phun-20200630

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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 June 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)


Delaware						26-4413774
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

7800 Shoal Creek Blvd

Suite 230-S

Austin

78757

(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 share

PHUN

The NASDAQ Capital Market

Warrants to purchase one share of Common Stock

PHUNW

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 filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller 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 August 12, 2020, 43,623,404 shares of common stock, par value $0.0001 per share, were issued and outstanding.

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TABLE OF CONTENTS


		PAGE
PART I	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2020 and 2019	2
	Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity for the three and six months ended June 30, 2020 and 2019	3
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34

PART II	OTHER INFORMATION	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	36

	Signatures	39

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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.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Phunware, Inc.

Condensed Consolidated Balance Sheet

(In thousands, except per share information)


	June 30, 2020		December 31, 2019
	(Unaudited)
Assets
Current assets:
Cash	$	154	$	276
Accounts receivable, net of allowance for doubtful accounts of $3,190 and $3,179 at June 30, 2020 and December 31, 2019, respectively	928		1,671
Prepaid expenses and other current assets	560		368
Total current assets	1,642		2,315

Property and equipment, net	15		24
Goodwill	25,781		25,857
Intangible assets, net	175		253
Deferred tax asset	241		241
Restricted cash	91		86
Other assets	276		276
Total assets	$	28,221	$	29,052

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	9,737	$	10,159
Accrued expenses	4,415		4,035
Deferred revenue	2,980		3,360
PhunCoin deposits	1,202		1,202
Factored receivables payable	363		1,077
Current maturities of long-term debt, net	1,333		—
Total current liabilities	20,030		19,833

Long-term debt	3,810		910
Long-term debt - related party	555		195
Deferred tax liability	241		241
Deferred revenue	2,876		3,764
Deferred rent	195		83
Total liabilities	27,707		25,026

Commitments and contingencies


Stockholders’ equity
Common stock, $0.0001 par value	4		4
Additional paid-in capital	132,045		128,008
Accumulated other comprehensive loss	(457)		(382)
Accumulated deficit	(131,078)		(123,604)
Total stockholders’ equity	514		4,026
Total liabilities and stockholders’ equity	$	28,221	$	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 June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net revenues	$	2,213	$	5,510	$	4,853	$	10,825
Cost of revenues	768		2,722		1,859		5,339
Gross profit	1,445		2,788		2,994		5,486

Operating expenses:
Sales and marketing	277		665		882		1,389
General and administrative	3,760		3,970		7,705		7,945
Research and development	378		1,077		1,239		2,386
Total operating expenses	4,415		5,712		9,826		11,720
Operating loss	(2,970)		(2,924)		(6,832)		(6,234)

Other income (expense):
Interest expense	(460)		(151)		(561)		(339)
Loss on extinguishment of debt	(81)		—		(81)		—

Other income	—		13		—		17
Total other expense	(541)		(138)		(642)		(322)
Loss before taxes	(3,511)		(3,062)		(7,474)		(6,556)
Income tax expense	—		(5)		—		(5)
Net loss	(3,511)		(3,067)		(7,474)		(6,561)
Other comprehensive loss:
Cumulative translation adjustment	(3)		(30)		(75)		(3)
Comprehensive loss	$	(3,514)	$	(3,097)	$	(7,549)	$	(6,564)

Net loss per common share, basic and diluted	$	(0.08)	$	(0.08)	$	(0.18)	$	(0.19)

Weighted-average common shares used to compute net loss per share, basic and diluted	41,869		38,810		40,982		34,537

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

(In thousands)

(Unaudited)


	Preferred Stock			Common Stock						Additional Paid-in Capital		Accumulated Deficit		Other Comprehensive Loss	Total Stockholders’ Equity
	Shares	Amount	Shares	Amount
Balance - March 31, 2020	—	—	40,693	$	4	$	129,370	$	(127,567)	$	(454)	$	1,353
Exercise of stock options, net of vesting of restricted shares	—	—	120	—		70		—		—		70
Vesting of restricted stock units	—	—	578	—		—						—
Issuance of common stock for payment of legal, earned bonus, and board of director fees	—	—	400	—		523		—		—		523
Stock-based compensation expense	—	—	—	—		1,115		—		—		1,115
Issuance of common stock upon partial conversions of Senior Convertible Note	—	—	1,764	—		2,266		—		—		2,266
Reacquisition of equity component of Senior Convertible Note	—	—	—	—		(1,299)		—		—		(1,299)
Cumulative translation adjustment	—	—	—	—		—		—		(3)		(3)
Net loss	—	—	—	—		—		(3,511)		—		(3,511)
Balance - June 30, 2020	—	—	43,555	$	4	$	132,045	$	(131,078)	$	(457)	$	514


	Preferred Stock			Common Stock						Additional Paid-in Capital		Accumulated Deficit		Other Comprehensive Loss	Total Stockholders’ Equity
	Shares	Amount	Shares	Amount








Balance - December 31, 2019	—	—	39,811	$	4	$	128,008	$	(123,604)	$	(382)	$	4,026
Exercise of stock options, net of vesting of restricted shares	—	—	153	—		87		—		—		87
Vesting of restricted stock units	—	—	694	—		—		—		—		—
Issuance of common stock for payment of legal, earned bonus, and board of director fees	—	—	1,133	—		1,014		—				1,014
Stock-based compensation expense			—	—		1,750		—		—		1,750
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	—	—	—	—		(1,299)		—		—		(1,299)
Equity classified cash conversion feature of Senior Convertible Notes	—	—	—	—		219		—		—		219
Cumulative translation adjustment	—	—	—	—				—		(75)		(75)
Net loss	—	—	—	—		—		(7,474)				(7,474)
Balance - June 30, 2020	—	—	43,555	$	4	$	132,045	$	(131,078)	$	(457)	$	514

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	Preferred Stock			Common Stock						Additional Paid-in Capital		Accumulated Deficit		Other Comprehensive Loss	Total Stockholders’ Equity
	Shares	Amount	Shares	Amount
Balance - March 31, 2019	—	—	38,331	$	4	$	125,421	$	(114,227)	$	(391)	$	10,807
Exercise of stock options, net of vesting of restricted shares	—	—	58	—		17		—		—		17
Exercise of common stock warrants pursuant to cashless provisions	—	—	513	—		—		—		—		—
Stock-based compensation expense	—	—	—	—		416		—		—		416
Cumulative translation adjustment	—	—	—	—		—		—		(30)		(30)
Net loss	—	—	—	—		—		(3,067)		—		(3,067)
Balance - June 30, 2019	—	—	38,902	$	4	$	125,854	$	(117,294)	$	(421)	$	8,143


	Preferred Stock			Common Stock						Additional Paid-in Capital		Accumulated Deficit		Other Comprehensive Loss	Total Stockholders’ Equity
	Shares	Amount	Shares	Amount
Balance - December 31, 2018	6	5,377	27,253	$	3	$	118,062	$	(111,820)	$	(418)	$	5,827
Exercise of stock options, net of vesting of restricted shares	—	—	119	—		52		—		—		52
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	—	—	—	—		427		—		—		427
Cumulative-effect adjustment resulting from the adoption of ASU 2014-09	—	—	—	—		—		1,087		—		1,087
Cumulative translation adjustment	—	—	—	—		—		—		(3)		(3)
Net loss	—	—	—	—		—		(6,561)		—		(6,561)
Balance - June 30, 2019	—	—	38,902	$	4	$	125,854	$	(117,294)	$	(421)	$	8,143

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)


	Six Months Ended June 30,
	2020		2019
Operating activities
Net loss	$	(7,474)	$	(6,561)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	9		30
Amortization of acquired intangibles	78		143
Amortization of debt discount and deferred financing costs	227		—
Loss on sale of digital currencies	—		4
Loss on extinguishment of debt	81		—
Non-cash interest expense	55		—
Bad debt (recovery) expense	(63)		132
Stock-based compensation	1,750		427
Changes in operating assets and liabilities:
Accounts receivable	815		(71)
Prepaid expenses and other assets	(193)		(99)
Accounts payable	356		(807)
Accrued expenses	877		330
Deferred revenue	(1,268)		606
Net cash used in operating activities	(4,750)		(5,866)

Investing activities
Proceeds received from sale of digital currencies	—		88
Net cash provided by investing activities	—		88

Financing activities
Proceeds from borrowings, net of issuance costs	5,436		250
Proceeds from related party bridge loans	560		—
Payments on senior convertible note	(455)		—
Payments on related party notes	(200)		—
Net repayments on factoring agreement	(714)		(659)
Proceeds from PhunCoin deposits	—		191
Proceeds from warrant exercises	—		6,092
Proceeds from exercise of options to purchase common stock	85		52
Series A convertible preferred stock redemptions and dividend payments	—		(6,240)
Net cash provided by (used in) financing activities	4,712		(314)

Effect of exchange rate on cash and restricted cash	(79)		(4)
Net increase (decrease) in cash and restricted cash	(117)		(6,096)
Cash and restricted cash at the beginning of the period	362		6,344
Cash and restricted cash at the end of the period	$	245	$	248

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Supplemental disclosure of cash flow information:
Interest paid	$	328	$	361
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	$	1,014	$	—
Issuance of common stock upon partial conversions of Senior Convertible Note	$	2,266	$	—
Reacquisition of equity component of Senior Convertible Note	$	(1,299)	$	—
Equity classified cash conversion feature of Senior Convertible Note	$	219	$	—

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 June 30, 2020 and for the three and six months ended June 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 June 30, 2020 and the results of operations for the three and six months ended June 30, 2020 and 2019, and cash flows for the six months ended June 30, 2020 and 2019. The results for the three and six months ended June 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 June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Fox Networks Group	—	%	57	%	—	%	59	%
American Made Media Consultants, LLC	36	%	—	%	33	%	—	%
Houston Methodist	13	%	8	%	12	%	11	%
World Wide Technology, Inc.	11	%	4	%	10	%	4	%

The Company completed its contractual obligations under its statement of work with Fox Networks Group ("Fox") as of September 30, 2019. While the underlying master services agreement with Fox (setting forth general terms and conditions) remains in place, the Company does not have any active statements of work with Fox.

The following table sets forth the Company's concentration of accounts receivable, net of specific allowances for doubtful accounts.


	June 30, 2020		December 31, 2019
Houston Methodist	22	%	—	%
Wynn Las Vegas, LLC	12	%	—	%
Carrier Corporation (UTC)	11	%	—	%
HID Global (through Bluvision Inc.)	—	%	23	%
American Made Media Consultants, LLC	—