Phunware, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB Firm No. 688 ) 63 Consolidated Balance Sheets 65 Consolidated Statements of Operations and Comprehensive Loss 66 Consolidated Statements of Changes Stockholders’ Equity (Deficit) 67 Consolidated Statements of Cash Flows 68 Notes to Consolidated Financial Statements 70 62 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Phunware, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Phunware, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation of the Accounting for and Disclosure of Digital Assets Description of the Matter As described in Note 2 to the consolidated financial statements, the Company’s digital assets held as of December 31, 2021, which consist mainly of Bitcoin and Ethereum, are accounted for as indefinite-lived intangible assets, and have been included in current assets on the consolidated balance sheet. The Company’s digital assets as of December 31, 2021 were approximately $32.6 million. For the year ended December 31, 2021, the Company generated revenue of $1.1 million from the sale of PhunToken for which they received both cash and digital currency from customers. The Company’s management has exercised significant judgment in their determination of how existing accounting principles generally accepted in the United States of America (“GAAP”) should be applied to the accounting for digital assets held, the associated financial statement presentation and accompanying footnote disclosures. 63 Table of Contents We identified the accounting for and disclosures of digital assets held and sold as a critical audit matter due to the nature and extent of audit effort required to obtain sufficient appropriate audit evidence to address the risks of material misstatement related to the valuation, existence and rights and obligations of digital assets held and sold. The nature and extent of audit effort required to address the matter included significant involvement of more experienced engagement team members and subject matter experts related to the matter. How We Addressed the Matter in Our Audit Our audit procedures included, amongst others: • We obtained an understanding of management’s process with regards to the methodology used, and the factors considered in determining the appropriate accounting for and disclosure of its digital assets held; • Evaluated management’s rationale for the application of Accounting Standards Codification (“ASC”) 350 to account for its digital assets held, including management’s processes for evaluating its digital assets for impairment; • Evaluated management’s rationale for inclusion of digital assets as a current asset on the balance sheet; • Evaluated management’s disclosures of its digital assets activity in the financial statement footnotes; • In connection with the sales of digital assets, we traced and agreed the details of the transactions to the underlying documents, examined supporting sale and cash receipt evidence, and tested the fair value of the assets received; • Confirmed the existence of the Company’s digital asset balances through a third-party custodian platform; and • Evaluated the third-party custodian platform’s pricing sources with various independent pricing sources. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor since 2018. Houston, Texas April 7, 2022 64 Table of Contents Phunware, Inc. Consolidated Balance Sheets (In thousands, except share and per share data) December 31, 2021 December 31, 2020 Assets Current assets: Cash $ 23,137 $ 3,940 Accounts receivable, net of allowance for doubtful accounts of $ 10 and $ 356 at December 31, 2021 and 2020, respectively 967 664 Inventory 2,636 — Digital assets 32,581 — Prepaid expenses and other current assets 686 304 Total current assets 60,007 4,908 Property and equipment, net — 13 Goodwill 33,260 25,900 Intangible assets, net 3,213 111 Deferred tax asset 1,278 537 Restricted cash — 91 Right-of-use asset 1,260 — Other assets 276 276 Total assets 99,294 31,836 Liabilities and stockholders’ equity (deficit) Current liabilities: Accounts payable $ 6,589 $ 8,462 Accrued expenses 9,621 5,353 Accrued legal settlement — 3,000 Lease liability 399 — Deferred revenue 3,973 2,397 PhunCoin deposits 1,202 1,202 Current maturities of long-term debt, net 4,904 4,435 Warrant liability 3,605 1,614 Total current liabilities 30,293 26,463 Long-term debt — 3,762 Long-term debt - related party — 195 Deferred tax liability 1,278 537 Deferred revenue 1,299 2,678 Lease liability 1,147 — Deferred rent — 180 Total liabilities 34,017 33,815 Commitments and contingencies (Note 11) Stockholders’ equity (deficit) Common stock, $ 0.0001 par value; 1,000,000,000 shares authorized at December 31, 2021 and 2020; 96,751,610 and 56,371,207 shares issued and outstanding as of December 31, 2021 and 2020, respectively 10 6 Additional paid-in capital 264,944 144,156 Accumulated other comprehensive loss ( 352 ) ( 338 ) Accumulated deficit ( 199,325 ) ( 145,803 ) Total stockholders’ equity (deficit) 65,277 ( 1,979 ) Total liabilities and stockholders’ equity (deficit) 99,294 31,836 The accompanying notes are an integral part of these consolidated financial statements. 65 Table of Contents Phunware, Inc. Consolidated Statements of Operations and Comprehensive Loss (In thousands, except per share information) Year Ended December 31, 2021 2020 Net revenues $ 10,643 $ 10,001 Cost of revenues 7,030 3,357 Gross profit 3,613 6,644 Operating expenses: Sales and marketing 3,022 1,653 General and administrative 13,256 15,361 Research and development 4,179 2,628 Legal Settlement — 4,500 Total operating expenses 20,457 24,142 Operating loss ( 16,844 ) ( 17,498 ) Other income (expense): Interest expense ( 4,481 ) ( 3,413 ) Loss on extinguishment of debt ( 7,952 ) ( 2,158 ) Impairment of digital assets ( 9,383 ) — Fair value adjustment for warrant liabilities ( 18,139 ) 872 Gain on forgiveness of Paycheck Protection Program ("PPP") loan 2,850 — Other income, net 1 — Total other expense ( 37,104 ) ( 4,699 ) Loss before taxes ( 53,948 ) ( 22,197 ) Income tax benefit (expense) 426 ( 2 ) Net loss ( 53,522 ) ( 22,199 ) Cumulative translation adjustment ( 14 ) 44 Comprehensive loss $ ( 53,536 ) $ ( 22,155 ) Loss per share, basic and diluted $ ( 0.71 ) $ ( 0.50 ) Weighted-average common shares used to compute loss per share, basic and diluted 75,447 44,269 The accompanying notes are an integral part of these consolidated financial statements. 66 Table of Contents Phunware, Inc. Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (In thousands) Additional Paid-in Capital Accumulated Deficit Other Comprehensive Loss Total Stockholders’ Equity (Deficit) Common Stock Shares Amount Balances as of December 31, 2019 39,811 $ 4 $ 128,008 $ ( 123,604 ) $ ( 382 ) $ 4,026 Exercise of stock options, net of vesting of restricted shares 188 — 99 — — 99 Release of restricted stock 1,631 — — — — — Issuance of common stock for payment of legal, earned bonus and board of director fees 1,348 — 1,283 — — 1,283 Sales of common stock, net of issuance costs 11,629 1 9,177 — — 9,178 Stock-based compensation expense — — 4,492 — — 4,492 Issuance of common stock upon partial conversions of Senior Convertible Note 1,764 1 2,266 — — 2,267 Reacquisition of equity component of Senior Convertible Notes — — ( 1,388 ) — — ( 1,388 ) Equity classified cash conversion feature of Senior Convertible Note — — 219 — — 219 Cumulative translation adjustment — — — — 44 44 Net Loss — — — ( 22,199 ) — ( 22,199 ) Balances as of December 31, 2020 56,371 $ 6 $ 144,156 $ ( 145,803 ) $ ( 338 ) $ ( 1,979 ) Exercise of stock options, net of vesting of restricted shares 261 — 179 — — 179 Release of restricted stock 2,494 — — — — — Issuance of common stock under the 2018 employee stock purchase plan 84 — 100 — — 100 Issuance of common stock for payment of board of director fees 99 — 66 — — 66 Sales of common stock, net of issuance costs 35,383 4 94,733 — — 94,737 Common stock issued pursuant to warrant exercises 2,060 — 20,782 — — 20,782 Stock-based compensation expense — — 4,928 — — 4,928 Cumulative translation adjustment — — — — ( 14 ) ( 14 ) Net loss — — — ( 53,522 ) — ( 53,522 ) Balances as of December 31, 2021 96,752 $ 10 $ 264,944 $ ( 199,325 ) $ ( 352 ) $ 65,277 The accompanying notes are an integral part of these consolidated financial statements. 67 Table of Contents Phunware, Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2021 2020 Operating activities Net loss $ ( 53,522 ) $ ( 22,199 ) Adjustments to reconcile net loss to net cash provided by operating activities: Accretion of debt discount and amortization of deferred financing costs 2,942 2,185 Loss (gain) on change in fair value of warrant liability 18,139 ( 872 ) Loss on extinguishment of debt 7,952 2,158 Impairment of digital assets 9,383 — Gain on forgiveness of PPP loan ( 2,850 ) — Stock-based compensation 4,941 4,492 Deferred income taxes — — Other adjustments ( 478 ) ( 40 ) Changes in operating assets and liabilities: Accounts receivable ( 16 ) 796 Inventory ( 949 ) — Prepaid expenses and other assets ( 383 ) 65 Accounts payable ( 1,568 ) 427 Accrued expenses ( 1,131 ) 1,064 Accrued legal settlement ( 3,000 ) 3,000 Lease liability payments ( 802 ) — Deferred revenue ( 1,172 ) ( 2,049 ) Net cash used by operating activities ( 22,514 ) ( 10,973 ) Investing activities Purchases of digital assets ( 41,284 ) — Acquisitions, net of cash acquired ( 5,101 ) — Net cash used in investing activities ( 46,385 ) — Financing activities Proceeds from borrowings, net of issuance costs 14,711 14,815 Proceeds from related party bridge loans — 560 Payments on borrowings ( 26,243 ) ( 8,418 ) Payments on related party notes — ( 560 ) Net repayments on factoring agreement — ( 1,077 ) Proceeds from sales of common stock, net of issuance costs 94,737 9,177 Proceeds from warrant exercises 4,635 — Proceeds from exercise of stock options 179 99 Net cash provided by financing activities 88,019 14,596 Effect of exchange rate on cash and restricted cash ( 14 ) 46 Net increase (decrease) in cash and restricted cash 19,106 3,669 Cash and restricted cash at the beginning of the period 4,031 362 Cash and restricted cash at the end of the period $ 23,137 $ 4,031 Supplemental disclosure of cash flow information Interest paid $ 1,364 $ 1,251 Income taxes paid $ — $ — The accompanying notes are an integral part of these consolidated financial statements. 68 Table of Contents Phunware, Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2021 2020 Supplemental disclosure of non-cash information Issuance of common stock under the 2018 employee stock purchase plan $ 100 $ — Issuance of common stock for payment of legal, earned bonus and board of director fees $ 66 $ 1,283 Non-cash issuance of common stock upon partial exercise of a warrant $ 16,147 $ — Issuance of common stock upon partial conversions of the Senior Convertible Note $ — $ 2,266 Reacquisition of equity component of the Senior Convertible Note $ — $ ( 1,388 ) Equity classified cash conversion feature of the Senior Convertible Note $ — $ 219 The accompanying notes are an integral part of these consolidated financial statements. 69 Table of Contents Phunware, Inc. Notes to Consolidated Financial Statements (In thousands, except share and per share information) 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. Our Multiscreen-as-a-Service ("MaaS") platform provides the entire mobile lifecycle of applications and media in one login through one procurement relationship. Our MaaS technology is available in software development kit form for organizations developing their own application, via customized development services and prepackaged solutions. Through our integrated mobile advertising platform of publishers and advertisers, we provide in-app application transactions for mobile audience building, user acquisition, application discovery, audience engagement and audience monetization. During 2021, we began to sell PhunToken to consumers, developers and brands. PhunToken is an innovative cryptocurrency utilized within our token ecosystem to help drive engagement by unlocking features and capabilities of our MaaS platform. PhunToken is designed to reward consumers for their activity, such as watching branded videos, completing surveys and visiting points of interest. In October 2021, we acquired Lyte Technology, Inc. ("Lyte"), a provider of high-performance computer systems to individual consumers. Founded in 2009, we are a Delaware corporation headquartered in Austin, Texas. Basis of Presentation The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), and include the Company’s accounts and those of its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Reclassifications of Prior Year Presentation Certain reclassifications have been made to our consolidated statement of cash flows for year ended December 31, 2020. We combined individual line items that we considered to be immaterial and recorded these in our 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 Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern ("ASC 205-40") requires management to assess the Company’s ability to continue as a going concern for one year after the date the financial statements are issued. Under ASC 205-40, management has the responsibility 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. Our assessment included the preparation of a detailed cash forecast that included all projected cash inflows and outflows. During 2021, we secured additional cash financings through the sales and issuances of our common stock through an underwritten public offering, an at-the-market offering and a partial exercise of a warrant. However, we continue to focus on growing our revenues. Accordingly, operating expenditures may exceed the revenue we expect to receive for the foreseeable future. We, also, have a history of operating losses and negative operating cash flows and expect these trends to continue into the foreseeable future. As of the date of this Annual Report on Form 10-K, while we believe we have adequate capital resources to complete our near-term operations, there is no guarantee that such capital resources will be sufficient until such time we reach profitability. We may access capital markets to fund strategic acquisitions or ongoing operations on terms we believe are favorable. The timing and amount of capital that may be raised is dependent on market conditions and the terms and conditions upon which investors would require to provide such capital. We may utilize debt or sell newly issued equity securities through public or private transactions, or through the use of our at-the-market offering facility. We currently have an effective "shelf" 70 Table of Contents registration statement on Form S-3, which we may utilize for future financings for the issuance of our common stock, preferred stock, warrants or units. We also hold digital assets, which management believes can be readily sold and converted into cash. As a result of the 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 Annual Report on Form 10-K. 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 Annual Report on Form 10-K. 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 our growth. If additional funding cannot be obtained on a timely basis and on satisfactory terms, our operations would be materially negatively impacted; however, we have been successful in accessing capital markets in the past, and we are confident in our ability to access capital markets again, if needed. The accompanying 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 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, digital assets, 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, contingent consideration for our business combination with Lyte and periodic reassessment of fair value, allocating the fair value of purchase consideration to assets acquired and liabilities assumed in our business combination, reserves and certain accrued liabilities, the benefit period of deferred commissions, fair value of debt component of convertible notes at issuance and derecognition, assumptions used in Black-Scholes valuation method, such as the current trading price of our common stock at time of exercise of our warrant, expected volatility, risk-free interest rate and expected dividend rate and provision for (benefit from) income taxes. Actual results could differ from those estimates and such differences could be material to the consolidated financial statements. Risks and Uncertainties Regulation governing blockchain technologies, cryptocurrencies, digital assets, utility tokens, security tokens and offerings of digital assets is uncertain, and new regulations or policies may materially adversely affect the development and the value of our tokens. Regulation of digital assets, like PhunCoin and PhunToken, cryptocurrencies, blockchain technologies and cryptocurrency exchanges, is likely to evolve. Regulation also varies significantly among international, federal, state and local jurisdictions and is subject to significant uncertainty. Various legislative and executive bodies in the United States and in other countries may in the future adopt laws, regulations, or guidance, or take other actions, which may severely impact the permissibility of tokens generally and the technology behind them or the means of transaction or in transferring them. Any such violations could adversely affect the ability of us to maintain PhunCoin and PhunToken, which could have a material adverse effect on our operations and financial condition. Failure by us to comply with any laws, rules and regulations, some of which may not exist yet or are subject to interpretation and may be subject to change, could also result in a material adverse effect on our operations and financial condition. 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 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 71 Table of Contents 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 allow 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 our 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 our 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 The adoption of ASU 2016-02 did not have a material impact on our consolidated statements of operations and comprehensive loss. Revenue Recognition On January 1, 2019, we adopted ASC 606, Revenue from Contracts with Customers ("ASC 606") . Generally, the provisions of ASC 606 state that revenue is recognized upon transfer of control of promised products or services in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct, distinct within the context of the contract and accounted for as separate performance obligations. Contract Balances The timing of revenue recognition may differ from the timing of invoicing for contracts with customers. When the timing of revenue recognition differs from the timing of invoicing, we use judgment to determine whether the contract includes a significant financing component requiring adjustment to the transaction price. Various factors are considered in this determination including the duration of the contract, payment terms and other circumstances. Generally, we determine that contracts do not include a significant financing component. We apply a practical expedient for instances where, at contract inception, the expected timing difference between when promised goods or services are transferred and associated payment will be one year or less. Payment terms vary by contract type; however, contracts typically stipulate a requirement for the customer to pay within 30 days. The transaction price may be allocated to performance obligations that are unsatisfied or are partially unsatisfied. Amounts relating to remaining performance obligations on non-cancelable contracts include both the deferred revenue balance and amounts that will be invoiced and recognized as revenue in future periods. Significant Judgments When selling our platform subscriptions and services, our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. For contracts with 72 Table of Contents multiple performance obligations, the contract price is allocated to separate performance obligations on a relative standalone basis for which significant judgment is required. Judgment is required to determine whether a software license is considered distinct and accounted for separately, or not distinct and accounted for together with the software support and services and recognized over time. Significant judgment is also required relating to the timing of the satisfaction of performance obligations. Platform Subscriptions and Services Revenue We derive subscription revenue from software license fees, which comprise subscription fees from customers licensing our Software Development Kits (SDKs), which include accessing the MaaS platform and/or MaaS platform data; application development service revenue from the development of customer applications, or apps, which are built and delivered to customers; and support fees. Our contract terms generally range from one to three years . License fees are typically billed annually in advance. Application development revenue is derived from development services around designing and building new applications or enhancing existing applications. We recognize application development revenue upon the transfer of control of the completed application or application development services. We typically bill for application development revenue in advance at contract signing, but may at times, bill one-half in advance at contract execution and one-half upon completion. Subscription revenue from SDK licenses gives the customer the right to access our MaaS platform. In accordance with ASC 606, a ‘right to access’ license is recognized over the license period. Support and maintenance revenue is comprised of support fees for customer applications, software updates and technical support for application development services for a support term. Support revenue is recognized ratably over the support term. Support and maintenance is typically billed annually in advance. When a customer contract consists of licensing, application development and support and maintenance, we consider these separate performance obligations, which would require an allocation of consideration, of which significant judgement is required. From time to time, we may also provide professional services by outsourcing employees to customers on a time and materials basis. Revenues from these arrangements are recognized as the services are performed. We typically bill professional service customers in the month in which the services are performed. Application Transaction Revenue We also generate revenue by charging advertisers to deliver advertisements (ads) to users of mobile connected devices. Depending on the specific terms of each advertising contract, we generally recognize revenue based on the activity of mobile users viewing these ads. Fees from advertisers are commonly based on the number of ads delivered or views, clicks or actions by users on mobile advertisements delivered, and we recognize revenue at the time the user views, clicks or otherwise acts on the ad. We sell ads through several offerings: cost per thousand impressions, on which advertisers are charged for each ad delivered to 1,000 consumers; cost per click, on which advertisers are charged for each ad clicked or touched on by a user; and cost per action, on which advertisers are charged each time a consumer takes a specified action, such as downloading an app. In addition, during 2020, we generated application transaction revenue thru in-app purchases from an application on our platform. In the normal course of business, we may act as an intermediary in executing transactions with third parties. The determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether we are acting as the principal or an agent in our transactions with advertisers. Control is a determining factor in assessing principal versus agent relation. The determination of whether we are acting as a principal or an agent in a transaction involves judgment and is based on an evaluation of the terms of each arrangement. ASC 606 provides indicators of when an entity controls specified goods or services and is, therefore, acting as a principal. Based on the indicators of control, we have determined that we are the principal in all advertising arrangements because we are responsible for fulfilling the promise to provide the specified advertisements to advertising agencies or companies; establishing the selling prices of the advertisements sold; and credit risk with its advertising traffic providers. Accordingly, we act as the principal in all advertising arrangements and, therefore, report revenue earned and costs incurred related to these transactions on a gross basis. During 2021, we announced the commencement of the selling of PhunToken to consumers, developers and brands. PhunToken is an innovative cryptocurrency utilized within our token ecosystem to help drive engagement by unlocking features and capabilities of our MaaS platform. We follow the guidance of ASC 606 in determination the revenue recognition of our PhunToken sales. PhunToken customers pay us at the time of purchase of PhunToken. We recognize revenue related to PhunToken at the time of delivery of PhunToken to a customer's ethereum-based digital wallet. 73 Table of Contents Computer Hardware Revenue We acquired Lyte Technology in October 2021. Revenue from Lyte is primarily derived from the sale of high-performance personal computers. Lyte computers are sold with a variety of pre-packaged solutions, as well as customizable solutions selected by our customers. Customers pay us in advance of shipment of their computer via the Lyte website. A majority of Lyte's customers pay us via credit card payments, which are managed through a third party processor. We recognize computer hardware revenue at the time a completed unit ships from our facility. Deferred Commissions We defer commission costs and amortize them in a manner consistent with how we recognize revenue. Key judgments that impact our commission expense include estimating our customer life and the determination of the impairment of commission assets we deem to be unrecoverable. The Company applies a practical expedient and expenses these costs as incurred if the amortization period is one year or less. Deferred commissions are recorded in prepaid and other current assets in our consolidated balance sheets. Changes in deferred commissions for the years ended December 31, 2021 and 2020 are as follows: 2021 2020 Balance, beginning of the period $ 210 $ 309 Deferral of commissions earned 73 94 Recognition of commission expense ( 135 ) ( 193 ) Balance, end of the period $ 148 $ 210 Concentrations of Credit Risk Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash, trade accounts receivable and our digital asset holdings. 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. There is currently no clearing house for our digital assets, including our bitcoin holdings, nor is there a central or major depository for the custody of our digital assets. There is a risk that some or all of our digital asset holdings could be lost or stolen. There can be no assurance that the custodians will maintain adequate insurance or that such coverage will cover losses with respect to our digital asset holdings. Further, transactions denominated in digital assets are irrevocable. Stolen or incorrectly transferred digital assets may be irretrievable. As a result, any incorrectly executed transactions could adversely our financial condition. The aggregate cost basis of our digital asset holdings is $ 41,964 at December 31, 2021. Collateral is not required for accounts receivable, and we believe the carrying value approximates fair value. The following table sets forth our concentration of accounts receivable, net of specific allowances for doubtful accounts. December 31, 2021 2020 Customer A 20 % 55 % Customer B 18 % 16 % Customer C 0 % 13 % Cash, Cash Equivalents, and Restricted Cash We consider all investments with a maturity of three months or less from the date of acquisition to be cash equivalents. The Company had no cash equivalents at December 31, 2021 or 2020. As a result of certain debt financings, we were required to maintain restricted balances. We had $ 91 in restricted cash as of December 31, 2020. 74 Table of Contents Accounts Receivable and Reserves Accounts receivable are presented net of allowances. We consider receivables past due based on the contractual payment terms. We make judgments as to our ability to collect outstanding receivables and record a bad debt allowance for receivables when collection becomes doubtful. The allowances are based upon historical loss patterns, current and prior trends in our aged receivables, credit memo activity and specific circumstances of individual receivable balances. Accounts receivable consisted of the following: December 31, 2021 2020 Accounts receivable $ 977 $ 1,020 Less allowances for doubtful accounts ( 10 ) ( 356 ) Accounts receivable, net $ 967 $ 664 Changes in the allowance for doubtful accounts are as follows: December 31, 2021 2020 Balance, beginning of period $ 356 $ 3,179 (Recovery) allowances for bad debt ( 286 ) 205 Issuance of credit memos and write offs ( 60 ) ( 3,028 ) Balance, end of period $ 10 $ 356 Inventory Our inventory consists of computer hardware materials and finished computers available-for-sale and are stated at the lower of cost or net realizable value, determined using the first-in first-out (“FIFO”) method. We purchase inventory from suppliers both domestically and internationally. We believe that our products are generally available from more than one supplier and seek to maintain multiple sources for materials, both internationally and domestically. We may, at times, purchase products in bulk quantities to take advantage of quantity discounts and to ensure inventory availability. We recognize provisions for obsolete and slow-moving inventory primarily based on judgments about expected disposition of inventory, generally, through sales, or liquidations of obsolete inventory, and expected recoverable values based on currently available or historical information. Digital Assets During the year ended December 31, 2021, we purchased an aggregate of $ 41,284 in digital assets, and we were paid $ 680 in digital assets by various customers. Payments by customers in and purchases by us of digital assets were primarily of 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, 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 quoted on an 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 75 Table of Contents 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 consolidated statements of operations and comprehensive loss. Impairment loss was $ 9,383 for the year ended December 31, 2021 and we did not sell any digital assets during the year ended December 31, 2021. The following tables set forth changes in our bitcoin and ethereum holdings: Bitcoin Digital Asset Original Cost Basis Digital Asset Impairment Losses Digital Asset Carrying Value Balance as of December 31, 2020 $ — $ — $ — Purchases 36,806 36,806 Received from customers 157 157 Impairment loss ( 8,554 ) ( 8,554 ) Balance as of December 31, 2021 $ 36,963 $ ( 8,554 ) $ 28,409 Ethereum Digital Asset Original Cost Basis Digital Asset Impairment Losses Digital Asset Carrying Value Balance as of December 31, 2020 $ — $ — $ — Purchases 4,191 4,191 Received from customers 523 523 Impairment loss ( 670 ) ( 670 ) Balance as of December 31, 2021 $ 4,714 $ ( 670 ) $ 4,044 Other digital assets purchased during the year ended December 31, 2021 was $ 287 and we recorded an impairment losses of $ 159 related to those purchases. Goodwill and Intangible Assets Goodwill arises from purchase business combinations and is measured as the excess of the cost of the business acquired over the sum of the acquisition-date fair values of tangible and identifiable intangible assets acquired, less any liabilities assumed. In accordance with ASC 350, Intangibles — Goodwill and Other , we do not amortize goodwill or intangible assets with indefinite lives but rather assesses their carrying value for indications of impairment annually, or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. We adopted ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment , on January 1, 2020, which states an entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. We derived the fair value from the market capitalization approach, whereby we utilize the historical market price of our common stock traded on the Nasdaq to estimate the fair value of our reporting unit. The determination of whether goodwill has become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of the reporting unit. Changes in our strategy and/or market conditions could significantly impact these judgments and require adjustments to recorded amounts of goodwill. Identifiable intangible assets consist of acquired trade names, customer lists, technology, in-process research and development and order backlog associated with the acquired businesses. Amortization of finite-lived intangible assets is calculated using either the straight-line or accelerated amortization model based on our best estimate of the distribution of the economic value of the identifiable intangible assets. 76 Table of Contents We did not recognize any goodwill or intangible impairment losses in the years ended December 31, 2021 or 2020. Long-Lived Assets Long-lived assets with definite lives are reviewed for impairment whenever events or changes in circumstances indicate that an asset’s carrying value may not be recoverable. In accordance with authoritative guidance, we evaluate the recoverability of each of our long-lived assets, including property and equipment, by comparing its carrying amount to the undiscounted future cash flows expected to be generated. If the total of undiscounted future cash flows is less than the carrying amount of an asset, an impairment would be recognized for the amount by which the carrying amount of the asset exceeds its fair value. We did not recognize any impairment losses relating to our long-lived assets during the years ended December 31, 2021 or 2020. Convertible Debt In March 2020, we issued a 7 % convertible note with a principal amount of $ 3,000 for gross proceeds at closing of $ 2,371 . In accounting for the issuance, we separated the note into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar liabilities that do not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the carrying amount of the liability component from the par value of the note. The difference represents the debt discount, recorded as a reduction of the senior convertible note on our consolidated balance sheet, and is amortized to interest expense over the term of the note using the effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the note, we allocated the total amount of issuance costs incurred to liability and equity components based on their relative values. Issuance costs attributable to the liability component were amortized using the effective interest rate method to interest expense over the term of the note. The issuance costs attributable to the equity component are recorded as a reduction of the equity component within additional paid-in capital. In July 2020, we issued a convertible note with an initial principal amount of $ 4,320 . After the payoff of convertible note issued in March 2020 and deducting transaction costs, aggregate net cash proceeds to the Company was $ 1,751 . In accordance with ASC Topic 815-40, Derivatives and Hedging - Contracts in an Entity’s Own Stock , we evaluated all of the convertible note's financial instruments, including warrants to purchase common stock issued in conjunction with convertible debt, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statement of operations and comprehensive loss. We use a Black-Scholes option-pricing model to value the warrants at inception and subsequent valuation dates. Refer to Fair Value of Financial Instruments below. Direct costs incurred to issue non-revolving debt instruments are recognized as a reduction to the related debt balance in the accompanying consolidated balance sheets and amortized to interest expense over the contractual term of the related debt using the effective interest method. Leases We adopted the new lease accounting standard, ASU 2016-02 using the modified retrospective basis for all agreements existing as of January 1, 2021 as described further above Recently Adopted Accounting Pronouncements . The Company recognizes a right-of-use asset and lease liability for all operating leases with terms greater than twelve months. The lease liability is measured based on the present value of the lease payments not yet paid. The right-of-use asset is measured based on the initial measurement of the lease liability adjusted for any direct costs incurred upon commencement of the lease. Short-term leases, or leases that have a lease term of 12 months or less at commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease. We did not enter into any financing leases for the year ended December 31, 2021. 77 Table of Contents Stock-Based Compensation Compensation expense related to stock-based transactions, including employee and non-employee director awards, is measured and recognized in the financial statements based on fair value on the grant date of the award. We recognize stock-based compensation expense for awards with only service conditions on a ratable basis over the requisite service period of the related award, generally the vesting period of the award. We have not granted any awards with market or performance conditions. Forfeitures of all stock-based awards are accounted for when they occur. Retirement Plan At December 31, 2021, we administered one employee retirement plan that qualified as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the retirement plan, participating employees may contribute a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. No employer matching contributions were made to the retirement plan during the years ended December 31, 2021 or 2020. Income Taxes We account for income taxes in accordance with ASC 740, Income Taxes ("ASC 740"). Under ASC 740, deferred tax assets and liabilities reflect the future tax consequences of the differences between the financial reporting and tax bases of assets and liabilities using current enacted tax rates. Valuation allowances are recorded when the realizability of such deferred tax assets does not meet the more-likely-than-not threshold under ASC 740. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income and the feasibility of tax planning strategies. In the event of a change in the determination as to the amount of deferred tax assets that can be realized, an adjustment of the valuation allowance with a corresponding impact to the provision for income taxes will be made in the period in which such determination was made. The guidance on accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute criterion for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. Comprehensive Loss We apply the guidance in ASC 220, Comprehensive Income , for the reporting and display of comprehensive loss and its components in the consolidated financial statements. Comprehensive loss comprises net loss and cumulative foreign currency translation adjustments. Accumulated comprehensive loss at December 31, 2021 and 2020 was due to foreign currency translation adjustments. 78 Table of Contents Loss per Common Share Basic loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Restricted shares subject to repurchase provisions relating to early exercises under our 2009 Equity Incentive Plan were excluded from basic shares outstanding. Diluted loss per common share is computed by giving effect to all potential shares of common stock, including those related to our outstanding warrants and stock equity plans, to the extent dilutive. For all periods presented, these shares were excluded from the calculation of diluted loss per share of common stock because their inclusion would have been anti-dilutive. As a result, diluted loss per common share is the same as basic loss per common share for all periods presented. The following table sets forth common stock equivalents that have been excluded from the computation of dilutive weighted average shares outstanding as their inclusion would have been anti-dilutive: December 31, 2021 2020 Convertible notes — 5,733,712 Warrants 5,636,801 5,996,112 Options 925,467 1,208,740 Restricted stock units 3,576,270 1,677,060 Restricted shares — 574 Total 10,138,538 14,616,198 Fair Value of Financial Instruments We follow the guidance in ASC 820, Fair Value Measurement , to account for financial assets and liabilities measured on a recurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. We use 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 December 31, 2021 are set forth below: Level 1 Level 2 Level 3 Total Assets: Digital assets $ 32,581 $ — $ — $ 32,581 Total $ 32,581 $ — $ — $ 32,581 Liabilities: Warrant liability $ — $ 3,605 $ — $ 3,605 Total $ — $ 3,605 $ — $ 3,605 79 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, inventory, 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. Loss Contingencies We are subject to the possibility of various loss contingencies arising in the ordinary course of business. We accrue for loss contingencies when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. If we determine that a loss is possible and the range of the loss can be reasonably determined, then we disclose the range of the possible loss. We regularly evaluate current information available to us to determine whether an accrual is required, an accrual should be adjusted or a range of possible loss should be disclosed. From time to time, we are involved in disputes, litigation and other legal actions. However, there are many uncertainties associated with any litigation, and these actions or other third-party claims against us may cause us to incur substantial settlement charges, which are inherently difficult to estimate and could adversely affect our results of operations. The actual liability in any such matters may be materially different from our estimates, which could result in the need to adjust our liability and record additional expenses. Subsequent Events In accordance with U.S. GAAP, we have evaluated events that have occurred after the date of the financial statements through the date the financial statements are issued to determine if events or transactions occurring after the date of the financial statements require potential adjustment to or disclosure in the financial statements. See Note 18 for additional discussion on our subsequent events. Smaller Reporting Company We are a "smaller reporting company" as defined by Rule 12b-2 of the Exchange Act, which qualifies the Company for reduced disclosure requirements and, if permitted, additional time to implement new or revised financial accounting standards. Smaller reporting company status is determined on an annual basis. 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 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 in 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 consolidated financial statements and disclosures. 80 Table of Contents 3. Business Combination On October 18, 2021, we closed the acquisition of Lyte with an adjusted purchase price of approximately $ 11.0 million (subject to an earn-out provision). This acquisition was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged was recorded at estimated fair values on the date of acquisition. The following table summarizes the consideration paid for Lyte and the estimated fair values of the aggregate assets and liabilities acquired, at the acquisition date: Fair Value Assets acquired Cash $ 4 Inventory 1,687 Intangible assets 3,340 Total assets acquired 5,031 Liabilities assumed Deferred revenue 1,369 Total liabilities assumed 1,369 Net assets acquired 3,662 Consideration: Cash 3,980 Acquisition and earn-out payable (subject to fair value adjustments) 6,619 Total consideration 10,599 Goodwill $ 6,937 The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed were based on management’s estimates and assumptions at the time of acquisition. Fair values are subject to refinement for up to one year after the closing date as additional information regarding the closing date fair values becomes available. The trade name represents the rights to the " Lyte Technology, Inc. " brand name which is well known in the marketplace. The useful life of the identified amortizable intangible assets acquired is five years . Goodwill was recorded to reflect the excess purchase consideration over net assets acquired and primarily consists of the future economic benefits that we expect to receive as a result of the acquisition. The amount of goodwill expected to be deductible for federal and state income tax purposes is $ 437 . Expenses we incurred as a result of the acquisition of Lyte were not material and recorded in general and administrative expenses in our consolidated statement of operations and comprehensive loss for the year ended December 31, 2021. Pursuant to terms of the stock purchase agreement, the future acquisition and earn-out payments consist of the following: (i) $ 1,125 , as adjusted for working capital items, on June 30, 2022, (ii) the issuance of shares of our common stock with an aggregate value of $ 2,250 , in two equal installments valued at up to $ 1,125 , determined on the last business day of each of the quarter ending March 31, 2022 and September 30, 2022 and (iii) up to $ 1,250 in cash and issuance of shares of our common stock valued at up to $ 1,250 on the first anniversary of closing, as an earn-out payment based upon Lyte achieving certain annual revenue milestones as provided in the purchase agreement in the year following closing. We believe Lyte will achieve the annual revenue milestone and we will owe the full amount of the contingent consideration on the first annual anniversary of closing. For the year ended December 31, 2021, we generated computer hardware revenue of $ 3,095 and an operating loss of $ 609 , since the acquisition closing date. 81 Table of Contents The following table summarizes the unaudited pro forma condensed financial information of Phunware, Inc for the year ended December 31, 2021 as if the acquisition of Lyte had occurred on January 1, 2020: Year Ended December 31, 2021 2020 (in thousands) (unaudited) Net revenues $ 18,175 $ 15,581 Net loss ( 53,935 ) ( 22,922 ) 82 Table of Contents 4. Revenue Disaggregation of Revenue The following table sets forth our net revenues by category: Year Ended December 31, 2021 2020 Net revenues Platform subscriptions and services $ 5,308 $ 9,108 Computer hardware 3,095 — Application transaction 2,240 893 Net revenues $ 10,643 $ 10,001 For the year ended December 31, 2021, we sold $ 1,063 of PhunToken for which we received both cash and digital assets from customers. Revenue from sales of PhunToken is recorded within application transaction revenue in the table above. 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 93 % and 97 % of our net revenues from within the United States for the years ended December 31, 2021 and 2020, respectively. Revenue by geographic location is as follows: Year Ended December 31, 2021 2020 Net revenues United States $ 9,939 $ 9,686 International 704 315 Net revenues $ 10,643 $ 10,001 The following table sets forth our concentration of revenue sources as a percentage of total net revenues. Year Ended December 31, 2021 2020 Customer D — % 32 % Customer E 7 % 12 % 83 Table of Contents Deferred Revenue Our deferred revenue balance consisted of the following: December 31, 2021 2020 Current deferred revenue Computer hardware $ 2,149 $ — Platform subscriptions and services revenue 1,744 2,317 Application transaction revenue 80 80 Total current deferred revenue $ 3,973 $ 2,397 Non-current deferred revenue Platform subscriptions and services revenue $ 1,299 $ 2,678 Total non-current deferred revenue $ 1,299 $ 2,678 Total deferred revenue $ 5,272 $ 5,075 Deferred revenue consists of customer billings or payments received in advance of the recognition of revenue under arrangements with customers. We recognize deferred revenue as revenue only when revenue recognition criteria are met. During the year ended December 31, 2021, we recognized revenue of $ 3,379 that was included in our deferred revenue balance as of December 31, 2020. Remaining Performance Obligations Remaining performance obligations were $ 8,588 as of December 31, 2021, of which we expect to recognize 54 % as revenue over the next 12 months and the remainder thereafter. 5. Cash, Cash Equivalents, and Restricted Cash We had no cash equivalents as of December 31, 2021 and 2020. The following table sets forth our cash and restricted cash: December 31, 2021 2020 Cash $ 23,137 $ 3,940 Restricted cash — 91 Total cash and restricted cash $ 23,137 $ 4,031 84 6. Goodwill and Other Intangible Assets Goodwill Changes in the Company’s goodwill balance for the years ended December 31, 2021 and 2020, are summarized in the table below: 2021 2020 Balance, beginning of period $ 25,900 $ 25,857 Acquisition of Lyte 7,374 — Foreign currency translation ( 14 ) 43 Balance, end of period $ 33,260 $ 25,900 Intangible Assets Our intangible assets, excluding goodwill, consist of intangible assets acquired in business combinations and were recorded at their estimated fair values on the date of acquisition. The finite-lived intangible assets that are being amortized are summarized in the table below: Weighted Average Useful Life (years) December 31, 2021 December 31, 2020 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Trade name 5.0 $ 3,990 $ ( 799 ) $ 3,191 $ 651 $ ( 651 ) $ — Acquired technology 5.1 4,828 ( 4,828 ) — 4,828 ( 4,821 ) 7 In-process research and development 5.0 94 ( 94 ) — 94 ( 94 ) — Customer relationships 5.7 4,626 ( 4,604 ) 22 4,636 ( 4,532 ) 104 Order backlog 1.5 329 ( 329 ) — 329 ( 329 ) — $ 13,867 $ ( 10,654 ) $ 3,213 $ 10,538 $ ( 10,427 ) $ 111 Amortization expense for the years ended December 31, 2021 and 2020, was approximately $ 238 and $ 142 respectively. Expected future annual amortization expense for finite-lived intangible assets as of December 31, 2021, is as follows: Future amortization expense for the years ending December 31, Amortization 2022 $ 689 2023 668 2024 668 2025 668 2026 520 Thereafter — Total $ 3,213 85 7. Accrued Expenses Accrued expenses consisted of the following: December 31, 2021 2020 Acquisition and earn out payable $ 5,531 $ — Payroll related expenses 2,801 4,112 Accounts payable settlement (see Note 11) 446 627 Other 584 449 Taxes 259 165 Total accrued expenses $ 9,621 $ 5,353 8. Factoring Agreement On June 15, 2016, we entered into a factoring agreement with CSNK Working Capital Finance Corp. (d/b/a Bay View Funding) (“Bay View”) whereby we sold select accounts receivable with recourse. Under the terms of the agreement, Bay View would advance us amounts representing up to 80 % of the net amount of eligible accounts receivable. The factor facility was collateralized by a general security agreement over all the Company’s personal property and interests. Fees paid to Bay View for factored receivables were 1.80 % for the first 30 days and 0.65 % for every ten days thereafter, to a maximum of 90 days total outstanding. We bore the risk of credit loss on the receivables. These receivables were accounted for as a secured borrowing arrangement and not as a sale of financial assets. We terminated our factoring agreement with Bay View effective March 22, 2021. Interest expense related to our Bay View factoring agreement was $ 75 and $ 175 for the years ended December 31, 2021 and 2020, respectively. 86 9. Debt The following table sets forth our various debt obligations: December 31, 2021 2020 2021 Promissory Note $ 5,220 $ — Series A Note (principal amount) — 2,481 Series B Note (principal amount) — 3,585 Paycheck Protection Program Loan — 2,850 Convertible Notes — 250 Promissory Notes — 905 Total debt $ 5,220 $ 10,071 Debt discount - warrants (2021 Promissory Note) ( 316 ) — Debt discount - warrants (2020 Convertible Notes) — ( 1,029 ) Debt discount - issuance costs (2020 Convertible Notes) — ( 650 ) Less: current maturities of long-term debt ( 4,904 ) ( 4,435 ) Less: long-term related-party debt — ( 195 ) Long-term debt $ — $ 3,762 2021 Promissory Note In connection with the acquisition of Lyte, we 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 we paid at closing issuance costs totaling $ 280 . After deducting all transaction costs, 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 until the maturity date of October 15, 2022. We may prepay any or all outstanding balance of the promissory note earlier than it is due with a prepayment premium of 110 %. The prepayment premium also applies to the monthly amortization payments, which amounts to an effective interest rate of approximately 18 %. 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 were $ 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 consolidated balance sheets. 87 During 2020, we exercised our right under the Investor Note to require a mandatory prepayment of the Investor Note of $ 1,000 and the noteholder voluntarily prepaid an aggregate of $ 4,750 pursuant to the terms of the Investor Note, for aggregate cash proceeds to us $ 5,750 . As a result, $ 5,750 in principal and $ 460 of original issue discount became "unrestricted". As of December 31, 2020, the restricted balance of the Series B Note was $ 11,070 (including original issue discount). The Series A Note and outstanding unrestricted principal balance on the Series B Note each bore interest at a rate of 7 % per annum and includes a make-whole of interest from the date of issuance through the maturity date of December 31, 2021. The restricted principal of the Series B Note bore interest at a rate of 3 % per annum. The 2020 Convertible Notes were scheduled to mature on December 31, 2021. For the year ended December 31, 2020, we recorded a loss on extinguishment of debt in the amount of $ 1,343 as a result of monthly installment payments and optional redemption payments elected by the noteholder related to our various capital raises, as more fully described below. 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 13 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 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 year ended December 31, 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 three ( 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. In February 2022, we filed a registration statement registering 250 % of additional warrant shares as result of the adjustment noted above. 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. As more fully discussed in Note 13, the holder partially exercised its warrant during 2021. 88 The following table sets forth the assumptions used and calculated aggregated fair values of the liability classified warrants: December 31, 2021 December 31, 2020 Strike price per share $ 2.25 $ 4.00 Closing price per share $ 2.63 $ 1.26 Term (years) 1.53 2.53 Volatility 186 % 146 % Risk-free rate 0.56 % 0.17 % Dividend Yield — — Upon issuance of the warrant, we recorded a warrant liability as a discount to the 2020 Convertible Notes of $ 2,486 . A summary of the change in fair value of the warrant liability is set forth below: 2021 2020 Balance, beginning of period $ 1,614 $ — Warrant issued — 2,486 Warrant Exercised ( 16,148 ) — Change in fair value of warrant liability 18,139 ( 872 ) Balance, end of period $ 3,605 $ 1,614 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 expired on March 20, 2022 pursuant to a separate Securities Purchase Agreement relating to the Senior Convertible Note, which is more fully discussed below. 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, was originally scheduled to mature 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 U.S. 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 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 for the year ended December 31, 2021. Senior Convertible Note In March 2020, we issued a Senior Convertible Note to an institutional investor with an initial principal amount of $ 3,000 (the “Senior Convertible Note”) for cash proceeds of $ 2,760 (reflecting an original issue discount of $ 240 ) in a private placement. After deducting the placement agent fee and other estimated expenses, net cash proceeds at the closing were approximately $ 2,371 . The Senior Convertible Note bore an interest at a rate of 7 % per annum and includes a make-whole of interest from the date of issuance through the maturity date of December 31, 2021. 89 Monthly Payments and Conversion Starting on April 30, 2020 and on the last trading day of the month and on the maturity date, we were required to make monthly payments on the Senior Convertible Note. On each payment date, we were required to settle a principal repayment of approximately $ 143 plus interest thereon (the “Payment Amount”) which were to be satisfied in shares of our common stock at 100 % of the Payment Amount, or at our election, in whole or in part, in cash, at 105 % of the Payment Amount. Installment payments made in common stock were subject to customary equity conditions (including minimum floor price and volume thresholds), and were calculated on a conversion price equal to the lower of (x) the conversion price then in effect and (y) the greater of the Floor Price (as defined in the Senior Convertible Note) and 85 % of the lowest volume weighted average price in the 10 days prior to the payment date. In addition to the monthly payments described above, during the second quarter of 2020, the noteholder elected an acceleration of payments of monthly principal, interest and make-whole payments pursuant to certain provisions of the Senior Convertible Note. These accelerated payments were made in the form of shares of our common stock at the rate then in effect in accordance with the Senior Convertible Note. As a result, we issued an aggregate of 1,763,675 shares for principal, interest and make-whole payments to the noteholder. In accounting for the accelerated conversions, the Company followed the guidance as prescribed in ASC 470 in accounting for derecognition (or conversion) of convertible debt with a cash conversion feature. We determined the fair value of the debt immediately prior to derecognition, with the difference between the consideration transferred to the noteholder and the fair value of the debt representing the reacquisition of the embedded conversion option. A loss on extinguishment of $ 81 was recorded based on the difference between the calculated fair value of the debt immediately prior to derecognition and the carrying amount of the debt component, including any unamortized debt discount or issuance costs. Redemption Upon the issuance of the 2020 Convertible Notes, we redeemed the Senior Convertible Note in July 2020 at a price equal to 110 % of the outstanding principal accrued and unpaid interest and make-whole interest. The payoff to the noteholder to satisfy the Senior Convertible Note was in the amount $ 2,084 . The redemption of the Senior Convertible Note resulted in a loss on extinguishment of $ 734 in 2020. Related-Party Bridge Loans During the first quarter of 2020, various related parties loaned us $ 560 . The Related-Party Bridge Loans ("RPBLs") bore interest at 10 % per annum and had a stated maturity date of November 14, 2024. The RPBLs and amounts thereof were made by the following related parties: (i) $ 204 by Cane Capital, LLC, an entity owned in part by our Chief Executive Officer; (ii) $ 151 by Curo Capital Appreciation Fund, LLC, an entity in which our Chief Executive Officer and Chief Technology Officer serve as co-presidents; (iii) $ 155 by various individuals associated by familiar relationship with our Chief Executive Officer; and (iv) $ 50 by Luan Dang, our Chief Technology Officer. Transaction costs related to the RPBLs were not significant. As of December 31, 2020, the RPBLs have been paid in full with no early payment penalty. Convertible Notes In April 2019, our board of directors authorized the issuance of $ 20,000 of convertible promissory notes (the “Convertible Notes”), which may be paid by investors in the form of cash or, in our discretion, cryptocurrency, such as bitcoin or ethereum. The Convertible Notes were sold in reliance on an exemption from registration. We may not issue Convertible Notes under the Purchase Agreement in excess of $ 20,000 , in the aggregate, unless otherwise agreed by the holders of a majority in interest of the principal outstanding under the Convertible Notes. Transaction costs related to the issuance of the Convertible Note were immaterial. The Convertible Notes are convertible into shares of the Company’s common stock at a price of $ 11.50 per share. The Convertible Notes bore 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. However, at the holder’s election, interest payments could have been deferred until the earlier of (i) repayment in full of all remaining unpaid principal and (ii) conversion. The Convertible Notes were originally scheduled to mature on June 3, 2024. On October 27, 2021, we paid $ 222 in cash in full satisfaction of all obligations under the Convertible Notes. 90 Promissory Notes In October 2019, our board of directors authorized the issuance of $ 20,000 of promissory notes (the “Notes”), which may be paid by investors in the form of cash or, in our discretion, cryptocurrency, such as bitcoin or ethereum. The Notes were sold in reliance on an exemption from registration. We may prepay the Notes at any time without penalty. We may not issue Notes under the Purchase Agreement in excess of $ 20,000 , in the aggregate, unless otherwise agreed by the holders of a majority in interest of the principal outstanding under the Notes. Transaction costs related to the issuance of the Notes were immaterial. The Notes bore 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 will be available for use exclusively to satisfy any payments owed by us under the Notes. The principal and unpaid accrued interest on the Notes were due and payable on demand by the majority Note holders on or after the date that is 60 months following November 15, 2019. During 2019, the Company 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 its board of directors. On October 27, 2021, we paid $ 905 in cash to each Note holder in full satisfaction of all obligations under the Notes. Interest Expense The following table sets forth interest expense for our various debt obligations included in the consolidated statements of operations and comprehensive loss: Year Ended December 31, 2021 2020 2020 Convertible Notes $ 1,111 $ 722 Accretion of debt discount - issuance costs 1,913 686 Accretion of debt discount - warrants 1,029 1,457 2021 Promissory Note 203 — Senior Convertible Note — 197 Factoring financing agreement 75 175 All other debt and financing obligations 150 176 Total $ 4,481 $ 3,413 91 10. 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. Our Lyte operations are currently located in Gurnee, Illinois. We lease office and warehouse space for Lyte under a month-to-month lease. Excluding our month-to-month lease, as of December 31, 2021, the earliest lease agreement 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 our operating leases as of December 31, 2021 was 3.14 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 consolidated statement of operations and comprehensive loss. Rent expense under operating leases totaled $ 809 and $ 843 for the years ended December 31, 2021 and 2020, respectively. Future minimum annual lease payments under the Company’s operating leases are as follows: Future minimum lease obligations for the years ending December 31, Lease obligations 2022 $ 667 2023 622 2024 609 2025 209 2026 — Thereafter — $ 2,107 Less: Portion representing interest $ ( 561 ) $ 1,546 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 as a component of other income, net in our consolidated statement of operations and comprehensive loss for the year ended December 31, 2021. We recognized $ 154 of sublease income related to our Irvine, California lease for the year ended December 31, 2021. On December 21, 2021, we entered into a sublease agreement pursuant to which we will sublease our existing office space in Miami, Florida. The term of the sublease commenced on January 18, 2022 and terminates on June 30, 2023. The subtenant will pay us initial base rent of approximately $ 8 per month, which is subject to rent escalations throughout the term. We recognized an impairment of our right-to-use asset related to the sublease of $ 51 , which is recorded as a component of other income, net in our consolidated statement of operations and comprehensive loss for the year ended December 31, 2021. 92 Table of Contents 11. Commitments and Contingencies Litigation 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. 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 two actions are pending in arbitration. 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. WSGR filed a crossclaim in arbitration related to services provided to Phunware. WSGR seeks to recover fees related to the services at issue in Phunware’s actions against WSGR, of which $ 4,321 is recorded in accounts payable in our consolidated balance sheets as of December 31, 2021 and 2020. 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. On November 17, 2021, the court granted our motion to dismiss with prejudice to refiling in the State of Texas. On December 17, 2021, plaintiffs filed a notice of appeal to the Court of Appeals, Third District of Texas, Case No. 03-21-*00665-CV. On February 18, 2022, the plaintiffs filed a complaint in the Court of Chancery of the state of Delaware containing the same allegations. We intend to vigorously defend against this lawsuit and any appeals. 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. In 2017, we filed a breach of contract complaint against Uber Technologies, Inc. ("Uber") seeking payment for unpaid invoices for advertising campaign services provided for Uber in the first quarter of 2017. The case, captioned Phunware, Inc. v. Uber Technologies, Inc., Case No. CGC-17-561546 was filed in the Superior Court of the State of California, County of San Francisco. Uber generally denied the allegations in our complaint and also filed a cross-complaint against Phunware and Fetch Media, Ltd., the advertising agency Uber retained to run its mobile advertising campaign for the period 2014 through the first quarter of 2017, asserting numerous fraud and contract-based claims. In 2019, Uber filed its First Amended Cross-Complaint, naming new individual cross-defendants, Alan S. Knitowski, the Company's Chief Executive Officer and member of our board of directors and former Phunware employees D. Stasiuk, M. Borotsik, and A. Cook, (collectively, the "Individual Defendants") alleging civil RICO violations and civil conspiracy to violate RICO, in addition to fraud, negligence, and unfair competition-based claims, and adding a fraud-based claim against Phunware. Uber’s First Amended Cross-Complaint alleges that cross-defendants fraudulently obtained approximately $ 17,000 from Uber, and claimed treble damages, general and punitive damages, and attorneys’ fees and costs. 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 the Individual Defendants. As provided in the settlement agreement, both parties have 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 Phunware and its 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 we paid a total of $ 4,500 to Uber in a series of installments that ended in September 2021. We recorded a charge of $ 4,500 for our portion of the settlement in legal settlement in our consolidated statements of operations and comprehensive loss for the year ended December 31, 2020. The settlement agreement further provided that we and the Individual Defendants fully release claims against Uber. On November 5, 2020, Uber filed a request for dismissal with prejudice of claims against the Individual Defendants. 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. On March 9, 2020, Ellenoff Grossman & Schole LLP (“EGS”) filed a lawsuit against us. The complaint, captioned Ellenoff Grossman & Schole LLP versus Stellar Acquisition III, Corp a/k/a Stellar Acquisition III, Inc. ("Stellar") n/k/a Phunware, Inc., was filed in the Supreme Court of the State of New York, New York County (Case No. 152585/2020). Pursuant 93 Table of Contents to the complaint, EGS sought monetary damages in the amount of $ 690 for alleged unpaid invoices related to legal services rendered for Stellar in conjunction with the reverse merger with Phunware, plus legal and court costs. On September 29, 2020, we entered into a settlement agreement with EGS. The settlement agreement provides that we pay a total sum of $ 600 to EGS in a series of installments beginning no later than October 15, 2020, and ending no later than October 15, 2023. There is no penalty for prepayments. Pursuant to the terms of the settlement, on September 30, 2020, EGS filed a Stipulation of Voluntary Discontinuance with Prejudice with the court. In conjunction with the execution of the settlement agreement, we also signed an Affidavit of Confession of Judgment ("Confession of Judgment"), which provides that should we default in any payment obligations under the settlement agreement, EGS shall be entitled to enter the Confession of Judgment with the court against us for $ 690 less any payments already made under the settlement. We reclassified $ 690 from accounts payable to accrued expenses in the consolidated balance sheet as of December 31, 2020 related to the settlement. In accordance with authoritative guidance, we will defer any settlement gain, if any, until we have fulfilled our payment obligations under the settlement. On April 24, 2020, Sha-Poppin Gourmet Popcorn, LLC, individually and on behalf of a class of similarly situated parties (the “Popcorn Company”), filed a lawsuit against certain defendants, including Phunware. The case captioned, Sha-Poppin Gourmet Popcorn, LLC v. JPMorgan Chase Bank, N.A., RCSH Operations, LLC, RCSH Operations, Inc. (together d/b/a Ruth’s Chris Steakhouse) and Phunware, Inc., was filed in the Northern District of Illinois, Eastern Division. The Popcorn Company alleges that we were unjustly enriched by JPMorgan Chase for our loan made pursuant to the PPP under the CARES Act. (See Note 9 for discussion related to our PPP loan). We filed a motion to dismiss the single claim against us and dispute the court's jurisdiction and the basis of the claim. On March 5, 2021, the trial court dismissed all of the Popcorn Company's claims for lack of subject matter jurisdiction. 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. 94 Table of Contents 12. PhunCoin In June 2018, we launched an offering pursuant to Rule 506(c) of Regulation D as promulgated under the Securities Act of rights (the “Rights”) to acquire the PhunCoin token. In 2019, we commenced an offering of Rights pursuant of Regulation CF, which closed May 1, 2019. For both offerings, we accepted payment in the form of cash and digital assets 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 the PhunCoin at the time of issuance of the PhunCoin during the launch of the Token Ecosystem (as defined below) before taking into consideration any applicable discount rate, which is based on the time of the purchase. Through December 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 consolidated balance sheet as of December 31, 2021 and 2020. We currently do not plan to raise additional material proceeds under the PhunCoin Rights offerings. Issuance of PhunCoin PhunCoin is expected to be issued to Rights holders the earlier of (i) the launch of our 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 we determine that we have the ability to enforce resale restrictions with respect to PhunCoin pursuant to applicable federal securities laws. Proceeds from the Rights offerings are generally not refundable if the Token Generation Event is not consummated. In 2021, we notified holders of the PhunCoin Rights to request they complete additional information needed for issuance and we currently anticipate that PhunCoin will be issued to the holders of the Rights in 2022. Holders of the Rights may be issued PhunCoin even if the Token Ecosystem is not yet operational. PhunCoin may not have usefulness until the Token Ecosystem is operational. There can be no assurance as to when (or if) we will be able to successfully launch the Token Ecosystem. The Company is currently developing multiple aspects of the Token Ecosystem, as well as coordinating with trading platforms to support the compliant trading of PhunCoin. The final software readiness date of the Token Ecosystem may be adjusted based on user feedback, additional aspects of the Token Ecosystem currently under development and the ability to meet compliance requirements; therefore, a specific launch date is difficult to determine at this time, as it is based on many external factors outside of our control. Termination of the Token Rights Agreement Termination of the Token Rights Agreement occurs on the earlier of (i) PhunCoin being issued to the Rights holder pursuant to the provisions noted above, (ii) the payment, or setting aside of payment with respect to a dissolution event (as described below) or (iii) twelve months from the date of the Token Rights Agreement with the Rights holder, which we may extend at our sole discretion for six months if a Token Generation Event has not occurred. Upon termination of the Token Rights Agreement, we have no further obligation to the Rights holder. While the Token Rights Agreement has terminated in accordance with its terms (with respect to all Rights holders), as of the date of this Annual Report, we have determined to continue our obligations under the Token Rights Agreement. Dissolution Event A dissolution event occurs if there has been (i) a voluntary termination of our operations, (ii) a general assignment for the benefit of creditors, (iii) a change of U.S. laws that make the use or issuance of PhunCoin or the Token Generation Event impractical or unfeasible or (iv) any other liquidation, dissolution or winding up of the Company. In the event a dissolution event occurs prior to the termination of the Token Rights Agreement, if there are any remaining proceeds from the Rights offering that have not been utilized by us in our operations or for the development of the Token Ecosystem, such remaining proceeds would be distributed pro rata to purchasers in the Rights offering following any distributions to holders of our capital stock or debt, if any. No Voting Rights or Profit Share Rights holders (and eventual PhunCoin holders) have no voting rights and are not entitled to share in the profits or residual interest of Phunware or any subsidiaries of the Company. However, PhunCoin holders will be provided fractional interests in the Token Ecosystem, including ongoing monthly PhunCoin dividends to PhunCoin holders, based on their respective pro rata ownership percentage of PhunCoin, totaling 2.5 % of the monthly credits purchased by Phunware customers. 95 Table of Contents PhunCoin Warrant In 2018, we issued warrants to receive PhunCoin to sixty-eight ( 68 ) stockholders. At the time of issuance, we determined there should be no value assigned to the warrants of PhunCoin issued to the stockholders, for the following reasons: (i) the warrants (x) lacked characteristics of financial instruments and derivatives, and (y) did not obligate us to achieve the Token Generation Event or launch and distribute PhunCoin to the warrantholders and (ii) there was not a market for PhunCoin and they did not exist. Should we complete a Token Generation Event, the stockholders would receive their requisite amount of PhunCoin. 13. Stockholders’ Equity Common Stock Total common stock authorized to be issued as of December 31, 2021 was 1,000,000,000 shares with a par value of $ 0.0001 per share. At December 31, 2021 and 2020, there were 96,751,610 and 56,371,207 shares outstanding, respectively. 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 . During the year ended December 31, 2020, we sold 11,629,160 shares of common stock for gross proceeds of $ 9,578 . Offering costs totaled $ 401 . 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 offered and sold, from time to time, shares of our common stock through or to B. Riley. We paid 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. As of December 31, 2021, 20,951,043 shares of our common stock had been sold and we had received aggregate net cash proceeds of $ 65,210 . Transaction costs were $ 2,017 . We also incurred additional transaction costs paid outside of closing of $ 178 . We terminated the sales agreement with B. Riley on February 4, 2022, with an effective date of February 9, 2022. Dividends Dividends are paid on a when-and-if-declared basis. We did not declare any dividends during 2021 or 2020. 96 Table of Contents Warrants We have various warrants outstanding. A summary of our outstanding warrants is set forth below: December 31, 2021 December 31, 2020 Warrant Type Cash Exercise Price per share Number of warrants Cash Exercise Price per share Number of warrants 2020 Convertible Notes warrant $ 2.25 1,780,000 $ 4.00 2,160,000 Common stock warrant (Series D-1) $ 2.25 35,555 $ 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 5,636,801 5,996,112 Refer to Note 9, Debt , for details of our warrant issued in connection with our 2020 Convertible Notes. During 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 per share for net proceeds of $ 4,635 . In 2012, we issued a warrant to initially purchase an aggregate of 14,866 shares of the Company’s common stock with an initial exercise price of $ 5.54 per share to a banking institution with which we previously had a revolving line of credit. 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 35,555 shares. The term of the warrant is the earlier of (i) the tenth anniversary of the date of issuance, (ii) the closing of the initial registered public offering of the Company’s common stock, or (iii) the closing of an acquisition (as defined in the warrant) where the consideration consisting of cash or publicly traded securities payable in connection with the acquisition for each share is at least three (3) times the exercise price. The reverse merger with Stellar did not trigger an expiration of the warrant pursuant to term (ii) or (iii) above. The warrant is fully vested. In 2018, but prior to our reverse merger with Stellar, we issued warrants (Series F above) to purchase an aggregate of 1,085,059 shares of common stock with an exercise price of $ 9.22 per share. The term of the warrants is the earlier of (i) the fifth anniversary of the date of issuance, (ii) an acquisition, merger, or consolidation of the Company or a sale, lease or other disposition of all or substantially all of the assets of Phunware and its subsidiaries, except (a) any sale of stock for capital raising purposes, (b) purpose of changing the Company’s state of incorporation, and (c) where the stockholders of Phunware immediately before such transaction retain at least a majority of the voting power immediately following such transaction; or (iii) immediately prior to an initial public offering. The reverse merger with Stellar did not trigger an expiration of the warrant pursuant to term (ii) or (iii) above. These warrants are fully vested. We have common stock warrants trading under the Nasdaq ticker symbol PHUNW (the “Public Warrants”). Each Public Warrant entitles the holder to purchase one share of common stock at an exercise price of $ 11.50 per share and are fully exercisable by the holder. No fractional shares will be issued upon exercise of the Public Warrants. We may redeem the outstanding Public Warrants in whole and not in part at a price of $ 0.01 per Public Warrant upon a minimum of 30 days’ prior written notice of redemption, only in the event that the last sale price of shares of our common stock equals or exceeds $ 21.00 per share for any 20 trading days within the 30 -trading day period ending on the third trading day before the Company sends the notice of redemption to the Public Warrant holders. The Public Warrants will expire December 26, 2023 or earlier upon redemption or liquidation. The Private Placement Warrants entitle the holder to purchase one share of common stock at an exercise price of $ 11.50 per share and are fully exercisable by the holder. The Private Placement Warrants are exercisable for cash or on a cashless basis, at the holder’s option and will not be redeemable in each case so long as they are still held by the initial purchasers or their affiliates. The Private Placement Warrants will expire December 26, 2023. The Unit Purchase Option Warrants noted in the table above have the same terms as the Private Placement Warrants as described above. 97 Table of Contents 14. Stock-Based Compensation 2018 Equity Incentive Plan In 2018, our board of directors adopted, and our stockholders approved, the 2018 Equity Incentive Plan (the “2018 Plan”). The purposes of the 2018 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to employees, directors and consultants who perform services for 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. Upon vesting of restricted stock units, shares will be delivered electronically to the holder shortly after vest date. Upon exercise of stock options, shares will be delivered electronically to the holder pursuant to an effective registration statement. 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) 2,729,416 shares of common stock; (ii) 5 % of the outstanding shares of common stock on the last day of the immediately preceding fiscal year; or (iii) such other amount as our board of directors may determine. In addition, the shares of common stock reserved for issuance under the 2018 Plan also will include any shares of common stock subject to stock options, restricted stock units or similar awards granted under the 2009 Equity Incentive Plan (the “2009 Plan”), that, on or after the adoption of the 2018 Plan, expire or otherwise terminate without having been exercised in full and shares of common stock issued pursuant to awards granted under the 2009 Plan that are forfeited to or repurchased by us. As of December 31, 2021, the maximum number of shares of common stock that may be added to the 2018 Plan pursuant to the foregoing is 925,467 . Not including the maximum number of shares from the 2009 Plan that may be added to the 2018 Plan, the 2018 Plan had 762,038 and 2,551,720 shares of common stock reserved for future issuances as of December 31, 2021 and December 31, 2020, respectively. Restricted Stock Units A summary of our restricted stock unit activity is set forth below: Shares Weighted Average Grant Date Fair Value Outstanding as of December 31, 2020 1,677,060 $ 1.41 Granted 4,884,848 1.90 Released ( 2,593,237 ) 1.57 Forfeited ( 392,401 ) 1.66 Outstanding as of December 31, 2021 3,576,270 $ 1.94 During the first quarter of 2020, we granted 123,084 restricted stock units to non-employee directors, each with a grant date fair value of $ 1.25 per share in lieu of cash compensation board fees for services provided. The awards vested immediately. We also granted 125,523 restricted stock units to non-employee directors, with a grant date fair value of $ 1.25 per share. The awards vest in four equal installments on March 26, 2020, June 26, 2020, September 18, 2020, and December 25, 2020, respectively, and are subject to service conditions. We also granted 746,000 restricted stock unit awards to team members with an average grant date fair value of $ 1.25 per share. The awards granted to team members vest over an average of 42 months with various installment and vesting dates, and are subject to service conditions. We also granted 630,000 restricted stock units to a non-employee service provider that were for the satisfaction of legal fees owed and other consulting fees. The awards granted to the legal service provider vested immediately and had an average grant date fair value $ 0.88 . During the second quarter of 2020, we granted 85,996 restricted stock units to non-employee directors, each with a grant date fair value of $ 0.71 per share in lieu of cash compensation board fees for services provided. The awards vested immediately. We also granted 375,000 restricted stock unit awards to team members with an average grant date fair value of $ 0.67 per share. The awards granted to team members vest over 4 years with 25 % vesting May 18, 2021, then equal quarterly installments thereafter until the final vesting period of May 18, 2024 and are subject to service conditions. We also granted 98 Table of Contents 250,000 restricted stock units to a non-employee service provider that were for the satisfaction of legal fees owed. The awards granted to the legal service provider vested immediately and had an average grant date fair value $ 0.67 . During the third quarter of 2020, we granted 39,426 restricted stock units to non-employee directors, each with a grant date fair value of $ 1.28 per share in lieu of cash compensation board fees for services provided. The awards vested immediately. We also granted 12,000 restricted stock unit awards to team members with an average grant date fair value of $ 1.68 per share. The awards granted to team members vest over 4 years with 25 % vesting May 18, 2021, then equal quarterly installments thereafter until the final vesting period of May 18, 2024 and are subject to service conditions. We also granted 155,000 restricted stock units to non-employee service providers that were for the satisfaction of legal and professional fees. The awards granted to the service providers have various vesting dates and had an average grant date fair value $ 1.52 . During the fourth quarter of 2020, we granted 30,000 restricted stock units to team members and 50,000 restricted stock units to non-employees directors with an average grant date fair value of $ 0.85 per share. The awards granted to team members vest over 4 years with 25 % vesting November 18, 2021, then equal quarterly installments thereafter until the final vesting period of November 18, 2024 and are subject to service conditions. The restricted stock units granted to the non-employee service provider were for satisfaction of legal fees owed. The awards granted to the legal service provider vested immediately. 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 a 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 a 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 a range of 47 months with various installment and vesting dates, and are subject to service conditions. During the fourth quarter of 2021, we granted 170,000 restricted stock unit awards to team members with an average grant date fair value of $ 3.97 per share. The awards granted to team members vest over a range of 47 months with various installment and vesting dates, and are subject to service conditions. We also granted 368,672 restricted stock units to non-employee directors, each with a grant date fair value of $ 1.35 . The awards vest in four equal installments throughout 2022 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 December 31, 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 was 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 in any calendar year and 4,000 shares on any purchase date. The 2018 ESPP provides for 24 -month offering periods, generally beginning in June and December 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 was in December 2021. Participation ends automatically upon termination of employment with the Company. 99 Table of Contents 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. Purchased shares will be delivered electronically to the participant shortly after the purchase date pursuant to an effective registration statement. 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 year ended December 31, 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 (if any) occurs equal to the lesser of (i) 818,825 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 the administrator may determine. The 2018 ESPP had 189,215 and 272,942 shares of common stock available for sale and reserved for issuance as of December 31, 2021 and 2020, respectively. 2009 Equity Incentive Plan In 2009, we adopted 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 exercise price of the options granted was generally equal to the value of our common stock on the date of grant, as determined by our board of directors. The awards are exercisable and vest, generally over four years , in accordance with each option agreement. The term of each option is no more than ten years from the date of the grant. 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 consolidated balance sheets and is reclassified to equity as the shares vest. As of December 31, 2020, there were 574 unvested shares outstanding amounting to $ 1 in accrued expenses. There were no unvested shares outstanding as of December 31, 2021. Upon exercise, shares will be delivered electronically to the holder pursuant to an effective registration statement. Effective with the adoption of the 2018 Plan, no additional grants will be made under the 2009 Plan. A summary of our stock option activity under the 2009 Plan and related information is set forth below: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value Outstanding as of December 31, 2019 1,465,450 $ 0.80 6.86 $ 771 Granted — — Exercised ( 185,234 ) 1.06 Cancelled/Expired ( 71,476 ) 1.77 Outstanding as of December 31, 2020 1,208,740 $ 0.80 6.19 $ 700 Granted — — Exercised ( 260,451 ) 0.69 Cancelled/Expired ( 22,822 ) 2.01 Outstanding as of December 31, 2021 925,467 $ 0.80 5.59 $ 1,692 Exercisable as of December 31, 2021 904,259 $ 0.79 5.58 $ 1,668 The Company did not grant any options under the 2009 Plan during the year ended December 31, 2021 or 2020. We have historically used the Black-Scholes option pricing model to estimate the fair value of our stock option awards. 100 Table of Contents The aggregate intrinsic value is based on our stock price trading price on the Nasdaq Capital Market. The aggregate intrinsic value of options exercised was $ 1,168 and $ 88 for the years ended December 31, 2021 and 2020, respectively, and is calculated based on the difference between the estimated fair value of our common stock at the date of exercise and the exercise price. The total fair value for options vested during the years ended December 31, 2021 and 2020, was $ 66 and $ 130 , respectively. Stock-Based Compensation Compensation cost that has been included in our consolidated statements of operations and comprehensive loss for all stock-based compensation arrangements is set forth below: Year Ended December 31, Stock-based compensation 2021 2020 Cost of revenues $ 1,050 $ 274 Sales and marketing 437 64 General and administrative 2,770 4,083 Research and development 684 71 Total stock-based compensation $ 4,941 $ 4,492 As of December 31, 2021, there was approximately $ 5,943 , $ 328 and $ 14 of total unrecognized compensation cost related to the 2018 Plan, the 2018 ESPP and the 2009 Plan, respectively. These unrecognized compensation costs are expected to be recognized over an estimated weighted-average period of approximately 2.7 years, 1.5 years and 0.3 years for the 2018 Plan, the 2018 ESPP and the 2009 Plan, respectively. 101 Table of Contents 15. Income Taxes Deferred income taxes are recognized for the tax consequences in future years for differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the combination of the tax payable for the year and the change during the year in deferred tax assets and liabilities. For the years ended December 31, 2021 and 2020, we had net losses before income taxes of $ 53,948 and $ 22,197 , respectively. Net losses relating to U.S. operations for were $ 54,907 and $ 22,194 , respectively. The difference between income taxes expected at the U.S. federal statutory income tax rate of 21% and the reported income tax expense (benefit) are summarized as follows: Year Ended December 31, 2021 2020 Income tax (benefit) at statutory rate $ ( 11,330 ) $ ( 4,661 ) Valuation allowance 11,500 4,408 State income tax (benefit), net of federal benefit ( 1,978 ) ( 330 ) Business tax credit net of reserves ( 190 ) — Non-deductible expenses 2,210 585 Business combination ( 437 ) — Foreign income taxes at different rate ( 201 ) — Income tax (benefit) expense $ ( 426 ) $ 2 Effective tax rate 0.79 % ( 0.01 ) % The provision expense for income taxes consists of the following: Year Ended December 31, 2021 2020 Current: Federal $ — $ — State 11 2 Foreign — — Total current 11 2 Deferred: Federal ( 416 ) — State ( 21 ) — Foreign — — Total deferred ( 437 ) — Total income tax (benefit) expense $ ( 426 ) $ 2 102 Table of Contents The components of net deferred income taxes consist of the following: December 31, 2021 2020 Deferred tax assets: Net operating loss $ 40,922 $ 30,705 Unrealized loss on digital assets 2,015 — Tax credits 1,416 1,193 Reserves and accruals 732 3,739 Leases - lease liability 376 — Amortization of acquired intangibles 232 — Other deferred tax assets 1,748 — Gross deferred tax assets 47,441 35,637 Less valuation allowance ( 46,163 ) ( 35,100 ) Total deferred tax assets 1,278 537 Deferred tax liabilities: Amortization of acquired intangibles — ( 537 ) Leases - right of use asset ( 306 ) — Other deferred tax liabilities ( 972 ) — Total deferred tax liabilities ( 1,278 ) ( 537 ) Net deferred tax liabilities $ — $ — As of December 31, 2021, we had net operating loss ("NOL") carryforwards of $ 166,826 and $ 79,463 for federal and state income tax purposes, respectively. The federal net operating losses of $ 85,674 which were generated in tax years beginning before January 1, 2018, will begin to expire in 2030 if not utilized. The balance of the net operating losses, $ 81,152 do not expire. The state net operating losses expire at various times depending on the state with a majority beginning to expire in 2030 if not utilized. As of December 31, 2021, we had research and development ("R&D") credit carryforwards of approximately $ 1,863 and $ 1,226 for federal and state income tax purposes, respectively. The federal and Texas R&D credits will begin to expire in 2034, unless previously utilized. California R&D credits carry forward indefinitely. Utilization of the NOL and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code (IRC) of 1986, as amended (the "Code"), as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offset future taxable income. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than fifty (50) percentage points of the outstanding stock of a company by certain stockholders. As of December 31, 2021, we had not yet completed an analysis of the deferred tax assets for its NOL and tax credits. The future utilization of our net operating loss to offset future taxable income may be subject to an annual limitation under IRC Section 382 as a result of ownership changes that may have occurred previously or that could occur in the future. We have not yet determined whether such an ownership change has occurred. In order to make this determination, we will need to complete an analysis regarding the limitation of the net operating loss. We have established a full valuation allowance for our deferred tax assets due to uncertainties that preclude us from determining that it is more likely than not that we will be able to generate sufficient taxable income to realize such assets. We monitor positive and negative factors that may arise in the future as we assess the need for a valuation allowance against our deferred tax assets. As of December 31, 2021 and 2020, we have a valuation allowance of $ 46,163 and $ 35,100 , respectively, against our deferred tax assets. 103 Table of Contents The technical merits of a tax position derive from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings and case law) and their applicability to the facts and circumstances of the tax position. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate resolution with a taxing authority. Uncertain tax positions are evaluated based upon the facts and circumstances that exist at each reporting period. Subsequent changes in judgment based upon new information may lead to changes in recognition, de-recognition, and measurement. Adjustments may result, for example, upon resolution of an issue with the taxing authorities, or expiration of a statute of limitations barring an assessment for an issue. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits: December 31, 2021 2020 Unrecognized tax benefits, beginning of period $ 1,314 $ 1,531 Tax positions taken in prior periods: Gross increases — 69 Gross decreases — ( 297 ) Tax positions taken in current period: Gross increases 231 11 Settlements — — Lapse of statute of limitations — — Unrecognized tax benefits, end of period $ 1,545 $ 1,314 Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. We have no accrual for interest and penalties on the consolidated balance sheets and has not recognized interest and/or penalties in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2021 and 2020. We are subject to taxation in the United States and various state jurisdictions. Our tax years from inception are subject to examination by the United States and state taxing authorities due to the carryforward of unutilized NOLs. We have ownership interest in controlled foreign corporations. During 2021, we analyzed the potential impact of the Global Intangible Low-Taxed Income and the Base Erosion and Anti-Abuse Tax provisions of the Tax Cuts and Jobs Act signed into law in 2017. Based on the foreign subsidiaries' tax position, we will not incur any impact relating to these two provisions. The CARES Act was enacted in the United States on March 27, 2020. The CARES Act includes several U.S. income tax provisions related to, among other things, net operating loss carrybacks, alternative minimum tax credits, modifications to the net interest deduction limitations and technical amendments regarding the income tax depreciation of qualified improvement property placed in service after December 31, 2017. The CARES Act did not have a material impact on our financial results for the years ended December 31, 2021 and 2020. The Consolidated Appropriations Act, 2021 (the "Act") was enacted in the United States on December 27, 2020. The Act enhances and expands certain provisions of the CARES Act. The Act did not have a material impact on our financial results for the year ended December 31, 2021 and 2020. 104 16. Segment and Geographic Information Our chief operating decision maker is our Chief Executive Officer ("CEO"). Our CEO reviews operating segment information for purposes of allocating resources and evaluating financial performance. We have determined that the Company operates in a two reporting segments: Phunware and Lyte. In 2021, but prior to the acquisition of Lyte, our CEO reviewed the financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Selected information for the Company's operating segments and a reconciliation to the consolidated financial statement amounts are as follows: As of or for the year ended December 31, 2021 Phunware Lyte Consolidated Goodwill 25,887 7,373 $ 33,260 Total assets 94,621 4,673 $ 99,294 Net revenues $ 7,548 $ 3,095 $ 10,643 Loss before taxes $ ( 53,339 ) $ ( 609 ) $ ( 53,948 ) 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 December 31, 2021 and 2020, all of our identifiable long-lived assets were in the United States. 17. Related-Party Transactions In connection with the reverse merger with Stellar, in 2018, we assumed $ 255 in payables for Nautilus Energy Management Corporation, an affiliate of two former members our board of directors, one of whom served on our board of directors until December 2, 2021. On December 29, 2021, we paid $ 171 in full satisfaction of the outstanding payable. As more fully discussed in Note 9, Debt , the Company entered into a Note and RPBLs (both defined above) with certain related parties. We repaid the Note and RPBLs in full during 2021 and 2020, respectively. 18. Subsequent Events The Company has evaluated subsequent events through the date the financial statements were issued. On January 31, 2022, we entered into an At Market Issuance Sales Agreement with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which we may offer and sell, from time to time, shares of our common stock, par value $ 0.0001 per share, for aggregate gross proceeds of up to $ 100,000 , through or to Wainwright, as agent or principal. We are not obligated to sell shares of our common stock under the sales agreement with Wainwright. As of the date noted above, we have not sold any shares of common stock pursuant to the sales agreement with Wainwright. Sales of shares of our common stock sold under the sales agreement will be made pursuant to an effective shelf registration statement on Form S-3 in the amount of $ 200,000 filed with the SEC on February 1, 2022. On March 15, 2022, we entered into a lease agreement, in which we will lease approximately 21,830 square feet for a term of five years , which we intend to use as manufacturing and warehouse space for our Lyte computer division. The term of the lease commences on the earliest of (a) the date we occupy any portion of the Premise and begin conducting business therein, (b) the date on which construction is substantially completed in the building (as defined in the construction addendum) or (c) the date the Landlord would have achieved substantial completion of construction of the building but for a delay caused by us (as defined in the construction addendum). The lease provides for initial base rent payments of approximately $ 27 per month, subject to escalations. In addition, we will be responsible for payments equal to our proportionate share of operating expenses, which is currently estimated to be approximately $ 7 per month, which is also subject to adjustment to actual costs and expense according to provisions of the lease. 105 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.