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 ) 67 Consolidated Balance Sheets 69 Consolidated Statements of Operations and Comprehensive Loss 70 Consolidated Statements of Changes Stockholders’ Equity 71 Consolidated Statements of Cash Flows 72 Notes to Consolidated Financial Statements 74 66 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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 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 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 financial statements, the Company’s digital assets held as of December 31, 2022, 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, 2022 were approximately $10.1 million. 67 Table of Contents For the year ended December 31, 2022, the Company generated revenue of $1.5 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. 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, including risks related to PhunToken in the notes to the financial statements; • 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, tested the fair value of the assets received and determined that the sales transactions were in accordance with ASC 606; • Tested the existence of the Company’s digital assets by evaluating the Company’s self-custody wallet and reconciling the Company’s internal records of digital asset positions for specific wallet addresses to the quantities of digital assets held on those addresses per the Bitcoin ledger; and • Tested the pricing sources used to value the digital assets held and tested the Company’s write-downs by reperforming an independent pricing on the digital assets held using various independent pricing sources for the full year. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor since 2018. Houston, Texas March 31, 2023 68 Table of Contents Phunware, Inc. Consolidated Balance Sheets (In thousands, except share and per share data) December 31, 2022 December 31, 2021 Assets Current assets: Cash $ 1,955 $ 23,137 Accounts receivable, net of allowance for doubtful accounts of $ 198 and $ 10 at December 31, 2022 and 2021, respectively 958 967 Inventory 2,780 2,636 Digital assets 10,137 32,581 Prepaid expenses and other current assets 1,033 686 Total current assets 16,863 60,007 Property and equipment, net 221 — Goodwill 31,113 33,260 Intangible assets, net 2,524 3,213 Right-of-use asset 3,712 1,260 Other assets 402 276 Total assets 54,835 98,016 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 7,699 $ 6,589 Accrued expenses 2,895 9,621 Lease liability 954 399 Deferred revenue 2,904 3,973 PhunCoin deposits 1,202 1,202 Current maturities of long-term debt, net 9,667 4,904 Warrant liability 256 3,605 Total current liabilities 25,577 30,293 Deferred revenue 1,274 1,299 Lease liability 3,103 1,147 Total liabilities 29,954 32,739 Commitments and contingencies (Note 10) Stockholders’ equity Common stock, $ 0.0001 par value; 1,000,000,000 shares authorized at December 31, 2022 and 2021; 103,153,337 and 96,751,610 shares issued and outstanding as of December 31, 2022 and 2021, respectively 10 10 Additional paid-in capital 275,562 264,944 Accumulated other comprehensive loss ( 472 ) ( 352 ) Accumulated deficit ( 250,219 ) ( 199,325 ) Total stockholders’ equity 24,881 65,277 Total liabilities and stockholders’ equity 54,835 98,016 The accompanying notes are an integral part of these consolidated financial statements. 69 Table of Contents Phunware, Inc. Consolidated Statements of Operations and Comprehensive Loss (In thousands, except per share information) Year Ended December 31, 2022 2021 Net revenues $ 21,794 $ 10,643 Cost of revenues 16,718 7,030 Gross profit 5,076 3,613 Operating expenses: Sales and marketing 6,814 3,022 General and administrative 19,554 13,256 Research and development 6,149 4,179 Impairment of goodwill 2,061 — Total operating expenses 34,578 20,457 Operating loss ( 29,502 ) ( 16,844 ) Other income (expense): Interest expense ( 2,406 ) ( 4,481 ) Loss on extinguishment of debt — ( 7,952 ) Impairment of digital assets ( 22,911 ) ( 9,383 ) Fair value adjustment for warrant liabilities 3,349 ( 18,139 ) Gain on forgiveness of Paycheck Protection Program ("PPP") loan — 2,850 Other income, net 580 1 Total other expense ( 21,388 ) ( 37,104 ) Loss before taxes ( 50,890 ) ( 53,948 ) Income tax (expense) benefit ( 4 ) 426 Net loss ( 50,894 ) ( 53,522 ) Cumulative translation adjustment ( 120 ) ( 14 ) Comprehensive loss $ ( 51,014 ) $ ( 53,536 ) Loss per share, basic and diluted $ ( 0.51 ) $ ( 0.71 ) Weighted-average common shares used to compute loss per share, basic and diluted 98,982 75,447 The accompanying notes are an integral part of these consolidated financial statements. 70 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, 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 Exercise of stock options, net of vesting of restricted shares 46 — 28 — — 28 Release of restricted stock 1,803 — — — — — Issuance of common stock under the 2018 employee stock purchase plan 205 — 214 — — 214 Issuance of common stock in connection with acquisition of Lyte Technology, Inc. 1,724 — 3,064 — — 3,064 Sales of common stock, net of issuance costs 2,623 — 4,298 — — 4,298 Stock-based compensation expense — — 3,014 — — 3,014 Cumulative translation adjustment — — — — ( 120 ) ( 120 ) Net loss — — — ( 50,894 ) — ( 50,894 ) Balances as of December 31, 2022 103,153 $ 10 $ 275,562 $ ( 250,219 ) $ ( 472 ) $ 24,881 The accompanying notes are an integral part of these consolidated financial statements. 71 Table of Contents Phunware, Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2022 2021 Operating activities Net loss $ ( 50,894 ) $ ( 53,522 ) Adjustments to reconcile net loss to net cash provided by operating activities: Accretion of debt discount and amortization of deferred financing costs 1,034 2,942 (Gain) loss on change in fair value of warrant liability ( 3,349 ) 18,139 Loss on extinguishment of debt — 7,952 Impairment of digital assets 22,911 9,383 Impairment of goodwill 2,061 — Gain on forgiveness of PPP loan — ( 2,850 ) Stock-based compensation 3,009 4,941 Other adjustments 1,466 ( 478 ) Changes in operating assets and liabilities: Accounts receivable 4 ( 16 ) Inventory ( 412 ) ( 949 ) Prepaid expenses and other assets ( 476 ) ( 383 ) Accounts payable 1,111 ( 1,568 ) Accrued expenses ( 1,258 ) ( 1,131 ) Accrued legal settlement — ( 3,000 ) Lease liability payments ( 905 ) ( 802 ) Deferred revenue ( 1,129 ) ( 1,172 ) Net cash used by operating activities ( 26,827 ) ( 22,514 ) Investing activities Proceeds received from sale of digital assets 1,282 — Purchases of digital assets ( 923 ) ( 41,284 ) Acquisition payments, net of cash acquired ( 2,375 ) ( 5,101 ) Capital expenditures ( 271 ) — Net cash used in investing activities ( 2,287 ) ( 46,385 ) Financing activities Proceeds from borrowings, net of issuance costs 11,795 14,711 Payments on borrowings ( 8,066 ) ( 26,243 ) Proceeds from sales of common stock, net of issuance costs 4,298 94,737 Proceeds from warrant exercises — 4,635 Proceeds from exercise of stock options 28 179 Net cash provided by financing activities 8,055 88,019 Effect of exchange rate on cash and restricted cash ( 123 ) ( 14 ) Net (decrease) increase in cash and restricted cash ( 21,182 ) 19,106 Cash and restricted cash at the beginning of the period 23,137 4,031 Cash and restricted cash at the end of the period $ 1,955 $ 23,137 Supplemental disclosure of cash flow information Interest paid $ 957 $ 1,364 Income taxes paid $ — $ — The accompanying notes are an integral part of these consolidated financial statements. 72 Table of Contents Phunware, Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2022 2021 Supplemental disclosure of non-cash information Right-of-use assets obtained in exchange for operating lease obligations $ 3,053 $ — Non-cash exchange of digital assets $ 906 $ — Issuance of common stock in connection with acquisition of Lyte Technology, Inc. $ 3,064 $ — Issuance of common stock under the 2018 employee stock purchase plan $ 214 $ 100 Issuance of common stock for payment of legal, earned bonus and board of director fees $ — $ 66 Non-cash issuance of common stock upon partial exercise of a warrant $ — $ 16,147 The accompanying notes are an integral part of these consolidated financial statements. 73 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 digital asset 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. Reclassification of Prior Year Presentation Certain amounts in the consolidated balance sheet of the prior period have been reclassified to conform to the current period presentation. A reclassification was made to the consolidated balance sheet as of December 31, 2021 to net deferred tax assets with deferred tax liabilities. The reclassification had no impact on previously reported net income or cash flows. Going Concern, Liquidity and Management’s Plan Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern ("ASC 205-40") requires management to evaluate whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations as they become due within one year after the date that the financial statements are issued. As required by this standard, management’s evaluation shall initially not take into consideration the potential mitigating effects of management’s plans that have not been fully implemented as of the date the financial statements are issued. We have a history of losses in each fiscal year since our inception. For the year ended December 31, 2022, we incurred a net loss of $ 50,894 , used $ 26,827 in cash for operations and have a working capital deficiency. Total backlog and cash-on-hand for the period then ended did not meet our expectations. The foregoing conditions raise substantial doubt about our ability to meet our financial obligations as they become due. In performing the second step of this assessment, we are required to evaluate whether our plans to mitigate the conditions above alleviate the substantial doubt. Our assessment included the preparation of a detailed cash forecast that included projected cash inflows and outflows. We continue to focus on growing our revenues, and accordingly, we expect operating expenditures to exceed future revenue for the foreseeable future. Future plans may include reducing operating expenses, liquidating our digital asset holdings, sales of our common stock under a sales agreement in an at-the-market offering, issuing additional shares of common stock, preferred stock, warrants or units pursuant to an effective shelf registration statement. Despite a history of successfully implementing similar plans, these sources of working capital are not currently assured, and consequently do not sufficiently mitigate the risks and uncertainties disclosed above. 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 74 Table of Contents obtained on a timely basis and on satisfactory terms, our operations would be materially negatively impacted. We have therefore concluded there is substantial doubt about our ability to continue as a going concern through one year from the issuance of these financial statements. 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. 75 Table of Contents 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, our various digital asset transactions, 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, 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, digital asset exchanges, 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 and token ecosystem. Regulation of digital assets, like PhunCoin and PhunToken, cryptocurrencies, blockchain technologies and digital asset exchanges, is evolving and likely to continue 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 laws, regulations, guidance or other actions could adversely affect our ability 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 such laws 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. 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 76 Table of Contents obligations that should be accounted for separately versus together may require significant judgment. For contracts with 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 Revenue Our platform revenue consists of software subscriptions, application development services and support, application transactions, which are comprised of in-app advertising and PhunToken sales. Excluding PhunToken sales, in which we are paid in advance, typically our platform revenue customers pay us on net-30 day terms. Subscriptions and Services. 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. 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. We typically bill subscriptions and support and maintenance 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. 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 billed monthly 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 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. PhunToken. During 2021, we announced the commencement of the selling of PhunToken to consumers, developers and brands. PhunToken is an innovative digital asset utilized within our token ecosystem to help drive engagement by 77 Table of Contents 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. 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, including shipping, 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, 2022 and 2021 are as follows: 2022 2021 Balance, beginning of the year $ 148 $ 210 Deferral of commissions earned 55 73 Recognition of commission expense ( 67 ) ( 135 ) Balance, end of the year $ 136 $ 148 Business Combination We account for business combinations using the acquisition method of accounting as prescribed in ASC 805, " Business Combinations (Topic 805) ." We record the assets acquired, liabilities assumed and acquisition-related contingent consideration at fair value on the date of acquisition. The difference between the purchase price, including any contingent consideration, and the fair value of net assets acquired is recorded as goodwill. We may adjust the preliminary purchase price and purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as we obtain more information as to facts and circumstances that impact the determination of fair value at the acquisition date. Any change in fair value of acquisition-related contingent consideration resulting from events after the acquisition date is recognized in earnings. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred. 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 $ 37,737 at December 31, 2022. 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. 78 Table of Contents December 31, 2022 2021 Customer A 23 % — % Customer B 7 % 20 % Customer C 5 % 18 % 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 or restricted cash at December 31, 2022 or 2021. 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, 2022 2021 Accounts receivable $ 1,156 $ 977 Less allowances for doubtful accounts ( 198 ) ( 10 ) Accounts receivable, net $ 958 $ 967 Changes in the allowance for doubtful accounts are as follows: December 31, 2022 2021 Balance, beginning of year $ 10 $ 356 Provision for doubtful accounts, net of recoveries 198 ( 286 ) Write offs ( 10 ) ( 60 ) Balance, end of year $ 198 $ 10 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 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 or self-custody solutions to secure them. The digital assets are initially recorded at cost and are subsequently remeasured, net of any impairment losses incurred since acquisition. 79 Table of Contents 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, ethereum and other digital asset holdings (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 intra-day 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 fair value of our digital asset holdings at December 31, 2022 is $ 10,808 . 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. In determining the gain or loss to be recognized upon sale, we calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale. Impairment losses and gains or losses on sales are recognized within other expense in our consolidated statements of operations and comprehensive loss. Impairment loss was $ 22,911 and $ 9,383 for the years ended December 31, 2022 and 2021, respectively. The following table sets forth our digital asset holdings as of December 31, 2022: Asset Gross Carrying Amount Accumulated Digital Asset Impairment Digital Asset Carrying Value Bitcoin $ 34,994 $ ( 25,534 ) $ 9,460 Ether 1,506 ( 1,156 ) 350 Other 1,237 ( 910 ) 327 Total $ 37,737 $ ( 27,600 ) $ 10,137 The following table sets forth our digital asset holdings as of December 31, 2021: Asset Gross Carrying Amount Accumulated Digital Asset Impairment Digital Asset Carrying Value Bitcoin $ 36,963 $ ( 8,554 ) $ 28,409 Ethereum 4,714 ( 670 ) 4,044 Other 287 ( 159 ) 128 Total $ 41,964 $ ( 9,383 ) $ 32,581 Gross carrying amount and accumulated digital asset impairment noted above represent carrying amount and impairment, respectively, on the remaining cost lots as of the respective dates. Changes in our digital asset holdings for the year ended December 31, 2022 were as follows: Bitcoin Ethereum Other Total Net balance at December 31, 2021 $ 28,409 $ 4,044 $ 128 $ 32,581 Received from customers, net of expenses 37 378 44 459 Purchases of digital assets 923 — — 923 Exchanges of digital assets — ( 906 ) 906 — Disposal proceeds ( 796 ) ( 486 ) — ( 1,282 ) Gain on sale of digital assets 69 298 — 367 Impairment expense ( 19,182 ) ( 2,978 ) ( 751 ) ( 22,911 ) Net balance at December 31, 2022 $ 9,460 $ 350 $ 327 $ 10,137 80 Table of Contents 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. Our business is classified into two reporting units: Phunware and Lyte. In testing goodwill for impairment, we have the option to begin with a qualitative assessment, commonly referred to as “Step 0,” to determine whether it is more likely than not that the fair value of a reporting unit containing goodwill is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as macroeconomic conditions, industry and market considerations, cost factors, entity-specific financial performance and other events, such as changes in our management, strategy and primary user base. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative goodwill impairment analysis by comparing the carrying amount to the fair value of the reporting unit. If the carrying amount exceeds the fair value, goodwill will be written down to the fair value and recorded as impairment expense in the consolidated statements of operations. We perform our impairment testing annually and when circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company performed its annual impairment assessment of goodwill as of October 1, 2022 and concluded that goodwill was impaired. Refer to Note 6, Goodwill , for further discussion on our goodwill impairment. 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. 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, 2022 or 2021. Debt Issuance Costs and Discount Debt discounts and 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. Derivative Liabilities When the Company issues warrants, it evaluates the proper balance sheet classification of the warrant to determine whether the warrant should be classified as equity or as a derivative liability on the consolidated balance sheet. In accordance with ASC 815-40, Derivatives and Hedging - Contracts in the Entity’s Own Equity (“ASC 815-40”), we classify a warrant as equity if it is indexed to our equity and several specific conditions for equity classification are met. A warrant is not considered indexed to our equity, in general, when it contains certain types of exercise contingencies or adjustments to exercise price. If a warrant is not indexed to our equity or it has net cash settlement that results in the warrants to be accounted for under ASC 480, Distinguishing Liabilities from Equity , or ASC 815-40, it is classified as a derivative liability which is carried on the consolidated balance sheet at fair value with any changes in its fair value recognized currently in the statement of operations. As of December 31, 2022 and 2021, we had a warrant that was classified as a liability and other warrants that were classified as equity. We used a Black-Scholes option-pricing model to value the warrant classified as a liability at inception and subsequent valuation dates. The initial and subsequent valuations of the warrant require significant judgment. 81 Table of Contents Leases We adopted ASU 2016-02, Leases (Topic 842), as of January 1, 2021, in which we recognize 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. We have elected certain practical expedients permitted under the guidance. We have 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. We have also elected not to separate non-lease components from lease components. Lease components generally include rent, taxes and insurance, while non-lease components generally include common area or other maintenance. 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 did not enter into any financing leases for the year ended December 31, 2022. 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. Research and Development Expense Research and development expenses consist primarily of personnel costs for our engineering, product, design and quality assurance teams, including stock-based compensation for individuals dedicated to our research and development function. Additionally, research and development expenses include contractor fees and allocated overhead costs. Research and development costs are expensed as incurred. Retirement Plan At December 31, 2022, 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, 2022 or 2021. 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. 82 Table of Contents 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, 2022 and 2021 was due to foreign currency translation adjustments. 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, 2022 2021 Warrants 6,632,561 5,636,801 Options 961,779 925,467 Restricted stock units 2,957,995 3,576,270 Total 10,552,335 10,138,538 Fair Value Measurements We follow the guidance in ASC 820, Fair Value Measurement , to measure certain assets and liabilities on a recurring and nonrecurring 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 assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 are set forth below: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ 256 $ — $ 256 Total $ — $ 256 $ — $ 256 83 Table of Contents Our assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 are set forth below: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ 3,605 $ — $ 3,605 Total $ — $ 3,605 $ — $ 3,605 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. 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 did not have any convertible debt outstanding as of December 31, 2022; accordingly, we do not expect the adoption of ASU 2020-06 to have a material impact on our consolidated financial statements and disclosures. 84 Table of Contents 3. Business Combination On October 18, 2021, we consummated the acquisition of 100 % of the outstanding equity shares of Lyte, in which we paid to the seller of Lyte consideration in the form of cash and shares of our common stock valued at approximately $ 10.5 million. 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 our current allocation of the October 18, 2021 purchase price: Initial Allocation Adjustments Final Allocation Cash $ 4 $ — $ 4 Inventory 1,687 — 1,687 Intangible assets 3,340 — 3,340 Accrued expenses — ( 436 ) ( 436 ) Deferred revenue ( 1,369 ) ( 35 ) ( 1,404 ) Goodwill 6,937 35 6,972 Total purchase price 10,599 ( 436 ) 10,163 Fair value adjustments 382 — 382 Total consideration paid $ 10,981 $ ( 436 ) $ 10,545 The initial 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 we believe 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 . Consideration paid to the seller included $ 382 of fair value adjustments, which were recorded in Other expense in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2022. 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. During 2021 and 2022, we paid to the seller of Lyte cash and stock consideration at various dates, including a final payment for an earn-out provision in October 2022 for the achievement of certain revenue milestones in the first year following closing, as provided in the stock purchase agreement. 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. 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, 2021: Year Ended December 31, 2021 (in thousands) (unaudited) Net revenues $ 18,175 Net loss ( 53,935 ) 85 Table of Contents 4. Revenue Disaggregation of Revenue The following table sets forth our net revenues by category: Year Ended December 31, 2022 2021 Net revenues Platform revenue $ 6,521 $ 7,548 Hardware revenue 15,273 3,095 Net revenues $ 21,794 $ 10,643 For the years ended December 31, 2022 and 2021, we sold $ 1,535 and $ 1,063 , respectively, of PhunToken for which we received both cash and digital assets from customers. Revenue from sales of PhunToken is recorded within platform 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 97 % and 93 % of our net revenues from within the United States for the years ended December 31, 2022 and 2021, respectively. Revenue by geographic location is as follows: Year Ended December 31, 2022 2021 Net revenues United States $ 21,137 $ 9,939 International 657 704 Net revenues $ 21,794 $ 10,643 Deferred Revenue Our deferred revenue balance consisted of the following: December 31, 2022 2021 Current deferred revenue Platform revenue $ 1,531 $ 1,824 Hardware revenue $ 1,373 $ 2,149 Total current deferred revenue $ 2,904 $ 3,973 Non-current deferred revenue Platform revenue $ 1,274 $ 1,299 Total non-current deferred revenue $ 1,274 $ 1,299 Total deferred revenue $ 4,178 $ 5,272 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, 2022, we recognized revenue of $ 4,028 that was included in our deferred revenue balance as of December 31, 2021. 86 Table of Contents Remaining Performance Obligations Remaining performance obligations consist of gross deferred revenue and backlog. Remaining performance obligations were $ 8,002 as of December 31, 2022, of which we expect to recognize 47 % as revenue over the next 12 months and the remainder thereafter. PhunToken In May 2021, we announced the commencement of the selling of PhunToken. PhunToken is our innovative digital asset intended to be utilized within our token ecosystem, once developed, to help drive engagement by unlocking features and capabilities of our MaaS platform. For the years ended December 31, 2022 and 2021, we recognized revenue from PhunToken sales of $ 1,535 and $ 1,063 , respectively, for which we received both cash and digital assets from customers. Sales of PhunToken are recorded within platform revenue in the table above. In March 2022, certain members of our senior management team purchased 827.5 million PhunToken pursuant to Restricted Token Purchase Agreements, at an aggregate purchase price of approximately $ 7 . The PhunToken would have been transferred to employees over a time-based delivery schedule ranging from one to four years . In October 2022, our board of directors terminated the PhunToken Restricted Purchase Agreements, with no further PhunToken to be delivered to the employees after April 1, 2022. As of December 31, 2022 and 2021, issued PhunToken were 377.2 million and 131.7 million, respectively. Total supply of PhunToken is capped at 10 billion. 5. Inventory Our inventory balance on the dates presented consisted of the following: December 31, 2022 December 31, 2021 Raw materials $ 2,968 $ 2,075 Work-in-process — 207 Finished goods 50 138 Other 30 216 Inventory reserve ( 268 ) — Total inventory $ 2,780 $ 2,636 6. Goodwill and Other Intangible Assets Goodwill Changes in the Company’s goodwill balance for the years ended December 31, 2022 and 2021, are summarized in the table below: 2022 2021 Balance, beginning of period $ 33,260 $ 25,900 Acquisition of Lyte 35 7,374 Foreign currency translation ( 121 ) ( 14 ) Impairment of goodwill ( 2,061 ) — Balance, end of period $ 31,113 $ 33,260 We test goodwill for impairment annually during the fourth quarter, or more frequently when events or changes in circumstances indicate that the fair value is below its carrying value. 87 We performed quantitative testing on our Lyte reporting unit as of October 1, 2022, using a combination of the discounted cash flow (income approach) utilizing Level 3 unobservable inputs and the Guideline Public Company Method (market approach). Based on the analysis performed, we concluded that the carrying amount of the reporting unit exceeded its fair value resulting in a non-cash goodwill impairment charge of $ 2,061 included in Impairment of goodwill in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2022. Higher than expected losses during our first full year of operations of Lyte resulted in the impairment. We also performed quantitative testing on our Phunware reporting unit as of October 1, 2022, and determined that no further goodwill impairments existed. The goodwill impairment analysis referenced above used the discounted cash flow model (income approach) utilizing Level 3 unobservable inputs. Significant assumptions in this analysis included, but were not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate and the tax rate. Estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategies. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from estimates. If the Company’s ongoing estimates of future cash flows are not met or if discount rates change, the Company may have to record additional impairment charges in future periods. We also used the Guideline Public Company Method (market approach). The significant assumptions used in this analysis include, but are not limited to, the derived multiples from comparable market transactions and other market data. The selection of comparable businesses is based on the markets in which the reporting unit operates giving consideration to risk profiles, size, geography, and diversity of products. We applied an overall probability-weighting to the income and market approaches to determine the concluded fair value of the reporting unit. We believe the current assumptions and estimates utilized in the income and market approaches are both reasonable and appropriate. 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, 2022 December 31, 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Trade name 5.0 $ 3,986 $ ( 1,462 ) $ 2,524 $ 3,990 $ ( 799 ) $ 3,191 Acquired technology 5.1 4,828 ( 4,828 ) — 4,828 ( 4,828 ) — In-process research and development 5.0 94 ( 94 ) — 94 ( 94 ) — Customer relationships 5.7 4,535 ( 4,535 ) — 4,626 ( 4,604 ) 22 Order backlog 1.5 329 ( 329 ) — 329 ( 329 ) — $ 13,772 $ ( 11,248 ) $ 2,524 $ 13,867 $ ( 10,654 ) $ 3,213 Amortization expense for the years ended December 31, 2022 and 2021, was approximately $ 689 and $ 238 , respectively. Expected future annual amortization expense for finite-lived intangible assets is as follows: Future amortization expense for the years ending December 31, Amortization 2023 $ 668 2024 668 2025 668 2026 520 Total $ 2,524 88 7. Accrued Expenses Accrued expenses consisted of the following: December 31, 2022 2021 Acquisition and earn out payable $ — $ 5,531 Payroll related expenses 899 2,801 Interest payable 618 203 Accounts payable settlement 231 446 Taxes 457 259 Other 690 381 Total accrued expenses $ 2,895 $ 9,621 8. Debt 2022 Promissory Note On July 6, 2022, we entered into a note purchase agreement and completed the sale of an unsecured promissory note (the "2022 Promissory Note") with an original principal amount of $ 12,809 in a private placement with the same investor of our 2021 Promissory Note, discussed further below. The 2022 Promissory Note was sold with an original issue discount of $ 492 and we paid at closing issuance costs totaling $ 522 . After deducting all transaction fees paid by us at closing, net cash proceeds to the Company at closing were $ 11,795 . No interest will accrue on the 2022 Promissory Note unless and until the occurrence of an event of default, as defined in the 2022 Promissory Note. Beginning on November 1, 2022 and on the same day of each month thereafter until the 2022 Promissory Note is paid in full, we are required to make a monthly amortization payments in the amount of $ 1,566 until the maturity date of July 1, 2023, which is subject to adjustment for any payment deferrals we elect. We have the right to defer any monthly payment by one month up to twelve times so long as certain conditions, as defined in the 2022 Promissory Note, are satisfied. In the event we exercise the deferral right for any given month: (i) the outstanding balance will automatically increase by 1.85 %; (ii) we will not be obligated to make the monthly payment for such month; and (iii) the maturity date will be extended for one month. We may prepay any or all outstanding balance of the 2022 Promissory Note earlier than it is due with a prepayment premium of 110 %. The prepayment premium also applies to the monthly amortization payments. The effective interest rate of the 2022 Promissory Note is 15.34 %. The 2022 Promissory Note had a principal balance of $ 9,962 and debt discount of $ 295 as of December 31, 2022. On March 15, 2023, we entered into a waiver agreement with the noteholder. See Note 17 below for further discussion. 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 (the "2021 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 2021 Promissory Note unless and until the occurrence of an event of default, as defined in the 2021 Promissory Note. We may prepay any or all outstanding balance of the 2021 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 %. 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. The 2021 Promissory Note had a principal balance of $ 5,220 and debt discount $ 316 as of December 31, 2021. In October 2022, we paid the final payment amount of $ 574 on the 2021 Promissory Note. 89 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. 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. 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. As a result of multiple offerings of sales of shares of our common stock in 2021, 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. We also recorded a loss on extinguishment of debt of $ 51 related to monthly installment payments made to the investor during the same time period. 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. 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. 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, while the number of shares for which the warrant is exercisable increased proportionately such that the total exercise price remained unchanged. In October 2021, we issued shares to the seller of Lyte as purchase consideration at a price of $ 1.4246 per share, and as a result, the exercise price of the warrant adjusted accordingly and the number of shares exercisable thereunder increased to 2,811,315 . 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 an additional 4,200,000 warrant shares. 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 12, the holder partially exercised its warrant during 2021. 90 The following table sets forth the assumptions used and calculated aggregated fair values of the liability classified warrants: December 31, 2022 December 31, 2021 Strike price per share $ 1.42 $ 2.25 Closing price per share $ 0.77 $ 2.63 Term (years) 0.53 1.53 Volatility 102 % 186 % Risk-free rate 4.70 % 0.56 % 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: 2022 2021 Balance, beginning of year $ 3,605 $ 1,614 Warrant issued — — Warrant Exercised — ( 16,148 ) Change in fair value of warrant liability ( 3,349 ) 18,139 Balance, end of year $ 256 $ 3,605 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. 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. 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. 91 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, who at the time of issuance of the Note was our Chief Executive Officer and a member of its board of directors. Interest expense recognized for this Note was not significant. 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, 2022 2021 2022 Promissory Note $ 903 $ — 2021 Promissory Note 318 203 2020 Convertible Notes — 1,111 Accretion of debt discount - issuance costs 1,034 1,913 Accretion of debt discount - warrants — 1,029 All other debt and financing obligations 151 225 Total $ 2,406 $ 4,481 9. Leases We lease four corporate offices located in Austin, Texas; Irvine, California; San Diego, California; and Miami, Florida and a warehouse facility in Round Rock, Texas for our Lyte operations. As of December 31, 2022, the earliest lease agreement currently ends in June 2023 with the latest terminating in September 2027. On March 15, 2022, we entered into a lease agreement, in which we lease approximately 21,830 square feet in Round Rock, Texas, which we intend to use as manufacturing and warehouse space for our Lyte computer division. The term of the lease is five years and commenced in July 2022. The lease provides for initial base rent payments of approximately $ 27 per month, subject to escalations. In addition, we are 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 expenses according to provisions of the lease. During the third quarter of 2022, we recorded a right-of-use asset and corresponding lease liability of $ 1,545 . On June 3, 2022, we entered into a lease agreement pursuant to which we lease approximately 7,458 square feet in Austin, Texas, which we intend to use as professional office space for our corporate headquarters. The lease commenced on June 10, 2022 and has a term of sixty-four ( 64 ) months, with an option to renew the lease for an additional five-year term at the conclusion of the initial term. The lease provides for rent abatement until September 30, 2022. Beginning on October 1, 2022, initial base rent payments are approximately $ 28 per month, subject to escalations contained therein. In addition, we will be responsible for payments equal to our proportionate share of operating expenses, which is currently estimated to be approximately $ 9 per month, plus electrical and janitorial services, which are to be contracted and paid separately by us. As a result of entering into this lease agreement, we recorded a right-of-use asset and corresponding lease liability of $ 1,508 on the commencement date noted above. The weighted-average remaining lease term for our operating leases as of December 31, 2022 and 2021 was 3.98 years and 3.14 years, respectively. 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. This approach requires significant judgment. We used incremental borrowing rates that match the duration of the remaining lease terms of our operating leases on a fully collateralized basis at the time we enter into the lease to initially measure our lease liability. The weighted average 92 incremental borrowing rate used to measure our lease liability was 9.80 % and 19.13 % at December 31, 2022 and 2021, respectively. 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 $ 1,102 and $ 809 for the years ended December 31, 2022 and 2021, 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 2023 $ 1,296 2024 1,305 2025 929 2026 744 2027 508 $ 4,782 Less: Portion representing interest $ ( 725 ) $ 4,057 In 2021, we entered into two sublease agreements for our Miami, Florida and Irvine, California office spaces, in which the subtenants will pay us monthly base rent, subject to escalations throughout the term of the sublease. The sublease agreements terminate on June 30, 2023 and March 31, 2025, respectively. We recognized an impairment of our right-of-use assets related to the subleases of $ 77 and $ 51 in our consolidated statement of operations and comprehensive loss for the year ended December 31, 2022 and 2021, respectively. We recognized sublease income of $ 300 and $ 154 for the year ended December 31, 2022 and December 31, 2021, respectively. 93 Table of Contents 10. 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. 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, 2022 and 2021. On February 18, 2022, 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 Court of Chancery of the State of Delaware (Cause No. 2022-0168-LWW). 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. We filed a motion to dismiss the complaint on May 27, 2022 and on July 15, 2022, Plaintiffs filed their answering brief in opposition to the motion to dismiss and a partial motion for summary judgement. All briefing on the motion to dismiss and motion for partial summary judgement is complete. The Court of Chancery has scheduled a hearing on the motions for April 4, 2023. 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. 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 11. PhunCoin In June 2018, we launched an offering pursuant to Rule 506(c) of Regulation D as promulgated under the Securities Act of rights to acquire PhunCoin (the "Rights). In 2019, we commenced an offering of additional Rights to acquire PhunCoin pursuant to Regulation CF promulgated under the Securities Act, which closed May 1, 2019. For both offerings of Rights, we accepted payment in the form of cash and digital assets. 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, 2022, 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, 2022 and 2021. We currently do not plan to raise additional material proceeds through the sales of PhunCoin Rights. 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 transferred to the holders of the Rights in 2023. Holders of the Rights may be transferred PhunCoin even if the Token Ecosystem is not yet fully developed. PhunCoin may not be able to be fully utilized until the Token Ecosystem is fully developed. There can be no assurance as to when (or if) we will be able to successfully issue PhunCoin or complete the development of the Token Ecosystem. The Company is currently developing multiple aspects of the Token Ecosystem, as well as coordinating with trading platforms to support compliant transfer and trading of PhunCoin. The continued adjustment of dates to complete the development of the Token Ecosystem have been and may be adjusted based on user feedback, additional aspects of the Token Ecosystem currently under development and the ability to meet evolving applicable requirements; therefore, a specific development completion date for the Token Ecosystem 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 and transfer of PhunCoin to the holders of rights. 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 economic interests in the Token Ecosystem, including monthly PhunCoin or other distributions to PhunCoin holders, based on 95 Table of Contents their respective ownership percentage of and other elections with respect to PhunCoin, totaling 2.5 % or more of certain Token Ecosystem revenues. PhunCoin Warrants 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 rights to receive PhunCoin under these warrants issued to the stockholders, for the following reasons: (i) the PhunCoin-related rights in these 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 warrant holders and (ii) there was not a market for PhunCoin and they did not exist. Should we complete a Token Generation Event, the warrant holders would receive their requisite amount of PhunCoin. 12. Stockholders’ Equity Common Stock Total common stock authorized to be issued as of December 31, 2022 was 1,000,000,000 shares with a par value of $ 0.0001 per share. At December 31, 2022 and 2021, there were 103,153,337 and 96,751,610 shares outstanding, respectively. 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. The Company and Wainwright may each terminate the sales agreement at any time with five days prior written notice. As of December 31, 2022, 2,623,460 shares of our common stock have been sold for aggregate cash proceeds of $ 4,562 , net of transaction costs of $ 101 . We also incurred additional transaction costs paid outside of closing of $ 163 . 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 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 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. During 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 2022 or 2021. 96 Table of Contents Warrants We have various warrants outstanding. A summary of our outstanding warrants is set forth below: December 31, 2022 December 31, 2021 Warrant Type Cash Exercise Price per share Number of warrants Cash Exercise Price per share Number of warrants 2020 Convertible Notes warrant $ 1.42 2,811,315 $ 2.25 1,780,000 Common stock warrant (Series D-1) $ — — $ 2.25 35,555 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 6,632,561 5,636,801 Refer to Note 8, 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 Series D-1 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 warrant expired December 21, 2022. 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) June 5, 2023, (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 13. Stock-Based Compensation 2018 Equity Incentive Plan In 2018, our board of directors adopted, and our stockholders approved, the 2018 Equity Incentive Plan, as amended (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. Shares will be delivered electronically to the holder shortly after exercise or vest date 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 5 % of the outstanding shares of common stock on the last day of the immediately preceding fiscal year or such other amount as our board 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, 2022, the maximum number of shares of common stock that may be added to the 2018 Plan pursuant to the foregoing is 874,279 . Not including the maximum number of shares from the 2009 Plan that may be added to the 2018 Plan, the 2018 Plan had 4,382,662 and 762,038 shares of common stock reserved for future issuances as of December 31, 2022 and December 31, 2021, 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, 2021 3,576,270 $ 1.94 Granted 1,728,598 1.67 Released ( 1,803,212 ) 1.82 Forfeited ( 543,661 ) 2.12 Outstanding as of December 31, 2022 2,957,995 $ 1.75 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, 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 98 Table of Contents 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. During the third quarter of 2022, we granted 1,267,000 restricted stock unit awards to team members with an average grant date fair value of $ 1.57 per share. The awards granted to team members vest over a range of 39 to 49 months with various installment and vesting dates, and are subject to service conditions. We also granted 25,000 restricted stock units to a non-employee consultant with a grant date fair value of $ 1.70 . The award vests on March 31, 2023 and is subject to service conditions. During the fourth quarter of 2022, we granted 39,000 restricted stock unit awards to team members with an average grant date fair value of $ 1.52 per share. The awards granted to team members vest over a range of 48 months with various installment and vesting dates, and are subject to service conditions. We also granted 397,598 restricted stock units to non-employee directors, each with a grant date fair value of $ 1.48 . The awards granted to non-employee directors generally vest quarterly over 12 months, 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. Pursuant to an agreement entered into by us with our former Chief Executive Officer, we modified the remaining vesting schedule related to the unvested portion of the individual's outstanding equity awards as of December 2022. The original equity awards were made at multiple occurrences, each of which contained various vesting share amounts on various dates, with the last vesting period originally scheduled to occur in May 2025. As additional compensation under the agreement, we modified the vesting schedule with respect to the unvested portion of restricted stock units under the individual's awards, such that 39,438 restricted stock units will vest on each of the last day of each month from January 2023 through November 2023 and 39,445 restricted stock units will vest on December 31, 2023. Incremental costs associated with this modification was not significant for the year ended December 31, 2022. Stock Options A summary of our stock option activity under the 2018 Plan and related information is as follows: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value Outstanding as of December 31, 2021 50,000 $ 1.08 1.37 $ 78 Granted 50,000 1.70 Exercised — — Forfeited ( 12,500 ) 1.08 Outstanding as of December 31, 2022 87,500 $ 1.43 5.6 $ — Exercisable as of December 31, 2022 87,500 $ 1.43 5.6 $ — During third quarter of 2022, we granted options to purchase 50,000 shares of our common stock to two non-employee consultants with an exercise price of $ 1.70 per share. The options vested in various increments with the final vesting date occurring on December 30, 2022. The weighted average grant date fair value of options granted during 2022 and 2021 was $ 0.54 and $ 0.51 , respectively. The total fair value for options vested during the years ended December 31, 2022 and 2021 was $ 42 and $ 11 , respectively. Stock based compensation related to this grant was not significant. 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 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 99 Table of Contents consists of four six-month purchase periods. The first purchase under the 2018 ESPP was in December 2021. Participation ends automatically upon termination of employment with the Company. On each purchase date, participating employees will purchase shares of our common stock at price per share equal to 85 % of the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of each purchase period in the applicable offering period. If the price per share of our common stock on any purchase date in the offering period is lower than the stock price on the enrollment date of that offering period, the offering period will immediately reset after the purchase of shares on such purchase date and automatically roll into a new offering period. 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 years ended December 31, 2022 and 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 802,893 and 189,215 shares of common stock available for sale and reserved for issuance as of December 31, 2022 and 2021, 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 allowed for options to be immediately exercisable, subject to the Company’s right of repurchase for unvested shares at the original exercise price. There were no unvested shares subject to repurchase provisions outstanding as of December 31, 2022 and 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, 2021 925,467 $ 0.80 5.59 $ 1,692 Granted — — Exercised ( 45,707 ) 0.62 Cancelled/Expired ( 5,481 ) 2.00 Outstanding as of December 31, 2022 874,279 $ 0.80 4.22 $ 130 Exercisable as of December 31, 2022 873,627 $ 0.80 4.22 $ 130 The Company did not grant any options under the 2009 Plan during the year ended December 31, 2022 or 2021. We have historically used the Black-Scholes option pricing model to estimate the fair value of our stock option awards. 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 $ 50 and $ 1,168 for the years ended December 31, 2022 and 2021, 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. 100 Table of Contents The total fair value for options vested during the years ended December 31, 2022 and 2021 was $ 17 and $ 66 , 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 2022 2021 Cost of revenues $ 210 $ 1,050 Sales and marketing 104 437 General and administrative 2,542 2,770 Research and development 153 684 Total stock-based compensation $ 3,009 $ 4,941 As of December 31, 2022, there was approximately $ 4,680 , $ 349 and $ 1 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 2.2 years, 1.9 years and 0.7 years for the 2018 Plan, the 2018 ESPP and the 2009 Plan, respectively. 101 Table of Contents 14. 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, 2022 and 2021, we had net losses before income taxes of $ 50,890 and $ 53,948 , respectively. Net losses relating to U.S. operations for were $ 52,415 and $ 54,907 , 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, 2022 2021 Income tax (benefit) at statutory rate $ ( 10,685 ) $ ( 11,330 ) Valuation allowance 12,894 11,500 State income tax (benefit), net of federal benefit ( 2,114 ) ( 1,978 ) Business tax credit net of reserves ( 575 ) ( 190 ) Non-deductible expenses 794 2,210 Business combination — ( 437 ) Foreign income taxes at different rate ( 310 ) ( 201 ) Income tax expense (benefit) $ 4 $ ( 426 ) Effective tax rate ( 0.01 ) % 0.79 % The provision expense (benefit) for income taxes consist of the following: Year Ended December 31, 2022 2021 Current: Federal $ — $ — State 4 11 Foreign — — Total current 4 11 Deferred: Federal — ( 416 ) State — ( 21 ) Foreign — — Total deferred — ( 437 ) Total income tax (benefit) expense $ 4 $ ( 426 ) 102 Table of Contents The components of net deferred income taxes consist of the following: December 31, 2022 2021 Deferred tax assets: Net operating loss $ 47,662 $ 40,922 Unrealized loss on digital assets 6,754 2,015 Tax credits 1,940 1,416 Reserves and accruals 332 732 Leases - lease liability 1,019 376 Amortization of acquired intangibles 2,624 232 Other deferred tax assets 686 1,748 Gross deferred tax assets 61,017 47,441 Less valuation allowance ( 59,057 ) ( 46,163 ) Total deferred tax assets 1,960 1,278 Deferred tax liabilities: Amortization of acquired intangibles — — Leases - right of use asset ( 931 ) ( 306 ) Other deferred tax liabilities ( 1,029 ) ( 972 ) Total deferred tax liabilities ( 1,960 ) ( 1,278 ) Net deferred tax liabilities $ — $ — As of December 31, 2022, we had net operating loss ("NOL") carryforwards of $ 195,027 and $ 95,867 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, $ 109,353 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, 2022, we had research and development ("R&D") credit carryforwards of approximately $ 2,286 and $ 1,622 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, 2022, 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, 2022 and 2021, we have a valuation allowance of $ 59,057 and $ 46,163 , 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, 2022 2021 Unrecognized tax benefits, beginning of period $ 1,545 $ 1,314 Tax positions taken in prior periods: Gross increases — — Gross decreases — — Tax positions taken in current period: Gross increases 212 231 Settlements — — Lapse of statute of limitations — — Unrecognized tax benefits, end of period $ 1,757 $ 1,545 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, 2022 and 2021. 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 2022, 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, 2022 and 2021. 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, 2022 and 2021. 104 15. 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, 2022 Phunware Lyte Consolidated Goodwill $ 25,765 $ 5,348 $ 31,113 Total assets $ 42,349 $ 12,486 $ 54,835 Net revenues $ 6,521 $ 15,273 $ 21,794 Loss before taxes $ ( 47,482 ) $ ( 5,469 ) $ ( 50,890 ) As of or for the year ended December 31, 2021 Phunware Lyte Consolidated Goodwill $ 25,887 $ 7,373 $ 33,260 Total assets $ 85,970 $ 12,046 $ 98,016 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, 2022 and 2021, all of our identifiable long-lived assets were in the United States. 16. 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 8, Debt , the Company entered into a Note (defined above) with a certain related party. In 2021, we repaid the Note in full. 17. Subsequent Events The Company has evaluated subsequent events through the date the financial statements were issued. 2022 Inducement Plan Our board of directors adopted the Phunware, Inc. 2022 Inducement Plan (the "Plan") in January 2023. As permitted by Nasdaq Stock Market rules, our stockholders were not required to approve the Plan. The plan provides of up to 1,470,588 shares of our common stock under awards granted to newly-hired employees. An "award" is any right to receive common stock of the Company consisting of nonstatutory stock options, stock appreciation rights, restricted stock awards or restricted stock units. In January 2023, we made an inducement grant to a newly-hired employee of 1,470,588 restricted stock units under the Plan with a grant date fair value of $ 0.87 per share. 105 Table of Contents One-third, or 490,196 , of the restricted stock units will vest on December 28, 2023 and the remainder will vest in equal installments over eight quarterly periods beginning on March 31, 2024 with the final vesting date occurring on December 28, 2025, subject to the employee's continued service on such vesting date. Shares will be delivered electronically to the holder shortly after vest date. Stock Repurchase Plan On January 5, 2023, our board of directors authorized and approved a stock repurchase program for the repurchase of outstanding shares of our common stock with an aggregate value of up to $ 5,000 . The authorization permits us to repurchase shares of our common stock from time-to-time through open market repurchases at prevailing market prices, in accordance with federal securities laws. The stock repurchase plan is expected to be completed over the next twelve (12) months and may be amended or terminated at any time, in the sole discretion of the board. The exact means, number and timing of stock repurchases will depend on market conditions, applicable legal requirements and other factors, and will be funded through the liquidation of our bitcoin holdings. As of the date of this report we have repurchased 461,500 shares of our common stock at an aggregate repurchase price of $ 475 . 2022 Promissory Note Waiver Agreement On March 15, 2023, we entered into a waiver agreement with the holder of our 2022 Promissory Note, waiving the Payment Deferral Conditions, as defined in the 2022 Promissory Note. For agreeing to waive the Payment Deferral Conditions, we agreed to compensate the noteholder an amount equal to 5 % of the outstanding balance immediately before entering into the waiver agreement. In connection therewith, we elected to defer the monthly payments under the 2022 Promissory Note for the months of April, May, June and July 2023. As a result of our election to defer the monthly payments, the outstanding balance of the 2022 Promissory Note will be increased by 1.85 % on the first day of each month beginning on April 1, 2023 and concluding on July 1, 2023. The waiver fee and the additional principal will be paid in connection with our monthly installment payments once the deferral period concludes. Beginning on August 1, 2023 and on the same day of each month thereafter, we will be required to pay to the noteholder the new monthly amortization payment in the amount of $ 1,769 until the new maturity date of November 1, 2023. 106 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.