Phunware, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB Firm No. 688 ) 63 Consolidated Balance Sheets 64 Consolidated Statements of Operations and Comprehensive Loss 65 Consolidated Statements of Changes Stockholders’ Equity 66 Consolidated Statements of Cash Flows 67 Notes to Consolidated Financial Statements 69 62 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Phunware, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Phunware, Inc. (the “Company”) as of December 31, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor since 2018. Houston, Texas March 15, 2024 63 Table of Contents Phunware, Inc. Consolidated Balance Sheets (In thousands, except share and per share data) December 31, 2023 December 31, 2022 Assets Current assets: Cash $ 3,934 $ 1,955 Accounts receivable, net of allowance for doubtful accounts of $ 86 and $ 10 at December 31, 2023 and 2022, respectively 550 835 Digital assets 75 10,137 Prepaid expenses and other current assets 374 608 Current assets of discontinued operation 28 3,328 Total current assets 4,961 16,863 Property and equipment, net 40 192 Goodwill — 25,766 Right-of-use asset 1,451 2,301 Other assets 276 325 Non-current assets of discontinued operation — 9,388 Total assets $ 6,728 $ 54,835 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 7,836 $ 7,278 Accrued expenses 437 2,741 Lease liability 629 696 Deferred revenue 1,258 1,531 PhunCoin deposits 1,202 1,202 Current maturities of long-term debt, net 4,936 9,667 Warrant liability — 256 Current liabilities of discontinued operation 205 2,206 Total current liabilities 16,503 25,577 Deferred revenue 651 1,274 Lease liability 1,031 1,928 Non-current liabilities of discontinued operation — 1,175 Total liabilities 18,185 29,954 Commitments and contingencies (Note 10) Stockholders’ (deficit) equity Common stock, $ 0.0001 par value; 1,000,000,000 shares authorized at December 31, 2023 and 2022; 3,851,448 and 2,063,074 shares issued and outstanding as of December 31, 2023 and 2022, respectively — — Treasury stock at cost; 10,130 and 0 shares at December 31, 2023 and 2022, respectively ( 502 ) — Additional paid-in capital 292,467 275,572 Accumulated other comprehensive loss ( 418 ) ( 472 ) Accumulated deficit ( 303,004 ) ( 250,219 ) Total stockholders’ equity ( 11,457 ) 24,881 Total liabilities and stockholders’ equity $ 6,728 $ 54,835 The accompanying notes are an integral part of these consolidated financial statements. 64 Table of Contents Phunware, Inc. Consolidated Statements of Operations and Comprehensive Loss (In thousands, except share and per share information) Year Ended December 31, 2023 2022 Net revenues $ 4,832 $ 6,521 Cost of revenues 3,146 3,012 Gross profit 1,686 3,509 Operating expenses: Sales and marketing 3,329 4,114 General and administrative 13,780 17,277 Research and development 4,449 6,149 Impairment of goodwill 25,819 — Total operating expenses 47,377 27,540 Operating loss ( 45,691 ) ( 24,031 ) Other income (expense): Interest expense ( 1,733 ) ( 2,406 ) Loss on extinguishment of debt ( 237 ) — Impairment of digital assets ( 50 ) ( 22,911 ) Fair value adjustment for warrant liabilities 256 3,349 Gain on sale of digital currencies 5,310 367 Other income, net 230 211 Total other income (expense) 3,776 ( 21,390 ) Loss before taxes ( 41,915 ) ( 45,421 ) Income tax expense ( 29 ) ( 4 ) Net loss from continuing operations ( 41,944 ) ( 45,425 ) Net loss from discontinued operation, net of $ 0 taxes ( 10,841 ) ( 5,469 ) Net loss ( 52,785 ) ( 50,894 ) Cumulative translation adjustment 54 ( 120 ) Comprehensive loss $ ( 52,731 ) $ ( 51,014 ) Net loss from continuing operations per share, basic and diluted $ ( 17.62 ) $ ( 22.95 ) Net loss from discontinued operations per share, basic and diluted $ ( 4.56 ) $ ( 2.76 ) Weighted-average common shares used to compute loss per share, basic and diluted 2,379,972 1,979,634 The accompanying notes are an integral part of these consolidated financial statements. 65 Table of Contents Phunware, Inc. Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (In thousands, except share information) Additional Paid-in Capital Accumulated Deficit Other Comprehensive Loss Total Stockholders’ Equity (Deficit) Common Stock Treasury Stock Shares Amount Shares Amount Balances as of December 31, 2021 1,935,040 $ — — $ — $ 264,954 $ ( 199,325 ) $ ( 352 ) $ 65,277 Exercise of stock options, net of vesting of restricted shares 914 — — — 28 — — 28 Release of restricted stock 36,064 — — — — — — — Issuance of common stock under the 2018 employee stock purchase plan 4,103 — — — 214 — — 214 Issuance of common stock in connection with acquisition of Lyte Technology, Inc. 34,484 — — — 3,064 — — 3,064 Sales of common stock, net of issuance costs 52,469 — — — 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 2,063,074 $ — — $ — $ 275,572 $ ( 250,219 ) $ ( 472 ) $ 24,881 Exercise of stock options, net of vesting of restricted shares 1,895 — — — 58 — — 58 Release of restricted stock 99,901 — — — — — — — Issuance of common stock under the 2018 employee stock purchase plan 2,019 — — — 48 — — 48 Issuance of common stock in lieu of cash bonus and consulting fees 20,089 — — — 434 — — 434 Common Stock issued upon conversion of 2022 Promissory Note 208,453 — — — 1,800 — — 1,800 Sales of common stock, net of issuance costs 1,466,147 — — — 10,476 — — 10,476 Stock-based compensation expense — — — — 4,079 — — 4,079 Cumulative translation adjustment — — — — — — 54 54 Treasury stock repurchase — — ( 10,130 ) ( 502 ) — — — ( 502 ) Net loss — — — — — ( 52,785 ) — ( 52,785 ) Balances as of December 31, 2023 3,861,578 $ — ( 10,130 ) ( 502 ) $ 292,467 $ ( 303,004 ) $ ( 418 ) $ ( 11,457 ) The accompanying notes are an integral part of these consolidated financial statements. 66 Table of Contents Phunware, Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2023 2022 Operating activities Net loss from continuing operations $ ( 41,944 ) $ ( 45,425 ) Net loss from discontinued operation ( 10,841 ) ( 5,469 ) Adjustments to reconcile net loss to net cash provided by operating activities: Accretion of debt discount and amortization of deferred financing costs 1,136 1,034 Gain on change in fair value of warrant liability ( 256 ) ( 3,349 ) Gain on sales of digital currencies ( 5,310 ) ( 367 ) Impairment of digital assets 50 22,911 Impairment of goodwill and other long lived assets 25,887 — Stock-based compensation 4,071 3,009 Other adjustments 1,285 441 Changes in operating assets and liabilities: Accounts receivable 235 2 Prepaid expenses and other assets 283 26 Accounts payable 558 726 Accrued expenses ( 1,246 ) ( 987 ) Lease liability payments ( 959 ) ( 794 ) Deferred revenue ( 896 ) ( 318 ) Cash flows from operating activities - continuing operations ( 27,947 ) ( 28,560 ) Cash flows from operating activities - discontinued operation 9,512 1,704 Net cash used by operating activities ( 18,435 ) ( 26,856 ) Investing activities Proceeds received from sale of digital assets 15,390 1,282 Purchases of digital assets — ( 923 ) Capital expenditures — ( 242 ) Cash flows used in investing activities - continuing operations 15,390 117 Cash flows used in investing activities - discontinued operation ( 8 ) ( 2,375 ) Net cash used in investing activities 15,382 ( 2,258 ) Financing activities Proceeds from borrowings, net of issuance costs — 11,795 Payments on borrowings ( 5,057 ) ( 8,066 ) Proceeds from sales of common stock, net of issuance costs 10,476 4,298 Treasury stock repurchases ( 502 ) — Proceeds from exercise of stock options 58 28 Net cash provided by financing activities - continuing operations 4,975 8,055 Effect of exchange rate on cash and restricted cash 57 ( 123 ) Net (decrease) increase in cash and restricted cash 1,979 ( 21,182 ) Cash and restricted cash at the beginning of the period 1,955 23,137 Cash and restricted cash at the end of the period $ 3,934 $ 1,955 The accompanying notes are an integral part of these consolidated financial statements. 67 Table of Contents Phunware, Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2023 2022 Supplemental disclosure of cash flow information Interest paid $ 1,215 $ 957 Income taxes paid $ — $ — Supplemental disclosure of non-cash information Issuance of common stock for payment on 2022 Promissory Note $ 1,800 $ — Right-of-use assets obtained in exchange for operating lease obligations $ — $ 3,053 Non-cash exchange of digital assets $ 557 $ 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 previously accrued $ 48 $ 214 Issuance of common stock for payment of earned bonus and consulting fees $ 434 $ — The accompanying notes are an integral part of these consolidated financial statements. 68 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 anytime, anywhere users worldwide. Our location-based software-as-a-service platform provides the entire mobile lifecycle of applications and media in one login through one procurement relationship. Our technology is available in Software Development Kit ("SDK") 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 platform. PhunToken is designed to reward consumers for their activity, such as watching branded videos, completing surveys and visiting points of interest. On November 1, 2023, we discontinued the operations of Lyte. See Note 3 for further discussion. 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. Discontinued Operation On November 1, 2023, we committed to a plan to discontinue and wind down the operations of Lyte, which the Company determined meets the criteria for classification as a discontinued operation in accordance with Accounting Standards Codification ("ASC") Topic 205-20, Discontinued Operations . Prior periods were recast so that the basis of presentation is consistent. For additional information, see Note 3, Discontinued Operation . Reverse Stock Split On February 26, 2024, the Company effected a reverse stock split of its common stock at a ratio of one-for-fifty (the "Reverse Stock Split"). The number of authorized shares and par values of the common stock were not adjusted as a result of the Reverse Stock Split. The accompanying financial statements and notes thereto give retrospective effect to the reverse stock split for all periods presented. All issued and outstanding common stock, options, restricted stock units and warrants exercisable for common stock and per share amounts have been retrospectively adjusted. Nasdaq listing On April 13, 2023, we received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”) because the bid price of the Company’s common stock on the Nasdaq Capital Market had closed below $1.00 per share for the previous 30 consecutive business days. The notice from Nasdaq stated that, under Nasdaq Listing Rule 5810(c)(3)(A), we had been provided a period of 180 calendar days, or until October 10, 2023, to regain compliance with the Bid Price Requirement. On October 10, 2023, we submitted a request to Nasdaq for an additional 180-day extension to regain compliance with the Bid Price Requirement. On October 12, 2023, the Company received a letter from Nasdaq advising that the Company had been granted a 180-day extension to April 8, 2024, to regain compliance with the Bid Price Requirement, in accordance with Nasdaq Listing Rule 5810(c)(3)(A). On December 21, 2023, the Company received a letter from Nasdaq notifying the Company that, as of December 20, 2023, the Company's common stock had a closing bid price of $0.10 or less for ten consecutive trading days and that, consistent with Nasdaq Listing Rule 5810(c)(3)(A)(iii), the Nasdaq had determined to delist the Company's common stock from the Nasdaq Capital Market. The notice provided that the Company an opportunity to appeal the Nasdaq's decision to delist the Company's common stock. On December 22, 2023, we submitted a request for a hearing before the Nasdaq Hearings Panel (the "Panel") to appeal the Nasdaq's delisting determination. 69 Table of Contents As noted above, we have effected a reverse stock split in order to regain compliance with the Bid Price Requirement, and on March 12, 2024, we received a letter from Nasdaq notifying us that we demonstrated compliance with the requirements to remain listed on the Nasdaq Capital Market, as required by the Panel. The letter also informed the Company that pursuant to Listing Rule 5815(d)(4)(B), the Company will be subject to a mandatory Panel monitor for a period of one year from the date of this letter. If, within that one-year monitoring period, the staff finds the Company again out of compliance with the requirement that was the subject of the exception, notwithstanding Rule 5810(c)(2), the Company will not be permitted to provide the Staff with a plan of compliance with respect to that deficiency and the staff will not be permitted to grant additional time for the Company to regain compliance with respect to that deficiency, nor will the Company be afforded an applicable cure or compliance period pursuant to Rule 5810(c)(3). Instead, the Nasdaq will issue a delist determination letter and the Company will have an opportunity to request a new hearing with the initial Panel or a newly convened hearings panel if the initial Panel is unavailable. The Company will have the opportunity to respond/present to the hearings panel as provided by Listing Rule 5815(d)(4)(C). There can be no assurance the Company will maintain compliance with the above or any other Nasdaq Listing Rules. Going Concern Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern , 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 initial evaluation shall 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 since inception. For the year ended, December 31, 2023, we incurred a net loss of $ 52,785 , used $ 18,435 in cash for operations and had a working capital deficiency. However, subsequent to December 31, 2023, through a series of offerings of our common stock, we raised aggregate net proceeds of approximately $ 20.8 million. In addition, the holder of our 2022 Promissory Note, as amended, elected to convert the balance of the 2022 Promissory Note and the 2022 Promissory Note is paid in full. See Note 16 for further discussion on financing activities that occurred subsequent to December 31, 2023. Our assessment included a review of the Company’s cash forecast taking into account the financing activities described above. As a result of the review of our assessment, we believe we have sufficient cash on-hand to fund potential net cash outflows for one year following the filing date of this Annual Report on Form 10-K. Accordingly, we believe there does not exist any indication of substantial doubt about our ability to continue as a going concern for one year following the filing date of this Annual Report on Form 10-K. We continue to focus on growing our revenues. Accordingly, operating expenditures may exceed the revenue we expect to receive for the foreseeable future. Furthermore, we have a history of operating losses and negative operating cash flows and expect these trends to continue into the foreseeable future. As of the date of this Annual Report on Form 10-K, while we believe we have adequate capital resources to complete our near-term operations, there is no guarantee that such capital resources will be sufficient until such time we reach profitability. We may access capital markets to fund strategic acquisitions or ongoing operations on terms we believe are favorable. The timing and amount of capital that may be raised is dependent on market conditions and the terms and conditions upon which investors would require to provide such capital. The Company may utilize debt or sell newly issued equity securities through public or private transactions, or through the use of an at-the-market facility. We currently have an effective "shelf" registration statement on Form S-3 we may utilize for additional financing for the issuance of our common stock, preferred stock, warrants or units. There can be no assurance that we will be able to obtain additional funding on satisfactory terms or at all. In addition, no assurance can be given that any such financing, if obtained, will be adequate to meet our capital needs and support our growth. If additional funding cannot be obtained on a timely basis and on satisfactory terms, our operations would be materially negatively impacted; however, we have been successful in accessing capital markets in the past, and we are confident in our ability to access capital markets again, if needed. The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. 70 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. Some of the more significant estimates and assumptions made by management 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, the recoverability or impairment of tangible and intangible assets, including goodwill, reserves and certain accrued liabilities, the benefit period of deferred commissions, the incremental borrowing rate used in accounting for leases 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 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 71 Table of Contents 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. Our 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 our platform; 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 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 unlocking features and capabilities of our 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. 72 Table of Contents 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, 2023 and 2022 are as follows: 2023 2022 Balance, beginning of the year $ 136 $ 148 Deferral of commissions earned 22 55 Recognition of commission expense ( 62 ) ( 67 ) Balance, end of the year $ 96 $ 136 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. Collateral is not required for accounts receivable, and we believe the carrying value approximates fair value. The following table sets forth our concentration of accounts receivable, net of specific allowances for doubtful accounts. December 31, 2023 2022 Customer A — % 35 % Customer B 43 % 4 % Customer C 16 % 6 % Customer D 12 % 8 % 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, 2023 or 2022. 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: 73 Table of Contents December 31, 2023 2022 Accounts receivable $ 636 $ 845 Less allowances for doubtful accounts ( 86 ) ( 10 ) Accounts receivable, net $ 550 $ 835 Changes in the allowance for doubtful accounts are as follows: December 31, 2023 2022 Balance, beginning of year $ 10 $ 356 Provision for doubtful accounts, net of recoveries 86 ( 286 ) Write offs ( 10 ) ( 60 ) Balance, end of year $ 86 $ 10 Digital Assets We currently account for all digital assets (primarily bitcoin and ethereum) held 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 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. 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 reporting period 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 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. Goodwill 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. 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 74 Table of Contents of a reporting unit below its carrying value. The Company performed its annual impairment assessment of goodwill as of October 1, 2023, and updated it during the fourth quarter of 2023, and concluded that goodwill was impaired. Refer to Note 6, Goodwill , for further discussion on our goodwill impairment. 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. 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, 2023 and 2022, all of our identifiable long-lived assets were in the United States. We recorded an impairment loss on long-lived assets in the amount of $ 68 for the year ended December 31, 2023. We did not recognize any impairment losses relating to our long-lived assets during the year ended December 31, 2022. 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, 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. 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, 2023. 75 Table of Contents Stock-Based Compensation Compensation expense related to stock-based transactions, including employee and non-employee director awards, is measured and recognized in the financial statements based on fair value on the grant date of the award. We recognize stock-based compensation expense for awards with only service conditions on a ratable basis over the requisite service period of the related award, generally the vesting period of the award. We have not granted any awards with market or performance conditions. Forfeitures of all stock-based awards are accounted for when they occur. 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, 2023, 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, 2023 or 2022. Income Taxes We account for income taxes in accordance with ASC 740, Income Taxes ("ASC 740"). Under ASC 740, deferred tax assets and liabilities reflect the future tax consequences of the differences between the financial reporting and tax bases of assets and liabilities using current enacted tax rates. Valuation allowances are recorded when the realizability of such deferred tax assets does not meet the more-likely-than-not threshold under ASC 740. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income and the feasibility of tax planning strategies. In the event of a change in the determination as to the amount of deferred tax assets that can be realized, an adjustment of the valuation allowance with a corresponding impact to the provision for income taxes will be made in the period in which such determination was made. The guidance on accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute criterion for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. Comprehensive Loss We apply the guidance in ASC 220, Comprehensive Income , for the reporting and display of comprehensive loss and its components in the consolidated financial statements. Comprehensive loss comprises net loss and cumulative foreign currency translation adjustments. Accumulated comprehensive loss at December 31, 2023 and 2022 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. 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: 76 Table of Contents December 31, 2023 2022 Warrants — 132,651 Options 17,125 19,236 Restricted stock units 96,808 59,160 Total 113,933 211,047 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, 2023 are set forth below: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ — $ — $ — Total $ — $ — $ — $ — 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 77 Table of Contents The following table sets forth the assumptions used and calculated aggregated fair values of the liability classified warrant: December 31, 2023 December 31, 2022 Strike price per share N/A $ 1.42 Closing price per share N/A $ 0.77 Term (years) N/A 0.53 Volatility N/A 102 % Risk-free rate N/A 4.70 % Dividend Yield — — 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. Legal costs incurred in connection with loss contingencies are expensed as incurred. 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. Segment Reporting Our chief operating decision maker is our Chief Executive Officer ("CEO"). Our CEO reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. As a result of the shutdown of our Lyte operating segment, as of December 31, 2023,we have determined that the Company operates in a single reporting segment. Recently Adopted Accounting Pronouncements 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. We adopted this new standard effective January 1, 2023. The adoption of ASU 2016-13 did not have a material impact on our condensed consolidated financial statements and disclosures. 78 Table of Contents Recent Accounting Pronouncements Not Yet Adopted In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40) (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for smaller reporting companies for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We plan to implement ASU 2020-06 on January 1, 2024. 79 Table of Contents 3. Discontinued Operation On November 1, 2023, the Company made the strategic decision to wind down and discontinue the operations of its Lyte reporting segment. The assets and liabilities classified as a discontinued operation of Lyte are presented separately in the consolidated balance sheets and consolidated statements of operations and comprehensive loss for the years ended December 31, 2023 and 2022 are presented as a discontinued operation. We generally completed the wind down of the Lyte operations as of December 31, 2023. Therefore, there was no gain or loss on disposal. Assets and liabilities of the Lyte discontinued operation included the following: December 31, 2023 December 31, 2022 Accounts receivable, net $ 28 $ 123 Inventory — 2,780 Prepaid expenses and other current assets — 425 Current assets of discontinued operation 28 3,328 Property and equipment, net — 29 Goodwill — 5,347 Intangible assets, net — 2,524 Right-of-use asset — 1,411 Other assets — 77 Non-current assets of discontinued operation — 9,388 Accounts payable 183 421 Accrued expenses 22 154 Deferred revenue — 1,373 Lease liability — 258 Current liabilities of discontinued operation 205 2,206 Lease liability — 1,175 Non-current liability of discontinued operation $ — $ 1,175 80 Table of Contents A breakdown of the Lyte discontinued operation in the consolidated statements of operations and comprehensive loss are set forth: Year Ended December 31, 2023 2022 Net revenues $ 7,567 $ 15,273 Cost of revenues 8,470 13,706 Gross profit ( 903 ) 1,567 Operating expenses: Sales and marketing 812 2,700 General and administrative 1,867 2,277 Impairment of goodwill and intangible asset 7,371 2,061 Total operating expenses 10,050 7,038 Operating loss ( 10,953 ) ( 5,471 ) Other expense (income) — 2 Total other expense — 2 Net loss from discontinued operation $ ( 10,953 ) $ ( 5,469 ) On March 15, 2022, we entered into a lease agreement, in which we lease approximately 21,830 square feet in Round Rock, Texas. The term of the lease was five years and commenced in July 2022. The lease provided for initial base rent payments of approximately $ 27 per month, subject to escalations. In addition, we were responsible for payments equal to our proportionate share of operating expenses. During the third quarter of 2022, we recorded a right-of-use asset and corresponding lease liability of $ 1,545 . In connection with the wind down of Lyte, we entered into a lease termination agreement in which the landlord agreed to terminate the lease for our Lyte facility effective November 30, 2023. We agreed to forfeit our security deposit of approximately $ 77 and we paid, on November 9, 2023, a termination fee of approximately $ 120 . For the years ended December 31, 2023 and 2022, we recorded rent expense of $ 352 and $ 176 , respectively, related to the Lyte warehouse facility, which is included in discontinued operations in the consolidated statement of operations and comprehensive loss. 81 Table of Contents 4. Revenue Disaggregation of Revenue 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 88 % and 93 % of our net revenues from within the United States for the years ended December 31, 2023 and 2022, respectively. Revenue by geographic location is as follows: Year Ended December 31, 2023 2022 Net revenues United States $ 4,267 $ 6,066 International 565 455 Net revenues $ 4,832 $ 6,521 The following table sets forth our concentration of revenue sources as a percentage of total net revenues: Year Ended December 31, 2023 2022 Customer A 14 % 1 % Customer B 11 % 1 % Customer D 10 % 4 % Customer E 6 % 11 % Deferred Revenue 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, 2023, we recognized revenue of $ 2,133 that was included in our deferred revenue balance as of December 31, 2022. Remaining Performance Obligations Remaining performance obligations consist of gross deferred revenue and backlog. Remaining performance obligations were $ 4,688 as of December 31, 2023, of which we expect to recognize 40 % 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 platform. For the year ended December 31, 2022, we sold $ 1,535 of PhunToken for which we received both cash and digital assets from customers. Revenue from PhunToken for the year ended December 31, 2023 was not significant. 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, 2023 and 2022, issued PhunToken were 377.2 million. Total supply of PhunToken is capped at 10 billion. 82 5. Digital Assets Changes in our digital asset holdings for the year ended December 31, 2023 were as follows: Bitcoin Ethereum Other Total Net balance at December 31, 2022 $ 9,460 $ 350 $ 327 $ 10,137 Digital assets received 3 — 65 68 Purchases of digital assets — — — — Exchanges of digital assets — 557 ( 557 ) — Disposal proceeds ( 14,154 ) ( 1,236 ) — ( 15,390 ) Gain on sale of digital assets 4,708 381 221 5,310 Impairment expense — — ( 50 ) ( 50 ) Net balance at December 31, 2023 $ 17 $ 52 $ 6 $ 75 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 6. Goodwill We test goodwill for impairment annually, as of the beginning of the fourth quarter, or more frequently when events or changes in circumstances indicate that the fair value is below its carrying value. The process of evaluating goodwill for potential impairment is subjective and requires significant estimates, assumptions and judgments particularly related to the estimating the fair value of each reporting unit. Subsequent to the shutdown of Lyte, the Company concluded it operated in one reporting unit. During the fourth quarter of 2023, sufficient impairment indicators were identified by the Company that it was more-likely-than-not that goodwill was impaired, and a quantitative interim goodwill impairment test was performed. These impairment indicators included a sustained decline in the Company's stock price and volume of shares traded during the fourth quarter of 2023, which hindered fundraising. As a result of our 2023 testing, we concluded goodwill was impaired. We recorded a goodwill impairment charge of $ 25,820 . As a result of this impairment charge, the Company's goodwill balance was completely written off as of December 31, 2023. The impairment was driven by deterioration of cash flows, as well as higher costs. 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. We believe the current assumptions and estimates utilized are both reasonable and appropriate. 83 7. Accrued Expenses Accrued expenses consisted of the following: December 31, 2023 2022 Acquisition and earn out payable $ — $ — Payroll related expenses 15 899 Interest payable — 618 Accounts payable settlement — 231 Taxes 110 431 Other 312 562 Total accrued expenses $ 437 $ 2,741 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. 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 was to accrue on the 2022 Promissory Note. Beginning on November 1, 2022, our monthly amortization payment was approximately $ 1,566 , which includes a 10 % premium, until the original maturity date of July 1, 2023. We had 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 the outstanding balance would automatically increase by 1.85 % On March 15, 2023, we elected to defer monthly payment obligations for April, May, June and July 2023, as permitted, at the time, by the 2022 Promissory Note. In connection therewith, we entered into a waiver agreement with the holder 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. We evaluated the modification in accordance with the guidance as in ASC 470 - Debt , and we concluded that the modification was not an extinguishment of the original debt; therefore, no gain or loss was recognized upon modification. On August 14, 2023, we entered into an amendment to the 2022 Promissory Note with the noteholder. The amendment extended the maturity date to May 31, 2024 and provided that effective August 1, 2023, we are required to make monthly amortization payments of at least $ 800 commencing on August 31, 2023 until the 2022 Promissory Note is paid-in-full. Furthermore, the amendment removed the required payment due on August 1, 2023. We also granted the holder certain limited conversion rights, subject to advance payment and volume conditions. Conversions into shares of our common stock made pursuant to the limited conversion rights will be calculated on a conversion price equal to 90 % of the lower of (i) the closing trading price of our common stock on the trading day immediately preceding the date for such conversion or (ii) the average closing trading price of our common stock for the five trading days immediately preceding the date for such conversion. If the holder elects to convert pursuant to the limited conversion option, such conversions will reduce the current month’s monthly amortization payment. Any conversions in any given month in excess of the $ 800 monthly payment will be applied to reduce the following month's required monthly amortization payment. In connection with the amendment, we agreed to pay an extension fee equal to approximately $ 708 . The amendment also provided that the outstanding balance shall accrue interest at a rate of 8 % beginning on August 1, 2023, and payment deferrals are no longer permitted. We evaluated the amendment in accordance with ASC 470 - Debt , and we concluded that the modification was an extinguishment of the original debt. Accordingly, we recorded a loss on extinguishment of debt of $ 237 for the year ended December 31, 2023. In accounting for the amendment, we reviewed other applicable guidance and determined the amendment met the criteria to be accounted for as share-settled debt pursuant to ASC 480-10-25-14(a) as the settlement amount is based on a fixed monetary amount settled in a variable number of shares. Effective December 6, 2023, the Company entered into an acknowledgement and agreement with the noteholder to which the parties (a) memorialized the noteholder's waiver of the Company’s obligations to satisfy minimum balance reduction 84 requirements in cash for each of October 2023 and November 2023 and the minimum balance reduction requirement for December 2023. As consideration for the acknowledgement and agreement, we agreed to pay the noteholder a fee in an aggregate amount equal to 7.5 %, or approximately $ 347 , of the outstanding balance of the 2022 Promissory Note. The fee was added to the outstanding balance of the 2022 Promissory Note. We evaluated the modification in accordance with the guidance as in ASC 470 - Debt , and we concluded that the modification was not an extinguishment of the original debt; therefore, no gain or loss was recognized upon modification. During 2023, we issued 208,453 shares of our common stock to the noteholder pursuant to conversions elected by the noteholder, which amounted to payment of $ 1,800 of principle and accrued interest thereunder. The 2022 Promissory Note had a balance of $ 5,011 and debt discount of $ 75 as of December 31, 2023. The noteholder subsequently converted the outstanding balance of the 2022 Promissory Note into shares of our common stock. See Note 16 below for further discussion. Interest Expense Interest expense amounted to $ 1,733 and $ 2,406 for the years ended December 31, 2023 and 2022, respectively. 9. Leases As of December 31, 2023, we lease two corporate offices located in Austin, Texas and Irvine, California, with the earliest lease agreement currently terminating in March 2025 with the latest terminating in September 2027. 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. On October 4, 2023, we entered into a lease termination agreement with the landlord of our office space in San Diego, California, in which the landlord and us agreed to terminate our lease effective October 31, 2023. We agreed to forfeit our security deposit of approximately $ 14 and pay an early termination fee in the amount of approximately $ 68 on October 31, 2023. The lease was originally scheduled to conclude on June 30, 2025. The weighted-average remaining lease term for our operating leases as of December 31, 2023 and 2022 was 3.1 years and 4.0 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 incremental borrowing rate used to measure our lease liability was 9.63 % and 9.80 % at December 31, 2023 and 2022, 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 for continuing operations under operating leases totaled $ 827 and $ 926 for the years ended December 31, 2023 and 2022, respectively. 85 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 2024 $ 751 2025 463 2026 370 2027 284 $ 1,868 Less: Portion representing interest $ ( 208 ) $ 1,660 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 Miami sublease agreement terminated on June 30, 2023, while the Irvine, California sublease agreement terminates on March 31, 2025. We recognized sublease income of $ 254 and $ 300 for the year ended December 31, 2023 and December 31, 2022, respectively. 86 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, 2023 and 2022. In March 2023, we partially settled WSGR's claims against us and paid approximately $ 2.2 million of the outstanding invoice amount owed to them. The claims related to the remaining balance of the payables amount owed continue to be litigated. 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 and oral argument on the motion to dismiss and motion for partial summary judgement is complete. Both parties argued their positions before the Court of Chancery during a hearing on April 4, 2023. On June 16, 2023, the Court ruled on the motions without filing a written opinion. From the bench, Vice Chancellor Cook granted Phunware’s motion to dismiss on the Texas law-based claims and denied both the motion to dismiss and partial motion for summary judgment on the Delaware law claims. The parties engaged in mediation in July 2023, but have been unable to reach a settlement, although discussions continue. We intend to vigorously defend against this lawsuit and any appeals. We have not recorded a liability 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. 87 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, 2023, 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, 2023 and 2022. 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 2024. 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 88 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, 2023 was 1,000,000,000 shares with a par value of $ 0.0001 per share. At December 31, 2023 and 2022, there were 3,851,448 and 2,063,074 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 million, 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. During 2023, we sold 368,707 shares of our common stock under our sales agreement with Wainwright for aggregate gross cash proceeds of $ 7,393 . Transaction costs were $ 217 . During 2022, we sold 52,469 shares of our common stock under our sales agreement with Wainwright for aggregate gross cash proceeds of $ 4,562 . Transaction costs were $ 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 million filed with the SEC on February 1, 2022. On August 22, 2023, we entered into a common stock purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, we have the right, but not the obligation, to sell to Lincoln Park up to $ 30 million in value of shares of our common stock from time to time over the 24 -month term of the purchase agreement. On any business day selected by us, we may direct Lincoln Park to purchase up to 5,000 shares of our common stock subject to adjustment as set forth below, on such business day (or the purchase date), which we refer to as a "Regular Purchase," provided, however, that (i) a Regular Purchase may be increased to up to 7,000 shares if the closing sale price of our common stock on the Nasdaq is not below $ 10.00 on the applicable purchase date; (ii) a Regular Purchase may be increased to up to 9,000 shares if the closing sale price of our common stock on Nasdaq is not below $ 15.00 on the applicable purchase date; (iii) a Regular Purchase may be increased to up to 11,000 shares if the closing sale price of our common stock on Nasdaq is not below $ 25.00 on the applicable purchase date; and (iv) a Regular Purchase may be increased to up to 13,000 shares if the closing sale price of our common stock on Nasdaq is not below $ 37.50 on the applicable purchase date, provided, however, that if such Regular Purchase would not equal or exceed $ 100 thousand, then the number of shares that may be sold pursuant to such Regular Purchase is the maximum number of shares that would enable us to sell to Lincoln Park a Regular Purchase amount equal to, or as closely approximating without exceeding, $ 100 thousand. Lincoln Park’s committed obligation under any single Regular Purchase, subject to certain exceptions, cannot exceed $ 1 million. We may direct Lincoln Park to purchase shares in Regular Purchases as often as every business day, so long as the closing sale price of our common stock on such business day is not less than the floor price of $ 5.00 per share. Concurrently with entering into the purchase agreement, we also entered into a registration rights agreement with Lincoln Park pursuant to which the Company agreed to register the sale of the shares of the Company’s common stock that have been and may be issued to Lincoln Park under the purchase agreement pursuant to the Company’s existing shelf registration statement on Form S-3. During 2023, we sold 164,106 shares of our common stock, including certain commitment shares issued to Lincoln Park in connection with the transaction, for aggregate gross cash proceeds of $ 978 . Transaction costs were $ 97 . On December 11, 2023, we consummated a registered public offering of an aggregate of 664,307 shares of our common stock and pre-funded warrants to purchase up to 269,027 shares of our common stock pursuant to a securities purchase agreement dated December 7, 2023. The pre-funded warrants issued had an exercise price of $ 0.05 and were immediately exercisable any time after their original issuance until such pre-funded warrants are exercised in full. The shares were offered at a public offering price of $ 3.00 per share and the pre-funded warrants were offered at a public offering price of $ 2.95 per pre-funded warrant. The gross proceeds from the offering, before deducting the placement agent's fees and other offering expenses 89 Table of Contents payable by the Company, were approximately $ 2,800 . Transaction costs were approximately $ 389 . The holders of pre-funded warrants exercised their rights to purchase 269,027 shares of common stock in December 2023. 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 depend on market conditions, applicable legal requirements and other factors, and have been funded through the liquidation of our bitcoin holdings. During 2023, we repurchased 10,130 shares of our common stock at an aggregate repurchase price of $ 502 . Dividends Dividends are paid on a when-and-if-declared basis. We did not declare any dividends during 2023 or 2022. Warrants As of December 31, 2023, we had no warrants outstanding. A summary of our outstanding warrants as of December 31, 2022 is set forth below: Warrant Type Cash Exercise Price per share December 31, 2023 December 31, 2022 2020 Convertible Notes warrant $ 71.23 — 56,226 Common stock warrants (Series F) $ 461.00 — 7,548 Public Warrants (PHUNW) $ 575.00 — 35,226 Private Placement Warrants $ 575.00 — 33,168 Unit Purchase Option Warrants $ 575.00 — 483 Total — 132,651 In connection with the issuance of certain convertible notes, in 2020, we issued a warrant exercisable for three ( 3 ) years for the purchase, initially, of up to an aggregate of 43,200 shares of the Company's common stock at an initial exercise price of $ 200 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 $ 112.50 per share, and the number of shares for which the warrant is exercisable increased to 76,800 shares. Furthermore, in October 2021, we issued shares to the seller of Lyte as purchase consideration at a price of $ 71.23 per share, and as a result, the exercise price of the warrant adjusted accordingly and the number of shares exercisable thereunder increased to 56,226 . The holder also partially exercised the warrant in 2021. The warrant expired July 15, 2023. In 2018, but prior to our reverse merger with Stellar, we issued warrants (Series F above) to purchase an aggregate of 21,701 shares of common stock with an exercise price of $ 461 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. As of December 31, 2023, the warrants had expired. The Company had public warrants trading under the Nasdaq ticker symbol "PHUNW," private placement warrants and unit purchase option warrants. Each of these classes of warrants entitled the holder to purchase one share of common stock at an exercise price of $ 575 per share. Each of these warrants expired on December 26, 2023. 90 Table of Contents 13. Stock-Based Compensation A summary of our various equity incentive plans is set forth below: 2023 Inducement Plans During 2023, our board of directors adopted two inducement plans; the Phunware, Inc. 2023B Inducement Plan and the 2023 Inducement Plan (collectively, the "2023 Inducement Plans"). As permitted by Nasdaq Stock Market rules, our stockholders were not required to approve the 2023 Inducement Plans. The plans provide of up to 24,000 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. On June 30, 2023, we made an inducement grant to a newly hired officer of the Company of 12,000 restricted stock units under the 2023 Inducement Plan with a grant date fair value of $ 27.00 per share. One-third of the restricted stock units will vest on June 3, 2024 and the remainder will vest in equal installments over two annual periods beginning on June 2, 2025 and concluding on June 1, 2026, subject to the employee's continued service on such vesting date. Shares will be delivered electronically to the holder shortly after each vesting date. On November 10, 2023, we made an inducement grant to a newly hired officer of the Company of 12,000 restricted stock units under the 2023B Inducement Plan with a grant date fair value of $ 7.30 per share. The restricted stock units vested on February 23, 2024 and were delivered electronically to the holder shortly after the vest date. 2022 Inducement Plan Our board of directors adopted the Phunware, Inc. 2022 Inducement Plan (the "2022 Inducement Plan") in January 2023. As permitted by Nasdaq Stock Market rules, our stockholders were not required to approve the 2022 Inducement Plan. The plan provides of up to 29,412 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 officer of the Company of 29,412 restricted stock units under the 2022 Inducement Plan with a grant date fair value of $ 43.50 per share. One-third, or 9,804 , of the restricted stock units was scheduled to vest on December 28, 2023 and the remainder in equal installments over eight quarterly periods beginning on March 31, 2024 with the final vesting date occurring on December 28, 2025. On October 25, 2023, we entered into a separation agreement with the executive, pursuant to which the vesting of this grant was modified such that 10,000 restricted stock units vested on October 25, 2023 and 10,000 restricted stock units will vest on November 30, 2023. The balance, 9,412 unvested restricted stock units, were terminated and returned to the plan to be made available for future grants. 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, 2023, the maximum number of shares of common stock that may be added to the 2018 Plan pursuant to the foregoing is 14,625 . Not including the maximum number of shares from the 2009 Plan that may be added to the 2018 Plan, the 2018 Plan had 77,426 and 87,653 shares of common stock reserved for future issuances as of December 31, 2023 and December 31, 2022, respectively. 91 Table of Contents 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 80 shares on any purchase date. The 2018 ESPP provides for 24 -month offering periods, generally beginning in June and December of each year, and each offering period consists of four six-month purchase periods. The 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, 2023 and 2022 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) 16,377 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 30,415 and 16,058 shares of common stock available for sale and reserved for issuance as of December 31, 2023 and 2022, 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 vested, 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, 2023 and 2022. 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. 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, 2022 59,215 $ 77.87 Granted 208,960 $ 25.04 Released ( 119,995 ) $ 44.83 Forfeited ( 51,372 ) $ 39.40 Outstanding as of December 31, 2023 96,808 $ 25.21 92 Table of Contents During the third quarter of 2022, we granted 25,340 restricted stock unit awards to team members with an average grant date fair value of $ 78.50 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 500 restricted stock units to a non-employee consultant with a grant date fair value of $ 85.00 per share. The award vests on March 31, 2023 and is subject to service conditions. During the fourth quarter of 2022, we granted 780 restricted stock unit awards to team members with an average grant date fair value of $ 76.00 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 7,952 restricted stock units to non-employee directors, each with a grant date fair value of $ 74.00 . The awards granted to non-employee directors generally vest quarterly over 12 months, and are subject to service conditions. During the first quarter of 2023, we granted 38,420 restricted stock unit awards to team members with an average grant date fair value of $ 46.00 per share. The vesting provisions were generally such that one-third of the awards vested immediately with the remaining vesting at various dates through November 2024. We also granted 7,454 restricted stock unit awards to members of our team in lieu of cash bonus earned during 2022 with a grant date fair value of $ 46.50 . These awards vested immediately. During the second quarter of 2023, we granted 6,460 restricted stock unit awards to team members with an average grant date fair value of $ 30.00 per share. The vesting of these awards occurs at various dates through May 2027. During the third quarter of 2023, we granted 70,660 restricted stock unit awards to team members with an average grant date fair value of $ 14.00 per share. The vesting of these awards occurs at three equal installments on August 1, 2023, August 1, 2024 and August 1, 2025. We also granted 1,234 restricted stock units to a consultant. Those restricted stock units vested in full at August 31, 2023. During the fourth quarter of 2023, we granted 18,000 restricted stock units to an executive officer with a grant date fair value of $ 7.315 per share. The vesting of this award was such that 10,000 restricted stock units vested upon grant, 4,000 restricted stock units vested each of November 30, 2023 and January 12, 2024. We also granted 13,320 restricted stock units to a consultant and board member in lieu of cash payments with an average grant date fair value of $ 6.85 per share. Those restricted stock units vested immediately. 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 789 restricted stock units will vest on each of the last day of each month from January 2023 through December 2023. Incremental costs associated with this modification was not significant for the year ended December 31, 2023. 93 Table of Contents 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, 2022 1,750 $ 71.73 5.60 $ — Granted 1,500 38.15 Exercised — — Forfeited ( 750 ) 54.00 Outstanding as of December 31, 2023 2,500 $ 56.89 4.19 $ — Exercisable as of December 31, 2023 2,500 $ 56.89 4.19 $ — 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, 2022 17,495 $ 40.22 4.22 $ 130 Granted — — Exercised ( 1,895 ) 30.36 Cancelled/Expired ( 975 ) 67.56 Outstanding as of December 31, 2023 14,625 $ 39.67 2.94 $ — Exercisable as of December 31, 2023 14,625 $ 39.67 2.94 $ — During 2022, we granted options to purchase 1,000 shares of our common stock to two non-employee consultants with an exercise price of $ 85.00 per share. The options vested in various increments with the final vest date occurring on December 30, 2022. During 2023, we granted an option to purchase 1,500 shares of our common stock to a non-employee consultant with an exercise price of $ 38.00 per share. As of December 31, 2023, the option had fully vested. We have historically used the Black-Scholes option pricing model to estimate the fair value of our stock option awards. Stock based compensation related to this grant was not significant. The weighted average grant date fair value of options granted during 2023 and 2022 was $ 38.15 and $ 27.00 , respectively. The total fair value for options vested during the years ended December 31, 2023 and 2022 was $ 6 and $ 42 , respectively. 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 $ 16 and $ 50 for the years ended December 31, 2023 and 2022, 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. 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: 94 Table of Contents Year Ended December 31, Stock-based compensation 2023 2022 Cost of revenues $ 447 $ 210 Sales and marketing 135 104 General and administrative 3,294 2,542 Research and development 195 153 Total stock-based compensation $ 4,071 $ 3,009 As of December 31, 2023, there was approximately $ 2,131 total unrecognized compensation cost related to our stock benefit plans. These unrecognized compensation costs are expected to be recognized over an estimated weighted-average period of approximately 2.0 years. 95 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, 2023 and 2022, we had net losses from continuing operations before income taxes of $ 41,915 and $ 45,421 , respectively. We had net losses from a discontinued operation of $ 10,841 and $ 5,469 for the years ended December 31, 2023 and 2022, respectively. Net losses relating to U.S. operations for were $ 51,662 and $ 52,415 , 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, 2023 2022 Income tax (benefit) at statutory rate (continuing operations) $ ( 8,800 ) $ ( 9,537 ) Income tax (benefit) at statutory rate (discontinued operation) ( 2,277 ) ( 1,148 ) Valuation allowance 6,319 12,894 State income tax (benefit), net of federal benefit ( 1,289 ) ( 2,114 ) Business tax credit net of reserves 91 ( 575 ) Non-deductible expenses (continuing operations) 4,840 360 Non-deductible expenses (discontinued operation) 1,123 434 Foreign income taxes at different rate 22 ( 310 ) Income tax expense (benefit) $ 29 $ 4 Effective tax rate ( 0.05 ) % ( 0.01 ) % The provision expense (benefit) for income taxes consist of the following: Year Ended December 31, 2023 2022 Current: Federal $ — $ — State 29 4 Foreign — — Total current 29 4 Deferred: Federal — — State — — Foreign — — Total deferred — — Total income tax (benefit) expense $ 29 $ 4 96 Table of Contents The components of net deferred income taxes consist of the following: December 31, 2023 2022 Deferred tax assets: Net operating loss $ 58,913 $ 47,662 Unrealized loss on digital assets 104 6,754 Tax credits 1,940 1,940 Reserves and accruals 62 332 Leases - lease liability 430 1,019 Amortization of acquired intangibles 4,726 2,624 Other deferred tax assets 603 686 Gross deferred tax assets 66,778 61,017 Less valuation allowance ( 65,375 ) ( 59,057 ) Total deferred tax assets 1,403 1,960 Deferred tax liabilities: Amortization of acquired intangibles — — Leases - right of use asset ( 376 ) ( 931 ) Other deferred tax liabilities ( 1,027 ) ( 1,029 ) Total deferred tax liabilities ( 1,403 ) ( 1,960 ) Net deferred tax liabilities $ — $ — As of December 31, 2023, we had net operating loss ("NOL") carryforwards of $ 236,697 and $ 133,099 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, $ 151,023 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, 2023, 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, 2023, 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, 2023 and 2022, we have a valuation allowance of $ 65,375 and $ 59,057 , respectively, against our deferred tax assets. 97 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, 2023 2022 Unrecognized tax benefits, beginning of period $ 1,757 $ 1,545 Tax positions taken in prior periods: Gross increases — — Gross decreases — — Tax positions taken in current period: Gross increases — 212 Settlements — — Lapse of statute of limitations — — Unrecognized tax benefits, end of period $ 1,757 $ 1,757 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, 2023 and 2022. 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 2023, 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, 2023 and 2022. 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, 2023 and 2022. 98 Table of Contents 15. Subsequent Events The Company has evaluated subsequent events through the date the financial statements were issued. Additional Equity Financings In a series of equity financings, we sold an aggregate of 2,696,000 shares of our common stock and issued pre-funded warrants to purchase up to 974,000 shares of our common stock. The gross proceeds from the offering, before deducting the placement agent's fees and other offering expenses payable by the Company, were approximately $ 22.6 million. Placement agent transaction costs were approximately $ 1.8 million. The holders of the pre-funded warrants exercised their rights to purchase 974,000 shares of common stock. 2022 Promissory Note In January and February 2024, we issued 336,550 shares of our common stock to the holder of our 2022 Promissory Note, which amounted to aggregate principal and interest payments in the amount of $ 4,505 . These conversions were made pursuant the terms of the amended 2022 Promissory Note, as well as, the Company granting the noteholder permission for certain additional conversions. In connection with the Company granting the holder additional conversion rights, the noteholder agreed to waive an aggregate of $ 535 . As a result of the conversions, the 2022 Promissory Note is paid-in-full. 99 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.