering period.

If the price per share of our common stock on any purchase date in the offering period is lower than the stock price on the enrollment date of that offering period, the offering period will immediately reset after the purchase of shares on such purchase date and automatically roll into a new offering period.

We use a Black-Scholes option pricing model to determine the fair value of shares to be purchased under the 2018 ESPP.

Stock-based compensation expense related to our 2018 ESPP for the three and six months ended June 30, 2021 was not significant.

The number of shares of common stock that may be made available for sale under the 2018 ESPP also includes an annual increase on the first day of each fiscal year beginning for the fiscal year following the fiscal year in which the first enrollment date occurs equal to the lesser of (i) 3 % of the expected post-closing outstanding shares of common stock;

(ii) 1.5 % of the outstanding shares of common stock on the last day of the immediately preceding fiscal year;

or such other amount as our board or compensation committee may determine.

The first annual increase pursuant to the above will occur on January 1, 2022.

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.

In 2009, we adopted the 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.

As of June 30, 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.

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Forfeited ( 6,857 ) 2.08

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 .

Outstanding as of June 30, 2021 1,071,782 $ 0.82 6.12 $ 728

Exercisable as of June 30, 2021 999,508 $ 0.79 6.09 $ 695

For the six months ended June 30, 2021, the aggregate intrinsic value of options exercised was $ 224 and the total fair value of options vested was $ 35 .

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:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

Stock-based compensation 2021 2020 2021 2020

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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 .

As of June 30, 2021, the unamortized fair value of the restricted stock units under the 2018 Plan was approximately $ 7,267 .

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.

Unrecognized stock compensation expense for options granted under the 2009 Plan was $ 47 as of June 30, 2021.

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.

As of June 30, 2021 and December 31, 2020, all of our identifiable long-lived assets were in the United States.

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.

There are $ 255 included in accounts payables in our condensed consolidated balance sheet as of June 30, 2021 and December 31, 2020 for Nautilus Energy Management Corporation, an affiliate of a current member and former member of our board of directors.

As more fully discussed in Note 5, Debt , the Company entered into a Note (defined above) with a certain related party.

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We have evaluated subsequent events through the date the financial statements were issued.

On April 7, 2021, we entered into an At Market Issuance Sales Agreement with B.

Riley Securities, Inc.

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.

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.

Through August 13, 2021, we sold an additional 1,691,572 shares of our common stock pursuant to the terms of our at-the-market offering with B.

Aggregate net cash proceeds were $ 1,832 and transaction costs were $ 57 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements