UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, ~~2021~~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

PHUNWARE, INC.

(Exact name of registrant as specified in its charter)


Delaware						30-1205798
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

7800 Shoal Creek ~~Blvd~~

Boulevard, Suite 230-S,

Austin,

TX Texas

78757

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: 512-693-4199

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol(s)

Name of each exchange on which registered:

Common Stock, par value $0.0001 per share

PHUN

The NASDAQ Capital Market

Warrants to purchase one share of Common Stock

PHUNW

The NASDAQ Capital Market

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

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

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May ~~10, 2021, 71,662,933~~9, 2022, 97,834,795 shares of common stock, par value $0.0001 per share, were issued and outstanding.

TABLE OF CONTENTS


		PAGE
PART I	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of March 31, ~~2021~~2022 (unaudited) and December 31, ~~2020~~2021	2
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021 ~~and 2020~~(unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three months ended March 31, 2022 and 2021 ~~and 2020~~(unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 ~~and 2020~~(unaudited)	5
	Notes to the Unaudited Condensed Consolidated Financial Statements	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3031
Item 4.	Controls and Procedures	3032

PART II	OTHER INFORMATION	3233
Item 1.	Legal Proceedings	3233
Item 1A.	Risk Factors	3233
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3233
Item 3.	Defaults Upon Senior Securities	3233
Item 4.	Mine Safety Disclosures	3233
Item 5.	Other Information	3233
Item 6.	Exhibits	3234

	Signatures	35

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report (the “Report”) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are intended to be covered 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 statement is not forward-looking.

The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under “Risk Factors” may not be exhaustive.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Table of Contents

Phunware, Inc.

Condensed Consolidated Balance ~~Sheet~~Sheets

(In thousands, except share and per share information)


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(Unaudited)					(Unaudited)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash	Cash	$	23,469	$	3,940	Cash	$	10,815	$	23,137
Accounts receivable, net of allowance for doubtful accounts of $122 and $356 at March 31, 2021 and December 31, 2020, respectively		937		664
Digital currencies		1,098		0
Accounts receivable, net of allowance for doubtful accounts of $10 at March 31, 2022 and December 31, 2021, respectively						Accounts receivable, net of allowance for doubtful accounts of $10 at March 31, 2022 and December 31, 2021, respectively	1,219		967
Inventory						Inventory	4,699		2,636
Digital assets						Digital assets	24,244		32,581
Prepaid expenses and other current assets	Prepaid expenses and other current assets	794		304		Prepaid expenses and other current assets	1,294		686
Total current assets	Total current assets	26,298		4,908		Total current assets	42,271		60,007
Property and equipment, net	Property and equipment, net	12		13		Property and equipment, net	77		—
Goodwill	Goodwill	25,911		25,900		Goodwill	33,227		33,260
Intangible assets, net	Intangible assets, net	79		111		Intangible assets, net	3,030		3,213
Deferred tax asset	Deferred tax asset	537		537		Deferred tax asset	1,278		1,278
Restricted cash		91		91

Right-of-use asset	Right-of-use asset	1,723		0		Right-of-use asset	1,186		1,260
Other assets	Other assets	276		276		Other assets	354		276
Total assets	Total assets	$	54,927	$	31,836	Total assets	$	81,423	$	99,294
Liabilities and stockholders’ equity (deficit)
Liabilities and stockholders’ equity						Liabilities and stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	7,781	$	8,462	Accounts payable	$	6,809	$	6,589
Accrued expenses	Accrued expenses	3,190		5,353		Accrued expenses	7,114		9,621
Accrued legal settlement		3,000		3,000

Lease liability	Lease liability	530		0		Lease liability	424		399
Deferred revenue	Deferred revenue	2,180		2,397		Deferred revenue	3,263		3,973
PhunCoin deposits	PhunCoin deposits	1,202		1,202		PhunCoin deposits	1,203		1,202

Current maturities of long-term debt, net	Current maturities of long-term debt, net	10,012		4,435		Current maturities of long-term debt, net	3,493		4,904
Warrant liability	Warrant liability	2,499		1,614		Warrant liability	3,818		3,605
Total current liabilities	Total current liabilities	30,394		26,463		Total current liabilities	26,124		30,293
Long-term debt		3,741		3,762
Long-term debt - related party		195		195

Deferred tax liability	Deferred tax liability	537		537		Deferred tax liability	1,278		1,278
Deferred revenue	Deferred revenue	2,054		2,678		Deferred revenue	1,008		1,299
Lease liability	Lease liability	1,447		0		Lease liability	1,023		1,147
Deferred rent		0		180

Total liabilities	Total liabilities	38,368		33,815		Total liabilities	29,433		34,017
Commitments and contingencies		0		0

Stockholders’ equity (deficit)
Common stock, $0.0001 par value; 1,000,000,000 shares authorized at March 31, 2021 and December 31, 2020; 71,211,399 and 56,380,111 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		7		6
Commitments and contingencies (Note 8)						Commitments and contingencies (Note 8)	0		0
Stockholders’ equity						Stockholders’ equity
Common stock, $0.0001 par value; 1,000,000,000 shares authorized at March 31, 2022 and December 31, 2021; 97,250,520 and 96,751,610 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively						Common stock, $0.0001 par value; 1,000,000,000 shares authorized at March 31, 2022 and December 31, 2021; 97,250,520 and 96,751,610 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	10		10
Additional paid-in capital	Additional paid-in capital	175,046		144,156		Additional paid-in capital	266,606		264,944
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(328)		(338)		Accumulated other comprehensive loss	(384)		(352)
Accumulated deficit	Accumulated deficit	(158,166)		(145,803)		Accumulated deficit	(214,242)		(199,325)
Total stockholders’ equity (deficit)		16,559		(1,979)
Total liabilities and stockholders’ equity (deficit)		$	54,927	$	31,836
Total stockholders’ equity						Total stockholders’ equity	51,990		65,277
Total liabilities and stockholders’ equity						Total liabilities and stockholders’ equity	$	81,423	$	99,294

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

Phunware, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share information)

(Unaudited)


		Three Months Ended March 31,				Three Months Ended March 31,
		2021		2020				2022		2021
Net revenues	Net revenues	$	1,646	$	2,640		Net revenues	$	6,778	$	1,646
Cost of revenues	Cost of revenues	692		1,091			Cost of revenues	5,007		692
Gross profit	Gross profit	954		1,549			Gross profit	1,771		954

Operating expenses:	Operating expenses:						Operating expenses:
Sales and marketing	Sales and marketing	556		605			Sales and marketing	1,485		556
General and administrative	General and administrative	2,758		3,945			General and administrative	4,305		2,758
Research and development	Research and development	1,052		861			Research and development	1,003		1,052

Total operating expenses	Total operating expenses	4,366		5,411			Total operating expenses	6,793		4,366
Operating loss	Operating loss	(3,412)		(3,862)			Operating loss	(5,022)		(3,412)

Other expense:
Other income (expense):							Other income (expense):
Interest expense	Interest expense	(2,219)		(101)			Interest expense	(381)		(2,219)
Loss on extinguishment of debt	Loss on extinguishment of debt	(5,768)		0			Loss on extinguishment of debt	—		(5,768)
Loss on change in fair value of warrant liability		(885)		0
Other expense		(79)		0
Impairment of digital assets							Impairment of digital assets	(9,353)		—
Fair value adjustment of warrant liability							Fair value adjustment of warrant liability	(213)		(2,829)

Other income (expense), net							Other income (expense), net	52		(79)
Total other expense	Total other expense	(8,951)		(101)			Total other expense	(9,895)		(10,895)
Loss before taxes	Loss before taxes	(12,363)		(3,963)			Loss before taxes	(14,917)		(14,307)
Income tax expense	Income tax expense	0		0			Income tax expense	—		—
Net loss	Net loss	(12,363)		(3,963)			Net loss	(14,917)		(14,307)
Other comprehensive income (loss):	Other comprehensive income (loss):						Other comprehensive income (loss):
Cumulative translation adjustment	Cumulative translation adjustment	10		(72)			Cumulative translation adjustment	(32)		10
Comprehensive loss	Comprehensive loss	$	(12,353)	$	(4,035)		Comprehensive loss	$	(14,949)	$	(14,297)

Net loss per common share, basic and diluted		$	(0.19)	$	(0.10)
Loss per share, basic and diluted							Loss per share, basic and diluted	$	(0.15)	$	(0.22)

Weighted-average common shares used to compute net loss per share, basic and diluted		64,587		40,095

Weighted-average common shares used to compute loss per share, basic and diluted							Weighted-average common shares used to compute loss per share, basic and diluted	96,844		64,587

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Phunware, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

(In thousands)

(Unaudited)


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

Balance - December 31, 2020		56,371	$	6			$	144,156						$	(145,803)			$	(338)		$	(1,979)

Balance - December 31, 2021																			Balance - December 31, 2021	96,752			$	10		$	264,944		$	(199,325)		$	(352)		$	65,277
Exercise of stock options, net of vesting of restricted shares	Exercise of stock options, net of vesting of restricted shares	120	—		65				—			—				65			Exercise of stock options, net of vesting of restricted shares	23			—		16			—			—			16
Release of restricted stock	Release of restricted stock	183	—		—				—			—				—			Release of restricted stock	92			—		—			—			—			—
Issuance of common stock for payment of board of director fees		99	—		66				—			—				66
Sales of common stock, net of issuance costs		14,431	1		29,704				—			—				29,705
Issuance of common stock in connection with acquisition of Lyte Technology, Inc.																			Issuance of common stock in connection with acquisition of Lyte Technology, Inc.	384			—		1,125			—			—			1,125
Stock-based compensation expense	Stock-based compensation expense	—	—		1,055				—			—				1,055			Stock-based compensation expense	—			—		521			—			—			521
Cumulative translation adjustment	Cumulative translation adjustment	—	—		—				—			10				10			Cumulative translation adjustment	—			—		—			—			(32)			(32)
Net loss	Net loss	—	—		—				(12,363)			—				(12,363)			Net loss	—			—		—			(14,917)			—			(14,917)
Balance - March 31, 2021		71,204	$	7	$	175,046			$	(158,166)		$	(328)			$	16,559
Balance - March 31, 2022																			Balance - March 31, 2022	97,251			$	10	$	266,606		$	(214,242)		$	(384)		$	51,990

Common Stock Additional Paid-in Capital Accumulated Deficit Other Comprehensive Loss Total Stockholders’ Equity
Shares Amount
Balance - December 31, 2019 39,811 $ 4 $ 128,008 $ (123,604) $ (382) $ 4,026
Exercise of stock options, net of vesting of restricted shares 33 — 16 — — 16
Vesting of restricted stock units 116 — — — — —
Issuance of common stock for payment of legal and board of director fees 733 — 492 — — 492
Stock-based compensation expense — — 635 — — 635
Equity classified cash conversion feature of Senior Convertible Note — — 219 — — 219
Cumulative translation adjustment — — — — (72) (72)
Net loss — — — (3,963) — (3,963)
Balance - March 31, 2020 40,693 $ 4 $ 129,370 $ (127,567) $ (454) $ 1,353


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Other Comprehensive Loss		Total Stockholders’ Equity (Deficit)
	Shares	Amount
Balance - December 31, 2020	56,371	$	6	$	144,156	$	(145,803)	$	(338)	$	(1,979)
Exercise of stock options, net of vesting of restricted shares	120	—		65		—		—		65
Release of restricted stock	183	—		—		—		—		—
Issuance of common stock for payment of board of director fees	99	—		66		—		—		66
Sales of common stock, net of issuance costs	14,431	1		29,704		—		—		29,705
Stock-based compensation expense	—	—		1,055		—		—		1,055
Cumulative translation adjustment	—	—		—		—		10		10
Net loss	—	—		—		(14,307)		—		(14,307)
Balance - March 31, 2021	71,204	$	7	$	175,046	$	(160,110)	$	(328)	$	14,615

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

Phunware, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2022		2021
Operating activities	Operating activities					Operating activities
Net loss	Net loss	$	(12,363)	$	(3,963)	Net loss	$	(14,917)	$	(14,307)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:					Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		33		49
Amortization of debt discount and deferred financing costs	Amortization of debt discount and deferred financing costs	1,642		13		Amortization of debt discount and deferred financing costs	155		1,642
Amortization of right-of-use asset		114		0
Loss on change in fair value of warrant liability	Loss on change in fair value of warrant liability	885		0		Loss on change in fair value of warrant liability	213		2,829
Impairment of right-of-use asset		77		0
Loss on extinguishment of debt	Loss on extinguishment of debt	5,768		0		Loss on extinguishment of debt	—		5,768
Impairment of digital assets						Impairment of digital assets	9,353		—

Bad debt recovery		(234)		(16)
Stock-based compensation	Stock-based compensation	1,055		635		Stock-based compensation	564		1,055
Other adjustments						Other adjustments	(97)		(10)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(40)		783		Accounts receivable	(248)		(40)
Inventory						Inventory	(2,063)		—
Prepaid expenses and other assets	Prepaid expenses and other assets	(490)		(108)		Prepaid expenses and other assets	(687)		(490)
Accounts payable	Accounts payable	(682)		851		Accounts payable	219		(682)
Accrued expenses	Accrued expenses	(2,287)		643		Accrued expenses	(1,489)		(2,287)

Lease liability		64		0
Lease liability payments						Lease liability payments	(173)		64
Deferred revenue	Deferred revenue	(841)		(792)		Deferred revenue	(1,001)		(841)
Net cash used in operating activities	Net cash used in operating activities	(7,299)		(1,905)		Net cash used in operating activities	(10,171)		(7,299)

Investing activities	Investing activities					Investing activities
Purchase of digital currencies		(1,098)		0

Net cash provided by investing activities		(1,098)		0

Purchase of digital assets						Purchase of digital assets	(489)		(1,098)
Capital expenditures						Capital expenditures	(80)		—
Net cash used in investing activities						Net cash used in investing activities	(569)		(1,098)
Financing activities	Financing activities					Financing activities
Proceeds from borrowings, net of issuance costs	Proceeds from borrowings, net of issuance costs	9,981		2,595		Proceeds from borrowings, net of issuance costs	—		9,981
Proceeds from related party bridge loans		0		560
Payments on senior convertible notes		(11,835)		0

Net repayments on factoring agreement		0		(627)
Payments on borrowings						Payments on borrowings	(1,566)		(11,835)

Proceeds from exercise of options to purchase common stock	Proceeds from exercise of options to purchase common stock	65		15		Proceeds from exercise of options to purchase common stock	16		65
Proceeds from sales of common stock, net of issuance costs	Proceeds from sales of common stock, net of issuance costs	29,705		0		Proceeds from sales of common stock, net of issuance costs	—		29,705

Net cash provided by (used in) financing activities		27,916		2,543

Net cash (used) provided by financing activities						Net cash (used) provided by financing activities	(1,550)		27,916
Effect of exchange rate on cash and restricted cash	Effect of exchange rate on cash and restricted cash	10		(76)		Effect of exchange rate on cash and restricted cash	(32)		10
Net increase (decrease) in cash and restricted cash		19,529		562
Net (decrease) increase in cash and restricted cash						Net (decrease) increase in cash and restricted cash	(12,322)		19,529
Cash and restricted cash at the beginning of the period	Cash and restricted cash at the beginning of the period	4,031		362		Cash and restricted cash at the beginning of the period	23,137		4,031
Cash and restricted cash at the end of the period	Cash and restricted cash at the end of the period	$	23,560	$	924	Cash and restricted cash at the end of the period	$	10,815	$	23,560

~~Table of Contents~~


Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Interest paid	Interest paid	$	567	$	98	Interest paid	$	204	$	567
Income taxes paid	Income taxes paid	$	0	$	0	Income taxes paid	$	—	$	—
Supplemental disclosures of non-cash financing activities:	Supplemental disclosures of non-cash financing activities:					Supplemental disclosures of non-cash financing activities:
Issuance of common stock for payment of legal and board of director fees		$	66	$	492

Equity classified cash conversion feature of Senior Convertible Note		$	0	$	219
Issuance of common stock in connection with acquisition of Lyte Technology, Inc.						Issuance of common stock in connection with acquisition of Lyte Technology, Inc.	$	1,125	$	—
Issuance of common stock for payment of board of director fees						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.

Table of Contents

Phunware, ~~Inc~~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 fully integrated software platform that equips companies with the products, solutions and services necessary to engage, manage and monetize their mobile application portfolios globally at scale. ~~Phunware’s~~Our Multiscreen-as-a-Service ("MaaS") platform provides the entire mobile lifecycle of applications and media in one login through one procurement relationship. ~~The Company’s~~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 ~~its~~our integrated mobile advertising platform of publishers and advertisers, ~~the Company provides~~we provide in-app application transactions for mobile audience building, user acquisition, application discovery, audience engagement and audience monetization. During 2021, we began to sell PhunToken to consumers, developers and brands. PhunToken is an innovative digital asset utilized within our token ecosystem to help drive engagement by unlocking features and capabilities of our MaaS platform. PhunToken is designed to reward consumers for their activity, such as watching branded videos, completing surveys and visiting points of interest. In October 2021, we acquired Lyte Technology, Inc. ("Lyte"), a provider of high-performance computer systems to individual consumers. Founded in 2009, we are a Delaware corporation headquartered in Austin, Texas.

Basis of Presentation

The condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) and include the Company’s accounts and those of its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

The balance sheet at December 31, ~~2020~~2021 was derived from our audited consolidated financial statements, but these interim condensed consolidated financial statements do not include all the annual disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, ~~2020,~~2021, which are referenced herein. The accompanying interim condensed consolidated financial statements as of March 31, ~~2021~~2022 and for the three months ended March 31, ~~2021~~2022 and ~~2020,~~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 footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to fairly state our financial position as of March 31, ~~2021~~2022 and the results of operations for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, and cash flows for the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021. The results for the three months ended March 31, ~~2021~~2022 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2021~~2022 or for any future interim period.

Certain reclassifications have been made to our condensed consolidated statement of cash flows for the three months ended March 31, 2021. We combined individual line items that we considered to be immaterial and recorded these in our condensed consolidated statement of cash flows as other adjustments to conform to current year presentation. These reclassifications had no impact on previously reported operating, investing or financing cash flows.

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 certain 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 months ended March 31, 2021. We assessed the materiality of this misstatement in accordance with Staff

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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 months ended March 31, 2021. The revised amounts have been reflected in condensed 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 income (loss) are set forth below:


	As of or for the three months ended March 31, 2021
	Previously reported		Adjustments		As revised
Warrant liability	$	2,499	$	1,944	$	4,443
Accumulated deficit	$	(158,166)	$	(1,944)	$	(160,110)

Loss on change in fair value of warrant liability	$	(885)	$	(1,944)	$	(2,829)
Net loss	$	(12,363)	$	(1,944)	$	(14,307)
Net loss per common share, basic and diluted	$	(0.19)	$	(0.03)	$	(0.22)

Going Concern

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 net losses and although we anticipate our future cash outflows to exceed cash inflows as we continue to invest in revenue growth, we believe we have sufficient cash on-hand to fund potential net cash outflows for one year following the filing date of this Quarterly Report on Form 10-Q. Accordingly, we believe there does not exist any indication of substantial doubt about our ability to continue as a going concern for one year following the filing date of this Quarterly Report on Form 10-Q.

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.

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, ~~2020,~~2021, except as set forth below.

~~Recently Adopted Accounting Pronouncements~~Use of Estimates

~~In December 2019,~~The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the ~~Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2019-12,~~ ~~Income Taxes(Topic 740):Simplifying~~reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the ~~Accounting for Income Taxes~~ ~~(“ASU 2019-12”). ASU 2019-12 includes~~date of the removal of certain exceptions to the general principles of ASC 740 and simplifies the accounting for income taxes by clarifying and amending existing guidance. We adopted the update January 1, 2021 and it did not have a material impact on our condensed consolidated financial statements and ~~disclosures.~~

~~In February 2016,~~ the ~~FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~ ~~("ASU 2016-02"). We adopted ASU 2016-02 effective January 1, 2021. The core principle~~reported amounts of ~~ASU 2016-02 is that a lessee should recognize~~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 ~~liabilities that arise from leases. For operating leases, a lessee is required to recognize a right-of-use asset~~the recoverability or impairment of tangible and ~~a lease liability, initially measured at~~intangible assets, including goodwill, contingent consideration for our business combination with Lyte and periodic reassessment of fair value, allocating the ~~present~~fair value of purchase consideration to assets acquired and liabilities assumed in our business combination, reserves and certain accrued liabilities, the ~~lease payments, in the statement of financial position. We have elected certain practical expedients permitted under the transition guidance that allows us to use the beginning of the~~benefit period of ~~adoption (January 1, 2021)~~deferred commissions, assumptions used in Black-Scholes valuation method, such as the ~~date~~current trading price of ~~initial recognition. As a result, prior period comparative~~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 ~~information was not recast under the new~~statements.

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~~standard~~Risks and ~~continues~~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 likely to ~~be presented under~~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 ~~prior lease accounting standards. Other practical expedients include our election~~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 ~~not separate non-lease components from lease components~~maintain PhunCoin and to not reassess lease classification, treatment of initial direct costs or whether an existing or expired contract contains a lease. We have also elected to apply the short-term lease exception for all leases,PhunToken, which ~~we will not recognize right-of-use assets or lease liabilities for leases that, at the commencement date,~~could have a ~~term~~material adverse effect on our operations and financial condition. Failure by us to comply with any laws, rules and regulations, some of ~~twelve (12) months~~which may not exist yet or ~~less.~~

~~The adoption of the new lease standard~~are subject to interpretation and may be subject to change, could also result in a material adverse effect on ~~January 1, 2021, resulted in the recognition of right-of-use assets~~our operations and operating lease liabilities of $2,101 on the condensed consolidated balance sheet. In connection with the adoption of this standard, short-term deferred rent of $8, which was previously recorded in accrued expenses and long term deferred rent of $180 previously recorded in deferred rent on the condensed consolidated balance sheet was offset against the right-of-use asset. The details of our right-of-use asset and lease liability recognized upon adoption of ASC 842 are set forth below:


	~~January 1, 2021~~
~~Right-of-use asset~~	$	~~2,101~~
~~Straight-line rent accrual~~	~~(188)~~
	$	~~1,913~~

~~Lease liability, current~~	$	~~500~~
~~Lease liability, non-current~~	~~1,601~~
	$	~~2,101~~

financial condition.

Concentrations of Credit Risk

Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash, ~~and~~ trade accounts ~~receivable.~~ receivable and our digital asset holdings.

There is currently no clearing house for our digital assets, including our bitcoin holdings, nor is there a central or major depository for the custody of our digital assets. There is a risk that some or all of our digital asset holdings could be lost or stolen. There can be no assurance that the custodians will maintain adequate insurance or that such coverage will cover losses with respect to our digital asset holdings. Further, transactions denominated in digital assets are irrevocable. Stolen or incorrectly transferred digital assets may be irretrievable. As a result, any incorrectly executed transactions could adversely our financial condition. The aggregate cost basis of our digital asset holdings is $42,994 and $41,964 at March 31, 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.

The following table sets forth our concentration of accounts receivable, net of specific allowances for doubtful accounts.


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Customer A	Customer A	20	%	0	%	Customer A	19	%	—	%
Customer B	Customer B	19	%	0	%	Customer B	14	%	—	%
Customer C	Customer C	18	%	16	%	Customer C	10	%	18	%
Customer D	Customer D	0	%	55	%	Customer D	—	%	20	%
Customer E		0	%	13	%
Customer F		25	%	0	%

Digital Assets

~~During the three months ended March 31, 2021, we purchased an aggregate~~Payments by customers in and purchases by us of ~~$1,098 in~~ digital assets ~~comprised solely~~were primarily of ~~bitcoin.~~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 ~~Accounting Standards Codification ("ASC")~~ASC 350, Intangibles—Goodwill and Other. We have ownership of and control over our ~~bitcoin~~digital assets and we may use third-party custodial services to secure ~~it.~~them. The digital assets are initially recorded at cost and are subsequently remeasured, ~~on the condensed consolidated balance sheet at cost,~~ net of any impairment losses incurred since acquisition.

We determine the fair value of our ~~bitcoin~~digital assets on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on quoted prices on the active exchange(s) that we have determined is ~~its~~the principal market for bitcoin and ethereum (Level 1 inputs). We perform an analysis each quarter to identify whether events or changes in circumstances, principally

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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 ~~of one bitcoin~~ quoted on ~~the~~an active exchange since acquiring the ~~bitcoin.~~respective digital asset. If the then current carrying value of a digital asset exceeds the fair value, an

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impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the fair value.

The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains are not recorded until realized upon sale, at which point they are presented net of any impairment losses for the same digital assets held. In determining the gain or loss to be recognized upon sale, we calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale. Impairment losses and gains or losses on sales are recognized within other expense in our ~~condensed~~ consolidated statements of operations and comprehensive loss. Impairment loss was ~~immaterial~~$9,353 for the three months ended March 31, 2022 and we did not sell any digital assets during the same time period.

The following tables set forth changes in our bitcoin and ethereum holdings:


Bitcoin	Digital Asset Original Cost Basis		Digital Asset Impairment Losses		Digital Asset Carrying Value
Balance as of December 31, 2021	$	36,963	$	(8,554)	$	28,409
Purchases	489		—		489
Received from customers, net of expenses	36		—		36
Impairment loss	—		(7,633)		(7,633)
Balance as of March 31, 2022	$	37,488	$	(16,187)	$	21,301


Ethereum	Digital Asset Original Cost Basis		Digital Asset Impairment Losses		Digital Asset Carrying Value
Balance as of December 31, 2021	$	4,714	$	(670)	$	4,044
Purchases	—		—		—
Received from customers, net of expenses	491		—		491
Impairment loss	—		(1,658)		(1,658)
Balance as of March 31, 2022	$	5,205	$	(2,328)	$	2,877

Other digital assets purchased during the year ended December 31, 2021 were $287 and we recorded an impairment losses of $159 related to those purchases for the year then ended. During the three months ended March 31, ~~2021.~~

~~Use~~2022, we recorded additional impairment losses of ~~Estimates~~

~~The preparation~~$62, and as of ~~financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect~~March 31, 2022, the ~~reported amounts~~balance of our other digital assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Items subject to the use of estimates include, but are not limited to, the standalone selling price for our products and services, stock-based compensation, useful lives of long-lived assets including intangibles, fair value of intangible assets and the recoverability or impairment of tangible and intangible assets, including goodwill, reserves and certain accrued liabilities, the benefit period of deferred commissions, assumptions used in Black-Scholes valuation method, such as expected volatility, risk-free interest rate and expected dividend rate, our incremental borrowing rate in determining the present value of remaining lease payments, and provision for (benefit from) income taxes. Actual results could differ from those estimates and such differences could be material to the condensed consolidated financial statements.was $66.

Loss per Common Share

Basic loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Restricted shares subject to repurchase provisions relating to early exercises under 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 our outstanding warrants and stock equity plans, to the extent dilutive. For all periods presented, these shares were excluded from the calculation of diluted loss per share of common stock because their inclusion would have been anti-dilutive. As a result, diluted loss per common share is the same as basic loss per common share for all periods presented.

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The following table sets forth common stock equivalents that have been excluded from the computation of dilutive weighted average shares outstanding as their inclusion would have been anti-dilutive:


		March 31,			Three Months Ended March 31,
		2021	2020		2022	2021
Convertible notes	Convertible notes	4,920,000	21,740	Convertible notes	—	4,920,000
Warrants	Warrants	5,996,112	3,836,112	Warrants	5,636,801	5,996,112
Options	Options	1,087,033	1,381,173	Options	897,229	1,087,033
Restricted stock units	Restricted stock units	5,545,454	3,124,460	Restricted stock units	3,480,102	5,545,454
Restricted shares	Restricted shares	574	4,689	Restricted shares	—	574
Total	Total	17,549,173	8,368,174	Total	10,014,132	17,549,173

Fair Value of Financial 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

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assumptions (unobservable inputs). The guidance requires fair value measurements be classified and disclosed in one of the following three categories:


•			Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
•			Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
•			Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Determining which category an asset or liability falls within the hierarchy requires significant judgment. Our financial instruments measured at fair value as of March 31, ~~2021~~2022 are set forth below:


		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Digital currencies		$	1,098	$	0	$	0	$	1,098
Digital assets										Digital assets	$	24,244	$	—	$	—	$	24,244
Total	Total	$	1,098	$	0	$	0	$	1,098	Total	$	24,244	$	—	$	—	$	24,244

Liabilities:	Liabilities:									Liabilities:
Warrant liability	Warrant liability	$	0	$	2,499	$	0	$	2,499	Warrant liability	$	—	$	3,818	$	—	$	3,818
Total	Total	$	0	$	2,499	$	0	$	2,499	Total	$	—	$	3,818	$	—	$	3,818

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Our financial instruments measured at fair value as of December 31, ~~2020~~2021 are set forth below:


											Level 1		Level 2		Level 3		Total
Assets:										Assets:
Digital assets										Digital assets	$	32,581	$	—	$	—	$	32,581
Total										Total	$	32,581	$	—	$	—	$	32,581

		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Liabilities:	Liabilities:									Liabilities:
Warrant liability	Warrant liability	$	0	$	1,614	$	0	$	1,614	Warrant liability	$	—	$	3,605	$	—	$	3,605
Total	Total	$	0	$	1,614	$	0	$	1,614	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:


	March 31, 2022			December 31, 2021
Strike price per share	$	2.25		$	2.25
Closing price per share	$	2.78		$	2.63
Term (years)	1.28			1.53
Volatility	200		%	186		%
Risk-free rate	1.87		%	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 Pronouncements 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.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for smaller reporting companies for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. ~~We are~~As the Company does not currently ~~evaluating~~have any debt with conversion features outstanding, we do not expect the ~~impact~~adoption of ~~this guidance~~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 quarter 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 $4,500 and $5,531 recorded in accrued expenses in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively, related to fair value of future acquisition payments and earn out payable due to the seller.

The following table summarizes the unaudited pro forma condensed financial information of Phunware for the three months ended March 31, 2021, as if the acquisition of Lyte had occurred on January 1, 2021:


	Three Months Ended March 31, 2021
(in thousands)	(unaudited)
Net revenues	$	3,771
Net loss	(14,500)

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4. Revenue

Our platform revenue consists of SDK license subscriptions and application development services, as well as application transactions, which comprise of 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 the 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 March 31,
2021 2020
Net Revenues
Platform subscriptions and services $ 1,521 $ 2,391
Application transaction 125 249
Net revenues $ 1,646 $ 2,640


	Three Months Ended March 31,
	2022		2021
Platform revenue	$	2,492	$	1,646
Hardware revenue	4,286		—
Net revenues	$	6,778	$	1,646

We generate revenue in domestic and foreign regions and attribute net revenue to individual countries based on the location of the contracting entity. We derived ~~99%~~95% and ~~90%~~99% of our net revenues from within the United States for the three months ended March 31, 2022 and 2021, ~~and 2020,~~ respectively.

The following table sets forth our concentration of revenue sources as a percentage of total net revenues.


		Three Months Ended March 31,				Three Months Ended March 31,
		2021		2020				2022		2021
Customer A		13	%	0	%
Customer B	Customer B	15	%	0	%		Customer B	1	%	15	%
Customer E							Customer E	—	%	17	%
Customer F	Customer F	1	%	31	%		Customer F	—	%	13	%
Customer G	Customer G	17	%	11	%		Customer G	1	%	10	%
Customer H		10	%	9	%

Deferred Revenue

Our deferred revenue balance consisted of the following:

March 31,
2021 December 31,
2020
Current deferred revenue
Platform subscriptions and services revenue $ 2,100 $ 2,317
Application transaction revenue 80 80
Total current deferred revenue $ 2,180 $ 2,397
Non-current deferred revenue
Platform subscriptions and services revenue $ 2,054 $ 2,678
Total non-current deferred revenue $ 2,054 $ 2,678
Total deferred revenue $ 4,234 $ 5,075


	March 31, 2022		December 31, 2021
Current deferred revenue
Platform revenue	$	1,919	$	1,824
Hardware revenue	1,344		2,149
Total current deferred revenue	$	3,263	$	3,973

Non-current deferred revenue
Platform revenue	$	1,008	$	1,299
Total non-current deferred revenue	$	1,008	$	1,299
Total deferred revenue	$	4,271	$	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 three months ended March 31, ~~2021,~~2022, we recognized revenue of ~~$1,279~~$2,477 that was included in ~~its~~our deferred revenue balance as of December 31, ~~2020.~~

2021.

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Remaining Performance Obligations

Remaining performance obligations were ~~$7,768~~$7,088 as of March 31, ~~2021,~~2022, of which we expect to recognize ~~42%~~approximately 51% as revenue over the next 12 months and the remainder thereafter.

PhunToken

~~4. Cash, Cash Equivalents,~~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 ~~Restricted Cash~~

~~The following table sets forth~~capabilities of our MaaS platform. During the three months ended March 31, 2022, we sold 115.8 million PhunToken for an aggregate of $973, for which we received both cash and ~~restricted cash~~digital assets from customers. Sales of PhunToken are recorded within platform revenue in the table above.

In March 2022, certain members of our senior management team purchased PhunToken pursuant to Restricted Token Purchase Agreements for total of 827.5 million PhunToken, 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 March 31, ~~2021~~2022 and December 31, ~~2020:~~2021, issued PhunToken were 369.1 million and 131.7 million, respectively. Total supply of PhunToken is capped at 10 billion.

Cash and restricted cash March 31, 2021 December 31, 2020
Cash $ 23,469 $ 3,940
Restricted cash 91 91
Total cash and restricted cash $ 23,560 $ 4,031

5. Inventory

5.Our inventory balance on the dates presented consisted of the following:


	March 31, 2022		December 31, 2021
Raw materials	$	4,066	$	2,075
Work-in-process	146		207
Finished goods	245		138
Other	242		216
Total inventory	$	4,699	$	2,636

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6. Debt

2021 Promissory Note

~~The following table sets forth our various debt obligations:~~

March 31, 2021 December 31, 2020
Series A Note (principal amount) $ 0 $ 2,481
Series B Note (principal amount) 11,071 3,585
Paycheck Protection Program Loan 2,850 2,850
Convertible notes 250 250
Promissory notes 905 905
Total debt $ 15,076 $ 10,071
Debt discount - warrants (2020 Convertible Notes) 0 (1,029)
Debt discount - issuance costs (2020 Convertible Notes) (1,128) (650)
Less: current maturities of long-term debt (10,012) (4,435)
Less: related-party debt (195) (195)
Long-term debt $ 3,741 $ 3,762

~~2020 Convertible Notes~~

~~On July 15, 2020,~~In connection with the acquisition of Lyte, we ~~issued~~entered into a ~~Series A Senior Convertible Note (a “Series A Note”) to~~note purchase agreement and completed the sale of an ~~institutional investor~~unsecured promissory note (the "2021 Promissory Note") with an ~~initial~~original principal amount of ~~$4,320 (reflecting~~$5,220 in a private placement that closed on October 18, 2021. The 2021 Promissory Note was sold with an original issue discount of ~~$320) in a private placement. We repaid in full the outstanding principal balance, accrued~~$200 and ~~unpaid interest and make-whole amount on a separate senior convertible note issued on March 20, 2020 to the same investor.~~we paid at closing issuance costs totaling $280. After ~~the payoff of the senior convertible note and~~ deducting all transaction costs, net cash proceeds to the Company ~~was $1,751.~~

Onwere $4,740. No interest will accrue on the ~~same date, we issued a Series B Senior Secured Convertible~~2021 Promissory Note ~~(a “Series B Note,”~~unless and ~~together with~~until the ~~Series A Note, the “2020 Convertible Notes”) to the same investor with~~occurrence of an ~~initial principal amount~~event of $17,280 (reflecting an original issue discount of $1,280). The investor paid for the Series B Note by delivering a secured promissory note (the “Investor Note”) with an initial principal amount of $16,000.

We received cash under the Series B Note only upon cash repayment of the corresponding Investor Note. The investor, at its option and at any time, had the right to voluntarily prepay the Investor Note, in whole or in part. Until the Investor Note was repaid, the principal (and related original issue discount) of the Series B Note was considered to be "restricted." The Series B Note and the Investor Note were subject to the terms of a Master Netting Agreement between us and the investor. Upon

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~~repayment of the Investor Note, an equal amount of the Series B Note became "unrestricted" and recorded as debt in our condensed consolidated balance sheets.~~

As a result of multiple offerings of sales of shares of our common stock as more fully described Note 9 below, the investor elected to require us to use forty percent (40%) of the net proceeds from those offerings to satisfy obligations under the 2020 Convertible Notes. During January and February 2021, we paid approximately $11,507, of which $5,717 was recorded as a loss on extinguishment of debt.

In March 2021, the investor voluntarily prepaid an aggregate of $10,250 pursuant to the terms of the Investor Note. As a result, we received cash proceeds of $10,250 and this amount of principal of the Series B Note, along with $820 of original issue discount became "unrestricted" and outstanding. After the aggregate payments pursuant to the Investor Note by the investor to us, there was no balance outstanding under the Investor Note and no restricted balance under the Series B Note.

~~On March 25, 2021, we delivered a Company Optional Redemption Notice~~default (as defined in the ~~Series B~~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 required to ~~the holder of our Series B Note exercising our right to redeem and fully satisfy all obligations under the Series B Note on April 5, 2021. See Note 13 below.~~

~~We recorded~~make a ~~loss on extinguishment of debt of $51 for the three months ended March 31, 2021 related to~~ monthly ~~installment~~amortization payments ~~made to the investor.~~

~~Warrant~~

In addition to the 2020 Convertible Notes, we issued a warrant exercisable for 3 years for the purchase of an aggregate of up to 2,160,000 shares of the Company's common stock, with a current exercise price of $2.25 per share, which decreased from $4.00 in February 2021 as a result of our underwritten public offering. The number of shares and exercise price are each subject to adjustment provided under the warrant. If, at the time of exercise of the warrant, there is no effective registration statement registering, or no current prospectus available for, the issuance of the shares, then the warrant may also be exercised, in whole or in part, by means of a “cashless exercise.” The warrant may not be exercised if, after giving effect to the exercise, the investor would beneficially own amounts in excess of those permissible under the terms of the warrant.

Upon issuance of the warrant, we recorded a warrant liability as a discount to the 2020 Convertible Notes. We revalued the warrant as of March 31, 2021, and accordingly recorded a loss of $885 as a result of the change in the fair value of the warrant liability for the three months ended March 31, 2021. The following table sets forth the assumptions used to calculate the fair value of our warrant liability at the respective dates:

March 31, 2021 December 31, 2020
Strike price per share $ 2.25 $ 4.00
Closing price per share $ 1.65 $ 1.26
Term (years) 2.28 2.53
Volatility 150 % 146 %
Risk-free rate 0.17 % 0.17 %
Dividend Yield 0 0

~~Participation Rights~~

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

~~Paycheck Protection Program ("PPP") Loan~~

~~On April 10, 2020, we received loan proceeds~~ in the amount of ~~$2,850 from JPMorgan Chase, N.A. pursuant~~$574 until the maturity date of October 15, 2022. We may prepay any or all outstanding balance of the 2021 Promissory Note earlier than it is due with a prepayment premium of 110%. The prepayment premium also applies to the ~~PPP under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"),~~monthly amortization payments, which ~~was enacted on March 27, 2020. The loan, which was in the form of a note dated April 9, 2020, matures on April 9, 2022 and bears~~amounts to an effective interest ~~at a~~ rate of 0.98% per annum. The Paycheck Protection Flexibility Act of 2020, extended the deferral period for loan payments to either (i) the date that SBA remits the borrower’s loan forgiveness amount to the lender or (ii) if the borrower does not apply for loan

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~~forgiveness, ten months after the end of the borrower’s loan forgiveness covered period. The note may be prepaid by us at any time prior to the maturity with no prepayment penalties.~~

approximately 18%.

The principal amount of our PPP loan is subject to forgiveness under the PPP upon our request and to the extent that PPP loan proceeds were used to pay expenses permitted by the PPP. Although we currently anticipate2021 Promissory Note had a ~~portion of the loan to be forgiven, there can be no assurance that any part of the PPP loan will be forgiven.~~

~~Convertible Notes~~

During April 2019, our board of directors authorized the issuance of $20,000 of convertible promissory notes (the “Convertible Notes”). The Convertible Notes bear ordinary interest at a rate of 7% per annum. Interest under the Convertible Notes is payable quarterly beginning on September 30, 2019, and interest and principal under the Convertible Notes is payable monthly beginning on June 30, 2021. The Convertible Notes are convertible into shares of the Company’s common stock at a price of $11.50 per share and mature on June 3, 2024. Additional information about our Convertible Notes is included in Note 8, "~~Debt" of the notes to the consolidated financial statements included in our Annual Report on Form 10-K.~~

~~Promissory Notes~~

In October 2019, our board of directors authorized the issuance of $20,000 of promissory notes (the “Notes”). The Notes bear ordinary interest at a rate of 10% per annum. Interest under the Notes is payable monthly beginning on November 30, 2019. During the term of the Notes, we are required to maintain a restricted bank account with a minimum balance of one year of interest payments on the aggregate principal balance of ~~all Notes, which will be available for use exclusively to satisfy any payments owed by the Company under the Notes. The principal~~$3,654 and ~~unpaid accrued interest on the Notes will be due~~$5,220 and ~~payable on demand by the majority Note holders on or after the date that is 60 months following November 15, 2019. Additional information about our Notes is included in Note 8, "Debt~~"debt discount of ~~the notes to the consolidated financial statements included in our Annual Report on Form 10-K.~~

~~During 2019, we issued a Note in the principal amount of $195, in exchange for cash consideration, to Cane Capital, LLC, an entity owned in part by Alan S. Knitowski, our Chief Executive Officer~~$161 and ~~a member of our board of directors.~~$316 at March 31, 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:~~operations and comprehensive loss:


		Three Months Ended March 31,				Three Months Ended March 31,
		2021		2020				2022		2021
2021 Promissory Note							2021 Promissory Note	$	178	$	—
2020 Convertible Notes	2020 Convertible Notes	$	452	$	0		2020 Convertible Notes	—		452
Accretion of debt discount - issuance costs	Accretion of debt discount - issuance costs	620		13			Accretion of debt discount - issuance costs	155		620
Accretion of debt discount - warrants	Accretion of debt discount - warrants	1,029		0			Accretion of debt discount - warrants	—		1,029
All other debt and financing obligations	All other debt and financing obligations	118		88			All other debt and financing obligations	48		118
Total	Total	$	2,219	$	101		Total	$	381	$	2,219

Other Debt Obligations

Other than the 2021 Promissory Note referenced above, 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.

6.7. Leases

~~As described~~On March 15, 2022, we entered into a lease agreement, in which we will lease approximately 21,830 square feet for a term of five years, which we intend to use as manufacturing and warehouse space for our Lyte computer division. The term of the lease 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 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). The lease provides for initial base rent payments of approximately $27 per month, subject to escalations. In addition, we will be responsible for payments equal to our proportionate share of operating expenses, which is currently estimated to be approximately $7 per month, which is also subject to adjustment to actual costs and expenses according to provisions of the lease. We currently anticipate taking possession of the lease in late second or early third quarter of 2022. In accordance with authoritative guidance, we will defer recording the right-of-use asset and lease liability until such date the lessor makes the leased premises available for our use.

Further information regarding our other office leases and accounting thereof are located in Note 2, ~~we adopted ASU 2016-02,~~ Summary of Significant Accounting Policies, and Note 10, Leases, ~~(Topic 842) as of January 1, 2021. We lease~~in our corporate offices under operating leases and determine if an arrangement is or contains a lease at inception. The initial terms of our real property lease agreements are generally five years and typically allows for renewals in five-year increments. We may, at times, negotiate a shorter lease renewal term. We generally do not account for any renewals at the lease adoption date. We maintain 4 corporate offices located in Austin, Texas; Irvine, California; San Diego, California; and Miami, Florida. The earliest of our lease agreements currently ends in March 2022Annual Report on Form 10-K filed with the latest terminating in June 2025. Some of our leases include both lease and non-lease components, which we have elected not to account for separately. Lease components generally include rent, taxes and insurance, while non-lease components generally include common area or other maintenance.SEC on April 7, 2022.

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The weighted-average remaining lease term for operating leases as of March 31, ~~2021~~2022 was ~~3.79~~2.91 years. As our leases generally do not include an implicit rate, we compute our incremental borrowing rate based on information available at the lease commencement date applying a rate to each lease. We used incremental borrowing rates that match the duration of the remaining lease terms of our operating leases on a fully collateralized basis upon adoption as of January 1, 2021 to initially measure our lease liability. The weighted average incremental borrowing rate used to measure our lease liability as of March 31, 2021 was 19.13%.

We recognize lease expense on a straight-line basis over the lease term with variable lease expense recognized in the period in which the costs are incurred. The components of lease expense are included in general and administrative expense in our condensed consolidated statement of operations and comprehensive loss. Lease expense for the three months ended March 31, 2022 and 2021 was ~~$212.~~$204 and $212, respectively.

Future minimum lease obligations are set forth below:

Future minimum lease obligations years ending December 31, Lease
Obligations
2021 (Remainder) $ 636
2022 725
2023 622
2024 609
2025 208
Thereafter 0
$ 2,800
Less: Portion representing interest (823)
$ 1,977

On March 16, 2021, we entered into a sublease agreement pursuant to which we will sublease our existing office space in Irvine, California. The term of the sublease commences on April 1, 2021 and terminates on March 31, 2025. The subtenant will pay us initial base rent of approximately $17 per month, which is subject to certain discounts throughout the sublease, as well as rent escalations. We recognized an impairment of our right-to-use asset related to the sublease of $77, which is recorded in other expense in our condensed consolidated statement of operations and comprehensive loss for the three months ended March 31, 2021.


Future minimum lease obligations years ending December 31,	Lease Obligations
2022 (Remainder)	$	494
2023	622
2024	609
2025	209


	$	1,934
Less: Portion representing interest	(487)
	$	1,447

7.8. Commitments and Contingencies

Litigation

There have been no material changes to the disclosure related to our ~~settlements with Uber Technologies, Inc. and Ellenoff Grossman & Schole LLP, as well as, the dismissal of claims brought by Sha-Poppin Gourmet Popcorn, LLC~~litigation matters since the filing of our Annual Report on Form 10-K. See Note 9,11, "Commitments and Contingencies" in our Annual Report on Form 10-K filed with the SEC on ~~March 31, 2021~~April 7, 2022 for further ~~information on the these matters.~~information.

On December 17, 2019, certain stockholders filed a lawsuit against Phunware. The case, captioned Wild Basin Investments, LLC, et al. v. Phunware, Inc., et al.; Cause No. D-1-GN-19-008846 was filed in the 126th Judicial District Court of Travis County, Texas. The plaintiffs invested in various early rounds of financing while the Company was private and claim Phunware should not have subjected their shares to a 180-day "lock up" period. According to the plaintiffs, the price of our stock dropped significantly during the lock up period. The plaintiffs seek unspecified damages in excess of $1,000. We maintain the plaintiffs' claims are without merit and intends to contest vigorously the claims asserted in the lawsuit, but there can be no guarantees that a favorable resolution will be successful. All defendants have answered. The court has not yet set a trial date or pretrial deadlines. The case is in early stage of discovery. Given the preliminary stage of the case, we are unable to predict the outcome of this dispute, or estimate the loss or range of loss, if any, associated with this matter.

On March 30, 2021, Phunware filed an action against its former counsel Wilson Sonsini Goodrich & Rosati, PC (“WSGR”). The matter is Phunware, Inc., v. Wilson Sonsini Goodrich & Rosati, Professional Corporation, Does 1-25, Case No. 21CV381517, filed in the Superior Court of the State of California for the County of Santa Clara. The complaint alleges a single cause of action for negligence related to services provided by WSGR to Phunware. We’re seeking compensatory and

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~~consequential damages, attorney’s fees and costs, interest and other relief the Court deems just and proper. The case is in the early stages of litigation; the outcome is not certain.~~

From time to time, we are and may become involved in various legal proceedings in the ordinary course of business. The outcomes of our legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular reporting period. In addition, for the matters disclosed above that do not include an estimate of the amount of loss or range of losses, such an estimate is not possible, and we may be unable to estimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies.

~~8. PhunCoin & PhunToken~~

During 2018 and 2019, PhunCoin, Inc., our wholly-owned subsidiary, launched offerings of rights to acquire a token denominated as "PhunCoin" (the "Rights"). PhunCoin, Inc. accepts payment in the form of cash and digital currencies for purchases of the Rights. The amount of PhunCoin to be issued to the purchaser is equal to the dollar amount paid by the purchaser divided by the price of PhunCoin at the time of issuance of PhunCoin during the launch of the Token Ecosystem (as defined below) before taking into consideration an applicable discount rate, which is based on the time of the purchase.

Through March 31, 2021, we received aggregate net cash proceeds from our Rights offerings of $1,202. Proceeds from the Rights are recorded as PhunCoin deposits in the condensed consolidated balance sheet as of March 31, 2021 and December 31, 2020.

PhunCoin is expected to be issued to Rights holders the earlier of (i) the launch of PhunCoin’s, Inc.’s blockchain technology enabled rewards marketplace and data exchange (“Token Ecosystem” or "Token Generation Event"), (ii) one (1) year after the issuance of the Rights to the purchaser or (iii) the date PhunCoin, Inc. determines that it has the ability to enforce resale restrictions with respect to PhunCoin pursuant to applicable federal securities laws. Proceeds from the Rights offering are generally not refundable if the Token Generation Event is not consummated. We currently anticipate that PhunCoin will be issued to the holders of the Rights in 2021; however, there can be no assurance as to when or if we will be able to successfully launch the Token Ecosystem.

~~Additional information about PhunCoin is included in Note 10, "PhunCoin and PhunToken" of the notes to the consolidated financial statements included in our Annual Report on Form 10-K.~~

~~PhunToken ("PHTK")~~

During the second quarter of 2019, Phunware announced the launch of a separate token, PhunToken, which is meant to act as a medium of exchange within the Token Ecosystem. PhunToken will be issued through a separate, wholly-owned subsidiary, Phun Token International, available initially only to persons outside of the United States and Canada. Consumers may receive PhunToken for actively engaging in marketing campaigns; developers and publishers may receive PhunToken for utilizing Phunware’s loyalty software development kit in order to better engage, manage and monetize their consumers; and brands will gain access to more relevant, verifiable data by accessing Phunware’s data exchange and using Phun for their own loyalty programs. As of March 31, 2021, we had not issued or sold any PhunToken.

9. Stockholders’ Equity

Common Stock

Total common stock authorized to be issued as of March 31, ~~2021~~2022 was 1,000,000,000 shares, with a par value of $0.0001 per share. At March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, there were ~~71,211,399~~97,250,520 and ~~56,380,111~~96,751,610 shares ~~outstanding, respectively, inclusive~~ of ~~574 restricted shares subject to repurchase for unvested shares related to early option exercises under the Company’s~~our common stock ~~equity plans.~~outstanding.

On ~~August 14, 2020,~~January 31, 2022, we entered into an ~~At-The-Market~~At Market Issuance Sales Agreement ~~(the “Sales Agreement”)~~ with ~~Ascendiant Capital Markets,~~H.C. Wainwright & Co., LLC (“~~Ascendiant”~~Wainwright”), ~~as sales agent,~~ pursuant to which ~~the Company would~~we may offer and sell, from time to time, shares of our common stock, par value $0.0001 per share, for aggregate gross proceeds of up to $100,000, through ~~Ascendiant~~or to Wainwright, as agent or principal. We are not obligated to sell shares of our common stock under the sales agreement with Wainwright. We have not sold any shares of common stock ~~for~~pursuant to the sales agreement with Wainwright. Sales of shares of our common stock sold under the sales agreement will be made pursuant to an ~~aggregate offering price~~effective shelf registration statement on Form S-3 in the amount of ~~up to $15,000.~~ $200,000 filed with the SEC on February 1, 2022.

In January 2021, ~~we issued~~ 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

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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.

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Warrants

We have various warrants outstanding. A summary of our outstanding warrants ~~as of March 31, 2021 and December 31, 2020~~ is set forth below:


	March 31, 2022			December 31, 2021
Warrant Type	Cash Exercise Price per share		Number of warrants	Cash 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
Total			5,636,801			5,636,801

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, "
Warrant Type Cash Exercise
Price per
share Warrants Outstanding
2020 Convertible Note warrants $ 2.25 2,160,000
Common stock warrant (Series D-1) $ 5.54 14,866
Common stock warrants (Series F) $ 9.22 377,402
Public Warrants (PHUNW) $ 11.50 1,761,291
Private Placement Warrants $ 11.50 1,658,381
Unit Purchase Option Warrants $ 11.50 24,172
Total 5,996,112
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

In connection with the issuance of the 2020 Convertible Notes, in 2020, we issued a warrant exercisable for three (3) years for the purchase, initially, of up to an 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

~~2018 Equity Incentive Plan~~

~~In 2018,~~There have been no material changes to the terms of our ~~board of directors adopted, and our stockholders approved, the~~ 2018 Equity Incentive Plan (the ~~“2018 Plan”~~"2018 Plan")~~. The purposes of~~, 2018 Employee Stock Purchase Plan ("2018 ESPP") and 2009 Equity Incentive Plan ("2009 Plan") since the 2018 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to employees, directors and consultants who perform services to the Company, and to promote the successfiling of our ~~business. These incentives are provided through~~Annual Report on Form 10-K. Refer to Note 14, Stock-Based Compensation, in our Annual Report on Form 10-K filed with the ~~grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares.~~SEC on April 7, 2022 for more information on our various equity incentive plans.

~~The number of shares of common stock available for issuance under the~~ 2018 Equity Incentive Plan will also include an annual increase on the first day of each fiscal year, equal to the lesser of: (i) 10% of the post-closing outstanding shares of common stock; (ii) 5% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year; or (iii) such other amount as our board of directors may determine.

~~In addition, the shares~~Shares of common stock reserved for issuance under the 2018 Plan also will include any shares of common stock subject to stock options, restricted stock units or similar awards granted under the 2009 ~~Equity Incentive~~ Plan, ~~(the “2009 Plan”),~~ that, on or after the adoption of the 2018 Plan, expire or otherwise terminate without having been exercised in full and shares of common stock issued pursuant to awards granted under the 2009 Plan that are forfeited to or repurchased by us. As of March 31, ~~2021,~~2022, the maximum number of shares of common stock that may be added to the 2018 Plan pursuant to the foregoing ~~equals 1,087,607.~~

~~Since its inception, restricted stock units have been~~is 897,229. Not including the ~~only stock-based incentives granted under~~maximum number of shares from the 2009 Plan that may be added to the 2018 ~~Plan.~~ Plan, the 2018 Plan had 3,550,935 and 762,038 shares of common stock reserved for future issuances as of March 31, 2022 and December 31, 2021, respectively.

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Restricted Stock Units

A summary of our restricted stock unit activity under the 2018 Plan for the three months ended March 31, ~~2021~~2022 is set forth below:


		Shares	Weighted Average Grant Date Fair Value			Shares	Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2020		1,677,060	$	1.41
Outstanding as of December 31, 2021					Outstanding as of December 31, 2021	3,576,270	$	1.94
Granted	Granted	4,238,176	1.88		Granted	—	—
Released	Released	(280,788)	1.22		Released	(92,168)	1.36
Forfeited	Forfeited	(88,994)	1.47		Forfeited	(54,000)	2.34
Outstanding as of March 31, 2021		5,545,454	$	1.78
Outstanding as of March 31, 2022					Outstanding as of March 31, 2022	3,430,102	$	1.95

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Not including the maximum number of shares from the 2009 Plan that may be added to the 2018 Plan noted above, the 2018 Plan had 1,134,393 and 2,551,720 shares of common stock reserved for future issuances as of March 31, 2021 and December 31, 2020, respectively.Stock Options

During ~~the first~~third quarter of 2021, we granted ~~3,488,262 restricted~~50,000 stock ~~unit awards~~options to ~~team members with~~a non-employee consultant at an ~~average grant date fair value~~exercise price of ~~$2.03~~$1.08 per share. The ~~awards granted to team members~~stock options vest over ~~range~~one year in 12 equal monthly installments. As of ~~10 to 51 months with various installment~~March 31, 2022, the holder had not exercised this stock option and ~~vesting dates, and are subject to service conditions. We also granted 652,170 restricted~~this is the only stock ~~units to non-employee directors, each with a~~option grant date fair value of $1.22. The awards vest in four equal installments on March 4, 2021, June 4, 2021, September 4, 2021, and December 4, 2021, respectively, and are subject to service conditions. We also granted 97,744 restricted stock units to non-employee directors, with a grant date fair value of $1.22 per share in lieu of cash compensation board fees for services provided. These awards vested immediately.

~~The restricted stock unit grants were valued based on~~outstanding under the ~~fair value of our common stock on the date of grant.~~2018 Plan.

2018 Employee Stock Purchase Plan

~~Also, in 2018, our board~~We use a Black-Scholes option pricing model to determine the fair value of ~~directors adopted, and our stockholders approved, the 2018 Employee Stock Purchase Plan (the “2018 ESPP”). As of March 31, 2021, we had not consummated an enrollment or offering period related~~shares to be purchased under the 2018 ESPP. ~~The~~Stock-based compensation expense related to our 2018 ESPP ~~had 272,942~~for the three months ended March 31, 2022 was not significant. There were 1,008,039 and 189,215 shares of common stock available for sale and reserved for issuance as of March 31, ~~2021~~2022 and December 31, ~~2020. Additional information about our 2018 ESPP can be found in Note 12, "Stock-Based Compensation"~~ ~~in our Annual Report on Form 10-K.~~2021, respectively.

2009 Equity Incentive Plan

In 2009, we adopted its 2009 Equity Incentive Plan (the “2009 Plan”), which allowed for the granting of incentive and non-statutory stock options, as defined by the Internal Revenue Code, to employees, directors, and consultants. The 2009 Plan allows for options to be immediately exercisable, subject to the Company’s right of repurchase for unvested shares at the original exercise price. The total amount received in exchange for these shares has been included in accrued expenses on the accompanying condensed consolidated balance sheets and is reclassified to equity as the shares vest. As of March 31, 2021 and December 31, 2020, 574 shares were unvested amounting to $1 in accrued expenses. Effective with the adoption of the 2018 Plan, no additional grants will be made under the 2009 Plan.

A summary of our option activity under the 2009 Plan and related information is as follows:


		Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value			Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2020		1,208,740	$	0.80	6.19	$	700
Outstanding as of December 31, 2021								Outstanding as of December 31, 2021	925,467	$	0.80	5.59	$	1,692
Granted	Granted	—						Granted	—	—
Exercised	Exercised	(119,268)	0.55					Exercised	(22,757)	0.68
Forfeited	Forfeited	(2,439)	2.31					Forfeited	(5,481)	2.00
Outstanding as of March 31, 2021		1,087,033	$	0.82	6.38	$	986
Exercisable as of March 31, 2021		991,476	$	0.78	6.33	$	926
Outstanding as of March 31, 2022								Outstanding as of March 31, 2022	897,229	$	0.80	5.46	$	1,779
Exercisable as of March 31, 2022								Exercisable as of March 31, 2022	892,953	$	0.79	5.46	$	1,777

For the three months ended March 31, ~~2021,~~2022, the aggregate intrinsic value of options exercised was ~~$214~~$42 and the total fair value of options vested was ~~$20.~~$12.

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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:

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	Three Months Ended March 31,
Stock-based compensation	2022		2021
Cost of revenues	$	46	$	210
Sales and marketing	18		102
General and administrative	472		624
Research and development	28		119
Total stock-based compensation	$	564	$	1,055

Three Months Ended March 31,
Stock-based compensation 2021 2020
Cost of revenues $ 210 $ 51
Sales and marketing 102 7
General and administrative 624 599
Research and development 119 (22)
Total stock-based compensation $ 1,055 $ 635

~~We recognize forfeitures as they occur.~~ As of March 31, ~~2021, the unamortized fair value~~2022, there was approximately $5,309, $283 and $3 of ~~the restricted stock units under~~total unrecognized compensation cost related to the 2018 Plan, was approximately $8,852. The weighted-average remaining recognition period over which these costs will be amortized was approximately 2.5 years. Unrecognized stock compensation expense for options granted underthe 2018 ESPP and the 2009 Plan, ~~was $64 as~~respectively. These unrecognized compensation costs are expected to be recognized over an estimated weighted-average period of ~~March 31, 2021.~~approximately 2.5 years, 1.3 years and 1 year for the 2018 Plan, the 2018 ESPP and 2009 Plan, respectively.

11. ~~Domestic~~Segment and ~~Foreign Operations~~Geographic Information

Our chief operating decision maker is our Chief Executive Officer ("CEO"). Our CEO reviews operating segment information for purposes of allocating resources and evaluating financial performance. We have determined that the Company operates in a 2 reporting segments: Phunware and Lyte. In 2021, but prior to the acquisition of Lyte, our CEO reviewed the financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.

Selected information for the Company's operating segments and a reconciliation to the condensed consolidated financial statement amounts are as follows:


	Three Months Ended March 31, 2022
	Phunware		Lyte		Consolidated
Net revenues	$	2,492	$	4,286	$	6,778

















Loss before taxes	$	(14,359)	$	(558)	$	(14,917)


	March 31, 2022
	Phunware		Lyte		Consolidated
Goodwill	$	25,854	$	7,373	$	33,227
Total assets	$	73,804	$	7,619	$	81,423


	December 31, 2021
	Phunware		Lyte		Consolidated
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 which the asset is located or owned. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, all of our identifiable long-lived assets were in the United States.

~~12. Related-Party Transactions~~

~~Accounts Payable~~

There are $255 included in accounts payables in our condensed consolidated balance sheet as of March 31, 2021 and December 31, 2020 for Nautilus Energy Management Corporation, an affiliate of a current member and former member of our board of directors.

~~Debt~~

~~As more fully discussed in Note 5,~~ ~~Debt, the Company entered into a Note (defined above) with a certain related party.~~

~~13. Subsequent Events~~

~~We have evaluated subsequent events through the date the financial statements were issued.~~

On April 5, 2021, we paid $13,902 in cash to the noteholder of our 2020 Convertible Notes in full satisfaction of all obligations under our Series B Note, which amounted to $11,718 of principal, interest and make-whole and $2,184 for the loss on extinguishment of debt.

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 $25,000. We will pay B. Riley a commission of 3% of the gross proceeds of the sales price per share for sales of our common stock sold through or to B. Riley. The sales agreement with B. Riley will terminate the earlier of (i) the sale of all shares of our common stock permitted under the sales agreement; (ii) we and B. Riley may terminate by giving the other party five days notice to the other party; and (iii) any other termination permitted therein. We are not obligated to sell shares under the sales agreement with B. Riley and as of the date noted above, we have not done so.

~~On May 11, 2021, we announced the commencement of the selling of PhunToken. As of the date the financial statements were issued, sales of PhunToken were immaterial.~~

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Item 2. 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 “management” or “management team” refer to Phunware’s officers and directors.

The following discussion and analysis of Phunware’s financial condition and results of operations should be read in conjunction with Phunware’s condensed consolidated financial statements and the related notes to those statements presented in “Part I – Item 1. Financial Statements.” In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Phunware’s actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed in the section titled “Risk Factors” and elsewhere in this Report.

Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our condensed consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.

Overview

Phunware, Inc. offers a fully integrated software platform that equips companies with the products, solutions and services necessary to engage, manage and monetize their mobile application portfolios globally at scale. Our ~~Multiscreen-as-a-Service ("MaaS")~~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 ~~audience monetization.~~monetization, including our engagement-driven digital asset PhunToken.

We also offer and sell pre-packaged and custom high-end personal computer systems for gaming, streaming and cryptocurrency mining enthusiasts.

We intend to continue investing for long-term growth. We have invested and expect to continue investing in ~~expanding~~the expansion of our ability to market, sell and provide our current and future products and services to customers globally. We also expect to continue investing in the development and improvement of new and existing products and services to address customers' needs. We currently do not expect to be profitable in the near future.

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Key Business Metrics

Our management regularly monitors certain financial measures to track the progress of ~~its~~our business against internal goals and targets. We believe 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 current agreements. At any point in the contract term, there can be amounts that we have not yet been contractually able to invoice. Until such time as these amounts are invoiced, they are not recorded in revenues, deferred revenue, accounts receivable or elsewhere in our condensed consolidated financial statements, and are considered by us to be backlog. We expect backlog to fluctuate up or down from period to period for several reasons, including the timing and duration of customer contracts, varying billing cycles and the timing and duration of customer renewals. We reasonably expect approximately ~~half~~40% of our backlog as of March 31, ~~2021~~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 length.

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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 ~~the~~our backlog and deferred revenue:


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
(in thousands)	(in thousands)					(in thousands)
Backlog	Backlog	$	3,452	$	3,991	Backlog	$	2,817	$	3,316
Deferred revenue	Deferred revenue	4,234		5,075		Deferred revenue	4,271		5,272
Total backlog and deferred revenue	Total backlog and deferred revenue	$	7,686	$	9,066	Total backlog and deferred revenue	$	7,088	$	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 ~~loss,~~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.

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		Three Months Ended March 31,						Three Months Ended March 31,
(in thousands, except percentages)	(in thousands, except percentages)	2021			2020				(in thousands, except percentages)	2022			2021
Adjusted gross profit (1)	Adjusted gross profit (1)	$	1,168		$	1,607			Adjusted gross profit (1)	$	1,817		$	1,168
Adjusted gross margin (1)	Adjusted gross margin (1)	71.0		%	60.9		%		Adjusted gross margin (1)	26.8		%	71.0		%
Adjusted EBITDA (2)	Adjusted EBITDA (2)	$	(2,403)		$	(3,178)			Adjusted EBITDA (2)	$	(4,220)		$	(2,403)

(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) ~~one-time~~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 March 31,
(in thousands, except percentages) 2021 2020
Gross profit $ 954 $ 1,549
Add back: Amortization of intangibles 4 7
Add back: Stock-based compensation 210 51
Adjusted gross profit $ 1,168 $ 1,607
Adjusted gross margin 71.0 % 60.9 %

Three Months Ended March 31,
(in thousands) 2021 2020
Net loss $ (12,363) $ (3,963)
Add back: Depreciation and amortization 33 49
Add back: Interest expense 2,219 101
EBITDA (10,111) (3,813)
Add back: Stock-based compensation 1,055 635
Add back: Loss on extinguishment of debt 5,768 —
Add back: Loss on change in fair value of warrant liability 885 —
Adjusted EBITDA $ (2,403) $ (3,178)


	Three Months Ended March 31,
(in thousands, except percentages)	2022			2021
Gross profit	$	1,771		$	954

Add back: Amortization of intangibles	—			4
Add back: Stock-based compensation	46			210
Adjusted gross profit	$	1,817		$	1,168
Adjusted gross margin	26.8		%	71.0		%


	Three Months Ended March 31,
(in thousands)	2022		2021
Net loss	$	(14,917)	$	(14,307)
Add back: Depreciation and amortization	186		33
Add back: Interest expense	381		2,219

EBITDA	(14,350)		(12,055)

Add back: Stock-based compensation	564		1,055

Add back: Loss on extinguishment of debt	—		5,768
Add back: Impairment of digital assets	9,353		—

Add back: Fair value adjustment of warrant liability	213		2,829
Adjusted EBITDA	$	(4,220)	$	(2,403)

2223

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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 ~~services~~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 ~~Subscriptions~~Revenue and ~~Services Revenue.~~Gross Profit

Our platform revenue consists of software subscriptions, application development services and support and application transactions, which comprise of 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; application development service revenue from the development of customer applications, or apps, built and delivered to customers; and support fees.~~

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.

~~Platform subscriptions~~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 ~~services~~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 the selling of PhunToken, 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 ~~platform~~ subscription customers are included in cost of sales, whereas costs related to the ongoing development and maintenance of Phunware’s MaaS platform are expensed in research and development. ~~As a result, platform subscriptions and services~~Furthermore, gross profit ~~may fluctuate from period~~related to ~~period.~~

~~Application Transaction Revenue.~~ We also generate revenue by charging advertisers to deliver advertisements (ads) to users of mobile connected devices. Depending on the specific terms of each advertising contract, we generally recognize revenue based on the activity of mobile users viewing these ads. Fees from advertisers are commonly based on the number of ads delivered or views or clicks by users on mobile advertisements delivered, and we recognize revenue at the time the user views or clicks on the ad. We sell our ads by cost per thousand impressions and cost per click.

~~Application transaction gross profit~~application transactions is equal to application transaction revenue less cost of revenue associated with application ~~transactions. Application transaction gross profit~~transactions, which is impacted by the cost of advertising traffic we pay to our suppliers, ~~and~~the amount of traffic which we can purchase from those ~~suppliers.~~ suppliers and ethereum blockchain fees paid to deliver PhunToken.

As a result, ~~our application transaction~~platform gross profit may fluctuate from period to ~~period due~~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 ~~variable~~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 ~~advertising traffic.~~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 ~~subscriptions~~platform and ~~services and application transactions.~~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.

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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 56 "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 March 31, Change
(in thousands, except percentages) 2021 2020 Amount %
Net Revenues
Platform subscriptions and services $ 1,521 $ 2,391 $ (870) (36.4) %
Application transaction 125 249 (124) (49.8) %
Net revenues $ 1,646 $ 2,640 $ (994) (37.7) %
Platform subscriptions and services as a percentage of net revenues 92.4 % 90.6 %
Application transactions as a percentage of net revenues 7.6 % 9.4 %


	Three Months Ended March 31,						Change
(in thousands, except percentages)	2022			2021			Amount		%
Net Revenues
Platform revenue	$	2,492		$	1,646		$	846	51.4	%
Hardware revenue	4,286			—			4,286		100.0	%
Net revenues	$	6,778		$	1,646		$	5,132	311.8	%
Platform revenue as percentage of total revenue	36.8		%	100.0		%
Hardware revenue as percentage of total revenue	63.2		%	—		%

Net revenues ~~decreased $1.0~~increased $5.1 million, or ~~(37.7)%~~311.8%, for the three months ended March 31, ~~2021~~2022 compared to the corresponding period in ~~2020.~~2021.

Platform ~~subscriptions and services~~ revenue ~~decreased $0.9~~increased $0.8 million, or ~~(36.4)%~~51.4%, for the three months ended March 31, 2022, compared to the corresponding period in 2021, primarily ~~driven~~due to PhunToken sales of $1.0 million, as we commenced the sale of PhunToken in the second quarter of 2021. These increases were partially offset by greater platform revenues for development, licensing and support services provided to a customer ~~during 2020.~~in 2021, as compared to 2022. This customer is identified as "Customer F"E" in Note 3,4, Revenue, in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this quarterly report on Form 10-Q.

~~Application transaction~~Hardware revenue ~~decreased $0.1~~of $4.3 million, ~~or (49.8)%, for~~was a result of the ~~three months ended March 31, 2021, compared to the corresponding period~~acquisition of Lyte, in ~~2020, primarily due to a decrease in app store revenue.~~October 2021.

Cost of Revenues, Gross Profit and Gross Margin


		Three Months Ended March 31,						Change					Three Months Ended March 31,						Change
(in thousands, except percentages)	(in thousands, except percentages)	2021			2020			Amount		%		(in thousands, except percentages)	2022			2021			Amount		%
Cost of Revenues	Cost of Revenues											Cost of Revenues
Platform subscriptions and services		$	648		$	1,046		$	(398)	(38.0)	%
Application transaction		44			45			(1)		(2.2)	%
Platform revenue												Platform revenue	$	1,067		$	692		$	375	54.2	%
Hardware revenue												Hardware revenue	3,940			—			3,940		100.0	%
Total cost of revenues	Total cost of revenues	$	692		$	1,091		$	(399)	(36.6)	%	Total cost of revenues	$	5,007		$	692		$	4,315	623.6	%

Gross Profit	Gross Profit											Gross Profit
Platform subscriptions and services		873			$	1,345		$	(472)	(35.1)	%
Application transaction		81			204			(123)		(60.3)	%
Platform revenue												Platform revenue	1,425			$	954		$	471	49.4	%
Hardware revenue												Hardware revenue	346			$	—		$	346	100.0	%
Total gross profit	Total gross profit	$	954		$	1,549		$	(595)	(38.4)	%	Total gross profit	$	1,771		$	954		$	817	85.6	%

Gross Margin	Gross Margin											Gross Margin
Platform subscriptions and services		57.4		%	56.3		%
Application transaction		64.8		%	81.9		%
Platform revenue												Platform revenue	57.2		%	58.0		%
Hardware revenue												Hardware revenue	8.1		%	—		%
Total gross margin	Total gross margin	58.0		%	58.7		%					Total gross margin	26.1		%	58.0		%

Total gross profit ~~decreased $0.6~~increased $0.8 million, or ~~(38.4)%~~85.6% for the three months ended March 31, ~~2021,~~2022, when compared to the corresponding period of ~~2020,~~2021, due to the revenue items described above.

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Operating Expenses

Three Months Ended March 31, Change
(in thousands, except percentages) 2021 2020 Amount %
Operating expenses
Sales and marketing $ 556 $ 605 $ (49) (8.1) %
General and administrative 2,758 3,945 (1,187) (30.1) %
Research and development 1,052 861 191 22.2 %
Total operating expenses $ 4,366 $ 5,411 $ (1,045) (19.3) %


	Three Months Ended March 31,				Change
(in thousands, except percentages)	2022		2021		Amount		%
Operating expenses
Sales and marketing	$	1,485	$	556	$	929	167.1	%
General and administrative	4,305		2,758		1,547		56.1	%
Research and development	1,003		1,052		(49)		(4.7)	%

Total operating expenses	$	6,793	$	4,366	$	2,427	55.6	%

Sales and Marketing

Sales and marketing expense ~~decreased $0.05~~increased $0.9 million, or ~~(8.1)%~~167.1% for the three months ended March 31, ~~2021~~2022 compared to the corresponding period of ~~2020,~~2021, primarily due to ~~reduced~~an increase of $0.3 million of employee compensation costs ~~as a result~~due to higher headcount and $0.7 million of ~~lower headcount of $0.1 million. This is partially offset with an increase in stock-based compensation expense.~~marketing related expenditures mostly related to Lyte.

General and Administrative

General and administrative expense ~~decreased $1.2~~increased $1.5 million, or ~~(30.1)%~~56.1% for the three months ended March 31, ~~2021~~2022 compared to the corresponding period of ~~2020,~~2021, primarily due to ~~a decrease~~an increase of ~~$0.5~~$0.7 million in ~~headcount~~payroll costs related ~~costs, a decrease of $0.5~~to employee retention credit received during 2021, $0.3 million in legal fees, ~~mainly~~$0.2 million related to ~~our previous litigation with Uber, which was settled in October 2020 and~~amortization of trade name related to Lyte acquisition, $0.2 million in bad debt ~~recovery.~~recoveries that occurred in 2021 and $0.2 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 $0.2~~decreased $0.05 million, or ~~22.2%~~(4.7)%, for the three months ended March 31, ~~2021,~~2022, compared to the corresponding period of ~~2020, primarily due~~2021. Increased headcount period-over-period was allocated to ~~increases of $0.1 million for headcount dedicated to research and development~~customer-driven projects and ~~$0.1 million~~recorded in ~~stock-based compensation expense.~~cost of sales above. No other individual expense category represented a significant increase when compared to the corresponding period of 2021.

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Other expense


		Three Months Ended March 31,				Change					Three Months Ended March 31,				Change
(in thousands, except percentages)	(in thousands, except percentages)	2021		2020		Amount		%		(in thousands, except percentages)	2022		2021		Amount		%
Other expense
Other income (expense)										Other income (expense)
Interest expense	Interest expense	$	(2,219)	$	(101)	$	(2,118)	2,097.0	%	Interest expense	$	(381)	$	(2,219)	$	1,838	(82.8)	%
Loss on extinguishment of debt	Loss on extinguishment of debt	(5,768)		—		(5,768)		100.0	%	Loss on extinguishment of debt	—		(5,768)		5,768		(100.0)	%
Loss on change in fair value of warrant liability		(885)		—		(885)		100.0	%
Impairment of digital assets										Impairment of digital assets	(9,353)		—		(9,353)		100.0	%
Fair value adjustment of warrant liability										Fair value adjustment of warrant liability	(213)		(2,829)		2,616		(92.5)	%

Other income (expense)	Other income (expense)	(79)		—		(79)		100.0	%	Other income (expense)	52		(79)		131		(165.8)	%
Total other expense	Total other expense	$	(8,951)	$	(101)	$	(8,850)	8,762.4	%	Total other expense	$	(9,895)	$	(10,895)	$	1,000	(9.2)	%

Other expense ~~increased $8.9~~decreased $1.0 million, or (9.2)%, for the three months ended March 31, ~~2021,~~2022, compared to the corresponding period of ~~2020,~~2021, primarily due to an impairment of our digital asset holdings. These losses were mostly offset due to losses on extinguishment of debt ~~and interest~~ related to payments on our ~~debt borrowings as further described~~2020 Convertible Notes in ~~Note 5 "Debt"~~ ~~in the notes~~2021, fair value adjustment of our outstanding warrant issued to the ~~condensed consolidated financial statements included~~holder of our 2020 Convertible Notes and a decrease in ~~Part I, Item 1 of this Quarterly Report on Form 10-Q.~~interest expense, as we had paid off multiple debt obligations in 2021.

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~~Liquidity and Capital Resources~~

~~As of March 31, 2021, we held total cash (including restricted cash) of $23.6 million, all of which was held in the United States.~~

On October 9, 2020, we entered into a settlement agreement with Uber Technologies, Inc. ("Uber") and certain other parties related to our complaint against Uber, Uber's cross-complaint and amended cross-complaint against us and certain individual defendants. The settlement agreement provides that we will pay to Uber a total sum of $4.5 million in a series of installments. We recorded a charge in the third quarter of 2020 related to the settlement agreement. As of March 31, 2021, we owe $3 million related to the settlement, which will be paid in various installments ending no later than September 30, 2021. For further information related to the Uber settlement agreement, referRefer to Note ~~9 "Commitments and Contingencies"~~2, "Summary of ~~the notes to the consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K filed with the SEC on March 31, 2021.~~

As of March 31, 2021, the principal balance of our debt was approximately $15.1 million from various debt, including a Paycheck Protection Program ("PPP") loan and convertible debt offerings. The debt we believe will have the most significant impact on our future liquidity and capital resources is discussed below. For further information on all our debt outstanding as of March 31, 2021, refer to Note 5 “~~Debt~~”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.~~

~~In April 2020, we received a PPP loan of approximately $2.85 million, which bears interest at a rate of 0.98% per annum. The Paycheck Protection Flexibility Act of 2020, extended the deferral period~~10-Q for ~~loan payments. The Company currently anticipates its first PPP loan payment will be~~further discussion regarding our digital asset holdings. Further, reference is made ~~in the third quarter of 2021. Although we intend~~ to ~~apply for forgiveness, as currently provided for under terms~~Note 6 "Debt" of the ~~PPP loan and the CARES Act, there can be no assurance that any part of our PPP loan will be forgiven. The PPP loan matures in April 2022.~~

~~During 2020, we issued a series of convertible~~ notes to ~~an institutional investor. As~~the condensed consolidated financial statements included in Part I, Item 1 of ~~March 31, 2021, the unrestricted principal balance of~~this Quarterly Report on Form 10-Q for further discussion on our Series A Convertible Note and Series B Convertible Note (collectively, the "2020 Convertible Notes") was $0 as we had paid the Series A Convertible Note in full during the first quarter of 2021 and $11.1 million, respectively. The 2020 Convertible Notes were issued with an original issue discount of 8% and each bear an interest rate of 7% per annum, which further includes a make-whole of interest (for unrestricted principal amounts) from the date of issuance through the maturity date of December 31, 2021. Outstanding principal on the 2020 Convertible Notes was subject to monthly installment payments in cash of 107% of the installment amount due. The noteholder had various redemption rights, such as the right to redeem an amount equal to 40% of the net proceeds from a qualified capital raise, or upon change of control or company default. The noteholder could also convert 2020 Convertible Notes into shares of our common at a current adjusted conversion price of $2.25 per share. Upon consummation of the issuance of the 2020 Convertible Notes, we also issued the note holder a warrant for the purchase of up to 2,160,000 shares of our common stock, which has a current adjusted exercise price of $2.25 per share. We also had the right to redeem the full amount of the outstanding principal under the 2020 Convertible Notes.

In January 2021, we issued 2,670,121 shares of common stock for aggregate proceeds of $5.1 million, net of $0.2 million of commissions (and before noteholder redemption payment) pursuant to the terms of an at-the-market offering, which has concluded. In February 2021, we also issued 11,761,111 shares of our common stock for aggregate proceeds at closing of $24.7 million in an underwritten public offering, net of $1.7 million of underwriter commissions and other underwriter costs.

As a result of the fundraising events above, the holder of our 2020 Convertible Notes elected to require us to use forty percent (40%) of the net proceeds satisfy obligations under the 2020 Convertible Notes, pursuant to which we paid approximately $11.5 million to the noteholder.

Upon issuance of the 2020 Convertible Notes, the noteholder issued an investor note to us, which offset the combined restricted balances of the 2020 Convertible Notes. In March 2021, the noteholder voluntarily prepaid an aggregate of $10.3 million pursuant to the terms of the investor note. As a result, we received cash proceeds of $10.3 million and the corresponding amount of principal of the Series B Note, representing the entire remaining amount remaining of restricted principal as of that date, along with $0.8 million of original issue discount became unrestricted and outstanding. As of March 31, 2021, the restricted principal balance of both the Series A Convertible Note and Series B Convertible Note was $0 and the balance of the corresponding investor note was $0.

On March 25, 2021, we delivered a Company Optional Redemption Notice to the holder of our Series B Note exercising our right to redeem and fully satisfy all obligations under the Series B Note on April 5, 2021. On April 5, 2021, we paid $13,902 in cash to the noteholder in full satisfaction of all obligations under our Series B Note, which amounted to $11,718 of principal, interest and make-whole and $2,184 for the loss on extinguishment of debt.debt holdings.

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Liquidity and Capital Resources

~~Given~~As of March 31, 2022, we held total cash of $10.8 million, all of which was held in the financings achieved above, we believe our current cash position to be sufficient to meet our projected operating requirements for at least the next twelve months from the filing of this Report on Form 10-Q.

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 March 31, 2022, we held 644 bitcoins and 1,287 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 consist of $1.125 million, as adjusted for working capital items, on June 30, 2022, and 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.

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 ~~financing.~~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:


		Three Months Ended March 31,				Change					Three Months Ended March 31,				Change
(in thousands, except percentages)	(in thousands, except percentages)	2021		2020		Amount		%		(in thousands, except percentages)	2022		2021		Amount		%
Consolidated statement of cash flows	Consolidated statement of cash flows									Consolidated statement of cash flows
Net cash used in operating activities	Net cash used in operating activities	$	(7,299)	$	(1,905)	$	(5,394)	283.1	%	Net cash used in operating activities	$	(10,171)	$	(7,299)	$	(2,872)	39.3	%
Net cash provided by investing activities		(1,098)		—		(1,098)		100.0	%
Net cash provided by (used in) financing activities		27,916		2,543		25,373		997.8	%
Net cash used in investing activities										Net cash used in investing activities	$	(569)	$	(1,098)	$	529	(48.2)	%
Net cash (used) provided by financing activities										Net cash (used) provided by financing activities	$	(1,550)	$	27,916	$	(29,466)	(105.6)	%

Operating Activities

The primary source of cash from operating activities is receipts from ~~the sale~~sales of ~~platform subscriptions~~our various product and ~~services and application transactions~~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 $10.2 million of cash from operating activities during the three months ended March 31, 2022, primarily resulting from a net loss of $14.9 million. The net loss included non-cash charges of $10.2 million, primarily consisting of impairment of digital assets and stock-based compensation. In addition, certain changes in our operating assets and liabilities resulted in significant cash (decreases) as follows: $(1.3) million from a decrease in accounts payable and accrued expenses, as well as $(4.2) million from other working capital changes, primarily a increase in inventory purchases and decrease in deferred revenue.

We utilized $7.3 million of cash from operating activities during the three months ended March 31, 2021, primarily resulting from a net loss of ~~$12.4~~$14.3 million, as adjusted $1.1 million for stock-based compensation $0.2 million for bad debt recovery, $1.6 million for amortization of debt discount and deferred financing costs, ~~$0.9~~$2.8 million for loss on the change in fair value of warrants and $5.8 million for loss on extinguishment of debt related to our 2020 Convertible Notes. In addition, certain changes in our operating assets and liabilities resulted in significant cash increases (decreases) as follows: $(0.7) million from a decrease in accounts payable, $(2.3) million from a decrease in accrued expenses, $(0.8) million from a decrease in deferred revenue and $0.5 million from an increase in prepaid and other assets.

We utilized $1.9 million of cash from operating activities during the three months ended March 31, 2020, primarily resulting from a net loss of $4.0 million, as adjusted $0.6 million for stock-based compensation. In addition, certain changes in our operating assets and liabilities resulted in significant cash increases (decreases) as follows: $0.9 million from an increase in accounts payable, $0.6 million from an increase in accrued expenses, $0.8 million from an increase in account receivable and $(0.8) million from an decrease in deferred revenue.

Investing Activities

Investing activities for the three months ended March 31, 2022 and 2021, consisted of the purchase of digital ~~currencies.~~assets.

Financing Activities

Our financing activities during the three months ended March 31, 2022 primarily consisted of payments on debt. We had payments on debt of $1.6 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 three months ended March 31, 2021 consisted of proceeds from equity financings and debt borrowings offset by payments on debt. We acquired $27.9 million of cash from financing activities resulting 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 $11.8 million of payments on debt, a majority of which were payments on the 2020 Convertible Notes. ~~Refer to~~

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 ~~for information on the Company's financing activities.~~is incorporated herein by reference.

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Our financing activities during the three months ended March 31, 2020 consisted of proceeds derived from debt borrowings offset by net repayments on our financing factoring agreement. We acquired $2.5 million of cash from financing activities, resulting from $3.2 million in proceeds from new issuances of debt (inclusive of $0.6 million from related parties), partially offset of $(0.6) million in net repayments on our factoring financing agreement.

Off-Balance Sheet Arrangements

Through March 31, ~~2021,~~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

~~Refer to Note 2, “Summary of Significant Accounting Policies~~”, in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Report on Form 10-Q for analysis of recent accounting pronouncements that are applicable to our business.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 us 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, as well as the reported revenues generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments 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 changes described in Note 2, "Summary of Significant Accounting Policies," in the notes to the condensed consolidated financial statements ~~related to the adoption~~included in Item I, Part I of ~~ASU 2016-02 and our disclosure of our accounting policy related to our digital currencies purchsed during the current quarter,~~this 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, ~~2020~~2021 filed with the SEC on ~~March 31, 2021.~~April 7, 2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (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.

~~Table of Contents~~

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, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

~~During the three months ended March 31, 2021,~~As previously disclosed, we ~~implemented new controls~~identified a material weakness in internal control over financial reporting related to the ~~adoption~~accounting for an adjustment in certain terms of ~~ASU 2016-02. There~~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 March 31, 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 identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange 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.

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 1. Legal Proceedings

The information set forth under the "Litigation" subheading in Note 7,8, "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 1A. Risk Factors

Important risk factors that 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 ~~March 31, 2021~~April 7, 2022 for the year ended December 31, ~~2020,~~2021, as supplemented by the "Risk Factors" ~~section~~sections in our ~~prospectus~~registration statement on Form S-3 filed with the SEC on February ~~12, 2021 (as~~1, 2022, our registration statement on Form S-3, as amended, ~~and/or supplemented to date) and~~filed with the SEC on April ~~7, 2021 (as amended and/or supplemented to date)~~27, 2022 and the information set forth below or contained elsewhere in this Report. The risks and uncertainties described ~~below and~~ within our Form 10-K for the year ended December 31, ~~2020~~2021 and the ~~prospectuses~~registration statements, as amended, are not the only ~~ones~~risks we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. 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 No.						Description
3.1						Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K (File No. 001-37862), filed with the SEC on January 2, 2019).
3.2						Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 of the Registrant’s Form 8-K (File No. 001-37862), filed with the SEC on January 2, 2019).
~~4.1~~10.1						~~Form of Note, dated April 9, 2020, between the Company~~At Market Issuance Sales Agreement, by and ~~JPMorgan Chase~~betwee n Phunware, Inc. and HC Wainwright & Co., LLC (Incorporated by reference to Exhibit ~~4.1~~1.2 of ~~the~~t he Registrants Form ~~8-K~~S-3 (Fine No. 333-262461) filed with the SEC on ~~April 16, 2020.~~February
~~10.1~~						Form of Security Purchase Agreement, dated July 14, 2020, between the Company and Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B (Incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the SEC on July 16, 2020) 1, 2022).
10.2						~~Form of Series A Senior Convertible Note~~ Lease Agreement , dated ~~July~~March 15, ~~2020,~~2022, between ~~the Company~~Phunware, Inc. and ~~Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B~~Jonsson ATX Warehouse, LLC (Incorporated by reference to ~~Exhibit 10.2 of the Registrant’s Form 8-K filed with the SEC on July 16, 2020).~~
~~10.3~~						Form of Series B Senior Convertible Note, dated July 15, 2020, between the Company and Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B (Incorporated by reference to Exhibit 10.3 of the Registrant’s Form 8-K filed with the SEC on July 16, 2020).
~~10.4~~						Form of Note Purchase Agreement , dated July 14, 2020, between the Company and Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B (Incorporated by reference to Exhibit 10.4 of the Registrant’s Form 8-K filed with the SEC on July 16, 2020).
~~10.5~~						Form of Secured Promissory Note, dated July 14, 2020, between the Company and Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B (Incorporated by reference to Exhibit 10.5 of the Registrant’s Form 8-K filed with the SEC on July 16, 2020).
~~10.6~~						Form of Master Netting Agreement, dated July 15, 2020, between the Company and Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B (Incorporated by reference to Exhibit 10.6 of the Registrant’s Form 8-K filed with the SEC on July 16, 2020).
~~10.7~~						Form of Warrant to Purchase Common Stock, dated July 15, 2020, between the Company and Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B (Incorporated by reference to Exhibit 10.7 of the Registrant’s Form 8-K filed with the SEC on July 16, 2020).
~~10.8~~						Form of Registration Rights Agreement, dated July 15, 2020, between the Company and Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B (Incorporated by reference to Exhibit 10.8 of the Registrant’s Form 8-K filed with the SEC on July 16, 2020).
~~10.9~~						~~At-The-Market Issuance Sales Agreement, by and between Phunware, Inc. and H.C. Ascendiant Capital Markets, LLC, dated August 14, 2020 (Incorporated by reference to~~ Exhibit 10.1 of the ~~Registrant's~~Registrants Form 8-K ~~filed with the SEC on August 14, 2020).~~
~~10.10~~						Settlement Agreement and Mutual General Release, dated October 9, 2020, between the Company, Uber Technologies, Inc., and certain Individual Defendants (Incorporated by reference to Exhibit 10.12 of the Registrants Form 10-Q (File(File No. 001-37862)~~, filed with the SEC on November 12, 2020).~~
~~10.11~~						~~Underwriting Agreement, dated February 12, 2021 by and among Northland Securities, Inc., Roth Capital Partners, LLC and Phunware, Inc. (Incorporated by Reference to Exhibit 1.1 of the Registrants~~ ~~Form~~ ~~8-K filed with the SEC on February 16,2021).~~
~~10.12~~						~~Office Sublease between the Company and Bangarang Enterprises LLC d/b/a Gander Group dated effective as of March 16, 2021 (Incorporated by Reference to Exhibit 10.1 of the Registrant's Form 8-K~~ filed with the SEC on March ~~19, 2021).~~
~~10.13~~						~~At Market Issuance Sales Agreement, by and between Phunware, Inc. and B. Riley Securities, Inc., dated April 7, 2021 (Incorporated by Reference to Exhibit 10.1 of the Registrants~~ ~~Form~~ ~~8-K (File No. 001-37862)~~, ~~filed with the SEC on April 7, 2021)~~18, 2022).
31.1*						Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)*
31.2*						Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)*
32.1(1)						Certification of the Principal Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350*

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101.INS						XBRL Instance Document*
101.SCH						XBRL Taxonomy Extension Schema*
101.CAL						XBRL Taxonomy Calculation Linkbase*
101.LAB						XBRL Taxonomy Label Linkbase*
101.PRE						XBRL Definition Linkbase Document*
101.DEF						XBRL Definition Linkbase Document*
104						Cover 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.

SIGNATURES

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


May ~~14, 2021~~16, 2022	Phunware, Inc.

	By:	/s/ Alan S. Knitowski
		Name:	Alan S. Knitowski
		Title:	Chief Executive Officer
			(Principal Executive Officer)


By:	/s/ Matt Aune
	Name:	Matt Aune
	Title:	Chief Financial Officer
		(Principal Accounting and Financial Officer)


Cash and restricted cash	March 31, 2021		December 31, 2020
Cash	$	23,469	$	3,940
Restricted cash	91		91
Total cash and restricted cash	$	23,560	$	4,031


	March 31, 2021		December 31, 2020
Series A Note (principal amount)	$	0	$	2,481
Series B Note (principal amount)	11,071		3,585
Paycheck Protection Program Loan	2,850		2,850
Convertible notes	250		250
Promissory notes	905		905


Total debt	$	15,076	$	10,071
Debt discount - warrants (2020 Convertible Notes)	0		(1,029)
Debt discount - issuance costs (2020 Convertible Notes)	(1,128)		(650)
Less: current maturities of long-term debt	(10,012)		(4,435)
Less: related-party debt	(195)		(195)
Long-term debt	$	3,741	$	3,762


Future minimum lease obligations years ending December 31,	Lease Obligations
2021 (Remainder)	$	636
2022	725
2023	622
2024	609
2025	208
Thereafter	0
	$	2,800
Less: Portion representing interest	(823)
	$	1,977


Warrant Type	Cash Exercise Price per share		Warrants Outstanding

2020 Convertible Note warrants	$	2.25	2,160,000
Common stock warrant (Series D-1)	$	5.54	14,866
Common stock warrants (Series F)	$	9.22	377,402
Public Warrants (PHUNW)	$	11.50	1,761,291
Private Placement Warrants	$	11.50	1,658,381
Unit Purchase Option Warrants	$	11.50	24,172
Total			5,996,112