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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                 
Commission file number: 001-37862
PHUNWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware26-4413774
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)

7800 Shoal Creek BlvdSuite 230-SAustinTX78757
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: 512-693-4199

Securities registered pursuant to Section 12(b) of the Act:  
Title of each class:Trading Symbol(s)Name of each exchange on which registered:
Common Stock, par value $0.0001 per sharePHUN
The NASDAQ Capital Market
Warrants to purchase one share of Common StockPHUNW
The NASDAQ Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
   Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of November 9, 2020, 49,140,540 shares of common stock, par value $0.0001 per share, were issued and outstanding. 



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Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report includes forward-looking statements. All statements other than statements of historical facts contained in this Report, including statements regarding our future results of operations and financial position, business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under “Risk Factors” may not be exhaustive.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.
ii

Table of Contents
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Phunware, Inc.
Condensed Consolidated Balance Sheet
(In thousands, except per share information)
September 30,
2020
December 31,
2019
(Unaudited)
Assets
Current assets:
Cash$1,143 $276 
Accounts receivable, net of allowance for doubtful accounts of $123 and $3,179 at September 30, 2020 and December 31, 2019, respectively
1,153 1,671 
Prepaid expenses and other current assets462 368 
Total current assets2,758 2,315 
Property and equipment, net14 24 
Goodwill25,828 25,857 
Intangible assets, net143 253 
Deferred tax asset241 241 
Restricted cash91 86 
Other assets276 276 
Total assets$29,351 $29,052 
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable$9,067 $10,159 
Accrued expenses5,555 4,035 
Accrued legal settlement4,500  
Deferred revenue3,215 3,360 
PhunCoin deposits1,202 1,202 
Factored receivables payable439 1,077 
Current maturities of long-term debt, net1,693  
Warrant liability1,242  
Total current liabilities26,913 19,833 
Long-term debt4,272 910 
Long-term debt - related party555 195 
Deferred tax liability241 241 
Deferred revenue2,003 3,764 
Deferred rent178 83 
Total liabilities34,162 25,026 
Commitments and contingencies
Stockholders’ equity (deficit)
Common stock, $0.0001 par value
5 4 
Additional paid-in capital135,239 128,008 
Accumulated other comprehensive loss(410)(382)
Accumulated deficit(139,645)(123,604)
Total stockholders’ equity (deficit)(4,811)4,026 
Total liabilities and stockholders’ equity (deficit)$29,351 $29,052 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Phunware, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share information)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Net revenues$3,130 $5,637 $7,983 $16,462 
Cost of revenues898 2,418 2,757 7,757 
Gross profit2,232 3,219 5,226 8,705 
Operating expenses:
Sales and marketing383 705 1,265 2,094 
General and administrative4,276 3,754 11,981 11,699 
Research and development572 1,052 1,811 3,438 
Legal settlement4,500  4,500  
Total operating expenses9,731 5,511 19,557 17,231 
Operating loss(7,499)(2,292)(14,331)(8,526)
Other expense:
Interest expense(1,362)(145)(1,923)(484)
Loss on extinguishment of debt(950) (1,031) 
Gain on change in fair value of warrants1,244  1,244  
Other (expense) income 11  28 
Total other expense(1,068)(134)(1,710)(456)
Loss before taxes(8,567)(2,426)(16,041)(8,982)
Income tax expense   (5)
Net loss(8,567)(2,426)(16,041)(8,987)
Other comprehensive loss:
Cumulative translation adjustment47 (33)(28)(36)
Comprehensive loss$(8,520)$(2,459)$(16,069)$(9,023)
Net loss per common share, basic and diluted$(0.19)$(0.06)$(0.38)$(0.25)
Weighted-average common shares used to compute net loss per share, basic and diluted44,304 39,027 42,089 36,034 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Phunware, Inc.
Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands)
(Unaudited)

Preferred StockCommon StockAdditional
Paid-in
Capital
Accumulated
Deficit
Other
Comprehensive
Loss
Total
Stockholders’
Equity
SharesAmountSharesAmount
Balance - June 30, 2020  43,555 $4 $132,045 $(131,078)$(457)$514 
Exercise of stock options, net of vesting of restricted shares— — 33 — 9 — — 9 
Vesting of restricted stock units— — 388 — — — — — 
Issuance of common stock for payment of legal, earned bonus, and board of director fees    — — 164 — 225 — — 225 
Sale of common stock— — 1,302 1 1,341 — — 1,342 
Stock-based compensation expense— — — — 1,708 — — 1,708 
Reacquisition of equity component of Senior Convertible Note— — — — (89)— — (89)
Cumulative translation adjustment— — — — — — 47 47 
Net loss— — — — — (8,567)— (8,567)
Balance - September 30, 2020  45,442 $5 $135,239 $(139,645)$(410)$(4,811)

Preferred StockCommon StockAdditional
Paid-in
Capital
Accumulated
Deficit
Other
Comprehensive
Loss
Total
Stockholders’
Equity (Deficit)
SharesAmountSharesAmount
Balance - December 31, 2019  39,811 $4 $128,008 $(123,604)$(382)$4,026 
Exercise of stock options, net of vesting of restricted shares— — 186 — 96 — — 96 
Vesting of restricted stock units— — 1,082 — — — — — 
Issuance of common stock for payment of legal, earned bonus, and board of director fees     — — 1,297 — 1,239 — 1,239 
Sale of common stock— — 1,302 1 1,341 — — 1,342 
Stock-based compensation expense— — 3,458 — — 3,458 
Issuance of common stock upon partial conversions of Senior Convertible Note— — 1,764 — 2,266 — — 2,266 
Reacquisition of equity component of Senior Convertible Notes— — — — (1,388)— — (1,388)
Equity classified cash conversion feature of Senior Convertible Notes— — — — 219 — — 219
Cumulative translation adjustment— — — — — (28)(28)
Net loss— — — — — (16,041)(16,041)
Balance - September 30, 2020  45,442 $5 $135,239 $(139,645)$(410)$(4,811)

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Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitOther Comprehensive LossTotal Stockholders’ Equity
SharesAmountSharesAmount
Balance - June 30, 2019  38,902 $4 $125,854 $(117,294)$(421)$8,143 
Exercise of stock options, net of vesting of restricted shares— — 179 — 113 — — 113 
Vesting of restricted stock units— — 23 — — — — — 
Stock-based compensation expense— — — — 684 — — 684 
Cumulative translation adjustment— — — — — — (33)(33)
Net loss— — — — — (2,426)— (2,426)
Balance - September 30, 2019  39,104 $4 $126,651 $(119,720)$(454)$6,481 

Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitOther Comprehensive LossTotal Stockholders’ Equity
SharesAmountSharesAmount
Balance - December 31, 20186 5,377 27,253 $3 $118,062 $(111,820)$(418)$5,827 
Exercise of stock options, net of vesting of restricted shares— — 298 165 — — 165 
Vesting of restricted stock units— — 23 — — — — — 
Exercise of common stock warrants for cash— — 617 6,184 — — 6,184 
Exercise of common stock warrants pursuant to cashless provisions— — 10,913 1 (1)— —  
Series A convertible preferred stock redeemed for cash(6)(5,377)— — (863)— — (863)
Waiver of sponsor promissory note originally issued in conjunction with Reverse Merger and Recapitalization— — — — 1,993 — — 1,993 
Stock-based compensation expense— — — — 1,111 — — 1,111 
Cumulative-effect adjustment resulting from the adoption of ASU 2014-09— — — — — 1,087 — 1,087 
Cumulative translation adjustment— — — — — — (36)(36)
Net loss— — — — — (8,987)— (8,987)
Balance - September 30, 2019  39,104 $4 $126,651 $(119,720)$(454)$6,481 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Phunware, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
20202019
Operating activities
Net loss$(16,041)$(8,987)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation10 46 
Amortization of acquired intangibles110 205 
Amortization of debt discount and deferred financing costs1,217  
Gain on change in fair value of warrants(1,244) 
Loss on sale of digital currencies 4 
Loss on extinguishment of debt1,031  
Non-cash interest expense55  
Bad debt (recovery) expense(30)79 
Stock-based compensation3,458 1,111 
Changes in operating assets and liabilities:
Accounts receivable551 291 
Prepaid expenses and other assets(94)(86)
Accounts payable536 (327)
Accrued expenses1,332 973 
Accrued legal settlement4,500  
Deferred revenue(1,906)792 
Net cash used in operating activities(6,515)(5,899)
Investing activities
Proceeds received from sale of digital currencies 88 
Capital expenditures (18)
Net cash provided by investing activities 70 
Financing activities
Proceeds from borrowings, net of issuance costs10,207 250 
Proceeds from related party bridge loans560  
Payments on senior convertible notes(3,948) 
Payments on related party notes(200) 
Net repayments on factoring agreement(638)(888)
Proceeds from PhunCoin deposits 212 
Proceeds from warrant exercises 6,092 
Proceeds from exercise of options to purchase common stock95 165 
Proceeds from sales of common stock, net of issuance costs1,341  
Series A convertible preferred stock redemptions and dividend payments (6,240)
Net cash provided by (used in) financing activities7,417 (409)
Effect of exchange rate on cash and restricted cash(30)(38)
Net increase (decrease) in cash and restricted cash872 (6,276)
Cash and restricted cash at the beginning of the period362 6,344 
Cash and restricted cash at the end of the period$1,234 $68 


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Supplemental disclosure of cash flow information:
Interest paid$681 $510 
Income taxes paid$ $ 
Supplemental disclosures of non-cash financing activities:
Issuance of common stock for payment of legal, earned bonus and board of director fees$1,239 $ 
Issuance of common stock upon partial conversions of Senior Convertible Note$2,266 $ 
Reacquisition of equity component of Senior Convertible Note$(1,388)$ 
Equity classified cash conversion feature of Senior Convertible Note$219 $ 
Waiver of sponsor promissory note$ $1,993 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Phunware, Inc
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share information)
(Unaudited)
1. The Company and Basis of Presentation
The Company
Phunware, Inc. (the “Company”) offers a fully integrated software platform that equips companies with the products, solutions and services necessary to engage, manage and monetize their mobile application portfolios globally at scale. Phunware’s Multiscreen-as-a-Service ("MaaS") platform provides the entire mobile lifecycle of applications, media and data in one login through one procurement relationship. The Company’s MaaS technology is available in software development kit form for organizations developing their own application, via customized development services and prepackaged solutions. Through its integrated mobile advertising platform of publishers and advertisers, the Company provides in-app application transactions for mobile audience building, user acquisition, application discovery, audience engagement and audience monetization. Founded in 2009, the Company is a Delaware corporation headquartered in Austin, Texas.
Basis of Presentation
The condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) and include the Company’s accounts and those of its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
The balance sheet at December 31, 2019 was derived from the Company’s audited consolidated financial statements, but these interim condensed consolidated financial statements do not include all the annual disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2019, which are referenced herein. The accompanying interim condensed consolidated financial statements as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019, are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the audited financial statements, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to fairly state the Company’s financial position as of September 30, 2020 and the results of operations for the three and nine months ended September 30, 2020 and 2019, and cash flows for the nine months ended September 30, 2020 and 2019. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any future interim period.
Reclassifications of Prior Year Presentation
Certain amounts in the financial statements of prior periods have been reclassified to conform to the current period financial statement presentation. This reclassification had no effect on the Company's reported results of operations. A reclassification was made to the condensed consolidated balance sheet as of December 31, 2019 to identify related parties for debt issuances.
Concentrations of Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and trade accounts receivable. Although the Company limits its exposure to credit loss by depositing its cash with established financial institutions that management believes have good credit ratings and represent minimal risk of loss of principal, its deposits, at times, may exceed federally insured limits. Collateral is not required for accounts receivable, and the Company believes the carrying value approximates fair value.


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The following table sets forth the Company's concentration of revenue sources as a percentage of total net revenues.
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Customer A26 %8 %30 %3 %
Customer B9 %1 %11 %7 %
Customer C21 % %8 % %

In addition to the above, revenue from Fox Networks Group was 55% and 58% for the three and nine months ended September 30, 2019, respectively.
The following table sets forth the Company's concentration of accounts receivable, net of specific allowances for doubtful accounts.
September 30, 2020December 31, 2019
Customer A21 %15 %
Customer C %10 %
Customer D20 % %
Customer E6 %11 %
Customer F %23 %

Going Concern
Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern ("ASC 205-40") requires management to assess the Company’s ability to continue as a going concern for one year after the date the financial statements are issued. Under ASC 205-40, management has the responsibility to evaluate whether conditions and/or events raise substantial doubt about the Company’s ability to meet future financial obligations as they become due within one year after the date that the financial statements are issued. As required by this standard, management’s evaluation shall initially not take into consideration the potential mitigating effects of management’s plans that have not been fully implemented as of the date the financial statements are issued.
The Company’s assessment included the preparation of a detailed cash forecast that included all projected cash inflows and outflows. The Company continues to focus on growing its revenues. Accordingly, operating expenditures may exceed the revenue it expects to receive for the foreseeable future. Additionally, the Company has a history of operating losses and negative operating cash flows and expects these trends to continue into the foreseeable future.
During the quarter ended September 30, 2020, the Company obtained financings through the issuance of new convertible notes and the sale of its common stock through an at-the-market offering (both more fully described below). Future plans may include obtaining new debt financings and credit lines, utilizing existing or expanding existing credit lines, issuing equity securities, including the exercise of warrants, and reducing overhead expenses. Despite a history of successfully implementing similar plans to alleviate the adverse financial conditions, these sources of working capital are not currently sufficient and assured, and consequently do not mitigate the risks and uncertainties disclosed above.
There can be no assurance that the Company 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 the Company’s capital needs and support its growth. If additional funding cannot be obtained on a timely basis and on satisfactory terms, its operations would be materially negatively impacted. The Company has therefore concluded there is substantial doubt about its ability to continue as a going concern through one year from the issuance of these condensed consolidated financial statements.
The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying
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condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.
2. Summary of Significant Accounting Policies
There have been no changes in significant accounting policies as described in our Annual Report on Form 10-K filed with the SEC on March 30, 2020 for the year ended December 31, 2019, except as set forth below.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Items subject to the use of estimates include, but are not limited to, the standalone selling price for our products and services, stock-based compensation, useful lives of long-lived assets including intangibles, fair value of intangible assets and the recoverability or impairment of tangible and intangible assets, including goodwill, reserves and certain accrued liabilities, the benefit period of deferred commissions, fair value of debt component of the convertible note at issuance, the fair value of the convertible note outstanding upon derecognition, assumptions used in Black-Scholes valuation method, such as expected volatility, risk-free interest rate and expected dividend rate and provision for (benefit from) income taxes. Actual results could differ from those estimates and such differences could be material to the consolidated financial statements.
Convertible Debt with a Cash Conversion Feature
In March 2020, the Company issued a 7% Senior Convertible Note (defined below) with a principal amount of $3,000 for gross proceeds at closing of $2,371. In accounting for the issuance, the Company separated the note into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar liabilities that do not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the carrying amount of the liability component from the par value of the notes. The difference represents the debt discount, recorded as a reduction of the senior convertible note on our condensed consolidated balance sheet, and is amortized to interest expense over the term of the notes using the effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the notes, we allocated the total amount of issuance costs incurred to liability and equity components based on their relative values. Issuance costs attributable to the liability component are being amortized using the effective interest rate method, to interest expense over the term of the notes. The issuance costs attributable to the equity component are recorded as a reduction of the equity component within additional paid-in capital.
Convertible Debt and Related Derivative Financial Instruments
In July 2020, the Company issued a Series A Senior Convertible Note (defined below) with an initial principal amount of $4,320. After the payoff of the Senior Convertible Note and deducting transaction costs, aggregate net cash proceeds to the Company was $1,751. In accordance with ASC Topic 815-40, Derivatives and Hedging - Contracts in an Entity’s Own Stock, the Company evaluates all of its financial instruments, including warrants to purchase common stock issued in conjunction with convertible debt, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statement of operations. The Company uses a Black-Scholes option-pricing model to value the warrants at inception and subsequent valuation dates.
Debt Issuance Costs
Direct costs incurred to issue non-revolving debt instruments are recognized as a reduction to the related debt balance in the accompanying condensed consolidated balance sheets and amortized to interest expense over the contractual term of the related debt using the effective interest method.
Fair Value of Financial Instruments
The Company follows the guidance in ASC 820, Fair Value Measurement, to account for financial assets and liabilities measured on a recurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
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orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The fair value of the Company’s warrant issued with the 2020 Convertible Notes at September 30, 2020 was $1,242 and is recorded as Warrant Liability on the accompanying condensed consolidated balance sheets is considered a Level 3 fair value measurement as there are significant unobservable inputs used in the underlying valuations. The fair value measurements of the warrant are sensitive to changes in the unobservable inputs. Changes in those inputs might result in a higher or lower fair value measurement.
Loss per Common Share
Basic loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Restricted shares subject to repurchase provisions relating to early exercises under the Company's 2009 Equity Incentive Plan were excluded from basic shares outstanding. Diluted loss per common share is computed by giving effect to all potential shares of common stock, including those related to the Company's 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:
September 30,
20202019
Convertible notes7,221,74021,740
Warrants5,996,1123,836,112
Options1,211,8281,720,339
Restricted stock units2,223,7732,103,363
Restricted shares1,19813,091
Total16,654,6517,694,645
Recently Adopted Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 simplifies how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step; comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company adopted this standard on January 1, 2020. The adoption of this standard did not have a material impact on our consolidated financial statements or disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). The core principle of ASU 2016-02 is that a lessee should recognize the assets and liabilities that arise from leases. For operating leases, a lessee is required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in
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the statement of financial position. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Under current U.S. GAAP, the Company recognizes rent expense on a straight-line basis for all operating leases, taking into account fixed accelerations, as well as reasonably assured renewal periods. In November 2019, the FASB issued ASU No. 2019-10 ("ASU 2019-10"). ASU 2019-10 delayed the effective date of ASU 2016-02 for certain types of businesses, including private companies. Under the Jumpstart Our Business Startups ("JOBS") Act, the Company has previously elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an Emerging Growth Company ("EGC"), can adopt the new or revised standard at the time private companies adopt the new or revised standard. The issuance of ASU 2020-05 further delayed the implementation of this guidance of the Company for one year. Although ASU 2020-05 would defer implementation for the Company by an additional year, the Company believes this guidance would still be effective for the Company for fiscal years beginning after December 15, 2020, as it would lose its status as an EGC at the latest on December 31, 2021. Although earlier application is permitted, the Company plans to implement this guidance beginning the first quarter of its fiscal year 2021. The Company currently does not expect the ASU 2016-02 to materially impact our results of operations; although, based upon our current operating leases outstanding, we believe this guidance may have a material impact on our consolidated balance sheet. We do not plan on recasting prior periods.
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 to estimate credit losses for most financial assets and certain other instruments. In addition, for available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a Smaller Reporting Company ("SRC") as defined by the SEC, the standard is currently effective for the Company annual reporting periods beginning after December 15, 2022, with early adoption permitted for annual reporting periods beginning after December 15, 2019. We currently intend to adopt ASU No. 2016-13 effective January 1, 2023. Entities will apply the standard’s provisions by recording a cumulative-effect adjustment to retained earnings. The Company currently does not expect the adoption of ASU 2016-13 to have a material impact on our consolidated financial statements and disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes. Should the Company retain its EGC status through the fifth anniversary of the date of its initial public offering, this guidance will be effective for us in our financial statements and consolidated notes thereto for the fiscal year ending December 31, 2021 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements.
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 SRCs 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. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.
3. Revenue
Disaggregation of Revenue
The Company derived 99% and 96% of its net revenues from within the United States for the three and nine months ended September 30, 2020, respectively. The Company derived over 98% of its net revenues from within the United States for each of the three and nine months ended September 30, 2019. During the three and nine months ended September 30, 2020, the Company derived 1% and 4%, respectively, of its net revenues from outside the United States. During the three and nine months ended September 30, 2019, the Company derived less than 2% of its net revenues from outside the United States.

The following table sets forth the Company's net revenues:
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Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net Revenues
Platform subscriptions and services$2,860 $5,152 $7,274 $15,065 
Application transaction270 485 709 1,397 
Net revenues$3,130 $5,637 $7,983 $16,462 

Deferred Revenue
The Company’s deferred revenue balance consisted of the following:
September 30,
2020
December 31,
2019
Current deferred revenue
Platform subscriptions and services revenue$3,135 $3,278 
Application transaction revenue80 82 
Total current deferred revenue$3,215 $3,360 
Non-current deferred revenue
Platform subscriptions and services revenue$2,003 $3,764 
Total non-current deferred revenue$2,003 $3,764 
Total deferred revenue$5,218 $7,124 

Deferred revenue consists of customer billings or payments received in advance of the recognition of revenue under the arrangements with customers. The Company recognizes deferred revenue as revenue only when revenue recognition criteria are met. During the nine months ended September 30, 2020, the Company recognized revenue of $3,971 that was included in its deferred revenue balance as of December 31, 2019.
Remaining Performance Obligations
Remaining performance obligations were $8,797 as of September 30, 2020, of which the Company expects to recognize 55% as revenue over the next 12 months and the remainder thereafter.

4. Cash, Cash Equivalents, and Restricted Cash

The Company considers 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 as of September 30, 2020 and December 31, 2019.
As a result of the issuance of the Notes (defined and discussed further below), the Company had $91 and $86 in restricted cash as of September 30, 2020 and December 31, 2019, respectively.
The following table sets forth the Company's cash and restricted cash as of September 30, 2020 and December 31, 2019:

Cash and restricted cash
September 30, 2020
December 31, 2019
Cash$1,143 $276 
Restricted cash91 86 
Total cash and restricted cash$1,234 $362 

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5. Factoring Agreement
On June 15, 2016, the Company entered into a factoring agreement with CSNK Working Capital Finance Corp. (d/b/a Bay View Funding) (“Bay View”) whereby it sells select accounts receivable with recourse.
Under the terms of the agreement, Bay View may make advances to the Company of amounts representing up to 80% of the net amount of eligible accounts receivable. The factor facility is collateralized by a general security agreement over all the Company’s personal property and interests. Fees paid to Bay View for factored receivables are 1.80% for the first 30 days and 0.65% for every ten days thereafter, to a maximum of 90 days total outstanding. The Company bears the risk of credit loss on the receivables. These receivables are accounted for as a secured borrowing arrangement and not as a sale of financial assets.
The amount of factored receivables outstanding was $439 and $1,077 as of September 30, 2020 and December 31, 2019, respectively. There was $2,561 and $1,923 available for future advances as of September 30, 2020 and December 31, 2019, respectively.
6. Debt

A summary of the Company's various debt obligations is set forth below:


September 30, 2020December 31, 2019
Series A Note (principal amount)$3,201 $ 
Series B Note (principal amount)1,013  
Paycheck Protection Program Loan2,850  
Convertible notes250 250 
Promissory notes905 855 
Related-party bridge loans 360  
Note payable67  
Total debt$8,646 $1,105 
Debt discount - warrants (2020 Convertible Notes)(1,681) 
Debt discount - issuance costs (2020 Convertible Notes)(445) 
Less: current maturities of long-term debt(1,693) 
Less: related-party debt(555)(195)
Long-term debt$4,272 $910 


2020 Convertible Notes
On July 15, 2020, the Company issued a Series A Senior Convertible Note (a “Series A Note”) to an institutional investor with an initial principal amount of $4,320 (reflecting an original issue discount of $320) in a private placement. As noted above, the Company repaid in full the outstanding principal balance, accrued and unpaid interest and make-whole amount on the Senior Convertible Note issued on March 20, 2020 to the same investor. After the payoff of the Senior Convertible Note and deducting transaction costs, aggregate net cash proceeds to the Company was $1,751.
On the same date, the Company issued a Series B Senior Secured Convertible Note (a “Series B Note,” and together with the Series A Note, the “2020 Convertible Notes”) to the same investor with an initial principal amount of $17,280 (reflecting an original issue discount of $1,280). The investor paid for the Series B Note by delivering a secured promissory note (the “Investor Note”) with an initial principal amount of $16,000.

The Company will receive cash under the Series B Note only upon cash repayment of the corresponding Investor Note. The investor may, at its option and at any time, voluntarily prepay an Investor Note, in whole or in part. In addition, the Investor Note is subject to mandatory prepayment, in whole or in part, upon the occurrence of certain events. The equity and other conditions include minimum price and volume thresholds, a minimum market capitalization at least $40 million. Mandatory prepayments of principal outstanding under the Investor Note that, together with the unrestricted principal may not exceed the lesser of (i) $5,000 and (ii) 10% of the 30 trading day market capitalization of the Company.
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On September 15, 2020, the Company exercised its right under the Investor Note to require a mandatory prepayment of the Investor Note of $1,000, of which the Company received in cash. As a result, $1,000 in principal and $80 of original issue discount became unrestricted and owed under the Series B Note, after giving effect to netting of the remainder of the balance of the Investor Note and Series B Note.

Under certain circumstances, the Investor Note is automatically satisfied through netting against the Series B Note rather than through the payment of cash, which if triggered would reduce the amounts outstanding under the Series B Note and Investor Note.
The Series A Note and outstanding unrestricted principal balance on the Series B Note each bear interest at a rate of 7% per annum and includes a make-whole of interest from the date of issuance through the maturity date of December 31, 2021. The restricted principal of the Series B Note bears interest at a rate of 3% per annum. The 2020 Convertible Notes mature on December 31, 2021.

Monthly Payments

Starting on July 31, 2020 and on the last trading day of each month thereafter, and on the maturity date, the Company is required to make monthly amortization payments equal to 1/18th of the Series A Note, interest on the 2020 Convertible Notes and make-whole (the "Installment Amount"), which must be satisfied in cash at a redemption price equal to 107% of the Installment Amount. For the three and nine months ended September 30, 2020, the Company recorded $216 in a loss on extinguishment of debt in the condensed consolidated statements of operations and comprehensive loss related to monthly payments for the 2020 Convertible Notes.

Redemption

The Company may redeem the 2020 Convertible Notes at a price equal to 107% of the outstanding principal of the 2020 Convertible Notes (or, if greater, the market value of the shares underlying the 2020 Convertible Notes) and accrued and unpaid interest.

Subject to certain limited exceptions, the noteholder will have the right to have us redeem a portion of each 2020 Convertible Note not in excess of 40% of the net proceeds from a qualified capital fund raise at a redemption price of 107% of the portion of the 2020 Convertible Note subject to redemption or, if greater, the market value of the shares underlying the 2020 Convertible Note.

In connection with an Event of Default, the noteholder may require us to redeem in cash any or all of the 2020 Convertible Notes. The redemption price will equal 115% of the outstanding principal of the 2020 Convertible Notes to be redeemed, and accrued and unpaid interest.

In connection with a Change of Control (as defined in the 2020 Convertible Notes), a noteholder may require us to redeem all or any portion of the 2020 Convertible Notes. The redemption price per share will equal the greatest of (i) 115% of the outstanding principal to be redeemed, and accrued and unpaid interest, (ii) 115% of the market value of the shares of our common stock, and (iii) 115% of the aggregate cash consideration that would have been payable in respect of the shares of our common stock underlying the 2020 Convertible Notes.

Under certain circumstances, the unrestricted principal of the Series B Note is automatically netted against the principal amount of the corresponding Investor Note. Under certain circumstances, upon such netting, the original issue discount under the Series B Note associated with the principal amount thereof being redeemed will be deemed satisfied.

Conversion

The 2020 Convertible Notes are convertible, at the option of the noteholder, into shares of our common stock at a conversion price of $3.00 per share. The conversion price is subject to full ratchet anti-dilution protection and standard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other similar transaction.

If an Event of Default has occurred under the 2020 Convertible Notes, the noteholder may elect to alternatively convert the 2020 Convertible Notes at a redemption premium of 115% at an alternate conversion price equal to the lower of (x) the conversion price then in effect and (y) the greater of the Floor Price (as defined in the 2020 Convertible Notes) and 85% of the lowest volume weighted average price in the 10 days prior to the applicable conversion date.

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Covenants

The Company will be subject to certain customary affirmative and negative covenants regarding the incurrence of certain indebtedness, the existence of liens, the repayment of indebtedness, the payment of cash in respect of dividends, distributions or redemptions, and the transfer of assets, among other matters. We are also subject to a financial covenant that requires us to maintain available cash in the amount of $500 at the end of each fiscal quarter, subject to a right to cure.

Warrant

In addition to the 2020 Convertible Notes, we issued a warrant exercisable for 3 years for the purchase of an aggregate of up to 2,160,000 shares of the Company's common stock, at an exercise price of $4.00 per share to the same investor. The number of shares and exercise price are each subject to adjustment provided under the warrant. If, at the time of exercise of the warrant, there is no effective registration statement registering, or no current prospectus available for, the issuance of the shares, then the warrant may also be exercised, in whole or in part, by means of a “cashless exercise.” The warrant may not be exercised if, after giving effect to the exercise, the investor would beneficially own amounts in excess of those permissible under the terms of the warrant.

The following table sets forth the assumptions used and calculated aggregated fair values of the liability classified warrants:


September 30, 2020July 15, 2020
Strike price per share$4.00 $4.00 
Closing price per share$0.92 $1.44 
Term (years)2.783
Volatility155 %177 %
Risk-free rate0.16 %0.18 %
Dividend Yield

Upon issuance of the warrant, the Company recorded a warrant liability as a discount to the 2020 Convertible Notes of $2,486. The Company revalued the warrant as of September 30, 2020, and accordingly recorded a gain of $1,244 as a result of the change in the fair value of its liability classified warrants for the three and nine months ended September 30, 2020.

Registration Rights Agreement

The Company was required to file a registration statement covering the resale of the shares underlying the 2020 Convertible Notes and to have the registration statement declared effective within 90 days of after the closing of the Purchase Agreement. The Company filed a registration statement, which was declared effective by the SEC on October 27, 2020. The Company obtained a waiver of the Registration Delay Payments (as defined in the Registration Rights Agreement) from the noteholder.

Participation Rights

In addition, the Company granted the noteholder participation rights in future equity and equity-linked offerings of securities, subject to certain limited exceptions, during the two years after the later of (a) the closing or (b) the date the Investor Note no longer remains outstanding, in an amount of up to 30% of the securities being sold in such offerings.


Paycheck Protection Program ("PPP") Loan

On April 10, 2020, the Company received loan proceeds in the amount of $2,850 from JPMorgan Chase, N.A. pursuant to the PPP under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), which was enacted on March 27, 2020. The loan, which was in the form of a note dated April 9, 2020, matures on April 9, 2022, bears interest at a rate of 0.98% per annum. The Paycheck Protection Flexibility Act of 2020, extended the deferral period for loan payments to either (i) the date that SBA remits the borrower’s loan forgiveness amount to the lender or (ii) if the borrower does not apply for loan forgiveness, ten months after the end of the borrower’s loan forgiveness covered period. The note may be prepaid by the Company at any time prior to the maturity with no prepayment penalties.

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The principal amount of the PPP loan is subject to forgiveness under the PPP upon Phunware’s request to the extent that PPP loan proceeds are used to pay expenses permitted by the PPP. Although the Company currently anticipates a portion of the loan to be forgiven, there can be no assurance that any part of the PPP loan will be forgiven.

Senior Convertible Note
In March 2020, the Company issued a Senior Convertible Note to an institutional investor with an initial principal amount of $3,000 (the “Senior Convertible Note”) for cash proceeds of $2,760 (reflecting an original issue discount of $240) in a private placement. After deducting the placement agent fee and other estimated expenses, net cash proceeds at the closing were approximately $2,371. The Senior Convertible Note bears interest at a rate of 7% per annum and includes a make-whole of interest from the date of issuance through the maturity date of December 31, 2021.
Monthly Payments and Conversion
Starting on April 30, 2020 and on the last trading day of the month and on the maturity date, the Company was required to make monthly payments. On each payment date, the Company was required to settle a principal repayment of approximately $143 plus interest thereon (the “Installment Amount”) which was to be satisfied in shares of common stock of the Company at 100% of the Installment Amount, or at the election of the Company, in whole or in part, in cash, at 105% of the Installment Amount. Installment payments made in common stock were subject to customary equity conditions (including minimum floor price and volume thresholds), and were calculated on a conversion price equal to the lower of (x) the conversion price then in effect and (y) the greater of the Floor Price (as defined in the Senior Convertible Note) and 85% of the lowest volume weighted average price in the 10 days prior to the payment date.
In addition to the monthly payments described above, during the second quarter of 2020, the noteholder elected an acceleration of payments of monthly principal, interest and make-whole payments pursuant to certain provisions of the Senior Convertible Note. These accelerated payments were made in the form of shares of common stock of the Company at the rate then in effect per the Senior Convertible Note. As a result, the Company issued an aggregate of 1,763,675 shares for principal, interest and make-whole payments to the noteholder. In accounting for the accelerated conversions, the Company followed the guidance as prescribed in ASC 470 in accounting for derecognition (or conversion) of convertible debt with a cash conversion feature. The Company determined the fair value of the debt immediately prior to its derecognition, with the difference between the consideration transferred to the noteholder and the fair value of the debt representing the reacquisition of the embedded conversion option. A loss on extinguishment of $81 was recorded based on the difference between the calculated fair value of the debt immediately prior to its derecognition and the carrying amount of the debt component, including any unamortized debt discount or issuance costs.
Redemption
In conjunction with the issuance of the 2020 Convertible Notes, the Company redeemed the Senior Convertible Note in July 2020 at a price equal to 110% of the outstanding principal accrued and unpaid interest and make-whole interest. The cash payment to the noteholder to satisfy the Senior Convertible Note was in the amount $2,084. The redemption of the Senior Convertible Note resulted in a loss on extinguishment of $734.
Related-Party Bridge Loans
During the first quarter of 2020, various related parties loaned the Company $560. The Related-Party Bridge Loans ("RPBLs") bear an interest of 10% per annum and will mature on November 14, 2024. Payments on or payoff of the RPBLs may be made early with no penalty. The RPBLs and amounts thereof were made by the following related parties: (i) $204 by Cane Capital, LLC, an entity owned in part by our Chief Executive Officer; (ii) $151 by Curo Capital Appreciation Fund, LLC, an entity in which the Company's Chief Executive Officer and Chief Technology Officer serve as co-presidents, (iii) $155 by various individuals associated by familiar relationship with our Chief Executive Officer; and (iv) $50 by Luan Dang, the Company's Chief Technology Officer. Transaction costs related to the RPBLs were not significant.
Convertible Notes
In April 2019, the Company’s board of directors authorized the issuance of $20,000 of convertible promissory notes (the “Convertible Notes”), which may be paid by investors in the form of cash or, in the Company’s sole discretion, cryptocurrency, such as Bitcoin or Ethereum. The Convertible Notes will be sold in reliance on an exemption from registration. The Company may not issue Convertible Notes under the Purchase Agreement in excess of $20,000, in the aggregate, unless otherwise agreed
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by the holders of a majority in interest of the principal outstanding under the Convertible Notes. Transaction costs related to the issuance of the Convertible Note were immaterial.
The Convertible Notes bear ordinary interest at a rate of 7% per annum. Interest under the Convertible Notes is payable quarterly beginning on September 30, 2019, and interest and principal under the Convertible Notes is payable monthly beginning on June 30, 2021. However, at the holder’s election, interest payments may be deferred until the earlier of (i) repayment in full of all remaining unpaid principal and (ii) conversion. The Convertible Notes mature on June 3, 2024.
The Convertible Notes are convertible into shares of the Company’s common stock at a price of $11.50 per share. Each Note will convert voluntarily upon a holder’s election, or automatically upon the closing sale price of the Company’s common stock equals or exceeds $17.25 per share for 20 out of 30 consecutive trading days, if a registration statement is then in effect covering the disposition of the converted shares. Assuming the Convertible Notes in an aggregate principal amount of $20,000 are sold under the Purchase Agreement, and assuming that all interest payments are deferred until maturity, the Convertible Notes would be convertible to a maximum total of approximately 2,347,826 shares of the Company’s common stock.
Promissory Notes
In October 2019, the Company’s board of directors authorized the issuance of $20,000 of promissory notes (the “Notes”), which may be paid by investors in the form of cash or, in the Company’s sole discretion, cryptocurrency, such as Bitcoin or Ethereum. The Notes will be sold in reliance on an exemption from registration. The Company may prepay the Notes at any time without penalty. The Company may not issue Notes under the Purchase Agreement in excess of $20,000, in the aggregate, unless otherwise agreed by the holders of a majority in interest of the principal outstanding under the Notes. Transaction costs related to the issuance of the Notes were immaterial.
The Notes bear ordinary interest at a rate of 10% per annum. Interest under the Notes is payable monthly beginning on November 30, 2019. During the term of the Notes, the Company will maintain a restricted bank account with a minimum balance of one year of interest payments on the aggregate principal balance of all Notes, which will be available for use exclusively to satisfy any payments owed by the Company under the Notes. The principal and unpaid accrued interest on the Notes will be due and payable on demand by the majority Note holders on or after the date that is 60 months following November 15, 2019. If an event of default occurs under the Notes, the majority Note holders may cause all principal and unpaid interest under the Notes to become immediately due and payable. In such event, the Notes will thereafter accrue interest at a rate of 12% per annum. Upon agreement between the Company and any senior creditor, the Notes will be subject to subordination in the right of payment to all current and future indebtedness or obligations of the Company for borrowed money to banks, commercial finance lenders, and other institutions regularly engaged in the business of lending money, or for factoring arrangements to parties providing such factoring.
During 2019, the Company issued a Note in the principal amount of $195, in exchange for cash consideration, to Cane Capital, LLC, an entity owned in part by Alan S. Knitowski, the Company’s Chief Executive Officer and a member of its board of directors.
Interest Expense
The following table sets forth interest expense for the Company's various debt obligations included on the condensed consolidated statements of operations:

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
2020 Convertible Notes$279 $ $279 $ 
Accretion of debt discount - issuance costs185  370  
Accretion of debt discount - warrants805  805  
Senior Convertible Note3  197  
Factoring financing agreement44 140 141 472 
All other debt and financing obligations