Item 1. Financial Statements
Phunware, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share information)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Assets:
|
|
(
Unaudited)
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
1,065
|
|
|
$
|
844
|
|
Accounts receivable, net
|
|
|
2,738
|
|
|
|
3,606
|
|
Prepaid expenses and other current assets
|
|
|
1,036
|
|
|
|
272
|
|
Total current assets
|
|
|
4,839
|
|
|
|
4,722
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
50
|
|
|
|
66
|
|
Goodwill
|
|
|
25,846
|
|
|
|
25,821
|
|
Intangible assets, net
|
|
|
448
|
|
|
|
521
|
|
Deferred tax asset – long term
|
|
|
64
|
|
|
|
64
|
|
Restricted Cash
|
|
|
—
|
|
|
|
5,500
|
|
Other assets
|
|
|
187
|
|
|
|
187
|
|
Total assets
|
|
$
|
31,434
|
|
|
$
|
36,881
|
|
|
|
|
|
|
|
|
|
|
Liabilities, redeemable convertible preferred stock, and stockholders’ equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
8,600
|
|
|
$
|
9,890
|
|
Accrued expenses
|
|
|
2,968
|
|
|
|
3,028
|
|
Deferred revenue
|
|
|
2,904
|
|
|
|
2,629
|
|
Factored receivables payable
|
|
|
1,631
|
|
|
|
2,434
|
|
Short term notes payable - related party
|
|
|
—
|
|
|
|
1,993
|
|
Total current liabilities
|
|
|
16,103
|
|
|
|
19,974
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
|
64
|
|
|
|
64
|
|
Deferred revenue
|
|
|
4,447
|
|
|
|
5,622
|
|
Deferred rent
|
|
|
13
|
|
|
|
17
|
|
Total liabilities
|
|
|
20,627
|
|
|
|
25,677
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see Note 5)
|
|
|
—
|
|
|
|
—
|
|
Redeemable convertible preferred stock, $0.0001 par value (see Note 7)
|
|
|
—
|
|
|
|
5,377
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value (see Note 8)
|
|
|
4
|
|
|
|
3
|
|
Additional paid in capital
|
|
|
125,421
|
|
|
|
118,062
|
|
Accumulated other comprehensive loss
|
|
|
(391
|
)
|
|
|
(418
|
)
|
Accumulated deficit
|
|
|
(114,227
|
)
|
|
|
(111,820
|
)
|
Total stockholders’ equity
|
|
|
10,807
|
|
|
|
5,827
|
|
Total liabilities, redeemable convertible preferred stock, and stockholders’ equity
|
|
$
|
31,434
|
|
|
$
|
36,881
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Phunware, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share information)
(Unaudited)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
5,315
|
|
|
$
|
4,980
|
|
Cost of revenues
|
|
|
2,617
|
|
|
|
2,867
|
|
Gross profit
|
|
|
2,698
|
|
|
|
2,113
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
724
|
|
|
|
1,919
|
|
General and administrative
|
|
|
3,975
|
|
|
|
4,488
|
|
Research and development
|
|
|
1,309
|
|
|
|
2,300
|
|
Total operating expenses
|
|
|
6,008
|
|
|
|
8,707
|
|
Operating loss
|
|
|
(3,310
|
)
|
|
|
(6,594
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(188
|
)
|
|
|
(202
|
)
|
Fair value adjustment for warrant liabilities
|
|
|
—
|
|
|
|
(54
|
)
|
Impairment of digital currencies
|
|
|
—
|
|
|
|
(313
|
)
|
Other income (expense)
|
|
|
4
|
|
|
|
(1
|
)
|
Total other expense
|
|
|
(184
|
)
|
|
|
(570
|
)
|
Loss before taxes
|
|
|
(3,494
|
)
|
|
|
(7,164
|
)
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
(3,494
|
)
|
|
|
(7,164
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment
|
|
|
27
|
|
|
|
54
|
|
Comprehensive loss
|
|
$
|
(3,467
|
)
|
|
$
|
(7,110
|
)
|
Net loss per share, basic and diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.29
|
)
|
Weighted-average shares used to compute net loss per share, basic and diluted
|
|
|
30,264
|
|
|
|
24,952
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Phunware, Inc.
Condensed Consolidated Statements of
Changes in Convertible Preferred Stock and Stockholders’ Equity
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Equity
|
|
Balances as of December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
24,559
|
|
|
$
|
3
|
|
|
$
|
110,265
|
|
|
$
|
(102,017
|
)
|
|
$
|
(347
|
)
|
|
$
|
7,904
|
|
Exercise of stock options, net of vesting of restricted shares
|
|
|
-
|
|
|
|
-
|
|
|
|
33
|
|
|
|
-
|
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25
|
|
Issuance of common stock, net of issuance costs
|
|
|
-
|
|
|
|
-
|
|
|
|
543
|
|
|
|
-
|
|
|
|
4,804
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,804
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
149
|
|
|
|
-
|
|
|
|
-
|
|
|
|
149
|
|
Cumulative translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
54
|
|
|
|
54
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,164
|
)
|
|
|
-
|
|
|
|
(7,164
|
)
|
Balances as of March 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
25,135
|
|
|
$
|
3
|
|
|
$
|
115,243
|
|
|
$
|
(109,181
|
)
|
|
$
|
(293
|
)
|
|
$
|
5,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Equity
|
|
Balances as of 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
|
|
|
-
|
|
|
|
-
|
|
|
|
61
|
|
|
|
-
|
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35
|
|
Exercise of common stock warrants for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
617
|
|
|
|
-
|
|
|
|
6,184
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,184
|
|
Exercise of common stock warrants pursuant to cashless provisions
|
|
|
-
|
|
|
|
-
|
|
|
|
10,400
|
|
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
Cumulative-effect adjustment resulting from the adoption of ASU 2014-09 (Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,087
|
|
|
|
|
|
|
|
1,087
|
|
Cumulative translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
|
|
27
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,494
|
)
|
|
|
-
|
|
|
|
(3,494
|
)
|
Balances as of March 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
38,331
|
|
|
|
4
|
|
|
$
|
125,421
|
|
|
$
|
(114,227
|
)
|
|
$
|
(391
|
)
|
|
$
|
10,807
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Phunware, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Operating activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,494
|
)
|
|
$
|
(7,164
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
16
|
|
|
|
15
|
|
Loss on sale of digital currencies
|
|
|
4
|
|
|
|
—
|
|
Bad debt expense
|
|
|
15
|
|
|
|
—
|
|
Amortization of acquired intangibles
|
|
|
75
|
|
|
|
109
|
|
Change in fair value of warrants
|
|
|
—
|
|
|
|
55
|
|
Impairment of digital currencies
|
|
|
—
|
|
|
|
313
|
|
Stock-based compensation
|
|
|
11
|
|
|
|
149
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
850
|
|
|
|
1,569
|
|
Prepaid expenses and other assets
|
|
|
(34
|
)
|
|
|
(321
|
)
|
Accounts payable
|
|
|
(1,290
|
)
|
|
|
1,656
|
|
Accrued expenses
|
|
|
(87
|
)
|
|
|
(261
|
)
|
Deferred revenue
|
|
|
(182
|
)
|
|
|
584
|
|
Net cash used in operating activities
|
|
|
(4,116
|
)
|
|
|
(3,296
|
)
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Proceeds received from sale of digital currencies
|
|
|
88
|
|
|
|
—
|
|
Payments for note receivable
|
|
|
—
|
|
|
|
(201
|
)
|
Net cash provided by (used in) investing activities
|
|
|
88
|
|
|
|
(201
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Net (repayments) proceeds from factoring agreement
|
|
|
(803
|
)
|
|
|
763
|
|
Proceeds from common stock subscriptions, net of issuance costs
|
|
|
—
|
|
|
|
2,601
|
|
Proceeds from warrant exercises
|
|
|
5,731
|
|
|
|
|
|
Proceeds from exercise of options to purchase common stock
|
|
|
35
|
|
|
|
25
|
|
Series A convertible preferred stock redemptions and dividend payments
|
|
|
(6,240
|
)
|
|
|
—
|
|
Net cash (used in) provided by financing activities
|
|
|
(1,277
|
)
|
|
|
3,389
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash and restricted cash
|
|
|
26
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and restricted cash
|
|
|
(5,279
|
)
|
|
|
(68
|
)
|
Cash and restricted cash at the beginning of the period
|
|
|
6,344
|
|
|
|
308
|
|
Cash and restricted cash at the end of the period
|
|
$
|
1,065
|
|
|
$
|
240
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
213
|
|
|
$
|
185
|
|
Proceeds due from transfer agent for warrant exercises
|
|
$
|
361
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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”) is a provider of Multiscreen
as a Service (MaaS) solutions, an integrated customer engagement platform that enables organizations to develop customized, immersive,
branded mobile applications. The Company sells its services in vertical markets, including health care, retail, hospitality, transportation,
sports, and entertainment. The Company enables brands to engage, manage, and monetize their anytime-anywhere mobile users. 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 developers, the Company also maximizes mobile monetization through an advertising product suite including real-time bidding,
publisher mediation and yield optimization, cross-platform ad creation, and dynamic ad serving. Founded in 2009, the Company is
a Delaware corporation headquartered in Austin, Texas.
Business
Combination
On
February 27, 2018, Phunware entered into an Agreement and Plan of Merger, as amended (collectively, the “Merger Agreement”)
with Stellar Acquisition III, Inc. (“Stellar”). On December 26, 2018, the Company consummated the transaction contemplated
by the Merger Agreement (the “Reverse Merger and Recapitalization”). In connection with the closing of the Reverse
Merger and Recapitalization, the registrant changed its name from Stellar Acquisition III, Inc. to Phunware, Inc. (“Successor”).
Furthermore, the holders of Phunware’s preferred stock converted all of their issued and outstanding shares of preferred
stock into shares of Phunware common stock at a conversion ratio of one share of common stock for each share of preferred stock
(the “Preferred Stock Exchange”). Subject to the terms and conditions set forth in the Merger Agreement, at the effective
time of the Reverse Merger and Recapitalization (the “Effective Time”): (i) all shares of Phunware common stock and
preferred stock (the “Phunware Stock”) issued and outstanding immediately prior to the Effective Time (after giving
effect to the Preferred Stock Exchange) converted into the right to receive the Stockholder Merger Consideration (as defined below);
(ii) each outstanding warrant to acquire shares of Phunware Stock was cancelled, retired and terminated in exchange for the right
to receive from the Successor a new warrant for shares of Successor common stock with its price and number of shares equitably
adjusted based on the conversion of the shares of Phunware Stock into the Stockholder Merger Consideration, but with terms otherwise
the same as the Phunware warrant (each, a “Replacement Warrant”); and (iii) each outstanding option to acquire Phunware
Stock (whether vested or unvested) was assumed by the Successor and automatically converted into an option to acquire shares of
Successor common stock, with its price and number of shares equitably adjusted based on the conversion of the shares of Phunware
Stock into the Stockholder Merger Consideration (each, an “Assumed Option”). The shares of Successor common stock
and the Transferred Sponsor Warrants transferred to Phunware stockholders are collectively referred to as “Stockholder
Merger Consideration”. The per share Merger Consideration paid to Phunware Stockholders was 0.459 shares of Successor stock
for each share of Phunware Stock.
Unless
otherwise noted, the financial statements, footnotes, and basic and dilutive net loss per share presented give retroactive effect
of the Reverse Merger and Recapitalization.
Basis
of Presentation
The 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, 2018 was derived from
the Company’s audited consolidated financial statements, but these interim consolidated financial statements do not
include all the annual disclosures required by U.S. GAAP. These condensed interim 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, 2018, which are referenced herein. The accompanying interim consolidated financial statements as of March
31, 2019 and for the three months ended March 31, 2019 and 2018, are unaudited. The unaudited interim 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 March 31, 2019 and the results of operations for the three months ended March 31, 2019 and 2018, and cash flows for the
three months ended March 31, 2019 and 2018. The results for the three months ended March 31, 2019 are not necessarily
indicative of the results to be expected for the year ending December 31, 2019 or for any future interim period.
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 has a history of operating losses and negative operating
cash flows. Although the Company continues to focus on growing its revenues, it expects these trends to continue into the foreseeable
future.
The Company’s assessment included the preparation of a detailed
cash forecast that included all projected cash inflows and outflows. Future plans may include utilizing existing credit lines
and/or obtaining new credit lines, expanding credit lines, issuing additional 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 assured, and consequently do not sufficiently 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 concluded there is substantial doubt about its ability to
continue as a going concern through one year from the issuance of these 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 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 20, 2019 for the year ended December 31, 2018, other
than those described below.
Changes in Accounting Policies
On January 1, 2019, we adopted Financial Accounting Standards
Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with
Customers
, as amended (“ASU 2014-09”), and have revised certain related accounting policies in connection with
revenue recognition and deferred costs, as follows:
Revenue Recognition
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. The Company
enters 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.
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. Judgment is required to determine whether
a software license is considered distinct and accounted for separately, or not distinct and accounted for together with the software
support and services and recognized over time.
Platform Subscriptions and Services Revenue
The Company derives subscription revenue from software license
fees, which comprise subscription fees from customers licensing the Company’s Software Development Kits (SDKs), which includes
accessing the MaaS platform and/or MaaS platform data; application development service revenue from the development of customer
applications, or apps, which are built and delivered to customers; and support fees. The Company’s contract terms generally
range from 6 to 60 months, and are non-cancelable, though customers typically have the right to terminate their contracts for cause
if the Company materially fails to perform.
Subscription revenue from SDK licenses gives the customer the
right to access the Company’s MaaS platform. In accordance with ASC 606, a ‘right to access’ license is recognized
over the license period.
Application development revenue is derived from development
services around designing and building new applications or enhancing existing applications. The Company plans to recognize application
development revenue upon the transfer of control of the completed application or application development services.
Support revenue comprises of support and maintenance fees of
customer applications, software updates, and technical support for application development services for a support term. Support
revenue is recognized ratably over the support term.
From time to time, the Company also provides professional services
by outsourcing employees’ time and materials to customers. Such amounts are typically recorded as the services are delivered.
Application Transaction Revenue
The Company also generates revenue by charging advertisers
to deliver advertisements (ads) to users of mobile connected devices. Depending on the specific terms of each advertising contract,
the Company generally recognizes 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 the Company
recognizes revenue at the time the user views, clicks, or otherwise acts on the ad. The Company sells ads through several offerings:
cost per thousand impressions, on which advertisers are charged for each ad delivered to 1,000 consumers; cost per click, on which
advertisers are charged for each ad clicked or touched on by a user; and cost per action, on which advertisers are charged each
time a consumer takes a specified action, such as downloading an app. In addition, the Company generates application transaction
revenue thru in-app purchases from application on our platform.
In the normal course of business, the Company acts 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 the Company is acting as the principal or an agent in its transactions with advertisers. Control
is a determining factor in assessing principal versus agent relation. The determination of whether the Company is 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
indictors of when an entity controls specified goods or services and is therefore acting as a principal. Based on the indicators
of control, the Company has determined that it is the principal in all advertising arrangements because it is 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, the Company acts as the principal in
all advertising arrangements and therefore reports revenue earned and costs incurred related to these transactions on a gross basis.
The Company records deferred revenue when it receives cash payments
from advertiser clients in advance of when the services are performed under the arrangements with the customer. The Company recognizes
deferred revenue as revenue only when the revenue recognition criteria are met.
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. Actual results could differ from those estimates. Items subject to the use of estimates include
revenue recognition for contract completion, useful lives of long-lived assets including intangibles, valuation of intangible assets
acquired in business combinations, reserves and certain accrued liabilities, determination of the provision for income taxes, and
fair value of equity instruments.
Loss per Common Share
Basic net loss per share is computed by dividing net loss by
the weighted-average number of shares of common stock outstanding during the period. Restricted shares are subject to repurchase
provisions relating to early exercises under the Company’s 2009 Equity Incentive Plan and were excluded from basic shares outstanding.
Diluted net loss per share is computed by giving effect to all
potential shares of common stock, including those related to the Company’s outstanding warrants, 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 the period.
Fair
Value of Financial Instruments
Authoritative
guidance on fair value measurements defines fair value, establishes a consistent framework for measuring fair value, and expands
disclosures for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair
value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. 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. As a basis for considering such assumptions,
the authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair
value as follows:
Level
1 — Observable inputs such as quoted prices in active markets.
Level
2 — Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
Level
3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own
assumptions.
The
fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value.
The
carrying value of accounts receivable, 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.
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.
Revenue from Fox Networks Group (“Fox”) was 63%
compared to 66% of total revenue for the quarter ended March 31, 2019 and 2018, respectively. Revenue from Houston Methodist
was 13% of total revenue for the quarter ended March 31, 2019.
Fox accounted for 58% compared to 66% of accounts receivable,
net as of March 31, 2019 and December 31, 2018, respectively.
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 at March 31, 2019.
As a result of the Series A Financing (defined and discussed
further below), the Company had $5,500 in restricted cash as of December 31, 2018. The Company did not have any restricted cash
as of March 31, 2019.
Accounts
Receivable and Reserves
Accounts
receivable are presented net of allowances. The Company considers receivables past due based on the contractual payment terms.
The Company makes judgments as to its ability to collect outstanding receivables and records a bad debt allowance for receivables
when collection becomes doubtful. The allowances are based upon historical loss patterns, current and prior trends in its aged
receivables, credit memo activity, and specific circumstances of individual receivable balances. Accounts receivable consisted
of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Accounts receivable
|
|
$
|
6,015
|
|
|
$
|
6,882
|
|
Less allowances for doubtful accounts
|
|
|
(3,277
|
)
|
|
|
(3,276
|
)
|
Balance
|
|
$
|
2,738
|
|
|
$
|
3,606
|
|
Allowance for doubtful accounts related to the Company’s
litigation with Uber was $3,089 as of March 31, 2019 and December 31, 2018. (See Note 5 for more discussion on the Uber litigation.)
Long-Lived
Assets
In
accordance with authoritative guidance, the Company periodically re-evaluates the original assumptions and rationale utilized
in the establishment of the carrying value and estimated lives of all of its long-lived assets, including property and equipment.
The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive
income from operations and positive cash flow in future periods as well as the strategic significance of the asset to the Company’s
business objective. The Company did not recognize any impairment losses during the quarter ended March 31, 2019 or 2018, respectively.
Deferred
Revenue
The
Company’s deferred revenue balance consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Current deferred revenue
|
|
|
|
|
|
|
Platform subscriptions and services revenue
|
|
$
|
1,769
|
|
|
$
|
1,506
|
|
Application transaction revenue
|
|
|
115
|
|
|
|
133
|
|
PhunCoin deposits
|
|
|
1,020
|
|
|
|
990
|
|
Total current deferred revenue
|
|
$
|
2,904
|
|
|
$
|
2,629
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred revenue
|
|
|
|
|
|
|
|
|
Platform subscriptions and services revenue
|
|
$
|
4,447
|
|
|
$
|
5,622
|
|
Total non-current deferred revenue
|
|
$
|
4,447
|
|
|
$
|
5,622
|
|
Total deferred revenue
|
|
$
|
7,351
|
|
|
$
|
8,251
|
|
Emerging
Growth Company
Section
102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a Securities Act registration statement declared effective
or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial
accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with
the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has
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, can adopt the new or revised standard
at the time private companies adopt the new or revised standard.
Recently Adopted Accounting Policies
In May 2014, the FASB and the International Accounting Standards
Board jointly issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers
,
which supersedes the revenue recognition requirements in ASC 605,
Revenue Recognition
. ASU 2014-09 is a comprehensive new
revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP and International
Financial Reporting Standards. The standard’s core principle is that a company will recognize revenue when it transfers promised
goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange
for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current authoritative
guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration
to include in the transaction price, and allocating the transaction price to each separate performance obligation.
The Company elected to take advantage of the extended transition
period provided in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards. As a result, we adopted
the ASU and related guidance as of January 1, 2019 using the modified retrospective method.
The most significant impact of the standard relates to the elimination
of the requirement to have vendor specific objective evidence, or VSOE, of fair value to separate and recognize revenue for products
and services in a contract. The elimination of the VSOE requirement causes a significant change to the timing of revenue recognition
for multiple-element arrangements with our MaaS subscriptions, application development services and related support and maintenance
on the development services that lacked VSOE of fair value. Under ASC 606, we recognize the application development services at
the time of delivery to our customer and recognize the license subscription and support services ratably over the term of the subscription
agreements. Under ASC 605, we recognized all revenue from those arrangements ratably over the term of the subscription or
support agreements. Due to the complexity of certain of our revenue contracts, the actual revenue recognition treatment required
under the new standard depends on contract-specific terms and in some instances may vary from recognition at the time of delivery.
The timing of revenue recognized from professional services for our cloud offerings, perpetual licenses, professional services
and hardware remains substantially unchanged.
In addition, Accounting Standards Codification Subtopic 340-40,
Other Assets and Deferred Costs - Contracts with Customers, or ASC 340, requires us to recognize an asset for the incremental costs
of obtaining a contract with a customer if our sales incentive programs meet the requirements for capitalization. Previously we
recorded these incremental costs of obtaining a contract as commission expense when we booked a sales transaction; whereas under
ASC 340, we record an asset for the incremental cost to obtain a contract and recognize the cost over the period commensurate with
revenue recognition.
In connection with our adoption of ASC 606 on January 1, 2019,
there was an increase to the Company’s deferred income tax liabilities and an offsetting reduction in the valuation allowance
recorded against deferred tax assets. No income tax impact was recorded to retained earnings upon adoption as a result
of the full valuation allowance on United States deferred tax assets. During the three months ended March 31, 2019,
there is no income tax expense or benefit recorded as a result of the adoption of the ASC 606.
As a result of the adoption of ASC 606, the Company recorded a $1,087 decrease to
accumulated deficit as of January 1, 2019.
The decrease to accumulated deficit consisted of a decrease
in total liabilities of $718 related to deferred revenue for platform subscriptions and services and an increase in total assets
of $369 related to deferred costs for sales commissions. Results for reporting periods beginning January 1, 2019 are presented
under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting
under ASC 605.
When implementing ASC 606, the Company applied the practical
expedient to reflect the aggregate effect of all contracts that were not completed as of January 1, 2019 when identifying satisfied
and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied
and unsatisfied performance obligations.
Select condensed consolidated balance sheet line items, which
reflect the adoption of the new standard, are as follows:
|
|
Balance at December 31, 2018
|
|
|
Adjustments due to ASU 2014-09
|
|
|
Balance at January 1, 2019
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
$
|
272
|
|
|
$
|
369
|
|
|
$
|
641
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue short-term
|
|
$
|
2,629
|
|
|
$
|
(465
|
)
|
|
$
|
2,164
|
|
Deferred revenue long-term
|
|
$
|
5,622
|
|
|
$
|
(253
|
)
|
|
$
|
5,369
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
$
|
(111,820
|
)
|
|
$
|
1,087
|
|
|
$
|
(110,733
|
)
|
The impact as a result of applying ASC 606 was a decrease of $182
to net revenues and an increase of $46 to sales and marketing expense within the condensed consolidated statement of operations
and comprehensive loss for the three months ended March 31, 2019.
The impact of applying ASC 606 was an increase to prepaid expenses
of $323 and a decrease of $321 and $215 of current deferred revenue and long term deferred revenue, respectively, in the condensed
consolidated balance sheet as of March 31, 2019.
In November 2016, the FASB issued ASU 2016-18,
Statement
of Cash Flows (Topic 230): Restricted Cash
(“ASU 2016-18), which provides amendments to current guidance to address
the classification and presentation of changes in restricted cash in the statement of cash flows. We adopted ASU 2016-18
effective January 1, 2019 on a retrospective basis. The adoption of this guidance changed the presentation of restricted
cash on the Company’s condensed consolidated statement of cash flows for the three months ended March 31, 2019. There
was no impact to the Company’s condensed consolidated statement of cash flows for the three months ended March 31,
2018.
In August 2018, the Security Exchange Commission (SEC) adopted
the final rule under SEC Release No. 33-10532, “Disclosure Update and Simplification,” amending certain disclosure
requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure
requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis
of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate
statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which
a statement of comprehensive income is required to be filed. This final rule is effective on November 5, 2018. The Company adopted
this disclosure with the first presentation included in this Report.
Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02,
Leases
(Topic 842). The core principle of Topic 842 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 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. The accounting applied by a lessor is largely unchanged from that applied under
previous generally accepted accounting principles. This ASU is effective for the Company for fiscal years beginning after December
15, 2019, and interim periods within those fiscal years. Earlier application is permitted. In transition, lessees and lessors are
required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.
The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.
In January 2017, the FASB issued ASU 2017-01 Business Combinations (Topic 805): Clarifying the Definition
of a Business. ASU 2017-01 provides a new framework for entities to determine whether a set of assets and activities (together
referred to as “a set”) is a business. The amendments in the ASU will assist entities when they evaluate whether transactions
should be accounted for as acquisitions (or disposals) either of businesses or of assets. This distinction is important since
there are significant differences between the accounting for business combinations and the accounting for acquisitions of assets.
Public business entities should apply the amendments to Topic 805 to annual periods beginning after December 15, 2017, including
interim periods within those periods. All other entities should apply the amendments to annual periods beginning after December
15, 2018, and interim periods within annual periods beginning after December 15, 2019. As the Company is an emerging growth company,
it has elected to defer implementation. The Company does not believe there will be a material impact to the consolidated financial
statements upon adoption.
In January 2017, the FASB issued ASU 2017-04 Intangibles—Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill Impairment. 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. Public business entities that are SEC
filers should adopt the amendments in this ASU for their annual or any interim goodwill impairment tests in fiscal years beginning
after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual
or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. All other entities, including not-for-profit
entities, that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests
in fiscal years beginning after December 15, 2021. Early adoption is permitted for interim or annual goodwill impairment tests
performed on testing dates after January 1, 2017. We do not anticipate the adoption of ASU 2017-04 will have a material impact
on our consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement. ASU 2018-13 improves the effectiveness of disclosures about fair value measurements required
under ASC 820. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant
unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty
should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.
All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted
upon issuance of this Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this
Update and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the impact
this ASU has on its consolidated financial statements.
3.
Reverse Merger
On February 27, 2018, Phunware entered into an Agreement and
Plan of Merger, as amended (collectively, the “Merger Agreement”) with Stellar Acquisition III, Inc. (“Stellar”).
On December 26, 2018, the Company consummated the transaction contemplated by the Merger Agreement (the “Reverse Merger and
Recapitalization”). In connection with the closing of the Reverse Merger and Recapitalization, the registrant changed its
name from Stellar Acquisition III, Inc. to Phunware, Inc. (“Successor”). Furthermore, the holders of Phunware’s
preferred stock converted all of their issued and outstanding shares of preferred stock into shares of Phunware common stock at
a conversion ratio of one share of common stock for each share of preferred stock (the “Preferred Stock Exchange”).
Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Reverse Merger and Recapitalization
(the “Effective Time”): (i) all shares of Phunware common stock and preferred stock (the “Phunware Stock”)
issued and outstanding immediately prior to the Effective Time (after giving effect to the Preferred Stock Exchange) converted
into the right to receive the Stockholder Merger Consideration (as defined below); (ii) each outstanding warrant to acquire shares
of Phunware Stock was cancelled, retired and terminated in exchange for the right to receive from the Successor a new warrant for
shares of Successor common stock with its price and number of shares equitably adjusted based on the conversion of the shares of
Phunware Stock into the Stockholder Merger Consideration, but with terms otherwise the same as the Phunware warrant (each, a “Replacement
Warrant”); and (iii) each outstanding option to acquire Phunware Stock (whether vested or unvested) was assumed by the Successor
and automatically converted into an option to acquire shares of Successor common stock, with its price and number of shares equitably
adjusted based on the conversion of the shares of Phunware Stock into the Stockholder Merger Consideration (each, an “Assumed
Option”). The shares of Successor common stock and the Transferred Sponsor Warrants transferred to Phunware stockholders
are collectively referred to as “Stockholder Merger Consideration”. The aggregate merger consideration paid pursuant
to the Merger Agreement to Phunware stockholders amounted to approximately $301 million plus adjustments for cash on-hand as of
the date of Closing. The merger consideration paid to Phunware stockholders was paid in the form of shares of Successor common
stock. In addition, each holder of Phunware common and convertible preferred stock was entitled to elect to receive such holder’s
pro rata share of up to an aggregate of 3,985,244 warrants (the “Transfer Sponsor Warrants”) to purchase shares of
Successor common stock that are currently held by certain shareholders of Stellar. The Transfer Sponsor Warrants have the
same terms as the Private Placement Warrants described in more detail in Note 8 below. The per share Merger Consideration paid
to Phunware Stockholders was 0.459 shares of Successor stock for each share of Phunware Stock.
As consideration for the Transfer Sponsor Warrants transferred
to Phunware shareholders, a promissory note was issued to the Sponsors (the “Transfer Sponsor Warrant Note”). The amount
of the note was approximately $1,993, which represented $0.50 per warrant transferred to former stockholders of Phunware. The Transfer
Sponsor Warrant Note bore no interest and was to mature on December 26, 2019. Shareholders of Phunware forfeited 187,188 shares
to receive 3,985,244 Transfer Sponsor Warrants. On January 15, 2019, the Transfer Sponsor Warrant Note was waived and forgiven
by the noteholders.
The Company issued 2,211,572 Private
Placement Warrants to the Sponsors as repayment in full for certain promissory notes (not the Transfer Sponsor Warrant Note)
at the closing of the Reverse Merger and Recapitalization.
In
connection with the consummation of the Reverse Merger and Recapitalization, certain holders of shares of Stellar common stock
sold in its initial public offering (“Public Shares”) exercised their right to redeem their Public Shares for cash.
As a result of these redemptions, the cash proceeds to the Company as a result of the Reverse Merger and Recapitalization was
$0.4 million before transaction costs.
In addition, 6,000 shares for aggregate cash proceeds of
$6.0 million from the Series A 8% convertible preferred stock financing (“Series A Financing”) were issued in
conjunction with the Reverse Merger and Recapitalization. In connection with the Series A Financing, certain Stellar
shareholders transferred an aggregate of 250,000 shares of Stellar common stock and 250,000 warrants to purchase shares of
Stellar common stock to the Series A Financing investor, and 181,391 shares to certain service providers. See Note 7 for
additional discussion on the Series A Financing.
The Sponsors are Astra Maritime Inc. and Dominium Investments
Inc., affiliated with the Company’s Chairman of the board of directors and Magellan Investments Corp. and Firmus Investments
Inc., affiliated with a member of our board of directors.
4.
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 was 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.
Factor expense of $186 and $201 for the three months ended March
31, 2019 and 2018 respectively, is recorded as interest expense in other expense in the condensed consolidated statements of operations
and comprehensive loss. The amount of factored receivables outstanding was $1,631 and $2,434 as of March 31, 2019 and December
31, 2018, respectively. There was $1,369 and $566 available for future advances as of March 31, 2019 and December 31, 2018, respectively.
5.
Commitments and Contingencies
Leases
The
Company has operating office space leases in Austin, Texas; Newport Beach, California; San Diego, California; and Miami, Florida.
Rent expense under operating leases totaled $165 and $152 for the three months ended March 31, 2019 and 2018, respectively.
Future
minimum annual lease payments under the Company’s operating leases are as follows:
Future minimum lease obligations years ended December 31,
|
|
Lease
Obligations
|
|
2019 (Remainder)
|
|
$
|
407
|
|
2020
|
|
|
164
|
|
2021
|
|
|
119
|
|
2022
|
|
|
119
|
|
2023
|
|
|
59
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
868
|
|
Litigation
On September 26, 2017, we filed a breach of contract complaint
against Uber Technologies, Inc. seeking approximately $3 million (plus interest) for unpaid invoices for advertising campaign services
provided for Uber in the first quarter of 2017. The case, captioned
Phunware, Inc. v. Uber Technologies, Inc.
, Case
No. CGC-17-561546 was filed in the Superior Court of the State of California County of San Francisco. On November 13, 2017, Uber
generally denied the allegations in our complaint and also filed a cross-complaint against us and Fetch — the advertising
agency Uber retained to run its mobile advertising campaign for the period 2014 through the first quarter of 2017 (the “Fetch
Campaign”), asserting numerous fraud and contract-based claims. All the claims stem from Uber’s assertion that Fetch
and/or we (and/or other-as-yet-unidentified ad networks and publishers) are liable for the fraud-infested Fetch Campaign, under
which Uber overpaid Fetch and mobile advertising providers due to fraudulent attribution for installments of the Uber application.
Uber does not allege any specific dollar amount that it is seeking in damages against either of the named cross-defendants (Fetch
and Phunware). We filed a motion to dismiss the cross-complaint, which was heard on February 7, 2018. The motion was granted in
part and denied in part by the Court. On April 16, 2018, the action was designated complex, and the matter has been assigned for
all purposes to Judge Wiss of the Superior Court of California, San Francisco County (Department 305). Uber and Fetch have reached
an agreement in principle to settle Uber’s claims against Fetch on terms that have not been disclosed to Phunware at this
time. The Court has set a trial date of August 12, 2019. The parties have exchanged documents in discovery and depositions are
underway. We maintain that our claims against Uber are meritorious and that Uber’s claims against us are not. However, we
make no predictions on the likelihood of success of prevailing on our contract action against Uber or on the likelihood of defeating
Uber’s claims against us.
From
time to time, the Company is 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.
6.
PhunCoin
In
June 2018, PhunCoin, Inc., the Company’s wholly-owned subsidiary, launched an offering pursuant to Rule 506(c) of Regulation
D as promulgated under the Securities Act of rights (the “Rights”) to acquire PhunCoin (the “Token”).
PhunCoin, Inc. accepts payment in the form of cash and digital
currencies for purchases of the Rights. PhunCoin, Inc. plans to sell between $10 million and $100 million of the Rights, which
will entitle the Rights holders to receive between approximately 8 billion and 30.5 billion of PhunCoin. 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 Token Generation Event (as defined below) before taking into consideration an applicable
discount rate, which is based on the time of the purchase (early purchasers will receive a larger discount rate).
Since June 2018, the Company received cash proceeds from its
Rights offering of $1,020, pursuant to which the holders of the Rights will receive an aggregate of approximately 484.5 million
PhunCoin if the Token Generation Event occurs. The Company recorded proceeds from the Rights sale as current deferred revenue in
its consolidated balance sheet.
The
rights, privileges, and obligations of Rights holders are set forth as follows:
Issuance
of PhunCoin Tokens
The PhunCoin is expected to be issued to Rights holders the
earlier of (i) the launch of PhunCoin, Inc.’s blockchain technology enabled rewards marketplace and data exchange (“Token
Generation Event”), (ii) one (1) year after the issuance of the Rights to the purchaser, or (iii) the date PhunCoin, Inc.
determines that it has the ability to enforce resale restrictions with respect to PhunCoin pursuant to applicable federal securities
laws. Proceeds from the Rights offering are generally not refundable if the Token Generation Event is not consummated; however,
the Company believes PhunCoin, Inc. has a contractual obligation to use good faith efforts to issue a Token to Rights holders under
the Token Rights Agreement.
The Company currently anticipates that PhunCoin will be issued
to the holders of the Rights within one year after the Rights are acquired, which would be as early as June 2019 with respect to
the earliest Rights sold, although we expect that the PhunCoin Ecosystem will not be operational until a later date. Holders of
the Rights may be issued PhunCoin even if the Ecosystem is not yet operational. PhunCoin will have no usefulness until the PhunCoin
Ecosystem is operational because PhunCoin is expected to only be useable on the PhunCoin Ecosystem.
There can be no assurance as to when (or if) the Company will
be able to successfully launch the PhunCoin Ecosystem. The Company is currently developing multiple aspects of the PhunCoin Ecosystem
and expects that a review (beta) period will likely conclude during the third quarter of 2019. The final software readiness date
of the PhunCoin Ecosystem may be adjusted based on user feedback provided in the review (beta) period and thus a specific launch
date is difficult to determine at this time, as it is based on many external factors outside of our control.
Termination
of the Token Rights Agreement
Termination
of the Token Rights Agreement occurs on the earlier of (i) PhunCoin being issued to the Rights holder pursuant to the provisions
noted above, (ii) the payment, or setting aside of payment with respect to a dissolution event (as described below), or (iii)
twelve months from the date of the Token Rights Agreement with the Rights holder, which PhunCoin, Inc. may extend at its sole
discretion if a Token Generation Event has not occurred. Upon termination of the Token Rights Agreement, PhunCoin, Inc. has no
further obligation to the Rights holder.
Dissolution
Event
A dissolution event occurs if there has been (i) a voluntary
termination of PhunCoin, Inc.’s operations, (ii) a general assignment for the benefit of PhunCoin, Inc.’s creditors,
(iii) a change of U.S. laws that makes the use or issuance of PhunCoin or the Token Generation Event impractical or unfeasible,
or (iv) any other liquidation, dissolution or winding up of PhunCoin, Inc.
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 PhunCoin, Inc.in its operations or for the development of the PhunCoin
Ecosystem, such remaining proceeds would be distributed pro rata to purchasers in the Rights offering following any distributions
to holders of PhunCoin, Inc.’s 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, PhunCoin, Inc. or any subsidiaries of the Company.
7.
Series A Convertible Preferred Stock
In connection to the consummation of the Reverse Merger and
Recapitalization, Phunware issued 6,000 shares to a single investor for aggregate cash proceeds of $6.0 million from the Series
A 8% convertible preferred stock financing (“Series A Financing”) with stated value of $1,000 per share. The Company
deposited $5.5 million of the $6 million proceeds into a restricted escrow account in accordance with the securities purchase agreement
entered into with the investor.
The
shares are mandatorily redeemable in cash at the following schedule; (i) 104% of the aggregate value of three thousand (3,000)
shares on the 30 day anniversary of the issuance; (ii) 104% of the aggregate value of two thousand five hundred (2,500) shares
on the 60th anniversary of the original issue; and (iii) 104% of the aggregate value of five hundred (500) shares of the 90th
anniversary of the original issue.
The Preferred Stock is also convertible into shares of the Company’s
common stock at the option of the holder at a price of $11.50 per share, subject to adjustments for stock dividends, stock splits
and other recapitalization type events and antidilutive events which would include subsequent issuances of equity or equity linked
securities at prices more favorable than the conversion price of these preferred shares. Generally, the Preferred Stock does not
have voting rights. Should the holder wish to convert, not later than two days after making the election, the Company shall deliver
to the holder the number of conversion shares being acquired upon the conversion of the Preferred Stock. The holder did not convert
any of the Series A convertible preferred stock prior to the redemption dates.
On the 30-day, 60-day, and 90-day anniversaries of the
issuance, the holder redeemed an aggregate of 6,000 shares of the Series A convertible preferred stock for total proceeds of
$6,240, representing $6,000 original issue price and $240 of dividends. Of the proceeds paid to the holder, $5.5 million was
paid from the restricted cash account, and $740 from the Company’s operating account.
In the event of liquidation, dissolution or winding up of the
Company the Preferred Stock would be entitled to receive assets ahead of the Company’s common stockholders. Total preferred
stock authorized to be issued as of March 31, 2019 was 100,000,000, with a par value of $0.0001 per share. There were 0 and 6,000
shares of preferred stock outstanding as of March 31, 2019 and December 31, 2018, respectively.
8.
Stockholders’ Equity
Common
Stock
Total common stock authorized to be issued as of March 31, 2019
was 1,000,000,000, with a par value of $0.0001 per share. At March 31, 2019 and December 31, 2018, there were 38,363,792 and 27,294,164
shares outstanding, inclusive of 33,102 and 40,707 restricted shares subject to repurchase for unvested shares related to early
option exercises under the Company’s stock equity plans, respectively.
During fiscal year 2018, the Company completed several closings
of stock financings resulting in the issuance of 1,085,096 shares for aggregate cash proceeds of $9,565, net of issuance costs.
During the first quarter of 2019, the Company issued an aggregate
of 11,016,681 shares of common stock related to various cash and cashless (net) exercises of warrants for common stock. Cash exercises
for warrants for 617,296 shares of common stock resulted in aggregate gross proceeds of approximately $6,184, of which $5,731
was received in cash, $92 was received in digital currencies, and $361 is recorded as a miscellaneous receivable in prepaid and
other current assets due from the Company’s transfer agent for proceeds received on our behalf. The Company received these
proceeds subsequent to the balance sheet date. Furthermore, there were 12,625,288 warrants exercised under cashless (net) provisions
resulting in the issuance of 10,399,385 shares of common stock. See further discussion regarding details of the Company’s
various warrants below.
Dividends
Dividends
are paid on a when-and-if-declared basis. The Company has not declared any dividends through March 31, 2019.
Warrants
A
summary of the Company’s warrant activity by warrant type is as follows:
|
|
Cash Exercise
Price per
|
|
|
Warrants/UPO’s Outstanding
December 31,
|
|
|
Warrants issued
for UPO
|
|
|
Warrants/UPO’s Exercised
|
|
|
Warrants Outstanding
March 31,
|
|
Warrant Type
|
|
share
|
|
|
2018
|
|
|
exercises
|
|
|
Cash
|
|
|
Cashless
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant (Series D-1)
|
|
$
|
5.54
|
|
|
|
14,866
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,866
|
|
Common stock warrants (Series F)
|
|
$
|
9.22
|
|
|
|
1,085,059
|
|
|
|
-
|
|
|
|
(400,740
|
)
|
|
|
(306,917
|
)
|
|
|
377,402
|
|
Public Warrants (PHUNW)
|
|
$
|
11.50
|
|
|
|
6,900,610
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,798,678
|
)
|
|
|
3,101,932
|
|
Private Placement Warrants
|
|
$
|
11.50
|
|
|
|
10,182,060
|
|
|
|
-
|
|
|
|
(216,556
|
)
|
|
|
(8,297,693
|
)
|
|
|
1,667,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit Purchase Options (UPO’s)
|
|
$
|
11.50
|
|
|
|
130,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(130,000
|
)
|
|
|
-
|
|
Unit Purchase Option Warrants
|
|
$
|
11.50
|
|
|
|
|
|
|
|
116,172
|
|
|
|
-
|
|
|
|
(92,000
|
)
|
|
|
24,172
|
|
Total
|
|
|
|
|
|
|
18,312,595
|
|
|
|
116,172
|
|
|
|
(617,296
|
)
|
|
|
(12,625,288
|
)
|
|
|
5,186,183
|
|
In 2012, the Company issued a warrant to purchase an aggregate
of 14,866 shares of the Company’s common stock with an exercise price of $5.54 per share to a banking institution with which
the Company previously had a revolving line of credit. The term of the warrant is the earlier of (i) the tenth anniversary of the
date of issuance, (ii) the closing of the initial registered public offering of the Company’s common stock, or (iii) the
closing of an acquisition (as defined in the warrant) where the consideration consisting of cash or publicly traded securities
payable in connection with the acquisition for each share is at least three (3) times the exercise price. The Reverse Merger and
Acquisition did not trigger an expiration of the warrant pursuant to term (ii) or (iii) above. These warrants are fully vested.
In 2018, but prior to the Reverse Merger and Recapitalization,
the Company issued warrants to purchase an aggregate of 1,085,059 shares of the Company’s common stock with an exercise price
of $9.22 per share. The term of the warrants is the earlier of (i) the fifth anniversary of the date of issuance, (ii) an acquisition,
merger, or consolidation of the Company or a sale, lease or other disposition of all or substantially all of the assets of Phunware
and its subsidiaries, except (a) any sale of stock for capital raising purposes, (b) purpose of changing the Company’s state
of incorporation, and (c) where the shareholders 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 and Acquisition did not trigger an expiration of the warrant pursuant to term (ii) or (iii) above. These warrants are fully
vested.
The Company has common stock warrants trading under the Nasdaq
ticker symbol PHUNW (the “Public Warrants”). Under the terms of the warrant agreement, the Company has agreed to use
its best efforts to file a new registration statement under the Securities Act to register the shares of common stock underlying
the Public Warrants, following the completion of the Reverse Merger and Recapitalization. Each Public Warrant entitles the holder
to purchase one share of common stock at an exercise price of $11.50. No fractional shares will be issued upon exercise of the
Public Warrants. As of December 31, 2018, the Public Warrants were not exercisable; however, the Public Warrants became exercisable
for cash 30 days after the completion of the Reverse Merger and Recapitalization. An effective registration statement was
not on file with the SEC covering the shares of common stock issuable upon exercise of the Public Warrants within 90 days from
the consummation the Reverse Merger and Recapitalization. As a result, until such time as there is an effective registration statement
and during any period when we have failed to maintain an effective registration statement, holders may exercise warrants on a cashless
basis pursuant to an available exemption from registration under the Securities Act. The Public Warrants will expire five years
after the completion of the Reverse Merger and Recapitalization or earlier upon redemption or liquidation.
The Company also has Private Placement Warrants outstanding
(the “Private Placement Warrants”). Each Private Placement Warrant entitles the holder to purchase one share of common
stock at $11.50 per share. The Private Placement Warrants became exercisable 30 days after the completion of the Reverse Merger
and Recapitalization. The Private Placement Warrants are exercisable for cash (even if a registration statement covering the common
stock issuable upon exercise of such warrants is not effective) or on a cashless basis, at the holder’s option and will not
be redeemable in each case so long as they are still held by the initial purchasers or their affiliates.
Unit Purchase Option
The Company sold to the underwriters for its initial public
offering in 2016 an option to purchase up to a total of 130,000 units, at an exercise price of $11.50 per unit. The units are comprised
of one share of common stock and one warrant to purchase common stock. The unit purchase option may be exercised for cash or on
a cashless basis, at the holder’s option, at any time during the period commencing on the closing of the Reverse Merger and
Recapitalization and terminating on the fifth anniversary of the Reverse Merger and Recapitalization. The units issuable upon exercise
of this option are identical to those offered in the Company’s initial public offering in 2016. The unit purchase option
may be exercised for cash or on a “cashless” basis, at the holder’s option, such that the holder may use the
appreciated value of the unit purchase option (the difference between the exercise prices of the unit purchase option and the underlying
Warrants and the market price of the Units and underlying ordinary shares) to exercise the unit purchase option without the payment
of cash.
PhunCoin Warrant
In 2018, the Company issued warrants to receive an aggregate
of approximately 27.4 billion PhunCoins to sixty-eight (68) stockholders. Should the Company complete a Token Generation Event,
the stockholders would receive their requisite amount of PhunCoin. The Company believes there is no traditional “exercise
period” or ‘term” as with other typical embedded features, and the PhunCoin warrants were originally issued in
conjunction with the Company’s Series F Preferred Stock financing. The PhunCoin warrants lack characteristics of financial
instruments and derivatives. In addition, the PhunCoin warrants do not obligate the Company to achieve the Token Generation Event
or launch and distribute the PhunCoins to the warrantholders. Currently, there is no market for PhunCoin, and they do not
exist. Accordingly, at the time of the issuance, the Company has determined there is no value assigned to the warrants of PhunCoin
issued to the stockholders.
9.
Stock-Based Compensation
2018
Equity Incentive Plan
In connection with the consummation of the Reverse Merger and
Recapitalization, our board of directors adopted, and our stockholders approved, the 2018 Equity Incentive Plan (the “2018
Plan”). The purposes of the 2018 Plan are to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentives to employees, directors and consultants who perform services to 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.
The number of shares of common stock available for issuance
under the 2018 Plan will also include an annual increase on the first day of each fiscal year, equal to the lesser of: (i) 10%
of the post-closing outstanding shares of common stock; (ii) 5% of the outstanding shares of common stock on the last day of the
immediately preceding fiscal year; or (iii) such other amount as our board of directors may determine.
In addition, the shares of common stock reserved for issuance
under the 2018 Plan also will include any shares of common stock subject to stock options, restricted stock units or similar awards
granted under the 2009 Equity Incentive Plan (the “2009 Plan”), that, on or after the Reverse Merger and Recapitalization,
are assumed in connection with the Reverse Merger and Recapitalization, 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, on or after the Reverse Merger and
Recapitalization, are forfeited to or repurchased by us. As of March 31, 2019, the maximum number of shares of common stock that
may be added to the 2018 Plan pursuant to the foregoing equals 2,077,555.
As of March 31, 2019, no awards have been granted under the
2018 Plan. The 2018 Plan had 3,001,620 and 2,729,416 shares of common stock reserved for issuance as of March 31, 2019 and December
31, 2018, respectively.
2018 Employee Stock Purchase Plan
Also, in connection with the consummation of the Reverse Merger
and Recapitalization, our board of directors adopted, and our stockholders approved, the 2018 Employee Stock Purchase Plan (the
“2018 ESPP”). The 2018 ESPP will be administered by our board of directors or a committee appointed by the board (the
“administrator”). The purpose of the 2018 ESPP is to provide eligible employees with an opportunity to purchase shares
of our common stock through accumulated contributions. The 2018 ESPP permits participants to purchase shares of common stock through
contributions (generally in the form of payroll deductions) of up to an amount of their eligible compensation determined by the
administrator. Subject to certain other limitations or unless otherwise determined by the administrator, a participant may purchase
a maximum of 2,000 shares of common stock during a purchase period. The offering periods under the 2018 ESPP will begin on such
date as determined by the administrator and expire on the earliest to occur of (a) the completion of the purchase of shares on
the last exercise date occurring within 27 months of the applicable enrollment date of the offering period on which the purchase
right was granted, or (b) a shorter period established by the administrator prior to an enrollment date for all options to be granted
on such enrollment date. Amounts deducted and accumulated by the participant are used to purchase shares of common stock on each
exercise date. The purchase price of the shares will be determined by the administrator but in no event will be less than 85% of
the lower of the fair market value of common stock on the enrollment date or on the exercise date. Participants may end their participation
at any time during an offering period and will be paid their accrued contributions that have not yet been used to purchase shares
of common stock. Participation ends automatically upon termination of employment with the Company.
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) 3% of the expected post-closing
outstanding 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.
As of March 31, 2019, the Company has not consummated an enrollment
or offering period related to the 2018 ESPP. The 2018 ESPP had 1,228,237 shares of common stock available for sale and reserved
for issuance as of March 31, 2019 and December 31, 2018.
2009
Equity Incentive Plan
In 2009, the Company adopted its 2009 Equity Incentive Plan
(the “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 is generally equal to the value
of the Company’s common stock on the date of grant, as determined by the Company’s board of directors. The awards are
exercisable and vest, generally over four years, in accordance with each option agreement. The term of each option is no more than
ten years from the date of the grant. The Plan allows for options to be immediately exercisable, subject to the Company’s
right of repurchase for unvested shares at the original exercise price. The total amount received in exchange for these shares
has been included in accrued expenses on the accompanying consolidated balance sheets and is reclassified to equity as the shares
vest. As of March 31, 2019 and December 31, 2018, 33,102 and 40,707 shares were unvested amounting to $30 and $34 in accrued expenses,
respectively. Effective with the Reverse Merger and Recapitalization, no additional grants will be made under the Plan.
Stock-Based Compensation
A summary of the Company’s stock option activity under
the Plan and related information is as follows:
|
|
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term (years)
|
|
|
Aggregate Intrinsic Value
|
|
12/31/2018
|
|
Beginning Outstanding
|
|
|
2,364,823
|
|
|
$
|
0.90
|
|
|
|
8.12
|
|
|
$
|
71,332
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(50,772
|
)
|
|
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Expired
|
|
|
(269,598
|
)
|
|
|
1.71
|
|
|
|
|
|
|
|
|
|
3/31/2019
|
|
Ending Outstanding
|
|
|
2,044,453
|
|
|
$
|
0.81
|
|
|
|
7.45
|
|
|
$
|
26,341
|
|
3/31/2019
|
|
Exercisable
|
|
|
1,163,786
|
|
|
$
|
0.59
|
|
|
|
6.46
|
|
|
$
|
15,250
|
|
The aggregate intrinsic value of options exercised was $7,128
and $16 for the three months ended March 31, 2019 and 2018, respectively. The total fair value of options vested was $45 and $124
for the three months ended March 31, 2019 and 2018, respectively.
The fair value of stock options granted is estimated on the
date of grant using the Black-Scholes option-pricing model. The following table sets forth information relating to stock options
granted:
|
|
Three Months
Ended March 31,
|
|
|
|
2018
|
|
Weighted average risk-free rate
|
|
|
2.41
|
%
|
Expected dividend yield
|
|
|
—
|
|
Weighted average expected life (years)
|
|
|
6.08
|
|
Weighted average volatility
|
|
|
56.78
|
%
|
The Company did not grant any options during the three months
ended March 31, 2019.
Compensation costs that have been included on the Company’s
consolidated statements of operations and comprehensive loss for all stock-based compensation arrangements are detailed as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
Stock-based compensation
|
|
2019
|
|
|
2018
|
|
Cost of revenues
|
|
$
|
14
|
|
|
$
|
4
|
|
Sales and marketing
|
|
|
(25
|
)
|
|
|
2
|
|
General and administrative
|
|
|
23
|
|
|
|
124
|
|
Research and development
|
|
|
(1
|
)
|
|
|
19
|
|
Total stock-based compensation
|
|
$
|
11
|
|
|
$
|
149
|
|
The Company recognizes forfeitures as they occur. Unrecognized
stock comp expense was $456 and $475 as of March 31, 2019 and 2018, respectively.
10.
Domestic and Foreign Operations
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 March 31, 2019 and December
31, 2018, all of the Company’s identifiable long-lived assets were in the United States. We derived over 99% of our net revenues
from within the United States for the three months ended March 31, 2019 and 2018.
11.
Related-Party Transactions
As consideration for the Transfer Sponsor Warrants transferred
to Phunware shareholders, a promissory note was issued to the Sponsors (the “Transfer Sponsor Warrant Note”). The amount
of the note was approximately $1,993, which represented $0.50 per warrant transferred to former stockholders of Phunware. The Transfer
Sponsor Warrant Note bears no interest. The Transfer Sponsor Warrants have an exercise price of $11.50 per share. The Transfer
Sponsor Warrant Note shall mature on December 26, 2019. The Transfer Sponsor Warrant Note was waived and forgiven by the noteholders
on January 15, 2019.
With the Reverse Merger and Recapitalization, the Company assumed
$255 in payables from Stellar for Nautilus Energy Management Corporation, an affiliate of two members of the Company’s board
of directors. This balance remains outstanding and is recorded in accounts payable as of March 31, 2019.
12.
Subsequent Events
The Company has evaluated subsequent events through May 15,
2019.
In 2019, our subsidiary, PhunCoin, Inc, commenced an offering
of Rights pursuant to Regulation CF. On May 1, 2019, the Company closed the offering having raised $177, pursuant to which the
holders of the Rights will receive an aggregate of approximately 88.7 million PhunCoin if the Token Generation Event occurs.
Through the date noted above, 1,350,033 warrants were exercised
via cashless provisions that resulted in the issuance of 513,761 shares of common stock.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
References
in this section to “we,” “us” or “the Company” refer to Phunware. References to “management”
or “management team” refer to Phunware’s officers and directors.
The following discussion and analysis of
Phunware’s financial condition and results of operations should be read in conjunction with Phunware’s consolidated
financial statements and the related notes to those statements presented in “
Part I – Item 1. Financial Statements.
”
In addition to historical financial information, the following discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions. Phunware’s actual results and timing of selected events may differ materially
from those anticipated in these forward-looking statements as a result of many factors, including those discussed in the section
titled “
Risk Factors
” and elsewhere in this Report.
Certain
figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage
figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of
such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing
the same calculations using the figures in our consolidated financial statements or in the associated text. Certain other amounts
that appear in this section may similarly not sum due to rounding.
Overview
Phunware,
Inc. 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.
Its offerings include:
|
●
|
Enterprise
mobile software including content management, location-based services, marketing automation, business intelligence and analytics,
alerts, notifications and messaging, audience engagement, audience monetization, vertical solutions and cryptonetworking,
MaaS software application framework that pre-integrates all of our MaaS software ingredients for use within mobile application
portfolios, solutions and services;
|
|
●
|
Application
transactions for mobile audience building, user acquisition, application discovery, audience engagement, audience monetization;
and
|
|
●
|
Data
for data enrichment expanding connections and attributes of a Phunware ID and building custom audience for use in mobile media
campaigns.
|
Additionally,
we plan to launch PhunCoin, a blockchain-powered token and ecosystem that enables consumers, brands and application developers
to transact directly and create a value-based and voluntary data exchange.
We
intend to continue investing for long-term growth. We have invested and expect to continue investing in expanding our ability
to market, sell and provide our current and future products and services to clients globally. We also expect to continue investing
in the development and improvement of new and existing products and services to address client needs. We currently do not expect
to be profitable in the near future.
Key
Business Metrics
Our
management regularly monitors certain financial measures to track the progress of its business against internal goals and targets.
We believe that the most important of these measures include backlog and deferred revenue and dollar-based revenue retention rate.
Backlog
and Deferred Revenue.
Backlog represents future amounts to be invoiced under our current agreements. At any point in the contract
term, there can be amounts that we have not yet been contractually able to invoice. Until such time as these amounts are invoiced,
they are not recorded in revenues, deferred revenue, accounts receivable or elsewhere in our consolidated financial statements,
and are considered by us to be backlog. We expect backlog to fluctuate up or down from period to period for several reasons, including
the timing and duration of customer contracts, varying billing cycles and the timing and duration of customer renewals.
In
addition, our deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenues as
of the end of a reporting period. The majority of our deferred revenue balance consists of platform subscription revenues that
are recognized ratably over the contractual period. Together, the sum of deferred revenue and backlog represents the total billed
and unbilled contract value yet to be recognized in revenues, and provides visibility into future revenue streams.
The
following table sets forth the backlog and deferred revenue:
|
|
Period Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Backlog
|
|
$
|
12,943
|
|
|
$
|
16,730
|
|
Deferred revenue
|
|
|
7,351
|
|
|
|
8,251
|
|
Total backlog and deferred revenue
|
|
$
|
20,294
|
|
|
$
|
24,981
|
|
Dollar-based
Revenue Retention Rate, based on platform subscriptions and services revenue.
Phunware calculated dollar-based revenue
retention rate, based on platform subscriptions and services revenue, expressed as a percentage, by dividing total revenue
in the current 12-month period from those customers who were customers during the prior 12-month period by total revenue from
the customers in the prior 12-month period. Phunware believes that our ability to retain our customers and expand their use of
our solutions over time is an indicator of the stability of our revenue base and the long-term value of our customer relationships.
Our revenue retention rate provides insight into the impact on current period revenue of the number of new customers acquired
during the prior 12-month period, the timing of our implementation of those new customers, growth in the usage of our solutions
by our existing customers and customer attrition. If our revenue retention rate for a period exceeds 100%, this means that the
revenue retained during the period including expansion and upsells more than offset the revenue that we lost from customers that
did not renew their contracts during the period. Our revenue retention rate may decline or fluctuate as a result of a number of
factors, including customers’ satisfaction or dissatisfaction with our platform, pricing, economic conditions or overall
reductions in our customers’ spending levels.
The
following table sets forth the dollar-based revenue retention rates:
|
|
Period Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Dollar-based revenue retention rate
|
|
|
98
|
%
|
|
|
134
|
%
|
Non-GAAP
Financial Measures
Adjusted
Gross Profit, Adjusted Gross Margin and Adjusted EBITDA
Adjusted Gross Profit, Adjusted Gross Margin
and Adjusted EBITDA are non-GAAP financial measures. Management uses these measures (i) to compare operating performance on a
consistent basis, (ii) to calculate incentive compensation for its employees, (iii) for planning purposes including the preparation
of its internal annual operating budget, and (iv) to evaluate the performance and effectiveness of operational strategies. Accordingly,
we believe that these measures provide useful information to investors and others in understanding and evaluating our operating
performance in the same manner as management.
For more information about Adjusted Gross Profit,
Adjusted Gross Margin and Adjusted EBITDA and a reconciliation of net income (loss), the most directly comparable financial measure
calculated and presented in accordance with generally accepted accounting principles in the United States (“GAAP”),
to Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA, see the section titled “
Use of Non-GAAP Financial
Measures
.”
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Adjusted gross profit
(1)
|
|
$
|
2,723
|
|
|
$
|
2,132
|
|
Adjusted gross margin
(1)
|
|
|
51.2
|
%
|
|
|
42.8
|
%
|
Adjusted EBITDA
(2)
|
|
$
|
(3,204
|
)
|
|
$
|
(6,689
|
)
|
(1)
|
Adjusted Gross Profit and Adjusted Gross Margin are non-GAAP financial measures. We believe that Adjusted Gross Profit and Adjusted Gross Margin provide supplemental information with respect to margin regarding ongoing performance. We define Adjusted Gross Profit as total revenue less cost of revenue, adjusted to exclude stock-based compensation and amortization of intangible assets. We define Adjusted Gross Margin as Adjusted Gross Profit as a percentage of total revenue.
|
|
|
(2)
|
Adjusted EBITDA is a non-GAAP financial measure. We believe Adjusted EBITDA provides helpful information with respect
to operating performance as viewed by management, including a view of our business that is not dependent on (i) the impact of our
capitalization structure and (ii) items that are not part of day-to-day operations. We define Adjusted EBITDA as net income (loss)
plus (i) interest expense, (ii) income tax benefit (expense), (iii) depreciation, (iv) amortization, and further adjusted for (v)
stock-based compensation expense. The reconciliation of net loss, the most directly comparable financial measure calculated and
presented in accordance with GAAP, to Adjusted EBITDA for each of the periods presented is as follows. See “
Use of Non-GAAP
Financial Measures
” below for additional information.
|
The following tables present a reconciliation
of Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA to gross profit and net loss, the most directly comparable
financial measures calculated in accordance with GAAP:
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Gross profit
|
|
$
|
2,698
|
|
|
$
|
2,113
|
|
Add back: Amortization of intangibles
|
|
|
11
|
|
|
|
15
|
|
Add back: Stock-based compensation
|
|
|
14
|
|
|
|
4
|
|
Adjusted gross profit
|
|
$
|
2,723
|
|
|
$
|
2,132
|
|
Adjusted gross margin
|
|
|
51.2
|
%
|
|
|
42.8
|
%
|
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Net loss
|
|
$
|
(3,494
|
)
|
|
$
|
(7,164
|
)
|
Add back: Depreciation and amortization
|
|
|
91
|
|
|
|
124
|
|
Add back: Interest expense
|
|
|
188
|
|
|
|
202
|
|
Less: Income tax benefit
|
|
|
-
|
|
|
|
-
|
|
EBITDA
|
|
|
(3,215
|
)
|
|
|
(6,838
|
)
|
Add Back: Stock-based compensation
|
|
|
11
|
|
|
|
149
|
|
Adjusted EBITDA
|
|
$
|
(3,204
|
)
|
|
$
|
(6,689
|
)
|
Use
of Non-GAAP Financial Measures
Adjusted Gross Profit, Adjusted Gross Margin
and Adjusted EBITDA should be considered in addition to, not as a substitute for, or superior to, financial measures calculated
in accordance with GAAP. They are not measurements of our financial performance under GAAP and should not be considered as alternatives
to revenue or net income (loss), as applicable, or any other performance measures derived in accordance with GAAP and may not be
comparable to other similarly titled measures of other businesses. Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA
have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating
results as reported under GAAP. Some of these limitations include:
|
●
|
Non-cash
compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude
it as an expense when evaluating its ongoing operating performance for a particular period;
|
|
●
|
Adjusted
Gross Profit, Adjusted Gross Margin and Adjusted EBITDA do not reflect the impact of certain cash charges resulting from matters
we consider not to be indicative of ongoing operations, and;
|
|
|
|
|
●
|
other
companies in our industry may calculate Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA differently than
we do, limiting their usefulness as comparative measures.
|
We compensate for these limitations to Adjusted
Gross Profit, Adjusted Gross Margin and Adjusted EBITDA by relying primarily on its GAAP results and using Adjusted Gross Profit,
Adjusted Gross Margin and Adjusted EBITDA only for supplemental purposes. Adjusted Gross Profit, Adjusted Gross Margin and Adjusted
EBITDA include adjustments for items that may not occur in future periods. However, we believe these adjustments are appropriate
because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of
our business and complicate comparisons of our internal operating results and operating results of other peer companies over time.
For example, it is useful to exclude non-cash, stock-based compensation expenses because the amount of such expenses in any specific
period may not directly correlate to the underlying performance of our business operations and these expenses can vary significantly
across periods due to timing of new stock-based awards. We may also exclude certain discrete, unusual, one-time, or non-cash costs,
including transaction costs and the income tax impact of adjustments in order to facilitate a more useful period-over-period comparison
of our financial performance. Each of the normal recurring adjustments and other adjustments described in this paragraph help management
with a measure of our operating performance over time by removing items that are not related to day-to-day operations or are non-cash
expenses.
Components
of Results of Operations
There
are a number of factors that impact the revenue and margin profile of the services and technology offerings we provide, including,
but not limited to, solution and technology complexity, technical expertise requiring the combination of products and types of
services provided, as well as other elements that may be specific to a particular client solution.
Revenue
and Gross Profit
Platform Subscriptions and Services Revenue.
Subscription revenue is derived from software license fees, which comprise subscription fees from customers licensing the Company’s
Software Development Kits (SDKs), which includes accessing the MaaS platform and/or MaaS platform data; application development
service revenue from the development of customer applications, or apps, which are built and delivered to customers; and support
fees. The Company’s contract terms generally range from 6 to 60 months, and are non-cancelable, though customers typically
have the right to terminate their contracts for cause if the Company materially fails to perform.
Subscription revenue from SDK licenses gives
the customer the right to access the Company’s MaaS platform. Application development revenue is derived from development
services around designing and building new applications or enhancing existing applications. Support revenue comprises of support
and maintenance fees of customer applications, software updates, and technical support for application development services for
a support term.
From time to time, the Company also provides
professional services by outsourcing employees’ time and materials to customers.
Platform subscriptions and services gross
profit is equal to subscriptions and services revenue less the cost of personnel and related costs for our support and professional
services employees, external consultants, stock-based compensation and allocated overhead. Costs associated with our development
and project management teams are generally recognized as incurred. Costs directly attributable to the development or support of applications
relating to platform subscription customers are included in cost of sales, whereas costs related to the ongoing development and
maintenance of Phunware’s MaaS platform are expensed in research and development. As a result, platform subscriptions and
services gross profit may fluctuate from period to period.
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, cost per click, and cost per action. In addition, we generate application transaction
revenue thru in-app purchases from application on our platform.
Application
transaction gross profit is equal to application transaction revenue less cost of revenue associated with application transactions.
Application transaction gross profit is impacted by the cost of direct premium, performance and network cost as well as based
on the activity of mobile users viewing ads and marketing engagements through mobile applications. As a result, our application
transaction gross profit may fluctuate from period to period due to variable activity of mobile users.
Gross
Margin
Gross margin measures gross profit as a
percentage of revenue. Gross margin is generally impacted by the same factors that affect changes in the mix of subscriptions and
services and application transactions.
Operating
Expenses
Our
operating expenses include sales and marketing expenses, general and administrative expenses, research and development expenses
and amortization of acquired intangible assets.
Sales
and Marketing Expense.
Sales and marketing expense is comprised of compensation, commission expense, variable incentive pay
and benefits related to sales personnel, along with travel expenses, other employee related costs, including share based compensation
and expenses related to marketing programs and promotional activities. We immediately expense sales commissions related to acquiring
new customers and expansion or upsells from existing customers.
General
and Administrative Expense.
General and administrative expense is comprised of compensation and benefits of administrative
personnel, including variable incentive pay and share-based compensation, bad debt expenses and other administrative costs such
as facilities expenses, professional fees and travel expenses. We expect to incur additional general and administrative expenses
as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC
and listing standards of Nasdaq, additional insurance expenses, investor relations activities and other administrative and professional
services. We also expect to increase the size of our general and administrative function to support the growth of our business.
As a result, we expect that our general and administrative expenses will increase in absolute dollars but may fluctuate as a percentage
of our total revenue from period to period.
Research
and Development Expense.
Research and development expenses consist primarily of employee compensation costs and overhead allocation.
We believe that continued investment in our platform is important for our growth. We expect our research and development expenses
will increase as our business grows.
Interest
and Other Expense
Interest expense and other income (expense)
include interest expense associated with our factoring financing arrangement. We also may seek to finance strategic acquisitions
in the future with the proceeds from additional debt incurrences, which may have an impact on our interest expense.
Income
Tax Benefit
We
are subject to U.S. federal income taxes, state income taxes net of federal income tax effect and nondeductible expenses. Our
effective tax rate will vary depending on permanent non-deductible expenses and other factors.
Results
of Operations
(In thousands, except per share information)
The
following tables set forth our consolidated financial data in dollar amounts and as a percentage of total revenue.
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(in thousands, except per share data)
|
|
|
2019
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
5,315
|
|
|
$
|
4,980
|
|
Cost of revenues
|
|
|
2,617
|
|
|
|
2,867
|
|
Gross profit
|
|
|
2,698
|
|
|
|
2,113
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
724
|
|
|
|
1,919
|
|
General and administrative
|
|
|
3,975
|
|
|
|
4,488
|
|
Research and development
|
|
|
1,309
|
|
|
|
2,300
|
|
Total operating expenses
|
|
|
6,008
|
|
|
|
8,707
|
|
Operating loss
|
|
|
(3,310
|
)
|
|
|
(6,594
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(188
|
)
|
|
|
(202
|
)
|
Fair value adjustment for warrant liabilities
|
|
|
—
|
|
|
|
(54
|
)
|
Impairment of digital currencies
|
|
|
—
|
|
|
|
(313
|
)
|
Other income (expense)
|
|
|
4
|
|
|
|
(1
|
)
|
Total other expense
|
|
|
(184
|
)
|
|
|
(570
|
)
|
Loss before taxes
|
|
|
(3,494
|
)
|
|
|
(7,164
|
)
|
Income tax benefit (expense)
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
(3,494
|
)
|
|
|
(7,164
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment
|
|
|
27
|
|
|
|
54
|
|
Comprehensive loss
|
|
$
|
(3,467
|
)
|
|
$
|
(7,110
|
)
|
Net loss per share, basic and diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.29
|
)
|
Weighted-average shares used to compute net loss per share, basic and diluted
|
|
|
30,264
|
|
|
|
24,952
|
|
Comparison of Three Months Ended March 31, 2019 and 2018
Revenue
|
|
Three Months Ended
March 31,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Platform subscriptions and services
|
|
$
|
4,821
|
|
|
$
|
4,004
|
|
|
$
|
817
|
|
|
|
20.4
|
%
|
Application transaction
|
|
|
494
|
|
|
|
976
|
|
|
|
(482
|
)
|
|
|
(49.4
|
)%
|
Total revenue
|
|
$
|
5,315
|
|
|
$
|
4,980
|
|
|
$
|
335
|
|
|
|
6.7
|
%
|
Platform subscriptions and services as a percentage of total revenue
|
|
|
90.7
|
%
|
|
|
80.4
|
%
|
|
|
|
|
|
|
|
|
Application transactions as a percentage of total revenue
|
|
|
9.3
|
%
|
|
|
19.6
|
%
|
|
|
|
|
|
|
|
|
Total revenue increased $0.3 million, or
6.7%, in the quarter ended March 31, 2019 compared to the corresponding period in 2018. Platform subscriptions and services revenue
increased $0.8 million, or 20.4%, primarily driven by the fulfillment of contracts related to new customers. Application transaction
revenue decreased $0.5 million, or 49.4%, due to decreased or ceased advertising campaigns.
Revenue
from Fox Networks Group was 63% compared to 66% of total revenue for the quarters ended March 31, 2019 and 2018, respectively.
Revenue from Houston Methodist was 13% of total revenue for the quarter ended March 31, 2019. There were no other customers that
accounted for more than 10% of total revenue for the respective periods.
Cost
of Revenue, Gross Profit and Gross Margin
|
|
Three Months Ended
March 31,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Platform subscriptions and services
|
|
$
|
2,508
|
|
|
$
|
2,399
|
|
|
$
|
109
|
|
|
|
4.5
|
%
|
Application transaction
|
|
|
109
|
|
|
|
468
|
|
|
|
(359
|
)
|
|
|
(76.7
|
)%
|
Total cost of revenue
|
|
$
|
2,617
|
|
|
$
|
2,867
|
|
|
$
|
(250
|
)
|
|
|
(8.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Platform subscriptions and services
|
|
$
|
2,313
|
|
|
$
|
1,605
|
|
|
$
|
708
|
|
|
|
44.1
|
%
|
Application transaction
|
|
|
385
|
|
|
|
508
|
|
|
|
(123
|
)
|
|
|
(24.2
|
)%
|
Total gross profit
|
|
$
|
2,698
|
|
|
$
|
2,113
|
|
|
$
|
585
|
|
|
|
27.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Platform subscriptions and services
|
|
|
48.0
|
%
|
|
|
40.1
|
%
|
|
|
|
|
|
|
|
|
Application transaction
|
|
|
77.9
|
%
|
|
|
52.0
|
%
|
|
|
|
|
|
|
|
|
Total gross margin
|
|
|
50.8
|
%
|
|
|
42.4
|
%
|
|
|
|
|
|
|
|
|
Total gross profit increased $0.6 million,
or 27.7%, in the quarter ended March 31, 2019 compared to the corresponding period of 2018 primarily attributable to lower costs
associated with the development and support of the Company’s platform subscriptions and services. In the first half of 2018,
the Company centralized its media purchasing team which resulted in higher application transaction margins year over year.
Operating
Expenses
|
|
Three Months Ended
March 31,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
724
|
|
|
$
|
1,919
|
|
|
$
|
(1,195
|
)
|
|
|
(62.3
|
)%
|
General and administrative
|
|
|
3,975
|
|
|
|
4,488
|
|
|
|
(513
|
)
|
|
|
(11.4
|
)%
|
Research and development
|
|
|
1,309
|
|
|
|
2,300
|
|
|
|
(991
|
)
|
|
|
(43.1
|
)%
|
Total operating expenses
|
|
$
|
6,008
|
|
|
$
|
8,707
|
|
|
$
|
(2,699
|
)
|
|
|
(31.0
|
)%
|
Sales
and Marketing
Sales and marketing expense decreased $1.2
million, or (62.3%) for the quarter ended March 31, 2019 compared to the corresponding period of 2018 primarily due to $0.8 million
of reduced employee compensation costs due to lower headcount. The other $0.4 million reduction is due to decreases in travel and
entertainment, contract labor and marketing related activities.
General
and Administrative
General and administrative expense decreased
$0.5 million, or (11.4%), for the quarter ended March 31, 2019 compared to the corresponding period of 2018 primarily due to reduced
employee compensation costs due to lower headcount.
Research
and Development
Research and development expense decreased
$1.0 million, or (43.1%) for the quarter ended March 31, 2019 compared to the corresponding period of 2018 as a result of $0.9
million decreased employee compensation costs due to lower headcount.
Other expense
|
|
Three Months Ended
March 31,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
(188
|
)
|
|
$
|
(202
|
)
|
|
$
|
14
|
|
|
|
(6.9
|
)%
|
Fair value adjustment for warrant liabilities
|
|
|
-
|
|
|
|
(54
|
)
|
|
|
54
|
|
|
|
(100.0
|
)%
|
Fair value adjustment for digital currencies
|
|
|
-
|
|
|
|
(313
|
)
|
|
|
313
|
|
|
|
(100.0
|
)%
|
Other income (expense)
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
5
|
|
|
|
(500.0
|
)%
|
Total other expense
|
|
$
|
(184
|
)
|
|
$
|
(570
|
)
|
|
$
|
386
|
|
|
|
(67.7
|
)%
|
Other expense decreased $386 thousand for
the quarter ended March 31, 2019 compared to the corresponding period of 2018 primarily due to expenses related to the fair
value adjustment for digital currencies. As of March 31, 2019, the Company did not hold any digital currencies.