UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2017

June 30, 2022

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to

Commission file number:001-37862

Stellar Acquisition III Inc.

PHUNWARE, INC.
(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)

its charter)
Republic of the Marshall IslandsN/A
Delaware30-1205798
(State or Other Jurisdictionother jurisdiction of
Incorporation
incorporation or Organization)organization)		(IRSI.R.S. Employer

Identification No.)Number)

90 Kifissias Avenue,

Maroussi Athens, Greece

1002 West Avenue, Austin, Texas78701
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: 512-693-4199
Securities registered pursuant to Section 12(b) of principal executive offices)

+30 (210) 876-4858

(Issuer’s telephone number)

Checkthe Act:

Title of each class:Trading Symbol(s)Name of each exchange on which registered:
Common Stock, par value $0.0001 per sharePHUNThe NASDAQ Capital Market
Warrants to purchase one share of Common StockPHUNWThe NASDAQ Capital Market

Indicate by check mark whether the issuerregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☐☒Smaller reporting company☒
(Do not check if smaller reporting company)Emerging growth company☒☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 9, 2017, 9,010,177August 10, 2022, 98,382,554 shares of common stock, par value $0.0001 per share, were issued and outstanding.

Stellar Acquisition III Inc.
Table of Contents

Page
PART I – FINANCIAL INFORMATION
Item 1.Financial Statements:



TABLE OF CONTENTS
PAGE
1
1
Condensed InterimConsolidated Balance Sheets as of August 31, 2017June 30, 2022 (unaudited) and November 30, 2016December 31, 2021
1
2
Condensed InterimConsolidated Statements of Operations and Comprehensive Loss for the three and six months ended August 31, 2017June 30, 2022 and 2021 (unaudited) and 2016 (unaudited)
3
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the ninethree and six months ended August 31, 2017June 30, 2022 and 2021 (unaudited) and for the period from December 8, 2015 (inception) to August 31, 2016 (unaudited)
2
4
Condensed InterimConsolidated Statements of Cash Flows for the ninesix months ended August 31, 2017June 30, 2022 and 2021 (unaudited), and the period from December 8, 2015 (inception) to August 31, 2016 (unaudited)
3
6
8
Notes to Condensed Interim Financial Statements (unaudited)4
14
24
18
36
18
37
38
38
Legal Proceedings19
38
Item 1A.Risk Factors19
19
38
19
38
19
38
39
Other Information19
40
Item 6.Exhibits19

41

Stellar Acquisition III Inc.
Condensed Interim Balance Sheets

  August 31,
2017		  November 30,
2016		 
  (unaudited)    
Assets      
Current assets      
Cash $211,105  $490,888 
Prepaid expenses  20,575   32,219 
Total current assets  231,680   523,107 
Cash and investments held in the Trust Account  70,834,681   70,442,615 
Total assets $71,066,361  $70,965,722 
Liabilities and Shareholders’ Equity        
Current liabilities        
Accounts payable $87,892  $24,750 
Accrued liabilities  20,500   25,500 
Unsecured promissory notes -  related parties  303,300     
Total current liabilities  411,692   50,250 
Non-current liabilities        
Deferred underwriting fees  1,725,153   1,725,153 
Total non-current liabilities  1,725,153   1,725,153 
Total Liabilities  2,136,845   1,775,403 
Common stock subject to possible redemption: 6,231,961 and 6,293,168 shares on August 31, 2017 and November 30, 2016, respectively (at a redemption value of approximately $10.26 and $10.20, respectively)  63,929,512   64,190,314 
Shareholders’ Equity        
Preferred shares, $0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding  -   - 
Common stock, $0.0001 par value, 200,000,000 shares authorized, 2,778,216 and 2,717,009 shares issued and outstanding on August 31, 2017 and November 30, 2016, respectively (excluding  6,231,961  and 6,293,168 shares on August 31, 2017 and November 30, 2016, respectively subject to redemption)  275   272 
Additional paid-in capital  5,350,721   5,089,922 
Accumulated deficit  (350,992)  (90,189)
Total shareholders’ equity  5,000,004   5,000,005 
Total liabilities and shareholders’ equity $71,066,361  $70,965,722 

See accompanying notes to unaudited condensed interim financial statements.

1


Stellar Acquisition III Inc.
Condensed Interim Statements

i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report (the “Report”) includes forward-looking statements within the meaning of Operations (unaudited)

  Three
months
ended
August 31,
2017		  Three
months
ended
August 31,
2016		  Nine
months
ended
August 31,
2017		  Period
from
December 8,
2015
(inception)
to
August 31,
2016		 
             
Revenue $-  $-  $-  $- 
Operating expenses                
Formation and operating costs  234,351   477   629,569   1,714 
Loss from operations  (234,351)  (477)  (629,569)  (1,714)
                 
Other income –Trust Account Investment income  168,320   -   368,766   - 
                 
Net loss attributable to common shares $(66,031) $(477) $(260,803) $(1,714)
                 
Weighted average number of common shares outstanding (excluding shares subject to possible redemption)  2,736,104   2,300,000   2,723,800   2,300,000 
Basic and diluted net loss per share (excluding shares subject to possible redemption) $(0.02) $(0.00) $(0.10) $(0.00)

See accompanying notes to unaudited condensed interim financial statements.

2

Stellar Acquisition III Inc.
Condensed Interim Statements of Cash Flows (unaudited)

  Nine
months
ended
August 31,
2017		  Period
from
December 8,
2015
(inception)
to
August 31,
2016		 
Cash Flows from Operating Activities      
Net loss $(260,803) $(1,714)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:        
Changes in operating assets and liabilities        
Decrease in prepaid expenses  11,644   - 
Increase in accounts payable  63,142   - 
Increase in accrued liabilities  (5,000)  33,307 
Net cash (used in)/provided by operating activities  (191,017)  31,593 
Net cash used in Investing Activities,        
Cash deposited in Trust Account  -   (66,300,000)
Interest income earned on Trust Account  (368,766)  - 
Interest withdrawn from Trust Account  280,000   - 
Net cash used in investing activities  (88,766)  (66,300,000)
Cash Flows from Financing Activities        
Proceeds from sale of Sponsors’ shares of common stock  -   25,000 
Proceeds from sale of Public Offering Units, net of offering expenses paid  -   63,092,898 
Proceeds from sale of Private Placement Warrants  -   3,825,000 
Payments to related parties (including loans)  -   (250,535)
Funds from  related parties (including loans)  -   250,535 
Net cash provided by financing activities  -   66,942,898 
Net (decrease)/increase in cash  (279,783)  674,491 
Cash at beginning of period  490,888   - 
Cash at end of period $211,105  $674,491 
Supplemental disclosure of non-cash investing and financing activities        
Deferred underwriting fees $-  $1,625,000 
Common stock issued for additional underwriter compensation $-  $1,000,000 
Fair value of unit purchase option issued to underwriter $-  $781,385 
Funds from  related party promissory notes contributed for extension $303,300  $- 
Interest contributed for extension $99,236  $- 

See accompanying notes to unaudited condensed interim financial statements.

3

Stellar Acquisition III Inc.

Notes to Condensed Interim Financial Statements

(unaudited)

NOTE 1 — DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

Organization and General:

Stellar Acquisition III Inc. (the “Company”) was incorporated pursuant to the laws of the Republic of the Marshall Islands on December 8, 2015. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). The Company is an “emerging growth company,” as defined in Section 2(a)27A of the Securities Act of 1933, as amended or(the “Securities Act”), and Section 21E of the “Securities Act,” as modified by the Jumpstart Our Business StartupsSecurities Exchange Act of 20121934, as amended (the “JOBS“Exchange Act”).

At August 31, 2017, the Company had not commenced any operations. All activity for the period from December 8, 2015 (inception) through August 31, 2017 relates to the Company’s formation and the initial public offering (“Public Offering”) described below and since August 24, 2016 a search for a target business with which to complete a Business Combination. The Company will not generate any operating revenues until after completion of a Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Public Offering. The Company has selected November 30th as its fiscal year end.

Going Concern

Following the Company’s announcement on August 24, 2017, regarding the first extension, the Company has until November 23, 2017 to consummate a Business Combination, however, the Company may extend the period of time to consummate a Business Combination up to two more times, each by an additional three months (for a total of up to 21 months or until May 23, 2018 to complete a Business Combination). The Company's Sponsors or their affiliates or designees have the option, but not the obligation, to extend the time to consummate a Business Combination. The Sponsors or their affiliates or designees, upon five days advance notice prior to the applicable deadline, must deposit into the Trust Account $402,536 ($0.058 per unit), up to an aggregate of $1,207,607 ($0.175 per unit), the “Extension Funds”) on or prior to the date of the applicable deadline, for each three month extension.

As of the date of the issuance of these financial These forward-looking statements the Company's Sponsors intend to utilize these extensions, as and if necessary, in order to extend the period in which the Company has to complete a Business Combination.

The mandatory liquidation and subsequent dissolution raises substantial doubt about the Company's ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after May 23, 2018.

Sponsors and Public Financing:

The Company’s sponsors are Astra Maritime Inc. and Dominium Investments Inc., affiliated with the Company’s Chairman and co-Chief Executive Officer, and Magellan Investments Corp. and Firmus Investments Inc., affiliated with our co-Chief Executive Officer and Chief Financial Officer. All four companies were incorporated pursuant to the laws of the Republic of the Marshall Islands (the “Sponsors”). The registration statement (the “Registration Statement’) for the Public Offering (as described in Note 3) was declared effective by the United States Securities and Exchange Commission (the “SEC”) on August 18, 2016. The Company intends to finance a Business Combination with the net proceeds from the $69,006,100 raised in the Public Offering (Note 3) and the $3,985,244 private placement in each case including the partial exercise of the underwriter’s overallotment option. Upon the closing of the Public Offering and the private placement, $70,386,222 was deposited in a trust account with Continental Stock Transfer and Trust Company acting as trustee (the “Trust Account”) as discussed below. On August 23, 2017, the period of time the Company has to consummate a business combination was extended by three months to November 23, 2017, by increasing the minimum amount in the Trust Account by $402,536, pursuant to the Company’s prospectus in connection with the Company’s initial public offering.

4

Stellar Acquisition III Inc.

Notes to Condensed Interim Financial Statements

(unaudited)

The Trust Account:

The Trust Account will be invested only in U.S. government treasury bills with a maturity of one hundred and eighty (180) days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940 which invest only in direct U.S. government obligations. Funds will remain in the Trust Account until the earlier of (i) the consummation of its initial Business Combination or (ii) the distribution of the Trust Account as described below. The remaining proceeds outside the Trust Account may be used to pay for business, legal and accounting due diligence expenses for prospective acquisition targets and continuing general and administrative expenses. The proceeds held from the Public Offering were used to invest in U.S. government treasury bills with a maturity of one hundred and eighty (180) days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940 which invest only in direct U.S. government obligations during September 2016. At November 30, 2016, the Trust Account consisted of cash and U.S. Treasury Bills yielding interest of approximately 0.4% per annum, with a value of $70,442,615. At August 31, 2017, the Trust Account consisted of cash and U.S. Treasury Bills yielding interest of approximately 1% per annum, with a value of $70,834,681, including the additional $402,536 related to the first extension.

The Company’s amended and restated articles of incorporation provides that, other than the withdrawal of interest to pay taxes, if any, or working capital expenses, none of the funds held in the Trust Account will be released until the earlier of: (i) the completion of the Business Combination; or (ii) the redemption of 100% of the shares of common stock included in the Units being sold in the Public Offering if the Company is unable to complete a Business Combination by November 23, 2017, given the first extension (or by May 23, 2018 if the Company extends the period of time to consummate a Business Combination, in accordance with the terms of the Company’s charter) (subject to the requirements of law). On March 17, 2017, May 16, 2017 and August 29, 2017, the Company withdrew $55,000, $165,000 and $60,000 of interest earned from the Trust Account to pay for working capital expenses, respectively. Additionally, $99,236 of interest was used for the first extension on August 23, 2017.

Business Combination:

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering, although it initially intends to focus its efforts within the international energy logistics industry. Substantially all of the net proceeds of the Public Offering and the private placement are intended to be generally applied toward consummatingcovered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Report, including statements regarding our future results of operations and financial position, business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, but the absence of these words does not mean that a Business Combination with (or acquisition of)statement is not forward-looking.

The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a Target Business. As used herein, “Target Business” meansnumber of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more target businesses that together have a fair market value equalof these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to at least 80% of the balance in the Trust Account (lessupdate or revise any deferred underwriting commissions and taxes payable on interest earned) at the time of the Company signing a definitive agreement in connection with the Business Combination. There is no assurance that the Company will be able to successfully effect a Business Combination.

The Company, after signing a definitive agreement for a Business Combination, will either (i) seek stockholder approval of the Business Combination at a meeting called for such purpose in connection with which shareholders may seek to redeem their shares, regardless offorward-looking statements, whether they vote for or against the Business Combination, for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the initial Business Combination, including interest but less taxes payable or amounts released to the Company for working capital, or (ii) provide shareholders with the opportunity to sell their shares to the Company by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount in cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to commencement of the tender offer, including interest but less taxes payable or amounts released to the Company for working capital. The decision as to whether the Company will seek stockholder approval of the Business Combination or will allow shareholders to redeem their shares in a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as whether the Company is a foreign private issuer, the timing of the transaction and whether the terms of the transaction would otherwise require the Company to seek stockholder approval unless a vote is required by NASDAQ rules. If the Company seeks stockholder approval, it will complete its Business Combination only if a majority of the outstanding shares of common stock voted are voted in favor of the Business Combination. However, in no event will the Company redeem its public shares in an amount that would cause its net tangible assets to be less than $5,000,001 upon consummation of the initial Business Combination. In such case, the Company would not proceed with the redemption of its public shares and the related Business Combination, and instead may search for an alternate Business Combination.

5

Stellar Acquisition III Inc.

Notes to Condensed Interim Financial Statements

(unaudited)

If the Company holds a stockholder vote or there is a tender offer for shares in connection with a Business Combination, a public stockholder will have the right to redeem its shares for an amount in cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the initial Business Combination, including interest but less taxes payable or amounts released to the Company for working capital purposes. As a result such shares of common stock have been recorded at redemption amountnew information, future events or otherwise, except as may be required under applicable securities laws. These risks and classified as temporary equity upon the completion of the Public Offering, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 480, “Distinguishing Liabilities from Equity.” The amount in the Trust Account is initially $10.20 per public common share ($70,386,222 held in the Trust Account divided by 6,900,610 public common shares), subject to increase of up to an additional $0.175 per unit in the event that the Sponsors elect to extend the period of time to consummate a Business Combination, asothers described in more detail below. Following the first extension, the minimum amount in the Trust Account is approximately $10.26 per public common share ($70,788,758 held in the Trust Account divided by 6,900,610 public common shares).

Following the first extension the Company has until November 23, 2017 to consummate a Business Combination. However, if the Company anticipates that itunder “Risk Factors” may not be ableexhaustive.

By their nature, forward-looking statements involve risks and uncertainties because they relate to consummateevents and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.
ii
Table of Contents
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
1
Table of Contents
Phunware, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share information)
June 30, 2022December 31, 2021
(Unaudited)
Assets
Current assets:
Cash$2,705 $23,137 
Accounts receivable, net of allowance for doubtful accounts of $0 and $10 at June 30, 2022 and December 31, 2021, respectively803 967 
Inventory3,528 2,636 
Digital assets, net12,592 32,581 
Prepaid expenses and other current assets1,188 686 
Total current assets20,816 60,007 
Property and equipment, net145 — 
Goodwill33,142 33,260 
Intangible assets, net2,858 3,213 
Deferred tax asset1,278 1,278 
Right-of-use asset2,595 1,260 
Other assets402 276 
Total assets$61,236 $99,294 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$7,510 $6,589 
Accrued expenses6,953 9,621 
Lease liability614 399 
Deferred revenue1,715 3,973 
PhunCoin deposits1,203 1,202 
Current maturities of long-term debt, net2,031 4,904 
Warrant liability1,136 3,605 
Total current liabilities21,162 30,293 
Deferred tax liability1,278 1,278 
Deferred revenue859 1,299 
Lease liability2,244 1,147 
Total liabilities25,543 34,017 
Commitments and contingencies (Note 8)00
Stockholders’ equity
Common stock, $0.0001 par value; 1,000,000,000 shares authorized at June 30, 2022 and December 31, 2021; 98,137,070 and 96,751,610 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively10 10 
Additional paid-in capital267,465 264,944 
Accumulated other comprehensive loss(469)(352)
Accumulated deficit(231,313)(199,325)
Total stockholders’ equity35,693 65,277 
Total liabilities and stockholders’ equity$61,236 $99,294 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
Table of Contents
Phunware, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share information)
(Unaudited)
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
Net revenues$5,485 $1,436 $12,263 $3,082 
Cost of revenues3,965 1,124 8,972 1,816 
Gross profit1,520 312 3,291 1,266 
Operating expenses:
Sales and marketing1,928 639 3,413 1,195 
General and administrative5,251 3,021 9,556 5,779 
Research and development1,876 846 2,879 1,898 
Total operating expenses9,055 4,506 15,848 8,872 
Operating loss(7,535)(4,194)(12,557)(7,606)
Other income (expense):
Interest expense(273)(1,845)(654)(4,064)
Loss on extinguishment of debt— (2,184)— (7,952)
Impairment of digital assets(12,158)(776)(21,511)(776)
Fair value adjustment of warrant liability2,682 1,180 2,469 (1,649)
Other income (expense), net213 43 265 (36)
Total other expense(9,536)(3,582)(19,431)(14,477)
Loss before taxes    (17,071)(7,776)(31,988)(22,083)
Income tax expense— — — — 
Net loss(17,071)(7,776)(31,988)(22,083)
Other comprehensive income (loss):
Cumulative translation adjustment(85)5 (117)15 
Comprehensive loss$(17,156)$(7,771)$(32,105)$(22,068)
Net loss per share, basic and diluted$(0.17)$(0.11)$(0.33)$(0.32)
Weighted-average common shares used to compute net loss per share, basic and diluted97,742 71,620 97,293 68,103 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Table of Contents
Phunware, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(In thousands)
(Unaudited)
Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Other
Comprehensive
Loss		Total Stockholders’
Equity
SharesAmount
Balance - March 31, 202297,251 $10 $266,606 $(214,242)$(384)$51,990 
Release of restricted stock790 — — — — — 
Issuance of common stock under the 2018 employee stock purchase plan96 — 116 — — 116 
Stock-based compensation expense— — 743 — — 743 
Cumulative translation adjustment— — — — (85)(85)
Net income— — — (17,071)— (17,071)
Balance - June 30, 202298,137 $10 $267,465 $(231,313)$(469)$35,693 
Balance - December 31, 202196,752 $10 $264,944 $(199,325)$(352)$65,277 
Exercise of stock options, net of vesting of restricted shares23 — 16 — — 16 
Release of restricted stock882 — — — — — 
Issuance of common stock under the 2018 employee stock purchase plan96 — 116 — — 116 
Issuance of common stock in connection with acquisition of Lyte Technology, Inc.384 — 1,125 — — 1,125 
Stock-based compensation expense— — 1,264 — — 1,264 
Cumulative translation adjustment— — — — (117)(117)
Net loss— — — (31,988)— (31,988)
Balance - June 30, 202298,137 $10 $267,465 $(231,313)$(469)$35,693 
4
Table of Contents
Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Other
Comprehensive
Loss		Total Stockholders’
Equity (Deficit)
SharesAmount
Balance - March 31, 202171,204 $7 $175,046 $(160,110)$(328)$14,615 
Exercise of stock options, net of vesting of restricted shares11 — 5 — — 5 
Release of restricted stock829 — — — — — 
Sales of common stock, net of issuance cost692 — 832 — — 832 
Stock-based compensation expense— — 1,371 — — 1,371 
Cumulative translation adjustment— — — — 5 5 
Net loss— — — (7,776)— (7,776)
Balance - June 30, 202172,736 $7 $177,254 $(167,886)$(323)$9,052 
Balance - December 31, 202056,371 $6 $144,156 $(145,803)$(338)$(1,979)
Exercise of stock options, net of vesting of restricted shares131 — 70 — — 70 
Release of restricted stock1,012 — — — — — 
Issuance of common stock for payment of board of director fees99 — 66 — — 66 
Sales of common stock, net of issuance costs15,123 1 30,536 — — 30,537 
Stock-based compensation expense— — 2,426 — — 2,426 
Cumulative translation adjustment— — — — 15 15 
Net loss— — — (22,083)— (22,083)
Balance - June 30, 202172,736 $7 $177,254 $(167,886)$(323)$9,052 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Table of Contents
Phunware, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 30,
20222021
Operating activities
Net loss$(31,988)$(22,083)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount and deferred financing costs259 2,770 
Loss on change in fair value of warrant liability(2,469)1,649 
Loss on extinguishment of debt— 7,952 
Impairment of digital assets21,511 776 
Stock-based compensation1,270 2,438 
Other adjustments284 142 
Changes in operating assets and liabilities:
Accounts receivable178 237 
Inventory(892)— 
Prepaid expenses and other assets(631)(416)
Accounts payable920 (1,282)
Accrued legal settlement— (1,500)
Lease liability payments(347)(434)
Accrued expenses(386)(3,334)
Deferred revenue(2,698)(1,286)
Net cash used in operating activities(14,989)(14,371)
Investing activities
Acquisition payment(1,125)— 
Purchase of digital assets(923)(1,497)
Capital expenditures(158)— 
Net cash used in investing activities(2,206)(1,497)
Financing activities
Proceeds from borrowings, net of issuance costs— 9,981 
Payments on borrowings(3,132)(25,095)
Proceeds from exercise of options to purchase common stock16 70 
Proceeds from sales of common stock, net of issuance costs— 29,670 
Net cash (used) provided by financing activities(3,116)14,626 
Effect of exchange rate on cash and restricted cash(121)16 
Net decrease in cash and restricted cash(20,432)(1,226)
Cash and restricted cash at the beginning of the period23,137 4,031 
Cash and restricted cash at the end of the period$2,705 $2,805 

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Supplemental disclosure of cash flow information:
Interest paid$408 $1,287 
Income taxes paid$— $— 
Supplemental disclosures of non-cash activities:
Right-of-use assets obtained in exchange for operating lease obligations$1,508 $— 
Non-cash exchange of digital assets$923 $— 
Issuance of common stock in connection with acquisition of Lyte Technology, Inc.$1,125 $— 
Proceeds not received related to sales of common stock$— $867 
Issuance of common stock for payment of board of director fees$— $66 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Phunware, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share information)
(Unaudited)
1. The Company and Basis of Presentation
The Company
Phunware, Inc. and its subsidiaries (the “Company”, "we", "us", or "our") offers a Business Combinationfully integrated software platform that equips companies with the products, solutions and services necessary to engage, manage and monetize their mobile application portfolios globally at scale. Our Multiscreen-as-a-Service ("MaaS") platform provides the entire mobile lifecycle of applications and media in one login through one procurement relationship. Our MaaS technology is available in software development kit ("SDK") form for organizations developing their own application, via customized development services and prepackaged solutions. Through our integrated mobile advertising platform of publishers and advertisers, we provide in-app application transactions for mobile audience building, user acquisition, application discovery, audience engagement and audience monetization. During 2021, we began to sell PhunToken to consumers, developers and brands. PhunToken is an innovative digital asset utilized within our token ecosystem to help drive engagement by then, the Company may extend the period of time to consummate a Business Combination up to two times, each by an additional three months (for a total of up to 21 months, or by May 23, 2018, to complete a Business Combination). Pursuant to the termsunlocking features and capabilities of our amendedMaaS platform. PhunToken is designed to reward consumers for their activity, such as watching branded videos, completing surveys and restated articlesvisiting points of incorporation and the trust agreement entered into between us and Continental Stock Transfer & Trust Company on August 18, 2016, and following the partial exerciseinterest. In October 2021, we acquired Lyte Technology, Inc. ("Lyte"), a provider of the underwriters’ overallotment option on September 28, 2016high-performance computer systems to individual consumers. Founded in order to extend the time available for us to consummate our initial Business Combination, our Sponsors or their affiliates or designees, upon five days advance notice prior to the applicable deadline, must deposit into the Trust Account $402,536 (or $0.058 per unit), up to an aggregate of $1,207,607 (or $0.175 per unit), on or prior to the date of the applicable deadline, for each three month extension. Our Sponsors and their affiliates or designees2009, we are not obligated to fund the Trust Account to extend the time for us to complete our initial Business Combination. To the extent that some, but not all, of our Sponsors, decide to extend the period of time to consummate our initial Business Combinations, such Sponsors (or their affiliates or designees) may deposit the entire $402,536 amount. In the event that interesta Delaware corporation headquartered in the trust is available for withdrawal for working capital purposes and has not been used to pay taxes or other working capital expenses, the Company may apply the accrued interest in the Trust Account or such withdrawn interest to the Sponsors’ obligation to loan the Company money in connection with an extension, and the amount that the Sponsors would be obligated to loan the Company in connection with such extension would be reduced by the amount of interest so applied. If the Company does not complete a Business Combination within this period of time, it shall (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem the public shares of common stock for a per share pro rata portion of the Trust Account, including interest, but less taxes payable or amounts released to the Company for working capital (less up to $50,000 of such net interest to pay dissolution expenses) and (iii) as promptly as possible following such redemption, dissolve and liquidate the balance of the Company’s net assets to its remaining shareholders, as part of its plan of dissolution and liquidation. The initial shareholders have entered into letter agreements with the Company, pursuant to which they have waived their rights to participate in any redemption with respect to their founder shares; however, if the initial shareholders or any of the Company’s officers, directors or affiliates acquire shares of common stock in or after the Public Offering, they will be entitled to a pro rata share of the Trust Account upon the Company’s redemption or liquidation with respect to such shares in the event the Company does not complete a Business Combination within the required time period.

In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per Unit in the Public Offering.

6
Austin, Texas.

Stellar Acquisition III Inc.

Notes to Condensed Interim Financial Statements

(unaudited)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:

Presentation

The accompanying unaudited interimcondensed consolidated financial statements are presented in U.S. dollarshave been prepared in conformity with generally accepted accounting principles generally accepted in the United States (“U.S. GAAP”) and include the Company’s accounts and those of America (‘‘GAAP’’) forits wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
The balance sheet at December 31, 2021 was derived from our audited consolidated financial statements, but these interim information and in accordance with the instructions to Form 10-Q and Article 8 and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanyingcondensed consolidated financial statements do not include all the annual disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, 2021, which are referenced herein. The accompanying interim condensed consolidated financial statements as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021, are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the audited financial statements, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial statements. Certain information and notes required byfootnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP for a complete financial statement presentation.have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the interim financial statements reflect all adjustments (consisting of normal recurring adjustments) that areconsidered necessary for a fair presentation of theto fairly state our financial position as of June 30, 2022 and the results of operations for the three and six months ended June 30, 2022 and 2021, and cash flows for the interim periods presented. Interimsix months ended June 30, 2022 and 2021. The results for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future interim period.
Revised Financial Statements
During the preparation of our Quarterly Report on Form 10-Q for the period ended September 30, 2021, the Company determined that it had inaccurately accounted for an adjustment to certain terms of an outstanding warrant issued in connection with a full yearcertain Series A Senior Convertible Note and Series B Senior Convertible Note we issued on July 15, 2020 (collectively, the "2020 Convertible Notes"). As a result of our underwritten public offering in February 2021, the number of shares issuable and the exercise price were each adjusted pursuant to the terms of the warrant. While we accurately accounted for the decrease in the exercise price (from $4.00 per share to $2.25 per share), we did not account for the increase in the number of shares available for exercise under the warrant, from 2,160,000 shares to 3,840,000 shares. This resulted in an understatement of net loss during the three and six months ended June 30, 2021. We assessed the materiality of this misstatement in accordance with Staff Accounting Bulletin No. 108, "Quantifying Misstatements" and concluded this error was not qualitatively material as there was no impact on cash, operating income, or cash flow from operations, among other considerations.
The correction of this error resulted in adjustments to our condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2021. The revised amounts have been reflected in condensed
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consolidated financial statements presented above. The effect of this revision on certain line items within our condensed consolidated balance sheets and condensed consolidated statements of operations and comprehensive loss are set forth below:
As of June 30, 2021
Previously reportedAdjustmentsAs revised
Warrant liability$1,836 $1,427 $3,263 
Accumulated deficit$(166,459)$(1,427)$(167,886)
For the three months ended June 30, 2021
Previously reportedAdjustmentsAs revised
Gain on change in fair value of warrant liability$663 $517 $1,180 
Net loss$(8,293)$517 $(7,776)
Net loss per common share, basic and diluted$(0.12)$0.01 $(0.11)
For the six months ended June 30, 2021
Previously reportedAdjustmentsAs revised
Loss on change in fair value of warrant liability$(222)$(1,427)$(1,649)
Net loss$(20,656)$(1,427)$(22,083)
Net loss per common share, basic and diluted$(0.30)$(0.02)$(0.32)

Going Concern, Liquidity and Management’s Plan
Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern ("ASC 205-40") requires management to evaluate whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations as they become due within one year after the date that the financial statements are issued. As required by this standard, management’s evaluation shall initially not take into consideration the potential mitigating effects of management’s plans that have not been fully implemented as of the date the financial statements are issued.
We have a history of losses in each fiscal year since our inception. Total backlog and cash-on-hand for the period then ended did not meet our expectations, as a result of uncertainty of the broader marketplace. For the six months ended June 30, 2022, we incurred a net loss of $17,071 and used $14,989 in cash for operations.
In July 2022, the Company raised additional cash proceeds in the amount of $11,795 through the issuance of a note, as detailed in Note 12, Subsequent Events. In accordance with the note, we can defer one monthly payment in the amount $1,566 up to twelve times. Furthermore, as more fully described in Note 9, Stockholders Equity, in January 2022, we entered into a sales agreement, pursuant to which we may offer and sell shares of our common stock, for aggregate gross proceeds of up to $100 million. We currently anticipate selling common stock through our at-the-market offering, if needed. Sales of shares of our common stock sold under the sales agreement will be made pursuant to an effective shelf registration statement on Form S-3 in the amount of $200 million filed with the SEC on February 1, 2022. We may also sell additional securities, including common stock, preferred stock, warrants and units through private placement transactions or public offerings. We believe the foregoing plan mitigate the Company’s going concern considerations.
There can be no assurance that we will be able to obtain additional funding on satisfactory terms or at all. In addition, no assurance can be given that any such financing, if obtained, will be adequate to meet our capital needs and support growth. If additional funding cannot be obtained on a timely basis and/or on satisfactory terms, our operations could be materially impacted.
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.
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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 for the year ended December 31, 2021, except as set forth below.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Items subject to the use of estimates include, but are not limited to, the standalone selling price for our products and services, our various digital asset transactions, stock-based compensation, useful lives of long-lived assets including intangibles, fair value of intangible assets and the recoverability or impairment of tangible and intangible assets, including goodwill, contingent consideration for our business combination with Lyte and periodic reassessment of fair value, allocating the fair value of purchase consideration to assets acquired and liabilities assumed in our business combination, reserves and certain accrued liabilities, the benefit period of deferred commissions, assumptions used in Black-Scholes valuation method, such as the current trading price of our common stock at time of exercise of our warrant, expected volatility, risk-free interest rate and expected dividend rate and provision for (benefit from) income taxes. Actual results could differ from those estimates and such differences could be material to the consolidated financial statements.
Risks and Uncertainties
Regulation governing blockchain technologies, cryptocurrencies, digital assets, utility tokens, security tokens and offerings of digital assets is uncertain, and new regulations or policies may materially adversely affect the development and the value of our tokens. Regulation of digital assets, like PhunCoin and PhunToken, cryptocurrencies, blockchain technologies and cryptocurrency exchanges, is evolving and likely to continue to evolve. Regulation also varies significantly among international, federal, state and local jurisdictions and is subject to significant uncertainty. Various legislative and executive bodies in the United States and in other countries may in the future adopt laws, regulations, or guidance, or take other actions, which may severely impact the permissibility of tokens generally and the technology behind them or the means of transaction or in transferring them. Any such violations could adversely affect the ability of us to maintain PhunCoin and PhunToken, which could have a material adverse effect on our operations and financial condition. Failure by us to comply with any laws, rules and regulations, some of which may not exist yet or are subject to interpretation and may be subject to change, could also result in a material adverse effect on our operations and financial condition.
Concentrations of Credit Risk
Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash, trade accounts receivable and our digital asset holdings.
There is currently no clearing house for our digital assets, including our bitcoin, ethereum or other digital asset holdings, nor is there a central or major depository for the SEC.

Emerging Growth Company:

Section 102(b)(1)custody of our digital assets. There is a risk that some or all of our digital asset holdings could be lost or stolen. There can be no assurance that the JOBS Act exempts emerging growth companies from beingcustodians will maintain adequate insurance or that such coverage will cover losses with respect to our digital asset holdings. Further, transactions denominated in digital assets are irrevocable. Stolen or incorrectly transferred digital assets may be irretrievable. As a result, any incorrectly executed transactions could adversely our financial condition. The aggregate cost basis of our digital asset holdings is $42,255 and $41,964 at June 30, 2022 and December 31, 2021, respectively.

Although we limit our exposure to credit loss by depositing our cash with established financial institutions that management believes have good credit ratings and represent minimal risk of loss of principal, our deposits, at times, may exceed federally insured limits. Collateral is not required for accounts receivable, and we believe the carrying value approximates fair value.

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The following table sets forth our concentration of accounts receivable, net of specific allowances for doubtful accounts.
June 30, 2022December 31, 2021
Customer A12 %— %
Customer B10 %— %
Customer C7 %18 %
Customer D— %20 %
Digital Assets
Payments by customers in and purchases by us of digital assets were primarily of bitcoin and ethereum. We currently account for all digital assets held as a result of these transactions as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other. We have ownership of and control over our digital assets and we may use third-party custodial services to complysecure them. The digital assets are initially recorded at cost and are subsequently remeasured, net of any impairment losses incurred since acquisition.
We determine the fair value of our digital assets on a nonrecurring basis in accordance with newASC 820, Fair Value Measurement, based on quoted prices on the active exchange(s) that we have determined is the principal market for bitcoin, ethereum and other digital asset holdings (Level 1 inputs). We perform an analysis each quarter to identify whether events or revised financial accounting standards until private companies (thatchanges in circumstances, principally decreases in the quoted prices on active exchanges, indicate that it is more likely than not that our digital assets are impaired. In determining if an impairment has occurred, we consider the lowest market price quoted on an active exchange since acquiring the respective digital asset. If the then current carrying value of a digital asset exceeds the fair value, an impairment loss has occurred with respect to those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered underdigital assets in the Exchange Act)amount equal to the difference between their carrying values and the fair value.
The impaired digital assets are requiredwritten down 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 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 standardtheir fair value at the time private companies adoptof impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains are not recorded until realized upon sale. In determining the newgain or revised standard.

Net loss to be recognized upon sale, we calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale. Impairment losses and gains or losses on sales are recognized within other expense in our consolidated statements of operations and comprehensive loss. Impairment loss was $12,158 and $21,511 for the three and six months ended June 30, 2022. We realized gains in the amount of $194 for the six months ended June 30, 2022.

The following table sets forth our digital asset holdings as of June 30, 2022:
AssetGross Carrying AmountAccumulated Digital Asset ImpairmentDigital Asset Carrying
Value
Bitcoin$37,882 $(26,295)$11,587 
Ether3,163 (2,471)692 
Other1,210 (897)313 
Total$42,255 $(29,663)$12,592 
The following table sets forth our digital asset holdings as of December 31, 2021:
AssetGross Carrying AmountAccumulated Digital Asset ImpairmentDigital Asset Carrying
Value
Bitcoin$36,963 $(8,554)$28,409 
Ethereum4,714 (670)4,044 
Other287 (159)128 
Total$41,964 $(9,383)$32,581 
11
Accumulated digital asset impairment noted above represent impairment on the remaining cost lots as of the respective dates. Changes in our digital asset holdings for the six months ended June 30, 2022 were as follows:
BitcoinEthereumOtherTotal
Net balance at December 31, 2021$28,409 $4,044 $128 $32,581 
Received from customers, net of expenses28 377 — 405 
Purchases of digital assets923 — — 923 
Exchanges of digital assets— (923)923 — 
Realized gain26 168 — 194 
Impairment expense(17,799)(2,974)(738)(21,511)
Net balance at 6/30/2022$11,587 $692 $313 $12,592 
Loss per OrdinaryCommon Share

Net

Basic loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding ineligible for redemption, during the period, plusperiod. Restricted shares subject to the extent dilutive, the incremental number ofrepurchase provisions relating to early exercises under our 2009 Equity Incentive Plan were excluded from basic shares outstanding. Diluted loss per common share is computed by giving effect to all potential shares of common stock, including those related to settle warrants, as calculated using the treasury stock method. At August 31, 2017, the Company hadour outstanding warrants and stock equity plans, to purchase 14,871,098 shares of common stock.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 antidilutive.anti-dilutive. As a result, diluted loss per common share is the same as basic loss per common share for all periods presented.
The following table sets forth common stock equivalents that have been excluded from the period.

Concentrationcomputation of Credit Risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution in Cyprus, which has no deposit insurance. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

dilutive weighted average shares outstanding as their inclusion would have been anti-dilutive:

June 30,
20222021
Convertible notes—21,136
Warrants5,636,8015,996,112
Options934,7291,071,782
Restricted stock units2,621,3464,665,060
Restricted shares—574
Total9,192,87611,754,664
Fair Value of Financial Instruments:

Instruments

We follow the guidance in ASC 820, Fair Value Measurement, to account for financial assets and liabilities measured on a recurring and non-recurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires fair value measurements be classified and disclosed in one of the following three categories:
•Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
•Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
•Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

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Determining which category an asset or liability falls within the hierarchy requires significant judgment. Our financial instruments measured at fair value as of June 30, 2022 are set forth below:
Level 1Level 2Level 3Total
Assets:
Digital assets$12,592 $— $— $12,592 
Total$12,592 $— $— $12,592 
Liabilities:
Warrant liability$— $1,136 $— $1,136 
Total$— $1,136 $— $1,136 


    Our financial instruments measured at fair value as of December 31, 2021 are set forth below:
Level 1Level 2Level 3Total
Assets:
Digital assets$32,581 $— $— $32,581 
Total$32,581 $— $— $32,581 
Level 1Level 2Level 3Total
Liabilities:
Warrant liability$— $3,605 $— $3,605 
Total$— $3,605 $— $3,605 
The following table sets forth the assumptions used to calculate the fair values of the liability classified warrant issued in connection with our 2020 Convertible Notes as of the dates presented:

June 30, 2022December 31, 2021
Strike price per share$2.25 $2.25 
Closing price per share$1.08 $2.63 
Term (years)1.041.53
Volatility205 %186 %
Risk-free rate2.85 %0.56 %
Dividend Yield——
The carrying value of accounts receivable, inventory, prepaid expenses, other current assets, accounts payable and accrued expenses are considered to be representative of their respective fair values because of the short-term nature of those instruments.
Recent Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 introduces a model based on expected losses for most financial assets and certain other instruments. In addition, for available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a smaller reporting company, the standard is currently effective for us for annual reporting periods beginning after December 15, 2022, with early adoption permitted for annual reporting periods beginning after December 15, 2019. We currently intend to adopt this new standard effective January 1, 2023. We currently do not expect the adoption of ASU 2016-13 to have a material impact on our condensed consolidated financial statements and disclosures.
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In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for smaller reporting companies for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. As the Company does not currently have any debt with conversion features outstanding, we do not expect the adoption of ASU 2020-06 to have a material impact on our condensed consolidated financial statements and disclosures.
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3. Business Combination
On October 18, 2021, we closed the acquisition of Lyte with an adjusted purchase price of approximately $11.0 million (subject to an earn-out provision). This acquisition was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged was recorded at estimated fair values on the date of acquisition. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed were based on management’s estimates and assumptions at the time of acquisition. Fair values are subject to refinement for up to one year after the closing date as additional information regarding the closing date fair values becomes available. The fair values of the aggregate assets and liabilities acquired are disclosed in in Note 3, Business Combination, in our Annual Report on Form 10-K filed with the SEC on April 7, 2022. We have not booked any adjustments to the initial fair values booked at acquisition date.
Pursuant to terms of the stock purchase agreement, the acquisition and earn-out payments consist of the following: (i) $1,125, as adjusted for working capital items, on June 30, 2022, (ii) the issuance of shares of our common stock with an aggregate value of $2,250, in 2 equal installments valued at up to $1,125, determined on the last business day of each of the quarters ending March 31, 2022 and September 30, 2022 and (iii) up to $1,250 in cash and issuance of shares of our common stock valued at up to $1,250 on the first anniversary of closing, as an earn-out payment based upon Lyte achieving certain annual revenue milestones as provided in the purchase agreement in the year following closing. We currently believe Lyte will achieve the annual revenue milestone and we will owe the full amount of the contingent consideration on the first annual anniversary of closing. There is $3,471 and $5,531 recorded in accrued expenses in the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021, respectively, related to fair value of future acquisition payments and earn out payable due to the Company’s assetsseller.
The following table summarizes the unaudited pro forma condensed consolidated financial information of Phunware for the three and liabilities,six months ended June 30, 2021, as if the acquisition of Lyte had occurred on January 1, 2021:

Three Months Ended June 30, 2021Six Months Ended June 30, 2021
(in thousands)(unaudited)
Net revenues$3,583 $7,353 
Net loss(7,943)(22,777)
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4. Revenue
Our platform revenue consists of SDK license subscriptions and application development services, as well as application transactions, which qualify as financial instrumentsare comprised of in-app advertising and sales of our digital asset, PhunToken. Hardware revenue relates to the sale of high-performance personal computers. Refer to our revenue recognition policy under FASB ASC 820, “Fair Value Measurementsthe subheading, Revenue Recognition, in Note 2, Summary of Significant Accounting Policies, in our Annual Report on Form 10-K filed with the SEC on April 7, 2022.
Disaggregation of Revenue
The following table sets forth our net revenues by category:

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Platform revenue$1,628 $1,436 $4,120 $3,082 
Hardware revenue3,857 — 8,143 — 
Net revenues$5,485 $1,436 $12,263 $3,082 
We generate revenue in domestic and Disclosures,” approximatesforeign regions and attribute net revenue to individual countries based on the carrying amounts represented inlocation of the balance sheet.

7

Stellar Acquisition III Inc.

Notes to Condensed Interim Financial Statements

(unaudited)

Usecontracting entity. We derived 98% and 97% of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted inour net revenues from within the United States for the three and six months ended June 30, 2022, respectively. We derived 99% of America requiresour net revenues from within the Company’s management to make estimatesUnited States for the three and assumptions that affect the reported amountssix months ended June 30, 2021.

The following table sets forth our concentration of assets and liabilities and disclosurerevenue sources as a percentage of contingent assets and liabilities at the datetotal net revenues:

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Customer E1 %6 %1 %11 %
Customer F— %21 %— %19 %
Customer G— %13 %— %11 %

Deferred Revenue
Our deferred revenue balance consisted of the financial statements. Actual results could differfollowing:
June 30, 2022December 31, 2021
Current deferred revenue
Platform revenue$1,616 $1,824 
Hardware revenue99 2,149 
Total current deferred revenue$1,715 $3,973 
Non-current deferred revenue
Platform revenue$859 $1,299 
Total non-current deferred revenue$859 $1,299 
Total deferred revenue$2,574 $5,272 
Deferred revenue consists of customer billings or payments received in advance of the recognition of revenue under the arrangements with customers. We recognize deferred revenue as revenue only when revenue recognition criteria are met. During the six months ended June 30, 2022, we recognized revenue of $3,182 that was included in our deferred revenue balance as of December 31, 2021.

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Remaining Performance Obligations
Remaining performance obligations were $5,243 as of June 30, 2022, of which we expect to recognize approximately 40% as revenue over the next 12 months and the remainder thereafter.
PhunToken
In May 2021, we announced the commencement of the selling of PhunToken. PhunToken is our innovative digital asset intended to be utilized within our token ecosystem, once developed, to help drive engagement by unlocking features and capabilities of our MaaS platform. During the six months ended June 30, 2022, we sold 186.8 million PhunToken for an aggregate of $1,533, for which we received both cash and digital assets from those estimates.

Cash and securities held in Trust Account:

At August 31, 2017 and November 30, 2016, the assets heldcustomers. Sales of PhunToken are recorded within platform revenue in the Trust Accounttable above.

In March 2022, certain members of our senior management team purchased 827.5 million PhunToken pursuant to Restricted Token Purchase Agreements, at an aggregate purchase price of approximately $7. The PhunToken will be transferred to employees over a time-based delivery schedule ranging from one to four years. The Company will have the right to repurchase any PhunToken not delivered to the employee as a result of voluntary termination or termination for cause.
As of June 30, 2022 and December 31, 2021, issued PhunToken were comprised461.3 million and 131.7 million, respectively. Total supply of PhunToken is capped at 10 billion.

5. Inventory
Our inventory balance on the dates presented consisted of the following:
June 30, 2022December 31, 2021
Raw materials$3,173 $2,075 
Work-in-process— 207 
Finished goods113 138 
Other242 216 
Total inventory$3,528 $2,636 
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6. Debt
2021 Promissory Note
In connection with the acquisition of Lyte, we entered into a note purchase agreement and completed the sale of an unsecured promissory note (the "2021 Promissory Note") with an original principal amount of $5,220 in a private placement that closed on October 18, 2021. The 2021 Promissory Note was sold with an original issue discount of $200 and we paid at closing issuance costs totaling $280. After deducting all transaction costs, net cash and U.S. Treasury Bills. On March 17, 2017, May 16, 2017 and August 29, 2017, the Company withdrew $55,000, $165,000 and $60,000 of interest earned from the Trust Account to pay for working capital expenses, respectively. Additionally, $99,236 of interest was used for the first extension on August 23, 2017.

Income Taxes:

There is, at present, no direct taxation in the Marshall Islands and interest, dividends, and gains payableproceeds to the Company were $4,740. No interest will accrue on the 2021 Promissory Note unless and until the occurrence of an event of default (as defined in the 2021 Promissory Note). Beginning on January 15, 2022 and on the same day of each month thereafter until the 2021 Promissory Note is paid in full, we are received freerequired to make a monthly amortization payments in the amount of $574 until the maturity date of October 15, 2022. We may prepay any or all Marshall Islands taxes.outstanding balance of the 2021 Promissory Note earlier than it is due with a prepayment premium of 110%. The Company is registered as an “exempted company” pursuantprepayment premium also applies to the Marshall Islands Business Corporations Actmonthly amortization payments, which amounts to an effective interest rate of approximately 18%.

The 2021 Promissory Note had a principal balance of $2,088 and $5,220 and debt discount of $57 and $316 at June 30, 2022 and December 31, 2021, respectively.
Interest Expense
The following table sets forth interest expense for our various debt obligations included on the condensed consolidated statements of operations and comprehensive loss:
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
2021 Promissory Note$122 $— $300 $— 
2020 Convertible Notes— 659 — 1,111 
Accretion of debt discount - issuance costs1031,121258 1,741 
Accretion of debt discount - warrants——— 1,029 
All other debt and financing obligations486596 183 
Total$273 $1,845 $654 $4,064 
Other Debt Obligations
Other than the 2021 Promissory Note referenced above and disclosures contained within Note 12, Subsequent Events, there have been no material changes to the terms and conditions of our other debt obligations, including the payments in full thereof, since the filing of our Annual Report on Form 10-K. See Note 9, Debt, in our Annual Report on Form 10-K filed with the SEC on April 7, 2022.
7. Leases
On March 15, 2022, we entered into a lease agreement, in which we will lease approximately 21,830 square feet in Round Rock, Texas, which we intend to use as manufacturing and warehouse space for our Lyte computer division. The term of the lease is five years and commences on the earliest of (a) the date we occupy any portion of the premises and begin conducting business therein, (b) the date on which construction is substantially completed in the building (as amended)defined in the construction addendum) or (c) the date the landlord would have achieved substantial completion of construction of the building but for a delay caused by us (as defined in the construction addendum). As the Company proceeds with making investments in various jurisdictions, tax considerations outside the Marshall Islands may arise. Although the Company intends to pursue tax-efficient investments, it may beThe lease provides for initial base rent payments of approximately $27 per month, subject to income tax, withholding tax, capital gains tax, and other taxes imposed by tax authorities in other jurisdictions. For U.S. tax purposes, the Company expectsescalations. In addition, we will be responsible for payments equal to our proportionate share of operating expenses, which is currently estimated to be treated as a passive foreign investment company by its U.S. shareholders. The Company does not expect to beapproximately $7 per month, which is also subject to direct taxation based on net income in the U.S. as long as it maintains its non-U.S. trade or business status. The Company does not expectadjustment to invest in any U.S. obligation that will be subjectactual costs and expenses according to U.S. withholding taxes.

The Company follows the provisions of ASC 740-10 which prescribes a recognition threshold and measurement attribute for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on its tax return. ASC 740-10 requires that the financial statements reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledgelease. We took possession of the position and all relevant facts, but without considering time values. As of August 31, 2017, the Company has not commenced operations and thus has no uncertain tax positions.

Redeemable Common Stock:

As discussedlease in Note 3, all common shares sold as part of a Unit in the Public Offering contain a redemption feature which allows for the redemption of common shares under the Company’s Liquidation or Tender offer/stockholder/approval provisions.July 2022. In accordance with FASB ASC 480, redemption provisions not solely withinauthoritative guidance, we will defer recording the controlright-of-use asset and lease liability until such date the lessor makes the leased premises available for our use.

On June 3, 2022, we entered into a lease agreement pursuant to which we will lease approximately 7,458 square feet in Austin, Texas, which we intend to use as professional office space for our corporate headquarters. The term of the Company require the securityLease commenced on June 10, 2022 and has a term of sixty-four (64) months. The lease provides for rent abatement until September
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30, 2022. Beginning on October 1, 2022, initial base rent payments are approximately $28 per month, subject to escalations contained therein. In addition, we will be responsible for payments equal to our proportionate share of operating expenses, which is currently estimated to be classified outsideapproximately $9 per month, plus electrical and janitorial services, which are to be contracted and paid separately by us. As a result of permanent equity. Ordinary liquidation events,entering into this lease agreement, we recorded a right-of-use asset and corresponding lease liability of $1,508 on the commencement date noted above.
Further information regarding our other office leases and accounting thereof are located in Note 2, Summary of Significant Accounting Policies, and Note 10, Leases, in our Annual Report on Form 10-K filed with the SEC on April 7, 2022.
The weighted-average remaining lease term for our operating leases as of June 30, 2022 was 4.13 years. We recognize lease expense on a straight-line basis over the lease term with variable lease expense recognized in the period in which involve the redemptioncosts are incurred. The components of lease expense are included in general and liquidationadministrative expense in our condensed consolidated statement of alloperations and comprehensive loss. Lease expense for the three and six months ended June 30, 2022 was $236 and $440, respectively. Lease expense for the three and six months ended June 30, 2021 was $209 and $421, respectively.
Future minimum lease obligations are set forth below:
Future minimum lease obligations years ending December 31,Lease
Obligations
2022 (Remainder)$404 
2023963 
2024959 
2025569 
2026370 
Thereafter284 
$3,549 
Less: Portion representing interest(691)
$2,858 
8. Commitments and Contingencies
Litigation

There have been no material changes to the disclosure related to our litigation matters since the filing of our Annual Report on Form 10-K, except as set forth below. See Note 11, "Commitments and Contingencies" in our Annual Report on Form 10-K filed with the SEC on April 7, 2022 for further information.

On February 18, 2022, certain stockholders filed a lawsuit against Phunware and its individual officers and directors. The case, captioned Wild Basin Investments, LLC, et al. v. Phunware, Inc., et al., was filed in the in the Court of Chancery of the state of Delaware (Cause No. 2022-0168-LWW). Plaintiffs alleged that they invested in various early rounds of financing while the Company was private and that Phunware should not have subjected their shares to a 180-day “lock up” period. Plaintiffs also allege that Phunware’s stock price dropped significantly during the lock up period and seek damages, costs and professional fees. We filed a motion to dismiss the complaint on May 27, 2022 and on July 15, 2022, Plaintiffs filed their answering brief in opposition to the motion to dismiss and a partial motion for summary judgement. Our opposition in response to Plaintiffs’ answering brief is due by August 12, 2022 in accordance with the previously agreed upon schedule. We further intend to vigorously defend against this lawsuit and any appeals. We have not recorded an entity’s equity instruments, are excludedexpense related to this matter because any potential loss is not currently probable or reasonably estimable. Additionally, we cannot presently estimate the range of loss, if any, that may result from the provisionsmatter. It is possible that the ultimate resolution of FASB ASC 480. Although the Company didforegoing matter, or other similar matters, if resolved in a manner unfavorable to us, may be materially adverse to our business, financial condition, results of operations or liquidity.

From time to time, we are and may become involved in various legal proceedings in the ordinary course of business. The outcomes of our legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular reporting period. In addition, for the matters disclosed above that do not specify a maximum redemption threshold, its charter provides
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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 in no event will it redeem its Public Shares in an amount that would cause its net tangible assets (shareholders’ equity)could potentially result from the application of non-monetary remedies.
9. Stockholders’ Equity
Common Stock
Total common stock authorized to be less than $5,000,001.

8

Stellar Acquisition III Inc.

Notes to Condensed Interim Financial Statements

(unaudited)

The Company recognizes changes in redemption value immediatelyissued as they occur and will adjust the carryingof June 30, 2022 was 1,000,000,000 shares, with a par value of the security to equal the redemption value at the end$0.0001 per share. At June 30, 2022 and December 31, 2021, there were 98,137,070 and 96,751,610 shares of each reporting period. Increases or decreases in the carrying amount of redeemableour common stock shall be affected by charges against additional paid-in capital.

Accordingly, at Augustoutstanding.

On January 31, 20172022, we entered into an At Market Issuance Sales Agreement with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which we may offer and November 30, 2016, 6,231,961and 6,293,168, respectivelysell, from time to time, shares of the 6,900,610 Public Shares were classified outside of permanent equity at their redemption value.

Recent Accounting Pronouncements:

Management does not believe there are any recently issued, but not yet effective, accounting pronouncements, that if currently adopted, would have a material effect on the Company’s financial statements.

NOTE 3 — PUBLIC OFFERING

On August 24, 2016, the Company closed the Public Offering for the sale of 6,500,000 units at a price of $10.00 per unit (the “Units”). Each Unit consists of one share of the Company’sour common stock, $0.0001 par value (the “Public Shares”) and one redeemable$0.0001 per share, for aggregate gross proceeds of up to $100,000, through or to Wainwright, as agent or principal. We are not obligated to sell shares of our common stock purchase warrant (the “Warrants”). Under the terms of a warrant agreement, the Company has agreed to use its best efforts to file a new registration statement under the Securities Act to register thesales agreement with Wainwright. As of June 30, 2022, we have not sold any shares of common stock underlyingpursuant to the Warrants, followingsales agreement with Wainwright. Sales of shares of our common stock sold under the completionsales agreement will be made pursuant to an effective shelf registration statement on Form S-3 in the amount of $200,000 filed with the SEC on February 1, 2022.

In January 2021, 2,670,121 shares of our common stock were sold in an at-the-market offering with Ascendiant Capital Markets, LLC ("Ascendiant") for aggregate net cash proceeds of $5,058. Transaction costs were $156. We terminated the Sales Agreement with Ascendiant effective as of March 28, 2021.
In February 2021, we entered into an underwriting agreement with Northland Securities, Inc. and Roth Capital Partners, LLC, relating to an underwritten public offering to which we issued 11,761,111 shares of our common stock at an offering price of $2.25 per share. Aggregate cash proceeds at closing, net of transaction costs of $1,740, totaled $24,722. We incurred additional transaction costs paid outside of closing of $75.
On April 7, 2021, we entered into an At Market Issuance Sales Agreement with B. Riley Securities, Inc. ("B. Riley"), pursuant to which we may offer and sell, from time to time, shares of our common stock through or to B. Riley, for an aggregate offering price of up to $25,000. We paid B. Riley a commission of 3% of the Business Combination. Eachgross proceeds of the sales price per share for sales of our common stock sold through or to B. Riley. As of June 30, 2021, 691,584 shares of our common stock has been sold and we have received aggregate net cash proceeds of $979, of which $112 had been received by us in cash as of June 30, 2021. We received the balance subsequent to the end of the quarter, and accordingly, we recorded $867 in prepaid expenses and other current assets as of June 30, 2021. Transaction costs were $30. We also incurred additional transaction costs paid outside of closing of $147. We terminated the sales agreement with B. Riley on February 4, 2022, with an effective date of February 9, 2022.
Warrants
We have various warrants outstanding. A summary of our outstanding warrants is set forth below:

June 30, 2022December 31, 2021
Warrant TypeCash Exercise
Price per
share		Number of warrantsCash Exercise
Price per
share		Number of warrants
2020 Convertible Note warrant$2.25 1,780,000 $2.25 1,780,000 
Common stock warrant (Series D-1)$2.25 35,555 $2.25 35,555 
Common stock warrants (Series F)$9.22 377,402 $9.22 377,402 
Public warrants (PHUNW)$11.50 1,761,291 $11.50 1,761,291 
Private placement warrants$11.50 1,658,381 $11.50 1,658,381 
Unit purchase option warrants$11.50 24,172 $11.50 24,172 
Total5,636,801 5,636,801 
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Except as set forth below, there have been no material changes to the terms of our outstanding warrants. Additional information about our various warrants outstanding is in included under the subheading, "Warrants", in Note 13, Stockholders' Equity, in our Annual Report on Form 10-K filed with the SEC on April 7, 2022.
2020 Convertible Note Warrant entitles
In connection with the holderissuance of the 2020 Convertible Notes, in 2020, we issued a warrant exercisable for three (3) years for the purchase, initially, of up to purchase onean aggregate of 2,160,000 shares of the Company's common stock at an initial exercise price of $4.00 per share. The number of shares and exercise price are each subject to adjustment provided under the warrant. As a result of our underwritten public offering in February 2021, the exercise price of each share decreased to $2.25 per share, and the number of shares for which the warrant is exercisable increased to 3,840,000 shares. If, at the time of exercise of the warrant, there is no effective registration statement registering, or no current prospectus available for, the issuance of the shares, then the warrant may also be exercised, in whole or in part, by means of a “cashless exercise.” The registration statement registering 2,160,000 shares of our common stock issuable pursuant to the terms of the warrant was declared effective by the SEC on October 27, 2020. In April 2022, we filed a registration statement, as amended, registering 250% of the additional warrant shares as result of the adjustment noted above. The registration statement was declared effective by the SEC on May 2, 2022. The warrant may not be exercised if, after giving effect to the exercise, the investor would beneficially own amounts in excess of those permissible under the terms of the warrant.

10. Stock-Based Compensation
There have been no material changes to the terms of our 2018 Equity Incentive Plan (the "2018 Plan"), 2018 Employee Stock Purchase Plan ("2018 ESPP") and 2009 Equity Incentive Plan ("2009 Plan") since the filing of our Annual Report on Form 10-K. Refer to Note 14, Stock-Based Compensation, in our Annual Report on Form 10-K filed with the SEC on April 7, 2022 for more information on our various equity incentive plans.
2018 Equity Incentive Plan
Shares of common stock at a pricereserved for issuance under the 2018 Plan also will include any shares of $11.50. No fractional shares will be issued upon exercisecommon stock subject to stock options, restricted stock units or similar awards granted under the 2009 Plan, that, on or after the adoption of the Warrants. If, upon exercise2018 Plan, expire or otherwise terminate without having been exercised in full and shares of common stock issued pursuant to awards granted under the Warrants, a holder would be entitled2009 Plan that are forfeited to receive a fractional interest in a share, we will, upon exercise, round down toor repurchased by us. As of June 30, 2022, the nearest whole number themaximum number of shares of common stock tothat may be issuedadded to the Warrant holder. Each Warrant will become exercisable on2018 Plan pursuant to the laterforegoing is 897,229. Not including the maximum number of 30 days after the completion of the Business Combination or 12 monthsshares from the closing of the Public Offering and will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation. However, if the Company does not complete its initial Business Combination on or prior2009 Plan that may be added to the applicable time period to complete2018 Plan, the Business Combination, the Warrants will expire at the end of such period. If the Company is unable to deliver registered2018 Plan had 3,582,435 and 762,038 shares of common stock reserved for future issuances as of June 30, 2022 and December 31, 2021, respectively.
Restricted Stock Units
A summary of our restricted stock unit activity under the 2018 Plan for the six months ended June 30, 2022 is set forth below:
SharesWeighted Average Grant Date Fair Value
Outstanding as of December 31, 20213,576,270 $1.94 
Granted— — 
Released(881,924)1.85 
Forfeited(73,000)2.33 
Outstanding as of June 30, 20222,621,346 $1.95 
Stock Options
During third quarter of 2021, we granted an option to purchase 50,000 shares of our common stock to a non-employee consultant with an exercise price of $1.08 per share. The option vests over one year in 12 equal monthly installments. The non-employee consultant ceased providing services to us during the second quarter of 2022, and, as such, 12,500 shares of this
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stock option were forfeited as of such date. As of June 30, 2022, the holder upon exercisehad not exercised the balance of Warrants issued in connection withthis stock option and this is the Company’s public Units duringonly stock option grant outstanding under the exercise period, there will2018 Plan.
2018 Employee Stock Purchase Plan
We use a Black-Scholes option pricing model to determine the fair value of shares to be no net cash settlement of these Warrantspurchased under the 2018 ESPP. Stock-based compensation expense related to our 2018 ESPP for the three and the Warrants will expire worthless, unless they may be exercised on a cashless basis in the circumstances described in the warrant agreement. Once the Warrants become exercisable, the Company may redeem the outstanding Warrants in wholesix months ended June 30, 2022 was not significant. There were 911,245 and not in part at a price of $0.01 per Warrant upon a minimum of 30 days’ prior written notice of redemption, only in the event that the last sale price of the Company’s189,215 shares of common stock equals or exceeds $21.00 per shareavailable for any 20 trading days withinsale and reserved for issuance as of June 30, 2022 and December 31, 2021, respectively.
2009 Equity Incentive Plan
A summary of our option activity under the 30-trading day period ending on2009 Plan and related information is as follows:
Number of SharesWeighted Average
Exercise Price		Weighted Average
Remaining
Contractual Term
(years)		Aggregate Intrinsic
Value
Outstanding as of December 31, 2021925,467 $0.80 5.59$1,692 
Granted— — 
Exercised(22,757)0.68 
Forfeited(5,481)2.00 
Outstanding as of June 30, 2022897,229 $0.80 5.21$374 
Exercisable as of June 30, 2022895,638 $0.79 5.21$374 
For the third trading day beforesix months ended June 30, 2022, the Company sendsaggregate intrinsic value of options exercised was $374 and the notice of redemption to the Warrant holders.

The Company granted the underwriters an overallotment option to purchase an additional 975,000 Units at $10.00 for 45 days following the closing of the Public Offering. Following the partial exercise of the underwriters’ overallotment option on September 28, 2016, the Company sold an additional 400,610 Units at a price of $10.00 per unit generating additional gross proceeds of $4,006,100. The Company paid an underwriting fee of $1,300,000, equal to a 2.00% underwriting discount on the per Unit offering price to the underwriters, based on a sale of 6,500,000 Units, at the closing of the Public Offering and $80,122 based on a sale of 400,610 Units, following the partial exercise of the underwriters’ overallotment option on September 28, 2016. The Company will pay an additional fee (the “Deferred Discount”) of 2.5% of the gross offering proceeds payable to underwriters, reduced pro rata for any share redemptions, upon the Company’s completion of a Business Combination. The Deferred Discount will become payable to the underwriters from the amounts held in the Trust Account solely in the event the Company completes its initial Business Combination.

The Company issued the underwriters, as additional compensation for the Public Offering, 100,000 shares at the close of the Public Offering. Following the partial exercise of the underwriters’ overallotment option on September 28, 2016, the Company issued the underwriters, as additional compensation for the Public Offering, another 6,164 shares. The Company accounted for thetotal fair value of these shares, as an expenseoptions vested was $16.

Stock-Based Compensation
Compensation costs that have been included in our condensed consolidated statements of operations and comprehensive loss for all stock-based compensation arrangements is set forth below:
Three Months Ended June 30,Six Months Ended June 30,
Stock-based compensation2022202120222021
Cost of revenues$49 $323 $95 $532 
Sales and marketing27 129 45 231 
General and administrative595 709 1,067 1,334 
Research and development35 222 63 341 
Total stock-based compensation$706 $1,383 $1,270 $2,438 
As of June 30, 2022, there was approximately $4,588, $293 and $2 of total unrecognized compensation cost related to the Public Offering resulting in a charge directly2018 Plan, the 2018 ESPP and the 2009 Plan, respectively. These unrecognized compensation costs are expected to shareholders’ equity. The shares were issued atbe recognized over an estimated fair valueweighted-average period of $1,061,640.

9

Stellar Acquisition III Inc.

Notes to Condensed Interim Financial Statements

(unaudited)

NOTE 4 — RELATED PARTY TRANSACTIONS

Founder Shares

The Company’s initial shareholders currently own 2,003,403 shares of common stock, following the partial exercise of the underwriters’ overallotment option on September 28, 2016. In January 2016, 2,300,000 shares were initially purchased by Messrs. Tsirigakisapproximately 2.3 years, 1.3 years and Syllantavos for an aggregate of $25,000, up to 300,000 of which were subject to forfeiture. In January 2016, Messrs. Tsirigakis and Syllantavos collectively transferred an aggregate of 2,099,900 shares to the Sponsors and an aggregate of 34,500 shares to the Company’s director nominees. In addition, in January 2016, Messrs. Tsirigakis and Syllantavos collectively transferred an aggregate of 165,600 shares to the Company’s other initial shareholders. In August 2016, the Sponsors returned to the Company, at no cost, an aggregate of 129,839 founder shares, which the Company cancelled, leaving an aggregate of 2,170,161 founder shares outstanding. Following the partial exercise of the underwriters’ overallotment option on September 28, 2016, the Sponsors returned to the Company, at no cost, an aggregate of 166,758 founder shares, which the Company cancelled, leaving an aggregate of 2,003,403 founder shares outstanding. The founder shares are identical to the common stock included in the Units sold in the Public Offering except that the founder shares are subject to certain transfer restrictions, as described in more detail below. Our initial shareholders currently own 22.2% of the Company’s issued and outstanding shares of common stock.

The Company’s initial shareholders have agreed not to transfer, assign or sell any of their founder shares until the earlier of (A) one year after the completion of the Business Combination, or earlier if, subsequent to the Business Combination, the last sale price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Business Combination or (B) the date on which the Company completes a liquidation, merger, stock exchange or other similar transaction after the initial Business Combination that results in all of the Company’s shareholders having the right to exchange their shares of common stock for cash, securities or other property.

Private Placement Warrants

Upon the closing of the Public Offering on August 24, 2016, the Sponsors paid the Company $3,825,000 in a private placement0.9 years for the purchase2018 Plan, the 2018 ESPP and 2009 Plan, respectively.

11. Segment and Geographic Information
Our chief operating decision maker is our Chief Executive Officer ("CEO"). Our CEO reviews operating segment information for purposes of an aggregate of 7,650,000 Warrants at a price of $0.50 per Warrant (the “Private Placement Warrants”). Following the partial exercise of the underwriters’ overallotment option on September 28, 2016, the Sponsors purchased 320,488 additional Private Placement Warrants for an aggregate price of $160,244. Each Private Placement Warrant entitles the holder to purchase one share of common stock at $11.50 per share. The proceeds from the sale of the Private Placement Warrantsallocating resources and evaluating financial performance. We have been added to the proceeds from the Public Offering held in the Trust Account pending completion of the Business Combination. The Private Placement Warrants (including the common stock issuable upon exercise of the Private Placement Warrants) will not be transferable, assignable or salable until 30 days after the completion of the initial Business Combination and they will be non-redeemable so long as they are held by the Sponsors or their permitted transferees. If the Private Placement Warrants are held by someone other than the Sponsors or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Warrants included in the Units being sold in the Public Offering. Otherwise, the Private Placement Warrants have terms and provisions that are identical to those of the Warrants sold as part of the Units in the Public Offering and have no net cash settlement provisions.

10

Stellar Acquisition III Inc.

Notes to Condensed Interim Financial Statements

(unaudited)

If the Company does not complete a Business Combination, then the proceeds will be part of the liquidating distribution to the public shareholders and the Warrants issued to the Sponsors will expire worthless.

Registration Rights

The Company’s initial shareholders and holders of the Private Placement Warrants are entitled to registration rights pursuant to a registration rights agreement executed on August 18, 2016. The Company’s initial shareholders and holders of the Private Placement Warrants are entitled to make up to three demands, excluding short form registration demands,determined that the Company register such securitiesoperates in 2 reporting segments: Phunware and Lyte. In 2021, but prior to the acquisition of Lyte, our CEO reviewed the

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financial information presented on a consolidated basis for sale underpurposes of allocating resources and evaluating financial performance.
Selected information for the Securities Act. In addition, these holders have “piggy-back” registration rightsCompany's operating segments and a reconciliation to include their securitiesthe condensed consolidated financial statement amounts are as follows:
Three Months Ended June 30, 2022
PhunwareLyteConsolidated
Net revenues$1,628 $3,857 $5,485 
Loss before taxes$(16,708)$(363)$(17,071)
Six Months Ended June 30, 2022
PhunwareLyteConsolidated
Net revenues$4,120 $8,143 $12,263 
Loss before taxes$(31,067)$(921)$(31,988)
June 30, 2022
PhunwareLyteConsolidated
Goodwill$25,769 $7,373 $33,142 
Total assets$57,057 $4,179 $61,236 
December 31, 2021
PhunwareLyteConsolidated
Goodwill$25,887 $7,373 $33,260 
Total assets$94,621 $4,673 $99,294 
Identifiable long-lived assets attributed to the United States and international geographies are based upon the country in other registration statements filed bywhich the Company. The Company will bear the expenses incurred in connection with the filing of any such registration statements. There are no penalties associated with delays in registering the securities under the registration rights agreement.

Related Party Loans

asset is located or owned. As of January 15, 2016, threeJune 30, 2022 and December 31, 2021, all of our identifiable long-lived assets were in the Company’s Sponsors, Firmus Investments Inc., Astra Maritime, Inc.United States.

12. Subsequent Events
We have evaluated subsequent events through the date the financial statements were issued.
On July 6, 2022, we entered into a note purchase agreement and Magellan Investments Corp., have agreed to loancompleted the Company an aggregate of $250,000 against the issuancesale of an unsecured promissory note (the “Note”"2022 Promissory Note") to cover expenses relatedwith an original principal amount of $12,809 in a private placement with the same investor of our 2021 Promissory Note. The 2022 Promissory Note was sold with an original issue discount of $492 and we paid at closing issuance costs totaling $522. After deducting all transaction fees paid by us at closing, net cash proceeds to the Public Offering. Between JanuaryCompany at closing were $11,795. No interest will accrue on the 2022 Promissory Note unless and August 2016,until the Company borrowed approximately $207,985 under this loan fromoccurrence of an event of default, as defined in the three Sponsors. These loans were non-interest bearing2022 Promissory Note. Beginning on November 1, 2022 and wereon the same day of each month thereafter until the 2022 Promissory Note is paid in full, on August 24, 2016. Additionally, between January and August 2016, Nautilus Energy Management Corp., an affiliatewe are required to make a monthly amortization payments in the amount of our co-Chief Executive Officers paid$1,566 until the maturity date of July 1, 2022, which is subject to adjustment for any payment deferrals we elect. We have the right to defer any monthly payment by one month up to twelve times so long as certain expenses related toconditions, as defined in the Company’s roadshow and offering amounting to $42,550. Nautilus Energy Management Corp. was reimbursed2022 Promissory Note, are satisfied. In the event we exercise the deferral right for these expenses in full on August 24, 2016.

As of August 31, 2017,any given month: (i) the outstanding loansbalance will automatically increase by 1.85%; (ii) we will not be obligated to related parties amounted to $303,300.

On August 23, 2017make the Company issued unsecured promissory notes (the “First Extension Notes”) inmonthly payment for such month; and (iii) the aggregate amount of $303,300 to three of the Company’s Sponsors, Firmus Investments Inc., Astra Maritime, Inc. and Magellan Investments Corp., affiliates of our co-CEOs, Mr. Prokopios (Akis) Tsirigakis, and of Mr. George Syllantavos.

The Sponsors deposited into the Company’s trust account (the “Trust Account”) an aggregate of $303,300 and the Company instructed the trust agent to apply toward the principal held in the Trust Account $99,236 of interest earned on the funds in the Trust Account availablematurity date will be extended for withdrawal, representing an aggregate of $402,536,one month. We may prepay any or $0.058 per public share, as described in the prospectus filed by the Company in connection with the Company’s initial public offering. As a result, the period of time the Company has to consummate a business combination has been extended by three months to November 23, 2017.

The First Extension Notes bear no interest and are repayable in full upon consummation of the Company’s initial business combination. The Sponsors have the option to convert any unpaidall outstanding balance of the Notes into warrants exercisable for shares2022 Promissory Note earlier than it is due with a prepayment premium of the Company’s common stock, based on a conversion price of $0.50 per warrant.110%. The terms of any such warrants shall be identicalprepayment premium also applies to the termsmonthly amortization payments.

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Table of the warrants issued pursuant to the private placement that was consummated by the Company in connection with the Company’s initial public offering.

Administrative Service Agreement and Services Agreement

The Company has agreed to pay $10,000 a month for office space, administrative services and secretarial support to Nautilus Energy Management Corp., an affiliate of our co-Chief Executive Officers. Services commenced on the date the securities were first listed on the NASDAQ Capital Market on August 19, 2016 and will terminate upon the earlier of the consummation by the Company of an initial Business Combination or the liquidation of the Company. For the period from December 5, 2015 (inception) through August 31, 2017, the Company paid $124,194 under this agreement, $30,000 of which was for the three months ended August 31, 2017. For the nine months ended August 31, 2017 the Company paid $90,000 under this agreement.

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Contents

Stellar Acquisition III Inc.

Notes to Condensed Interim Financial Statements

(unaudited)

NOTE 5 — COMMITMENTS AND CONTINGENCIES

The Company paid an underwriting fee of $1,300,000, equal to a 2.00% underwriting discount on the per Unit offering price to the underwriters, based on a sale of 6,500,000 Units, at the closing of the Public Offering, Following the partial exercise of the underwriters’ overallotment option on September 28, 2016, the Company paid an additional underwriting fee of $80,122. The Company will pay an additional fee (the “Deferred Discount”) of 2.5% of the gross offering proceeds payable to underwriters, reduced pro rata for any share redemptions, upon the Company’s completion of a Business Combination. The Deferred Discount will become payable to the underwriters from the amounts held in the Trust Account solely in the event the Company completes its initial Business Combination.

The Company sold to the underwriters for $100, an option to purchase up to a total of 130,000 units, exercisable at $11.50 per unit (or an aggregate exercise price of $1,495,000) upon the closing of the Public Offering. The 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 later of the first anniversary of the effective date of the Registration Statement and the closing of our initial Business Combination and terminating on the fifth anniversary of such effectiveness date. The units issuable upon exercise of this option are identical to those offered in the Public Offering. The Company accounted for the fair value of the unit purchase option, net of the receipt of the $100 cash payment, as an expense of the Public Offering resulting in a charge directly to shareholders’ equity. The Company estimates the fair value of this unit purchase option is $6.01 per unit (for a total fair value of approximately $781,000) using a Black-Scholes option-pricing model. The fair value of the unit purchase option granted to the underwriter is estimated as of the date of grant using the following assumptions: (1) expected volatility of 37.8% (2) risk-free interest rate of 1.83% and (3) expected life of 5 years. Because the Company’s units do not have a trading history, the volatility assumption is based on information currently available to management. The volatility assumption was calculated using the average volatility of stock prices of a selection of companies within the energy logistics space, which are representative of the sectors on which the company intends to focus for the initial business transaction, including: Arc Logistics Partners LP, Ardmore Shipping Corporation, Blueknight Energy Partners, L.P., Buckeye Partners, L.P., Cheniere Energy, Inc., DHT Holdings, Inc., Dorian LPG Ltd., EnLink Midstream, LLC, GasLog Ltd., Genesis Energy LP, Golar LNG Ltd., Kinder Morgan, Inc., Magellan Midstream Partners LP, Navigator Holdings Ltd., Nordic American Tankers Limited, NuStar GP Holdings, LLC, ONEOK Inc., PBF Logistics LP, Scorpio Tankers Inc., StealthGas, Inc., Teekay Tankers Ltd., Tsakos Energy Navigation Limited. The Company believes that the volatility estimate is a reasonable benchmark to use in estimating the expected volatility of the units. Although an expected life of five years was used in the calculation, if the Company does not consummate a Business Combination within the prescribed time period and it liquidates, the option will become worthless. 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.

The Company issued the underwriters, as additional compensation for the Public Offering, 100,000 shares at the close of the Public Offering. Following the partial exercise of the underwriters’ overallotment option on September 28, 2016, the Company issued the underwriters, as additional compensation for the Public Offering, another 6,164 shares. The Company accounted for the fair value of these shares, as an expense of the Public Offering resulting in a charge directly to shareholders’ equity. The shares were issued at an estimated fair value of $1,061,640.

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Stellar Acquisition III Inc.

Notes to Condensed Interim Financial Statements

(unaudited)

NOTE 6 — TRUST ACCOUNT AND FAIR VALUE MEASUREMENTS

As of November 30, 2016, investment securities in the Company Trust Account consisted of $70,436,078 in United States Treasury Bills and another $939 held as cash and cash equivalents. As of August 31, 2017, investment securities in the Company Trust Account consisted of $70,833,266 in United States Treasury Bills and another $1,415 held as cash and cash equivalents. The Company classifies its Treasury Instruments and equivalent securities as held-to-maturity in accordance with FASB ASC 320 "Investments - Debt and Equity Securities". Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying August 31, 2017 and November 30, 2016 balance sheet and adjusted for amortization or accretion of premiums or discounts. The following table presents information about the Company's assets that are measured at fair value on a recurring basis as of August 31, 2017 and November 30, 2016 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In addition, the table presents the carrying value under ASC 320, excluding accrued interest income and gross unrealized holding gain. Since all of the Company's permitted investments consist of U.S. government treasury bills and cash, fair values of its investments are determined by Level 1 inputs utilizing quoted prices (unadjusted) in active markets for identical assets as follows:

  Carrying Value  Gross Unrealized Holding Gains/(Losses)  Quoted prices in Active Markets (Level 1) 
U.S. Government Treasury Securities as of August 31, 2017 (maturing on October 12, 2017) $70,833,266  $(4,044) $70,829,222 
             
U.S. Government Treasury Securities as of November 30, 2016 $70,441,927  $(5,849) $70,436,078 

NOTE 7 — STOCKHOLDERS’ EQUITY

Common Stock

The authorized common stock of the Company includes up to 200,000,000 shares. Holders of the Company’s common stock are entitled to one vote for each share of common stock. At August 31, 2017, and November 30, 2016, there were 9,010,177 shares of common stock issued and outstanding, including 6,231,961 and 6,293,168 shares subject to redemption, respectively.

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. At August 31, 2017 and November 30, 2016, there were no shares of preferred stock issued and outstanding.

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ITEM

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations

References in this section to “we,” “us,” "our," or “the Company” refer to Phunware. References to the “Company,” “us”“management” or “we”“management team” refer to Stellar Acquisition III Inc. Phunware’s officers and directors.
The following discussion and analysis of the Company’sPhunware’s financial condition and results of operations should be read in conjunction with thePhunware’s condensed consolidated financial statements and the related notes thereto contained elsewhereto those statements presented in this report.

Special Note Regarding Forward-Looking Statements

All statements other than statements of“Part I – Item 1. Financial Statements.” In addition to historical fact included in this Form 10-Q including, without limitation, statements under “Management’s Discussionfinancial information, the following discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Suchanalysis contains forward-looking statements are based on the beliefsthat involve risks, uncertainties and assumptions. Phunware’s actual results and timing of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results couldselected events may differ materially from those contemplated by theanticipated in these forward-looking statements as a result of certainmany factors, detailedincluding 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 filingscondensed 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 SEC.

Overview

products, solutions and services necessary to engage, manage and monetize their mobile application portfolios globally at scale. Our MaaS platform provides the entire mobile lifecycle of applications, media and data in one login through one procurement relationship. Our offerings include:

•Enterprise mobile software development kits (SDKs) including content management, location-based services, marketing automation, business intelligence and analytics, alerts, notifications and messaging, audience engagement and audience monetization;
•Integration of our SDK licenses into existing applications maintained by our customers, as well as custom application development and support services;
•Cloud-based vertical solutions, which are off-the-shelf, iOS- and Android-based mobile application portfolios, solutions and services that address: the patient experience for healthcare, the shopper experience for retail, the fan experience for sports, the traveler experience for aviation, the luxury resident experience for real estate, the luxury guest experience for hospitality, the student experience for education and the generic user experience for all other verticals and applications; and
•Application transactions for mobile audience building, user acquisition, application discovery, audience engagement and monetization, including our engagement-driven digital asset PhunToken.

We are a blank check company incorporated pursuant to the laws of the Republic of the Marshall Islands on December 8, 2015also offer and sell pre-packaged and custom high-end personal computer systems for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar Business Combination with one or more businesses. gaming, streaming and cryptocurrency mining enthusiasts.
We intend to effectuate our Business Combination using cash fromcontinue investing for long-term growth. We have invested and expect to continue investing in the proceeds of a public offering (the “Public Offering”) and a sale of Warrants in a private placement that occurred simultaneously with the completion of the Public Offering (the “Private Placement Warrants”), our capital stock, debt or a combination of cash, stock and debt.

The issuance of additional sharesexpansion of our stock in a Business Combination:

●may significantly dilute the equity interest of our stockholders;
●may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded our common stock;
●could cause a change of control if a substantial number of shares of our common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;
●may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and
●may decrease prevailing market prices for our common stock and/or Warrants.

Similarly, if we issue debt securities, it could result in:

●a decrease in the prevailing market prices for our common stock and/or Warrants.
●default and foreclosure on our assets if our operating revenues after an initial Business Combination are insufficient to repay our debt obligations;
●acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
●our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;
●our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding;
●our inability to pay dividends on our common stock;

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●using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes;
●limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
●increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and
●limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt.

As indicatedability to market, sell and provide our current and future products and services to customers globally. We also expect to continue investing in the accompanying financial statements, at August 31, 2017, the Trust Account consisteddevelopment and improvement of US treasury bills yielding interest of approximately 1.0% per annum, with a total value of $70,833,266new and another $1,415 held as cashexisting products and cash equivalents..services to address customers' needs. We currently do not expect to incur significant costsbe profitable in the pursuitnear future.


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Key Business Metrics
Our management regularly monitors certain financial measures to track the progress of our acquisition plans.business against internal goals and targets. We cannot assure youbelieve that the most important of these measures include backlog and deferred revenue.
Backlog and Deferred Revenue. Backlog represents future amounts to be invoiced under our plans to complete our initial Business Combination will be successful.

Results of Operations

For the period from December 8, 2015 (inception) through August 31, 2017, our activities consisted of formation and preparation for the Public Offering and subsequent to the Public Offering, and efforts directed toward locating and completing a suitable Business Combination. Our operating costs for those periods include our search for a Business Combination and are largely associated with our governance and public reporting, and charges of $10,000 per month payable to an affiliate of our Sponsor for administrative services.

Liquidity and Capital Resources

In August 2016, we consummated the Public Offering of an aggregate of 6,500,000 units at a price of $10.00 per unit generating gross proceeds of approximately $65,000,000 before underwriting discounts and expenses. Simultaneously with the consummation of the Public Offering, we consummated the private placement of 7,650,000 Private Placement Warrants, each exercisable to purchase one share of our common stock at $11.50 per share, to the Sponsor, at a price of $0.50 per Private Placement Warrant, generating gross proceeds, before expenses, of approximately $ 3,825,000. We received net proceeds from the Public Offering and the sale of the Private Placement Warrants of approximately $66,906,000, net of the non-deferred portion of the underwriting commissions of $1,300,000 and offering costs and other expenses of approximately $619,000. Following the partial exercise of the underwriters’ overallotment option on September 28, 2016, the Company sold an additional 400,610 units at a price of $10.00 per unit generating gross proceeds of approximately $4,006,100 before underwriting discounts and expenses. Simultaneously, the Sponsor purchased an additional 320,488 Private Placement Warrants at a price of $0.50 per Private Placement Warrant, generating gross proceeds, of approximately $160,244. The non-deferred portion of the underwriting commissions paid by the Company amounted to $80,122, while the Company incurred additional expenses related to the partial exercise of the overallotment option of $11,709. Of the aforementioned proceeds, $70,386,222 was depositedcurrent agreements. At any point in the Trust Account and is not available to us for operations (exceptcontract term, there can be amounts designated for working capital and amounts to pay taxes and working capital). At August 31, 2017,that we had approximately $211,105 of cash available outside of the Trust Account to fund our activities to search for a Business Combination.

Until the consummation of the Public Offering, the Company’s only sources of liquidity were an initial purchase of shares of our common stock (“Founder Shares”) for $25,000 by Messrs. Tsirigakis and Syllantavos, and a total of approximately $208,000 loaned by three of the Company’s Sponsors, Firmus Investments Inc., Astra Maritime, Inc. and Magellan Investments Corp. against the issuance of an unsecured promissory note (the “Note”). These loans were non-interest bearing and were paid in full on August 24, 2016 in connection with the closing of the Public Offering.

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On August 23, 2017 the Company issued unsecured promissory notes (the “First Extension Notes”) in the aggregate amount of $303,300 to affiliates of our co-CEOs, Mr. Prokopios (Akis) Tsirigakis, and of Mr. George Syllantavos. These funds were used to extend the period of time the Company has to consummate a business combination by three months to November 23, 2017.

The First Extension Notes bear no interest and are repayable in full upon consummation of the Company’s initial business combination. The Sponsors have the option to convert any unpaid balance of the Notes into warrants exercisable for shares of the Company’s common stock, based on a conversion price of $0.50 per warrant. The terms of any such warrants shall be identical to the terms of the warrants issued pursuant to the private placement that was consummated by the Company in connection with the Company’s initial public offering.

Off-balance sheet financing arrangements

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debtyet been contractually able to invoice. Until such time as these amounts are invoiced, they are not recorded in revenues, deferred revenue, accounts receivable or commitments of other entities, or entered into any non-financial assets.

Contractual obligations

At August 31, 2017, we did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. The Company has agreed to pay $10,000 a month for office space, administrative services and secretarial support to Nautilus Energy Management Corp., an affiliate ofelsewhere in our co-Chief Executive Officers. Services commenced on the date the securities were first listed on the NASDAQ Capital Market on August 19, 2016 and will terminate upon the earlier of the consummation by the Company of an initial Business Combination or the liquidation of the Company.

Critical Accounting Policies

The preparation ofcondensed consolidated financial statements, and related disclosuresare 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. We reasonably expect approximately 36% of our backlog as of June 30, 2022 will be invoiced during the subsequent 12-month period, primarily due to the fact that our contracts are typically one to three years in conformitylength.

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. 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 our backlog and deferred revenue:
June 30, 2022December 31, 2021
(in thousands)
Backlog$2,669 $3,316 
Deferred revenue2,574 5,272 
Total backlog and deferred revenue$5,243 $8,588 

Non-GAAP Financial Measures
Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA
We report our financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP"). We also use certain non-GAAP financial measures that fall within the meaning of Securities and Exchange Commission Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior period results. Our non-GAAP financial measures include adjusted gross profit, adjusted gross margin and adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") (our "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.
Our non-GAAP financial measures 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. Our non-GAAP financial measures 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 our ongoing operating performance for a particular period;
•Our non-GAAP financial measures 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 our non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.
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We compensate for these limitations to our non-GAAP financial measures by relying primarily on our GAAP results and using our non-GAAP financial measures only for supplemental purposes. Our non-GAAP financial measures 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 in order to facilitate a more useful period-over-period comparison of its 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.
The following table sets forth the non-GAAP financial measures we monitor.
Three Months Ended June 30,Six Months Ended June 30,
(in thousands, except percentages)2022202120222021
Adjusted gross profit (1)
$1,569 $638 3,386 1,805 
Adjusted gross margin (1)
28.6 %44.4 %27.6 %58.6 %
Adjusted EBITDA (2)
$(6,602)$(2,743)$(10,848)$(5,146)
(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 gross profit and gross margin regarding ongoing performance. We define adjusted gross profit as net revenues less cost of revenue, adjusted to exclude one-time revenue adjustments, stock-based compensation and amortization of intangible assets. We define adjusted gross margin as adjusted gross profit as a percentage of net revenues.
(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 loss plus (i) interest expense, (ii) income tax expense, (iii) depreciation, (iv) amortization, and further adjusted for (v) non-cash impairment and valuation adjustments and (vi) stock-based compensation expense.
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Reconciliation of Non-GAAP Financial Measures
The following tables set forth a reconciliation of the most directly comparable GAAP financial measure to each of the non-GAAP financial measures discussed above.
Three Months Ended June 30,Six Months Ended June 30,
(in thousands, except percentages)2022202120222021
Gross profit$1,520 $312 $3,291 $1,266 
Add back:  Amortization of intangibles— 3 — 7 
Add back:  Stock-based compensation49 323 95 532 
Adjusted gross profit$1,569 $638 $3,386 $1,805 
Adjusted gross margin28.6 %44.4 %27.6 %58.6 %
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2022202120222021
Net loss$(17,071)$(7,776)$(31,988)$(22,083)
Add back:  Depreciation and amortization182 25 368 58 
Add back:  Interest expense273 1,845 654 4,064 
EBITDA(16,616)(5,906)(30,966)(17,961)
Add back: Stock-based compensation706 1,383 1,270 2,438 
Add back: Loss on extinguishment of debt— 2,184 — 7,952 
Add back: Impairment of digital assets12,158 776 21,511 776 
(Less) Add back: Fair value adjustment of warrant liability(2,682)(1,180)(2,469)1,649 
Less: Gain on sale of digital asset(168)— (194)— 
Adjusted EBITDA$(6,602)$(2,743)$(10,848)$(5,146)


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Components of Results of Operations
Revenue and Gross Profit
There are a number of factors that impact the revenue and margin profile of the product, service 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.
Platform Revenue and Gross Profit
Our platform revenue consists of software subscriptions, application development services and support and application transactions, which are comprised of in-app advertising and PhunToken sales.
Subscription revenue is derived from software license fees, which comprise subscription fees from customers licensing our Software Development Kits (SDKs), that includes accessing the MaaS platform. Subscription revenue from SDK licenses gives the customer the right to access our MaaS platform.
Application development revenue is derived from development services around designing and building new applications or enhancing existing applications. Support revenue is comprised 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, we may also provide professional services by outsourcing employees’ time and materials to customers.
We generate application transaction 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 and cost per click. During 2021, we announced the commencement of PhunToken sales. PhunToken is designed to reward consumers for their activity, such as watching branded videos, completing surveys and visiting points of interest. We recognize revenue related to PhunToken at time of delivery to a customer's ethereum-based wallet.
Platform 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 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. Furthermore, gross profit related to application transactions is equal to application transaction revenue less cost of revenue associated with application transactions, which is impacted by the cost of advertising traffic we pay to our suppliers, the amount of traffic which we can purchase from those suppliers and ethereum blockchain fees paid to deliver PhunToken.
As a result, platform gross profit may fluctuate from period to period.
Hardware Revenue and Gross Profit
We acquired Lyte in October 2021. Revenue from Lyte is primarily derived from the sale of high-performance personal computers. Lyte computers are sold with a variety of pre-packaged solutions, as well as customizable solutions selected by our customers. A majority of Lyte's customers pay us via credit card payments, which is managed through a third party processor. We recognize revenue at the time a completed unit ships from our facility.
Hardware gross profit is equal to hardware revenue less the costs associated with the assembly of computers. Hardware gross profit is impacted by the costs that we pay for parts incorporated into a Lyte computer system, as well as labor costs of our employees directly attributable to building computer systems and shipping. Demand may exceed available supply at times, which may hamper our ability to deliver computer systems timely and may increase the costs at which we can obtain inventory needed for computer builds. Customizable solutions we offer our customers may also vary from time to time. As a result, computer hardware revenue and gross profit may fluctuate from period to period. Although we plan to invest in Lyte for future growth, we may experience revenue and gross profit fluctuations as a result of seasonality.
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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 platform and hardware revenue.
Operating Expenses
Our operating expenses include sales and marketing expenses, general and administrative expenses, research and development expenses, depreciation and amortization of acquired intangible assets. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation and, in sales and marketing expense, commissions. Legal settlements pertaining to litigation brought as a result of the Company's operations is also included in operating expenses.
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 stock-based compensation and expenses related to marketing programs and promotional activities. We expect our sales and marketing expense will increase in absolute dollars as we increase our sales and marketing organizations as we plan to increase revenue but may fluctuate as a percentage of our total revenue from period to period.
General and Administrative Expense. General and administrative expense is comprised of compensation and benefits of administrative personnel, including variable incentive pay and stock-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. As a result, we expect our research and development expenses will increase in absolute dollars as our business grows but may fluctuate as a percentage of revenue from period to period.
Interest Expense

Interest expense includes interest related to our outstanding debt, including amortization of discounts and deferred issuance costs.

Refer to Note 6 "Debt" in the notes to the condensed consolidated financial statements included Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on our debt offerings.

We also may seek additional debt financings to fund the expansion of our business or to finance strategic acquisitions in the future, which may have an impact on our interest expense.
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Results of Operations
Net Revenues
Three Months Ended June 30,Change
(in thousands, except percentages)20222021Amount%
Net Revenues
Platform revenue$1,628 $1,436 $192 13.4 %
Hardware revenue3,857 — 3,857 100.0 %
Net revenues$5,485 $1,436 $4,049 282.0 %
Platform revenue as percentage of total revenue29.7 %100.0 %
Hardware revenue as percentage of total revenue70.3 %— %
Six Months Ended June 30,Change
(in thousands, except percentages)20222021Amount%
Net Revenues
Platform revenue$4,120 $3,082 $1,038 33.7 %
Hardware revenue8,143 — 8,143 100.0 %
Net revenues$12,263 $3,082 $9,181 297.9 %
Platform revenue as percentage of total revenue33.6 %100.0 %
Hardware revenue as percentage of total revenue66.4 %— %
Net revenues increased $4.0 million, or 282.0%, for the three months ended June 30, 2022 compared to the corresponding period in 2021.
Platform revenue increased $0.2 million, or 13.4%, for the three months ended June 30, 2022, compared to the corresponding period in 2021, primarily due to PhunToken sales of $0.6 million, as we commenced the sale of PhunToken in the second quarter of 2021. These increases were partially offset by lower platform revenues for development, licensing and support services provided to a customer in 2021, as compared to 2022. This customer is identified as "Customer F" in Note 4, Revenue, in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this quarterly report on Form 10-Q.
Hardware revenue of $3.9 million for the three months ended June 30, 2022, was a result of the acquisition of Lyte, in October 2021.
Net revenues increased $9.2 million, or 297.9%, for the six months ended June 30, 2022 compared to the corresponding period in 2021.
Platform revenue increased $1.0 million, or 33.7%, for the six months ended June 30, 2022, compared to the corresponding period in 2021, primarily due to PhunToken sales of $1.5 million, as we commenced the sale of PhunToken in the second quarter of 2021 and $0.5 million from an increase in advertising campaigns. These increases were partially offset by greater platform revenues for development, licensing and support services provided to two customers in 2021, as compared to 2022. These customers are identified as "Customer E" and "Customer F" in Note 4, Revenue, in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this quarterly report on Form 10-Q.
Hardware revenue of $8.1 million for the six months ended June 30, 2022, was a result of the acquisition of Lyte, in October 2021.


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Cost of Revenues, Gross Profit and Gross Margin
Three Months Ended June 30,Change
(in thousands, except percentages)20222021Amount%
Cost of Revenues
Platform revenue$572 $1,124 $(552)(49.1)%
Hardware revenue3,393 — 3,393 100.0 %
Total cost of revenues$3,965 $1,124 $2,841 252.8 %
Gross Profit
Platform revenue$1,056 $312 $744 238.5 %
Hardware revenue464 — 464 100.0 %
Total gross profit$1,520 $312 $1,208 387.2 %
Gross Margin
Platform revenue64.9 %21.7 %
Hardware revenue12.0 %— %
Total gross margin27.7 %21.7 %
Six Months Ended June 30,Change
(in thousands, except percentages)20222021Amount%
Cost of Revenues
Platform revenue$1,639 $1,816 $(177)(9.7)%
Hardware revenue7,333 — 7,333 100.0 %
Total cost of revenues$8,972 $1,816 $7,156 394.1 %
Gross Profit
Platform revenue$2,481 $1,266 $1,215 96.0 %
Hardware revenue810 — 810 100.0 %
Total gross profit$3,291 $1,266 $2,025 160.0 %
Gross Margin
Platform revenue60.2 %41.1 %
Hardware revenue9.9 %— %
Total gross margin26.8 %%41.1 %
Total gross profit increased $1.2 million, or 387.2% and $2.0 million, or 160.0%, for the three and six months ended June 30, 2022, when compared to the corresponding period of 2021, due to the revenue items described above.
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Operating Expenses
Three Months Ended June 30,Change
(in thousands, except percentages)20222021Amount%
Operating expenses
Sales and marketing$1,928 $639 $1,289 201.7 %
General and administrative5,251 3,021 2,230 73.8 %
Research and development1,876 846 1,030 121.7 %
Total operating expenses$9,055 $4,506 $4,549 101.0 %
Six Months Ended June 30,Change
(in thousands, except percentages)20222021Amount%
Operating expenses
Sales and marketing$3,413 0$1,195 $2,218 185.6 %
General and administrative9,556 5,779 3,777 65.4 %
Research and development2,879 1,898 981 51.7 %
Total operating expenses$15,848 $8,872 $6,976 78.6 %
Sales and Marketing
Sales and marketing expense increased $1.3 million, or 201.7% for the three months ended June 30, 2022 compared to the corresponding period of 2021, primarily due to an increase of $1 million of marketing related expenditures mostly related to Lyte and PhunToken. Other increases of $0.3 million of employee compensation costs due to higher headcount.
Sales and marketing expense increased $2.2 million, or 185.6% for the six months ended June 30, 2022 compared to the corresponding period of 2021, primarily due to an increase of $1.8 million of marketing related expenditures mostly related to Lyte and PhunToken. Other increases of $0.6 million of employee compensation costs due to higher headcount. These increases were offset by the decrease in stock-based compensation of $0.2 million.
General and Administrative
General and administrative expense increased $2.2 million, or 73.8% for the three months ended June 30, 2022 compared to the corresponding period of 2021, primarily due to an increase of $0.9 million in payroll costs mainly related to employee retention credit received during 2021, $0.7 million in legal fees, $0.2 million related to amortization of trade name related to Lyte acquisition and $0.5 million in other general and administrative expenses. This increase was minimally offset by in decrease in stock-based compensation.
General and administrative expense increased $3.8 million, or 65.4% for the six months ended June 30, 2022 compared to the corresponding period of 2021, primarily due to an increase of $1.5 million in payroll costs mainly related to employee retention credit received during 2021, $1.1 million in legal fees, $0.3 million related to amortization of trade name related to Lyte acquisition, $0.3 million in bad debt recoveries that occurred in 2021 and $0.6 million in other general and administrative expenses. This increase was minimally offset by in decrease in stock-based compensation.
Research and Development
Research and development expense increased $1.0 million, or 121.7% and $1.0 million, or 51.7%, for the three and six months ended June 30, 2022, compared to the corresponding period of 2021, respectively, primarily for increased headcount dedicated to research and development projects. This increase was minimally offset by in decrease in stock-based compensation.
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Other expense
Three Months Ended June 30,Change
(in thousands, except percentages)20222021Amount%
Other income (expense)
Interest expense$(273)$(1,845)$1,572 (85.2)%
Loss on extinguishment of debt— (2,184)2,184 (100.0)%
Impairment of digital assets(12,158)(776)(11,382)1,466.8 %
Fair value adjustment of warrant liability2,682 1,180 1,502 127.3 %
Other income (expense)213 43 170 395.3 %
Total other expense$(9,536)$(3,582)$(5,954)166.2 %

Six Months Ended June 30,Change
(in thousands, except percentages)20222021Amount%
Other income (expense)
Interest expense$(654)$(4,064)$3,410 (83.9)%
Loss on extinguishment of debt— (7,952)7,952 (100.0)%
Impairment of digital assets(21,511)(776)(20,735)2,672.0 %
Fair value adjustment of warrant liability2,469 (1,649)4,118 (249.7)%
Other income (expense)265 (36)301 (836.1)%
Total other expense$(19,431)$(14,477)$(4,954)34.2 %

Other expense increased $6.0 million and $5.0 million for the three and six months ended June 30, 2022, compared to the corresponding period of 2021, respectfully, primarily due to an impairment of our digital asset holdings. These losses were offset due to losses on extinguishment of debt related to payments on our 2020 Convertible Notes in 2021, fair value adjustment of our outstanding warrant issued to the holder of our 2020 Convertible Notes and a decrease in interest expense, as we had paid off multiple debt obligations in 2021.

Refer to Note 2, "Summary of Significant Accounting Policies" of the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion regarding our digital asset holdings. Further, reference is made to Note 6 "Debt" of the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion on our debt holdings.
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Liquidity and Capital Resources
As of June 30, 2022, we held total cash of $2.7 million, all of which was held in the United States. We have a history of operating losses and negative operating cash flows. As we continue to focus on growing our revenues, we expect these trends to continue into the foreseeable future.
We may, if needed, sell our digital asset holdings for cash to fund our ongoing operations. As of June 30, 2022, we held 653 bitcoins and 780 ethereum, of which consist of the majority of the digital assets recorded on our balance sheet. The digital asset market historically has been characterized by significant volatility in its price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, susceptibility to market abuse and manipulation, and various other risks inherent in its entirely electronic, virtual form and decentralized network. During times of instability in the digital asset market, we may not be able to sell our digital asset holdings at reasonable prices, or at all. As a result, our digital assets are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents.
On October 18, 2021, we closed the acquisition of Lyte with an adjusted purchase price of approximately $11.0 million (subject to an earn-out provision). Pursuant to terms of the stock purchase agreement, future cash payments of up to $1.25 million on the first anniversary of closing, as an earn-out payment based upon Lyte achieving certain annual revenue milestones as provided in the purchase agreement. We currently believe Lyte will achieve the annual revenue milestone and we will owe the full amount of the contingent consideration on the first annual anniversary of closing.
In connection with the acquisition of Lyte, we entered into a note purchase agreement and completed the sale of an unsecured promissory note with an original principal amount of $5.2 million in a private placement that closed on October 18, 2021. After deducting all transaction cost, net cash proceeds to the Company were $4.7 million. No interest will accrue on the promissory note unless and until the occurrence of an event of default (as defined in the promissory note). We may prepay outstanding balance of the promissory note earlier than it is due with a prepayment premium of 110%. Beginning on January 15, 2022 and on the same day of each month thereafter until the promissory note is paid in full, we are required to make a monthly amortization payments in the amount of $574 thousand which are considered prepayments subject to the prepayment premium.
On February 1, 2022, we filed a Form S-3, which was subsequently declared effective by the SEC on February 9, 2022, pursuant to which we may issue up to $200 million in common stock, preferred stock, warrants and units. Contained therein, was a prospectus supplement in which we may sell up to $100 million of our common stock in an “at the market offering” pursuant to an At Market Issuance Sales Agreement we entered into with H.C. Wainwright & Co., LLC on January 31, 2022. To date, we have not sold any shares of our common stock under the sales agreement with H.C. Wainwright or issued any securities under our Form S-3 filed on February 1, 2022.
On July 6, 2022, we entered into a note purchase agreement and completed the sale of an unsecured promissory note with an original principal amount of $12.8 million in a private placement with the same investor of the note described above. After deducting all transaction fees paid by us at closing, net cash proceeds to us at closing were $11.8 million. No interest will accrue on the promissory note unless and until the occurrence of an event of default (as defined in the promissory note). Beginning on November 1, 2022 and on the same day of each month thereafter until the promissory note is paid in full, we are required to make a monthly amortization payments in the amount of $1.6 million until the maturity date of July 1, 2022, which is subject to adjustment for any payment deferrals we elect. We may prepay any or all outstanding balance of the promisory note earlier than it is due with a prepayment premium of 110%. The prepayment premium also applies to the monthly amortization payments.
As a result of the financing events described above, while our liquidity risk continues as a result of continued losses and the ongoing and evolving effects of the COVID-19 pandemic, management believes it has sufficient cash on hand for at least one year following the filing date of this Quarterly Report on Form 10-Q.
Our future capital requirements will depend on many factors, including our pace of growth, subscription renewal activity, the timing and extent of spend to support development efforts, the pace at which we can scale Lyte, the expansion of sales and marketing activities and the market acceptance of our products and services. We believe that it is likely we will in the future enter into arrangements to acquire or invest in complementary businesses, technologies and intellectual property rights. We may be required to seek additional equity or debt financings, or issue securities subject to the effective registration statement described above. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital when desired and/or on acceptable terms, our business, operating results and financial condition could be adversely affected.
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The following table summarizes our cash flows for the periods presented:
Six Months Ended June 30,Change
(in thousands, except percentages)20222021Amount%
Consolidated statement of cash flows
Net cash used in operating activities$(14,989)$(14,371)$(618)4.3 %
Net cash used in investing activities$(2,206)$(1,497)$(709)47.4 %
Net cash (used) provided by financing activities$(3,116)$14,626 $(17,742)(121.3)%
Operating Activities
The primary source of cash from operating activities is receipts from sales of our various product and service offerings to customers. The primary uses of cash from operating activities are payments to employees for compensation and related expenses, publishers and other vendors for the purchase of digital media inventory and related costs, payments to vendors for the costs of inventory related to the assembly and shipping of Lyte computers, sales and marketing expenses and general operating expenses.
We utilized $15.0 million of cash from operating activities during the six months ended June 30, 2022, primarily resulting from a net loss of $32.0 million. The net loss included non-cash charges of $20.9 million, primarily consisting of impairment of digital assets, fair value adjustment of our outstanding warrant and stock-based compensation. In addition, certain changes in our operating assets and liabilities resulted in significant cash (decreases) as follows: $0.5 million from an increase in accounts payable and accrued expenses, as well as $(4.4) million from other working capital changes, primarily an increase in inventory purchases and decrease in deferred revenue.
We utilized $14.4 million of cash from operating activities during the six months ended June 30, 2021, primarily resulting from a net loss of $20.7 million. The net loss included non-cash charges of $15.7 million, primarily consisting of the loss on the extinguishment and amortization of debt issuance costs related to our 2020 Convertible Notes, fair value adjustment of our outstanding warrant and stock-based compensation. In addition, certain changes in our operating assets and liabilities resulted in significant cash (decreases) as follows: $(6.1) million from a decrease in accounts payable, accrued expenses and an installment payment to Uber related to the settlement of our lawsuit, as well as $(1.9) million from other working capital changes, primarily a decrease in deferred revenue.

Investing Activities
Investing activities for the six months ended June 30, 2022 and 2021, consisted of the purchase of digital assets and payments for acquisition of Lyte Technology, Inc.

Financing Activities
Our financing activities during the six months ended June 30, 2022 primarily consisted of payments on debt. We had payments on debt of $3.1 million, of which all were payments on the 2021 Promissory Note. Refer to the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on the Company's financing activities.
Our financing activities during the six months ended June 30, 2021 consisted of proceeds from equity financings and debt borrowings offset by payments on debt. We acquired $14.6 million of cash from financing activities resulting primarily from $29.7 million in proceeds from the sale of our common stock and $10 million in proceeds from our Series B Convertible Note. These sources of financing were partially offset by $25.1 million of payments on debt, a majority of which were payments on the 2020 Convertible Notes.
Contractual Obligations
Information set forth in Note 7, Leases, in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.
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Off-Balance Sheet Arrangements
Through June 30, 2022, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.
Indemnification Agreements
In the ordinary course of business, we provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, solutions to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with directors and certain current and former officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of, or are related to, their status or service as directors, officers or employees.
Recent Accounting Pronouncements
None.
Summary of Significant Accounting Policies
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires managementus to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and incomeas well as the reported revenues generated and expenses incurred during the periods reported. Actual results could materially differ from those estimates. The Company has identified the following as its critical accounting policies:

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, thosereporting periods. Our estimates are based on our historical experience and on various other factors that have not had a Securities Act registration statement declared effective or do not have a class of securities registeredwe believe are reasonable under the Exchange Act) are required to comply withcircumstances, the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt outresults of which form 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 datesbasis 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.

16

Loss Per Common Share

Net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period, plus to the extent dilutive the incremental number of shares of common stock to settle Warrants, as calculated using the treasury stock method. At August 31, 2017, the Company had outstanding Warrants to purchase 14,871,098 shares of common stock. 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.

Financial Instruments

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying balance sheets.

Income Taxes

There is, at present, no direct taxation in the Marshall Islands and interest, dividends, and gains payable to the Company are received free of all Marshall Islands taxes. The Company is registered as an “exempted company” pursuant to the Marshall Islands Business Corporations Act (as amended). As the Company proceeds with making investments in various jurisdictions, tax considerations outside the Marshall Islands may arise. Although the Company intends to pursue tax-efficient investments, it may be subject to income tax, withholding tax, capital gains tax, and other taxes imposed by tax authorities in other jurisdictions. For U.S. tax purposes, the Company expects to be treated as a passive foreign investment company by its U.S. shareholders. The Company does not expect to be subject to direct taxation based on net income in the U.S. as long as it maintains its non-U.S. trade or business status. The Company does not expect to invest in any U.S. obligation that will be subject to U.S. withholding taxes.

The Company follows the provisions of ASC 740-10 which prescribes a recognition threshold and measurement attribute for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on its tax return. ASC 740-10 requires that the financial statements reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts, but without considering time values. As of August 31, 2017, the Company has not commenced operations and thus has no uncertain tax positions.

Redeemable common stock

All of the 6,900,610 shares of common stock sold as part of the Units in the Public Offering contain a redemption feature which allows for the redemption of such common stock under the Company’s liquidation or tender offer/stockholder approval provisions. In accordance with ASC 480, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480. Although the Company does not specify a maximum redemption threshold, its amended and restated certificate of incorporation provides that in no event will the Company redeem its Public Shares in an amount that would cause its net tangible assets (stockholders’ equity) to be less than $5,000,001.

17

The Company recognizes changes in redemption value immediately as they occur and adjustsjudgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Except for the security to equal the redemption value at the endchanges described in Note 2, "Summary of each reporting period. Increases or decreasesSignificant Accounting Policies," in the carrying amountnotes to the condensed consolidated financial statements included in Item I, Part I of redeemable common stock are affected by charges against additional paid-in capital.

At Augustthis Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017, 6,231,961 of2021 filed with the 6,900,610 Public Shares were classified outside of permanent equity at redemption value of approximately $10.26 per share.

Recent Accounting Pronouncements

Management does not believe that there are any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effectSEC on the Company’s financial statements.

April 7, 2022.

ITEM

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The net proceedsQuantitative and Qualitative Disclosures About Market Risk

Not applicable.
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ITEM

Item 4. CONTROLS AND PROCEDURES

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our co-Chief Executive Officers (together, the “Certifying Officers”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report.

Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officers (as defined below), or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Controls Over Financial Reporting

This Report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report

Under the supervision and with the participation of our registered public accounting firm due to a transition period established bymanagement, including our Chief Executive Officer and Chief Financial Officer (together, the rules“Certifying Officers”), we carried out an evaluation of the Commission for newly public companies.

effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report.

Changes in Internal Control over Financial Reporting

There

As previously disclosed, we identified a material weakness in internal control over financial reporting related to the accounting for an adjustment in certain terms of an outstanding warrant issued in connection with our 2020 Convertible Notes. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected on a timely basis.
In response to this material weakness, we implemented a remediation plan previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021. The remediation actions we implemented included a control to create and review on a quarterly basis a summary schedule of material terms of all outstanding debt and equity instruments and a control to review all existing financing agreements in conjunction with any new financing arrangements. We have tested the related internal controls and have concluded, through testing, that the newly implemented controls are operating effectively, and the material weakness previously identified has been remediated as of June 30, 2022.
Other than the changes made to remediate the material weakness described above, there were no other changes in our internal control over financial reporting (as such term is definedidentified in Rules 13a-15(f)connection with the evaluation required by Rule 13a-15(d) and 15d-15(f)15d-15(d) of the Exchange Act)Act that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Limitations on Effectiveness of Controls

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II —- OTHER INFORMATION

ITEM

Item 1. LEGAL PROCEEDINGS

None.

Legal Proceedings
The information set forth under the "Litigation" subheading in Note 8, "Commitments and Contingencies" in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

ITEM

Item 1A. RISK FACTORS

As of the date of this Report, there have been no material changes to theRisk Factors

Important risk factors disclosedthat could affect our operations and financial performance, or that could cause results or events to differ from current expectations, are described in Part I, Item 1A, "Risk Factors” of our Annual Report on Form 10-K filed with the SEC on April 7, 2022 for the year ended November 30, 2016December 31, 2021, as supplemented by the "Risk Factors" sections in our registration statement on Form S-3 filed with the SEC on February 14, 2017. Any1, 2022, our registration statement on Form S-3, as amended, filed with the SEC on April 27, 2022 and the information set forth below or contained elsewhere in this Report. The risks and uncertainties described within our Form 10-K for the year ended December 31, 2021 and the registration statements, as amended, are not the only risks we face. Additional risks and uncertainties that we are unaware of, these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterialbelieve are not material, may also impairbecome important factors that adversely affect our business or results of operations.
Our business is subject to evolving corporate governance and public disclosure regulations and expectationsthat have increased both our compliance costs and the risk of noncompliance, which could have an adverse effect on our stock price.
We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations, including the SEC, the Nasdaq Stock Market and the FASB. These rules and regulations continue to evolve in scope and complexity, making compliance more difficult and uncertain. In addition, increasingly regulators, customers, investors, employees and other stakeholders are focusing on environmental, social and governance (ESG) matters and related disclosures. These changing rules, regulations and stakeholder expectations have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting such regulations and expectations. For example, developing and acting on ESG initiatives, and collecting, measuring and reporting ESG information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC’s recently proposed climate-related reporting requirements. These initiatives and related reporting requirements may disclosepresent operational, reputational, financial, legal and other risks, which could have a material impact on us.

We are currently operating in a period of significant macro-economic uncertainty, including supply-chain disruptions, COVID-related lockdowns and inflationary pressures. Weakened economic conditions may have an adverse impact on our business and results of operations.
Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs, changes to such factors or disclose additional factors from timefiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations could materially adversely affect demand for our products and services. Inflationary pressures and supply chain disruptions could impact the price at which we acquire components required in the assembly of Lyte by Phunware computer systems. Our principal operating expense is compensation related costs. Inflation rates, particularly in the United States, have increased recently to timelevels not seen in years, and increased inflation may result in decreased demand for our products and services, increases in our future filings withoperating costs (including our labor costs), reduced liquidity and limits on our ability to access credit or otherwise raise capital. In addition, the SEC.

effects of inflation on consumers budgets could result in the reduction of our customers’ spending plans. These and other economic factors could materially adversely affect our business, results of operations and financial condition.

ITEM

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

ITEM

Item 3. DEFAULTS UPON SENIOR SECURITIES

Defaults Upon Senior Securities

None.

ITEM

Item 4. MINE SAFETY DISCLOSURES

None.

Mine Safety Disclosures
Not applicable.
38

ITEM

Item 5. OTHER INFORMATION

Other Information

None.

39
Table of Contents

ITEM

Item 6. EXHIBITS

Exhibits
Unless otherwise noted, the exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference (as stated therein) as part of this Quarterly Report on Form 10-Q.
EXHIBIT INDEX
Exhibit NumberDescription
Exhibit No.Description
31.13.1
3.2
10.1
10.2
10.3
10.4
10.5
31.1*
31.231.2*
32.1*
32.1(1)
101.INSXBRL Instance DocumentDocument*
101.SCHXBRL Taxonomy Extension Schema DocumentSchema*
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentLinkbase*
101.DEF101.LABXBRL Taxonomy ExtensionLabel Linkbase*
101.PREXBRL Definition Linkbase DocumentDocument*
101.LAB101.DEFXBRL Taxonomy Extension LabelDefinition Linkbase DocumentDocument*
101.PRE 104XBRL Taxonomy Extension Presentation Linkbase Document

* Furnished herewith

19Cover Page Interactive Data File*

*Filed herewith

(1)The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
40

SIGNATURES

In accordance with

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this reportReport to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: October 10, 2017


STELLAR ACQUISITION III INC.
August 15, 2022Phunware, Inc.
By:/s/ Prokopios (Akis) Tsirigakis
By:Name: Prokopios (Akis) Tsirigakis/s/ Alan S. Knitowski
Name:Alan S. Knitowski
Title:   co-ChiefChief Executive Officer

By:/s/ George Syllantavos
Name: George Syllantavos(Principal Executive Officer)
By:/s/ Matt Aune
Name:Matt Aune
Title:   co-Chief Executive Officer,
Chief Financial Officer
(Principal Accounting and Financial Officer)

20


41