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) September 30, 2021 December 31, 2020 ( Unaudited) Assets Current assets: Cash $ 882 $ 3,940 Accounts receivable, net of allowance for doubtful accounts of $ 606 and $ 356 at September 30, 2021 and December 31, 2020, respectively 1,223 664 Digital currencies 789 — Prepaid expenses and other current assets 745 304 Total current assets 3,639 4,908 Property and equipment, net — 13 Goodwill 25,883 25,900 Intangible assets, net 38 111 Deferred tax asset 537 537 Restricted cash 91 91 Right-of-use asset 1,486 — Other assets 276 276 Total assets $ 31,950 $ 31,836 Liabilities and stockholders’ equity (deficit) Current liabilities: Accounts payable $ 7,085 $ 8,462 Accrued expenses 2,417 5,353 Accrued legal settlement — 3,000 Lease liability 486 — Deferred revenue 1,815 2,397 PhunCoin deposits 1,202 1,202 Current maturities of long-term debt, net 83 4,435 Warrant liability 1,762 1,614 Total current liabilities 14,850 26,463 Long-term debt 849 3,762 Long-term debt - related party 195 195 Deferred tax liability 537 537 Deferred revenue 1,262 2,678 Lease liability 1,232 — Deferred rent — 180 Total liabilities 18,925 33,815 Commitments and contingencies Stockholders’ equity (deficit) Common stock, $ 0.0001 par value; 1,000,000,000 shares authorized at September 30, 2021 and December 31, 2020; 75,556,118 and 56,380,111 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 8 6 Additional paid-in capital 180,887 144,156 Accumulated other comprehensive loss ( 356 ) ( 338 ) Accumulated deficit ( 167,514 ) ( 145,803 ) Total stockholders’ equity (deficit) 13,025 ( 1,979 ) Total liabilities and stockholders’ equity (deficit) $ 31,950 $ 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 Income (Loss) (In thousands, except per share information) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net revenues $ 2,160 $ 3,130 $ 5,242 $ 7,983 Cost of revenues 1,026 898 2,842 2,757 Gross profit 1,134 2,232 2,400 5,226 Operating expenses: Sales and marketing 715 383 1,910 1,265 General and administrative 3,296 4,276 9,075 11,981 Research and development 1,160 572 3,058 1,811 Legal settlement — 4,500 — 4,500 Total operating expenses 5,171 9,731 14,043 19,557 Operating loss ( 4,037 ) ( 7,499 ) ( 11,643 ) ( 14,331 ) Other income (expense): Interest income (expense) 7 ( 1,362 ) ( 4,057 ) ( 1,923 ) Loss on extinguishment of debt — ( 950 ) ( 7,952 ) ( 1,031 ) Impairment of digital currency — — ( 776 ) — Gain (loss) on change in fair value of warrant liability 1,501 1,244 ( 148 ) 1,244 Gain on forgiveness of PPP loan 2,850 — 2,850 — Other income 51 — 15 — Total other income (expense) 4,409 ( 1,068 ) ( 10,068 ) ( 1,710 ) Income (loss) before taxes 372 ( 8,567 ) ( 21,711 ) ( 16,041 ) Income tax expense — — — — Net income (loss) 372 ( 8,567 ) ( 21,711 ) ( 16,041 ) Other comprehensive income (loss): Cumulative translation adjustment ( 33 ) 47 ( 18 ) ( 28 ) Comprehensive income (loss) $ 339 $ ( 8,520 ) $ ( 21,729 ) $ ( 16,069 ) Net income (loss) per common share, basic $ 0.01 $ ( 0.19 ) $ ( 0.31 ) $ ( 0.38 ) Net income (loss) per common share, diluted $ — $ ( 0.19 ) $ ( 0.31 ) $ ( 0.38 ) Weighted-average common shares used to compute net income (loss) per share, basic 74,347 44,304 70,185 42,089 Weighted-average common shares used to compute net income (loss) per share, diluted 74,699 44,304 70,185 42,089 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 - June 30, 2021 72,736 $ 7 $ 177,254 $ ( 167,886 ) $ ( 323 ) $ 9,052 Exercise of stock options, net of vesting of restricted shares 2 — 1 — — 1 Release of restricted stock 772 — — — — — Sales of common stock, net of issuance cost 2,039 1 2,170 — — 2,171 Stock-based compensation expense — — 1,462 — — 1,462 Cumulative translation adjustment — — — — ( 33 ) ( 33 ) Net income — — — 372 — 372 Balance - September 30, 2021 75,549 $ 8 $ 180,887 $ ( 167,514 ) $ ( 356 ) $ 13,025 Balance - December 31, 2020 56,371 $ 6 $ 144,156 $ ( 145,803 ) $ ( 338 ) $ ( 1,979 ) Exercise of stock options, net of vesting of restricted shares 133 — 71 — — 71 Release of restricted stock 1,784 — — — — — Issuance of common stock for payment of board of director fees 99 — 66 — — 66 Sales of common stock, net of issuance costs 17,162 2 32,706 — — 32,708 Stock-based compensation expense — — 3,888 — — 3,888 Cumulative translation adjustment — — — — ( 18 ) ( 18 ) Net loss — — — ( 21,711 ) — ( 21,711 ) Balance - September 30, 2021 75,549 $ 8 $ 180,887 $ ( 167,514 ) $ ( 356 ) $ 13,025 4 Table of Contents Common Stock Additional Paid-in Capital Accumulated Deficit Other Comprehensive Loss Total Stockholders’ Equity Shares Amount Balance - June 30, 2020 43,555 $ 4 $ 132,045 $ ( 131,078 ) $ ( 457 ) $ 514 Exercise of stock options, net of vesting of restricted shares 33 — 9 — — 9 Release of restricted stock 388 — — — — — Issuance of common stock for payment of legal, earned bonus, and board of director fees 164 — 225 — — 225 Sale of common stock 1,302 1 1,341 — — 1,342 Stock-based compensation expense — — 1,708 — — 1,708 Reacquisition of equity component of Senior Convertible Note — — ( 89 ) — — ( 89 ) Cumulative translation adjustment — — — — 47 47 Net loss — — — ( 8,567 ) — ( 8,567 ) Balance - September 30, 2020 45,442 $ 5 $ 135,239 $ ( 139,645 ) $ ( 410 ) $ ( 4,811 ) Balance - December 31, 2019 39,811 $ 4 $ 128,008 $ ( 123,604 ) $ ( 382 ) $ 4,026 Exercise of stock options, net of vesting of restricted shares 186 — 96 — — 96 Release of restricted stock 1,082 — — — — — Issuance of common stock for payment of legal, earned bonus, and board of director fees 1,297 — 1,239 — 1,239 Sale of common stock 1,302 1 1,341 — — 1,342 Stock-based compensation expense — — 3,458 — — 3,458 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 — — ( 1,388 ) — — ( 1,388 ) Equity classified cash conversion feature of Senior Convertible Notes — — 219 — — 219 Cumulative translation adjustment — — — ( 28 ) ( 28 ) Net loss — — — ( 16,041 ) ( 16,041 ) Balance - September 30, 2020 45,442 $ 5 $ 135,239 $ ( 139,645 ) $ ( 410 ) $ ( 4,811 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents Phunware, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended September 30, 2021 2020 Operating activities Net loss $ ( 21,711 ) $ ( 16,041 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of debt discount and deferred financing costs 2,770 1,217 Loss (gain) on change in fair value of warrant liability 148 ( 1,244 ) Loss on extinguishment of debt 7,952 1,031 Impairment of digital currencies 776 — Gain on forgiveness of PPP loan ( 2,850 ) — Stock-based compensation 3,933 3,458 Other adjustments 297 145 Changes in operating assets and liabilities: Accounts receivable ( 272 ) 551 Prepaid expenses and other assets ( 345 ) ( 94 ) Accounts payable ( 1,236 ) 536 Accrued expenses ( 2,891 ) 1,332 Accrued legal settlement ( 3,000 ) 4,500 Lease liability payments ( 662 ) — Deferred revenue ( 1,998 ) ( 1,906 ) Net cash used in operating activities ( 19,089 ) ( 6,515 ) Investing activities Purchase of digital currencies ( 1,497 ) — Net cash used in investing activities ( 1,497 ) — Financing activities Proceeds from borrowings, net of issuance costs 9,980 10,207 Proceeds from related party bridge loans — 560 Payments on senior convertible notes ( 25,116 ) ( 3,948 ) Payments on related party notes — ( 200 ) Net repayments on factoring agreement — ( 638 ) Proceeds from exercise of options to purchase common stock 73 95 Proceeds from sales of common stock, net of issuance costs 32,610 1,341 Net cash provided by financing activities 17,547 7,417 Effect of exchange rate on cash and restricted cash ( 19 ) ( 30 ) Net (decrease) increase in cash and restricted cash ( 3,058 ) 872 Cash and restricted cash at the beginning of the period 4,031 362 Cash and restricted cash at the end of the period $ 973 $ 1,234 6 Table of Contents Supplemental disclosure of cash flow information: Interest paid $ 1,315 $ 681 Income taxes paid $ — $ — Supplemental disclosures of non-cash financing activities: Proceeds not yet received for sales of common stock $ 97 $ — Issuance of common stock for payment of legal, earned bonus and board of director fees $ 66 $ 1,239 Issuance of common stock upon partial conversions of senior convertible note $ — $ 2,266 Reacquisition of equity component of senior convertible note $ — $ ( 1,388 ) Equity classified cash conversion feature of senior convertible note $ — $ 219 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 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 September 30, 2021 and for the three and nine months ended September 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. 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 September 30, 2021 and the results of operations for the three and nine months ended September 30, 2021 and 2020, and cash flows for the nine months ended September 30, 2021 and 2020. The results for the three and nine months ended September 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 nine months ended September 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. Revised Financial Statements During the preparation of this Quarterly Report on Form 10-Q, the Company determined that it had inaccurately accounted for an adjustment to certain terms of an outstanding warrant issued in conjunction with our 2020 Convertible Notes (defined below). As a result of our underwritten public offering in February 2021, the number of shares issuable and the exercise price were each adjusted pursuant to the terms of the warrant. While we accurately accounted for the decrease in the exercise price (from $ 4.00 per share to $ 2.25 per share), we did not account for the increase in the number of shares available for exercise under the warrant, from 2,160,000 shares to 3,840,000 shares. This resulted in an understatement of net loss during the three months ended March 31, 2021, an overstatement of net loss for the three months ended June 30, 2021 and an understatement of net loss for the six months ended June 30, 2021. We assessed the materiality of this misstatement in accordance with Staff Accounting Bulletin No. 108, " Quantifying Misstatements " and concluded this error was not qualitatively material as there was no impact on cash, operating income, or cash flow from operations, among other considerations. However, we determined this error was a material weakness in our internal control over financial reporting. See Part I, Item 4, " Controls and Procedures, " included in this Quarterly Report on Form 10-Q for further discussion. 8 Table of Contents The correction of this error resulted in adjustments to our condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2021 and the three and six months ended June 30, 2021, and our condensed consolidated balance sheets as of March 31, 2021 and June 30, 2021. As such, the balance of accumulated deficit and total stockholders' equity as of June 30, 2021 contained within in our condensed consolidated statement of changes in stockholders’ equity (deficit) for the three months ended September 30, 2021 has been revised. Disclosure of the revised amounts will also be reflected in future filings containing applicable periods. The effect of this revision on certain line items within our condensed consolidated balance sheets and condensed consolidated statements of operations and comprehensive income (loss) for the interim periods subject to the revision is set forth below: As of or for the three months ended March 31, 2021 Previously reported Adjustments As revised Warrant liability $ 2,499 $ 1,944 $ 4,443 Accumulated deficit $ ( 158,166 ) $ ( 1,944 ) $ ( 160,110 ) Loss on change in fair value of warrant liability $ ( 885 ) $ ( 1,944 ) $ ( 2,829 ) Net loss $ ( 12,363 ) $ ( 1,944 ) $ ( 14,307 ) Net loss per common share, basic and diluted $ ( 0.19 ) $ ( 0.03 ) $ ( 0.22 ) As of or for the three months ended June 30, 2021 Previously reported Adjustments As revised Warrant liability $ 1,836 $ 1,427 $ 3,263 Accumulated deficit $ ( 166,459 ) $ ( 1,427 ) $ ( 167,886 ) Gain on change in fair value of warrant liability $ 663 $ 517 $ 1,180 Net loss $ ( 8,293 ) $ 517 $ ( 7,776 ) Net loss per common share, basic and diluted $ ( 0.12 ) $ 0.01 $ ( 0.11 ) The revision had no impact on revenue, gross profit and operating income for the three and nine months ended September 30, 2021, as well as, our net loss and cash used in operations for the nine months ended September 30, 2021. 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. During the quarter ended September 30, 2021, we secured additional financing through the sale of our common stock through an at-the-market offering, as more fully described in Note 9 below. Furthermore, as detailed in Note 13, " Subsequent Events", we have raised additional cash proceeds from the issuance of our common stock and the exercise of warrants for our common stock. Subsequent to September 30, 2021, we raised net proceeds totaling approximately $ 66,696 , of which $ 62,061 was cash proceeds from our at-the-market offerings and $ 4,635 from a partial exercise of a warrant that was issued to our 2020 Convertible Notes holder. We have a history of net losses and although we anticipate our future cash outflows to exceed cash inflows as we continue to invest in revenue growth, as a result of the subsequent cash financings described above, we believe we have sufficient cash on-hand to fund potential net cash outflows for one year following the filing date of this Quarterly Report on 9 Table of Contents Form 10-Q. Accordingly, we believe there does not exist any indication of substantial doubt about our ability to continue as a going concern for one year following the filing date of this Quarterly Report on Form 10-Q. 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. 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 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. 10 Table of Contents The following table sets forth our concentration of accounts receivable, net of specific allowances for doubtful accounts. September 30, 2021 December 31, 2020 Customer A 47 % — % Customer B 8 % 16 % Customer C 3 % 55 % Customer D — % 13 % Digital Assets During the nine months ended September 30, 2021, we purchased an aggregate of $ 1,497 in digital assets, and we were paid $ 87 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 ASC 350, Intangibles—Goodwill and Other . 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 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. 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 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 income (loss). Impairment loss was $ 776 for the nine months ended September 30, 2021 and we did not sell any digital assets during the nine months ended September 30, 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. Income (loss) per Common Share Basic net income (loss) per common share is computed by dividing net income (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 net income (loss) per common share is computed by giving effect to all potential shares of common stock adjusted to include the effect of shares issuable pursuant to our convertible note(s), the exercise of in-the-money warrants 11 Table of Contents and options and unvested restricted stock units, to the extent dilutive. Shares are excluded from the calculation of diluted net income (loss) per common share when their inclusion would have been anti-dilutive or out-of-the-money. 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 or out-of-the-money: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Convertible notes 19,324 7,221,740 19,324 7,221,740 Warrants 7,676,112 5,996,112 7,676,112 5,996,112 Options 207,257 1,211,828 1,117,697 1,211,828 Restricted stock units 3,807,154 2,223,773 3,807,154 2,223,773 Restricted shares 574 1,198 574 1,198 Total 11,710,421 16,654,651 12,620,861 16,654,651 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 and non-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 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 September 30, 2021 are set forth below: Level 1 Level 2 Level 3 Total Assets: Digital currencies $ 789 $ — $ — $ 789 Total $ 789 $ — $ — $ 789 Liabilities: Warrant liability $ — $ 1,762 $ — $ 1,762 Total $ — $ 1,762 $ — $ 1,762 12 Table of Contents 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. 3. Revenue Disaggregation of Revenue The following table sets forth our net revenues by category: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net Revenues Platform subscriptions and services $ 1,771 $ 2,860 $ 4,472 $ 7,274 Application transaction 389 270 770 709 Net revenues $ 2,160 $ 3,130 $ 5,242 $ 7,983 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 % of our net revenues from within the United States for the three and nine months ended September 30, 2021. During the three and nine months ended September 30, 2020, 99 % and 96 % of our net revenues were from within the United States, respectively. 13 Table of Contents The following table sets forth our concentration of revenue sources as a percentage of total net revenues. Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Customer A 35 % — % 15 % — % Customer E 8 % 9 % 14 % 11 % Customer F — % 26 % — % 30 % Customer G — % 21 % — % 8 % Deferred Revenue Our deferred revenue balance consisted of the following: September 30, 2021 December 31, 2020 Current deferred revenue Platform subscriptions and services revenue $ 1,734 $ 2,317 Application transaction revenue 81 80 Total current deferred revenue $ 1,815 $ 2,397 Non-current deferred revenue Platform subscriptions and services revenue $ 1,262 $ 2,678 Total non-current deferred revenue $ 1,262 $ 2,678 Total deferred revenue $ 3,077 $ 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 nine months ended September 30, 2021, we recognized revenue of $ 3,006 that was included in our deferred revenue balance as of December 31, 2020. Remaining Performance Obligations Remaining performance obligations were $ 6,097 as of September 30, 2021, of which we expect to recognize approximately 38 % 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 September 30, 2021, we had sold $ 100 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. 14 Table of Contents 4. Cash, Cash Equivalents, and Restricted Cash The following table sets forth our cash and restricted cash: Cash and restricted cash September 30, 2021 December 31, 2020 Cash $ 882 $ 3,940 Restricted cash 91 91 Total cash and restricted cash $ 973 $ 4,031 5. Debt The following table sets forth our various debt obligations: September 30, 2021 December 31, 2020 Series A Note (principal amount) $ — $ 2,481 Series B Note (principal amount) — 3,585 Paycheck Protection Program Loan — 2,850 Convertible notes 222 250 Promissory notes 905 905 Total debt $ 1,127 $ 10,071 Debt discount - warrants (2020 Convertible Notes) — ( 1,029 ) Debt discount - issuance costs (2020 Convertible Notes) — ( 650 ) Less: current maturities of long-term debt ( 83 ) ( 4,435 ) Less: related-party debt ( 195 ) ( 195 ) Long-term debt $ 849 $ 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 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 during the first quarter of 2021, 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 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. 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 15 Table of Contents 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. 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 nine months ended September 30, 2021, we also recorded a loss on extinguishment of debt of $ 51 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, initially, of up to an aggregate of 2,160,000 shares of the Company's common stock at an initial exercise price of $ 4.00 per share. The number of shares and exercise price are each subject to adjustment provided under the warrant. As a result of our underwritten public offering in February 2021, the exercise price of each share decreased to $ 2.25 per share, and the number of shares for which the warrant is exercisable increased to 3,840,000 shares. 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 2,160,000 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 September 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: September 30, 2021 December 31, 2020 Strike price per share $ 2.25 $ 4.00 Closing price per share $ 0.93 $ 1.26 Term (years) 1.78 2.53 Volatility 142 % 146 % Risk-free rate 0.17 % 0.17 % Dividend Yield — — Participation Rights 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 remain outstanding, in an amount of up to 30 % of the securities being sold in such offerings. This same investor has an additional 30 % participation right that expires March 20, 2022 pursuant to a separate Securities Purchase Agreement relating to a convertible note that was issued in March 2020, that was subsequently paid in full with the proceeds of the Series A Note. 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 bore 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 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 could have been prepaid by us at any time prior to the maturity with no prepayment penalties. 16 Table of Contents The principal amount of our PPP loan was 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 and on August 16, 2021, we received notification that the SBA approved our PPP loan forgiveness application. We recorded a gain on the forgiveness of the PPP loan and related interest during the three and nine months ended September 30, 2021. 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. 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 were 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. On October 27, 2021, we paid $ 222 in cash to the noteholder of our Convertible Notes in full satisfaction of all obligations under the Convertible Notes. 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 was payable monthly beginning on November 30, 2019. During the term of the Notes, we were 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 was available for use exclusively to satisfy any payments owed by the Company under the Notes. The principal and unpaid accrued interest on the Notes was 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. On October 27, 2021, we paid $ 905 in cash to the holders of our Notes in full satisfaction of all obligations under the Notes. 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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 2020 Convertible Notes $ — $ 279 $ 1,111 $ 279 Accretion of debt discount - issuance costs — 185 1,741 370 Accretion of debt discount - warrants — 805 1,029 805 All other debt and financing obligations ( 7 ) 93 176 469 Total $ ( 7 ) $ 1,362 $ 4,057 $ 1,923 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 allow 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. As of September 30, 2021, the earliest of our lease agreements currently ends in March 2022 with the latest terminating in June 2025. 17 Table of Contents 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 September 30, 2021 was 3.19 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 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 income (loss). Lease expense for the three and nine months ended September 30, 2021 was $ 208 and $ 629 , respectively. Future minimum lease obligations are set forth below: Future minimum lease obligations years ending December 31, Lease Obligations 2021 (Remainder) $ 198 2022 725 2023 622 2024 609 2025 208 Thereafter — $ 2,362 Less: Portion representing interest ( 644 ) $ 1,718 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 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. 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 income (loss) for the nine months ended September 30, 2021. 7. Commitments and Contingencies Litigation There have been no changes to the disclosure related to our settlements with Uber Technologies, Inc. ("Uber") 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, except as set forth below. 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. As previously disclosed, on October 9, 2020, we entered into a settlement agreement with Uber and certain other parties related to our complaint against Uber, Uber's cross-complaint against us and Uber's amended cross-complaint against us and certain individual defendants. As provided in the settlement agreement, both parties agreed to fully and finally settle, compromise, and resolve all disputes, differences and disagreements that have existed, now exist, or may exist between them that fall within the subject matter lawsuit. Furthermore, each party denies engaging in any wrongdoing whatsoever and specifically denies each and every allegation of wrongdoing alleged in the lawsuit. The settlement agreement provided that we and our insurance carriers pay a total sum of $ 6,000 to Uber, of which our insurance carrier paid $ 1,500 to settle Uber's claims against the individual defendants while the Company paid a total of $ 4,500 , with the final installment paid by us to Uber in September 2021. As a result of us remitting the final installment Payment to Uber, on October 13, 2021, Uber's complaint against the Company was dismissed with prejudice. 18 Table of Contents 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. v. 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 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”). 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. 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. This matter is captioned Phunware, Inc., v. Wilson Sonsini Goodrich & Rosati, Professional Corporation, Does 1-25, Case No. 21CV386411. The second complaint alleges causes of action for negligence, breach of fiduciary duty, and negligent misrepresentation related to services provided by WSGR to Phunware. Both cases are in the early stages of litigation; the outcome is not certain. The relief sought, as stated in the complaints, are damages according to proof, interest and costs of suit. 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 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 above) before taking into consideration an applicable discount rate, which is based on the time of the purchase. Through September 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 September 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. 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 during the fourth quarter of 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. 9. Stockholders’ Equity Common Stock Total common stock authorized to be issued as of September 30, 2021 was 1,000,000,000 shares, with a par value of $ 0.0001 per share. At September 30, 2021 and December 31, 2020, there were 75,556,118 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. 19 Table of Contents 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 our common stock for an aggregate offering price of up to $ 15,000 . 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 . 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 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. ("B. Riley"), pursuant to which we may offer and sell, from time to time, shares of our common stock through or to B. Riley. 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) 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. Riley. As of September 30, 2021, 2,730,654 shares of our common stock had been sold and we had received aggregate net cash proceeds of $ 3,149 , of which $ 3,052 had been received by us in cash as of September 30, 2021. We received the balance subsequent to the end of the quarter, and accordingly, we recorded $ 97 in prepaid expenses and other current assets as of September 30, 2021. Transaction costs were $ 97 . We also incurred additional transaction costs paid outside of closing of $ 147 . Warrants We have various warrants outstanding. A summary of our outstanding warrants is set forth below: September 30, 2021 December 31, 2020 Warrant Type Cash Exercise Price per share Number of warrants Cash Exercise Price per share Number of warrants 2020 Convertible Note warrants $ 2.25 3,840,000 $ 4.00 2,160,000 Common stock warrant (Series D-1) $ 5.54 14,866 $ 5.54 14,866 Common stock warrants (Series F) $ 9.22 377,402 $ 9.22 377,402 Public Warrants (PHUNW) $ 11.50 1,761,291 $ 11.50 1,761,291 Private Placement Warrants $ 11.50 1,658,381 $ 11.50 1,658,381 Unit Purchase Option Warrants $ 11.50 24,172 $ 11.50 24,172 Total 7,676,112 5,996,112 10. Stock-Based Compensation 2018 Equity Incentive Plan 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. 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. 20 Table of Contents 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 September 30, 2021, the maximum number of shares of common stock that may be added to the 2018 Plan pursuant to the foregoing is 1,068,271 . Not including the maximum number of shares from the 2009 Plan that may be added to the 2018 Plan, the 2018 Plan had 1,227,964 and 2,551,720 shares of common stock reserved for future issuances as of September 30, 2021 and December 31, 2020, respectively. Restricted Stock Units A summary of our restricted stock unit activity under the 2018 Plan for the nine months ended September 30, 2021 is set forth below: Shares Weighted Average Grant Date Fair Value Outstanding as of December 31, 2020 1,677,060 $ 1.41 Granted 4,346,176 1.86 Released ( 1,881,725 ) 1.54 Forfeited ( 334,357 ) 1.49 Outstanding as of September 30, 2021 3,807,154 $ 1.86 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. 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. During the third quarter of 2021, we granted 54,000 restricted stock unit awards to team members with an average grant date fair value of $ 1.09 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. Stock Options During third quarter of 2021, we granted 50,000 stock options to a non-employee consultant at an exercise price of $ 1.08 per share. The stock options vest over one year in twelve equal monthly installments. As of September 30, 2021, this is the only stock option grant outstanding under the 2018 Plan. 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”). 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 21 Table of Contents 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 nine months ended September 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 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 September 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. 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 ( 132,396 ) 0.55 Forfeited ( 8,647 ) 2.13 Outstanding as of September 30, 2021 1,067,697 $ 0.82 5.88 $ 303 Exercisable as of September 30, 2021 1,019,321 $ 0.79 5.85 $ 295 For the nine months ended September 30, 2021, the aggregate intrinsic value of options exercised was $ 295 and the total fair value of options vested was $ 50 . 22 Table of Contents Stock-Based Compensation Compensation costs that have been included in our condensed consolidated statements of operations and comprehensive income (loss) for all stock-based compensation arrangements is set forth below: Three Months Ended September 30, Nine Months Ended September 30, Stock-based compensation 2021 2020 2021 2020 Cost of revenues $ 352 $ 104 $ 884 $ 217 Sales and marketing 140 15 371 44 General and administrative 790 1,530 2,124 3,168 Research and development 213 59 554 29 Total stock-based compensation $ 1,495 $ 1,708 $ 3,933 $ 3,458 We recognize forfeitures as they occur. As of September 30, 2021, the unamortized fair value of the restricted stock units under the 2018 Plan was approximately $ 5,881 . The weighted-average remaining recognition period over which these costs will be amortized was approximately 2.7 years. Unrecognized stock compensation expense for options granted under the 2009 Plan was $ 33 as of September 30, 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 September 30, 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 September 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. Debt As more fully discussed in Note 5, Debt , the Company entered into a Note (defined above) with a certain related party. The Note was subsequently paid in full on October 27, 2021. 13. Subsequent Events We have evaluated subsequent events through the date the financial statements were issued. On September 10, 2021, we entered into a Stock Purchase Agreement (the "Agreement") with Caleb Borgstorm for the purchase of all issued and outstanding shares of common stock of Lyte Technology, Inc. for total consideration of up to $ 10,317 . On October 18, 2021, we closed the acquisition contemplated by the Agreement with an adjusted purchase price of up to $ 10,980 ($ 2,500 of which is an earnout payment based upon Lyte operations meeting certain annual revenue milestone), representing an increase in working capital as of the closing date. We are currently determining the final purchase price allocation, but we expect the majority to be allocated to intangible assets and goodwill. We also expect to finalize the valuation and complete the price purchase allocation in the fourth quarter of 2021. In conjunction with the acquisition, we also entered into a note purchase agreement and completed the sale of an unsecured promissory note with an original principal amount of $ 5,220 in a private placement that closed on October 18, 2021. The promissory note was sold with an original issue discount of $ 200 and other issuance costs that total $ 280 . After deducting all transaction cost, net cash proceeds to the Company were $ 4,740 . No interest will accrue on the promissory note unless and until the occurrence of an event of default (as defined in the promissory note). Beginning on January 15, 2022 and on the same day of each month thereafter until the promissory note is paid in full, we are required to make a monthly amortization payments in the amount of $ 574 . We may prepay any or all outstanding balance of the promissory note earlier than it is due with a prepayment premium of 110 % which also applies to the monthly amortization payments. 23 Table of Contents On October 22, 2021, the holder of our 2020 Convertible Notes partially exercised its warrant for 2,060,000 shares of common stock with an exercise price of $ 2.25 for net proceeds of $ 4,635 to the Company. Through November 12, 2021, we sold an additional 18,220,369 shares of our common stock pursuant to the terms of our At Market Issuance Sales Agreement with B. Riley. Aggregate net cash proceeds were $ 62,061 and transaction costs were $ 1,919 . 24 Table of Contents