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,~~September 30, 2023

☐ 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)

1002 West Avenue, Austin, Texas

78701

(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,~~November 9, 2023, ~~104,658,145~~135,439,755 shares of common stock, par value $0.0001 per share, were outstanding.

TABLE OF CONTENTS


		PAGE
PART I	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of ~~March 31,~~September 30, 2023 (unaudited) and December 31, 2022	2
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended ~~March 31,~~September 30, 2023 and 2022 (unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended ~~March 31,~~September 30, 2023 and 2022 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 and 2022 (unaudited)	56
	Notes to the Unaudited Condensed Consolidated Financial Statements	68
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2027
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3142
Item 4.	Controls and Procedures	3243

PART II	OTHER INFORMATION	3344
Item 1.	Legal Proceedings	3344
Item 1A.	Risk Factors	3344
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3446
Item 3.	Defaults Upon Senior Securities	3446
Item 4.	Mine Safety Disclosures	3446
Item 5.	Other Information	3446
Item 6.	Exhibits	3547

	Signatures	3648

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 Sheets

(In thousands, except share and per share information)
March 31, 2023 December 31, 2022
(Unaudited)
Assets
Current assets:
Cash $ 694 $ 1,955
Accounts receivable, net of allowance for doubtful accounts of $198 at March 31, 2023 and December 31, 2022, respectively 1,200 958
Inventory 2,671 2,780
Digital assets 2,530 10,137
Prepaid expenses and other current assets 807 1,033
Total current assets 7,902 16,863
Property and equipment, net 206 221
Goodwill 31,136 31,113
Intangible assets, net 2,357 2,524
Right-of-use asset 3,489 3,712
Other assets 367 402
Total assets $ 45,457 $ 54,835
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 7,765 $ 7,699
Accrued expenses 2,506 2,895
Lease liability 961 954
Deferred revenue 1,512 2,904
PhunCoin deposits 1,202 1,202
Current maturities of long-term debt, net 5,687 9,667
Warrant liability 3 256
Total current liabilities 19,636 25,577
Deferred revenue 1,072 1,274
Lease liability 2,848 3,103
Total liabilities 23,556 29,954
Commitments and contingencies (Note 8)
Stockholders’ equity
Common stock, $0.0001 par value; 1,000,000,000 shares authorized; 104,469,310 shares issued and 104,007,810 shares outstanding as of March 31, 2023 and 103,153,337 shares issued and outstanding as of December 31, 2022, respectively 10 10
Treasury stock at cost; 461,500 and 0 shares at March 31, 2023 and December 31, 2022, respectively (475) —
Additional paid-in capital 277,303 275,562
Accumulated other comprehensive loss (449) (472)
Accumulated deficit (254,488) (250,219)
Total stockholders’ equity 21,901 24,881
Total liabilities and stockholders’ equity $ 45,457 $ 54,835


	September 30, 2023		December 31, 2022
	(Unaudited)
Assets
Current assets:
Cash	$	2,857	$	1,955
Accounts receivable, net of allowance for doubtful accounts of $68 and $198 at September 30, 2023 and December 31, 2022, respectively	1,053		958
Inventory	899		2,780
Digital assets	75		10,137
Prepaid expenses and other current assets	599		1,033
Total current assets	5,483		16,863
Property and equipment, net	165		221
Goodwill	16,731		31,113
Intangible assets, net	2,023		2,524


Right-of-use asset	3,041		3,712
Other assets	367		402
Total assets	$	27,810	$	54,835
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	7,969	$	7,699
Accrued expenses	946		2,895

Lease liability	1,008		954
Deferred revenue	1,516		2,904
PhunCoin deposits	1,202		1,202

Current maturities of long-term debt, net	5,563		9,667
Warrant liability	—		256
Total current liabilities	18,204		25,577



Deferred revenue	743		1,274
Lease liability	2,308		3,103

Total liabilities	21,255		29,954
Commitments and contingencies (Note 8)
Stockholders’ equity
Common stock, $0.0001 par value; 1,000,000,000 shares authorized; 129,062,144 shares issued and 128,555,644 shares outstanding as of September 30, 2023 and 103,153,337 shares issued and outstanding as of December 31, 2022, respectively	13		10
Treasury stock at cost; 506,500 and 0 shares at September 30, 2023 and December 31, 2022, respectively	(502)		—
Additional paid-in capital	287,498		275,562
Accumulated other comprehensive loss	(463)		(472)
Accumulated deficit	(279,991)		(250,219)
Total stockholders’ equity	6,555		24,881
Total liabilities and stockholders’ equity	$	27,810	$	54,835

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 September 30,				Nine Months Ended September 30,
		2023		2022				2023		2022		2023		2022
Net revenues	Net revenues	$	4,747	$	6,778		Net revenues	$	2,792	$	4,758	$	11,026	$	17,021
Cost of revenues	Cost of revenues	4,386		5,007			Cost of revenues	2,597		3,963		10,014		12,935
Gross profit	Gross profit	361		1,771			Gross profit	195		795		1,012		4,086

Operating expenses:	Operating expenses:						Operating expenses:
Sales and marketing	Sales and marketing	1,128		1,485			Sales and marketing	1,027		1,819		3,627		5,232
General and administrative	General and administrative	4,712		4,305			General and administrative	3,478		5,189		12,956		14,745
Research and development	Research and development	1,772		1,003			Research and development	1,042		1,665		4,026		4,544

Impairment of goodwill							Impairment of goodwill	13,188		—		14,391		—
Total operating expenses	Total operating expenses	7,612		6,793			Total operating expenses	18,735		8,673		35,000		24,521
Operating loss	Operating loss	(7,251)		(5,022)			Operating loss	(18,540)		(7,878)		(33,988)		(20,435)

Other income (expense):	Other income (expense):						Other income (expense):
Interest expense	Interest expense	(537)		(381)			Interest expense	(264)		(991)		(1,354)		(1,645)

Loss on extinguishment of debt							Loss on extinguishment of debt	(237)		—		(237)		—
Impairment of digital assets	Impairment of digital assets	(50)		(9,353)			Impairment of digital assets	—		—		(50)		(21,511)
Gain on sale of digital assets	Gain on sale of digital assets	3,214		26			Gain on sale of digital assets	—		1		5,310		195
Fair value adjustment of warrant liability	Fair value adjustment of warrant liability	253		(213)			Fair value adjustment of warrant liability	—		797		256		3,267

Other income, net	Other income, net	102		26			Other income, net	62		53		291		123
Total other income (expense)		2,982		(9,895)
Total other income (expense), net							Total other income (expense), net	(439)		(140)		4,216		(19,571)
Loss before taxes	Loss before taxes	(4,269)		(14,917)			Loss before taxes	(18,979)		(8,018)		(29,772)		(40,006)
Income tax expense	Income tax expense	—		—			Income tax expense	—		—		—		—
Net loss	Net loss	(4,269)		(14,917)			Net loss	(18,979)		(8,018)		(29,772)		(40,006)
Other comprehensive income (loss):	Other comprehensive income (loss):						Other comprehensive income (loss):
Cumulative translation adjustment	Cumulative translation adjustment	23		(32)			Cumulative translation adjustment	(37)		(84)		9		(201)
Comprehensive loss	Comprehensive loss	$	(4,246)	$	(14,949)		Comprehensive loss	$	(19,016)	$	(8,102)	$	(29,763)	$	(40,207)

Loss per share, basic and diluted	Loss per share, basic and diluted	$	(0.04)	$	(0.15)		Loss per share, basic and diluted	$	(0.16)	$	(0.08)	$	(0.27)	$	(0.41)

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	103,169		96,844			Weighted-average common shares used to compute loss per share, basic and diluted	119,989		98,822		109,430		97,803

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

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Phunware, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands)

(Unaudited)


		Common Stock			Treasury stock			Additional Paid-in Capital				Accumulated Deficit			Other Comprehensive Loss				Total Stockholders’ Equity				Common Stock							Treasury stock						Additional Paid-in Capital				Accumulated Deficit				Other Comprehensive Loss				Total Stockholders’ Equity
		Shares	Amount		Shares	Amount								Shares								Amount			Shares				Amount
Balance - June 30, 2023																						Balance - June 30, 2023	107,565			$	11			(507)			$	(502)			$	279,837			$	(261,012)			$	(426)			$	17,908

Release of restricted stock																						Release of restricted stock	557			—				—			—			—				—				—				—

Sales of common stock, net of issuance cost																						Sales of common stock, net of issuance cost	17,392			2				—			—			5,999				—				—				6,001
Common Stock issued upon conversion of 2022 Promissory Note																						Common Stock issued upon conversion of 2022 Promissory Note	3,399			—				—			—			800				—				—				800
Issuance of common stock in lieu of consulting fees																						Issuance of common stock in lieu of consulting fees	149			—				—			—			33				—				—				33
Stock-based compensation expense																						Stock-based compensation expense	—			—				—			—			829				—				—				829
Cumulative translation adjustment																						Cumulative translation adjustment	—			—				—			—			—				—				(37)				(37)
Treasury stock repurchase																						Treasury stock repurchase	—			—				—			—			—				—				—				—
Net loss																						Net loss	—			—				—			—			—				(18,979)				—				(18,979)
Balance - September 30, 2023																						Balance - September 30, 2023	129,062			$	13			(507)			$	(502)		$	287,498			$	(279,991)			$	(463)			$	6,555

Balance - December 31, 2022	Balance - December 31, 2022	103,153	$	10	—	$	—			$	275,562						$	(250,219)			$	(472)		$	24,881	Balance - December 31, 2022		103,153			$	10			—			$	—			$	275,562			$	(250,219)			$	(472)	$	24,881
Exercise of stock options	Exercise of stock options	95	—		—	—		58				—			—				58			Exercise of stock options	95			—				—			—			58				—				—				58
Release of restricted stock	Release of restricted stock	849	—		—	—		—				—			—				—			Release of restricted stock	2,693			1				—			—			—				—				—				1
Issuance of restricted stock for earned bonus		373	—		—	—		347				—			—				347
Issuance of restricted stock for earned bonus and consulting fees																						Issuance of restricted stock for earned bonus and consulting fees	522			—				—			—			379				—				—				379
Issuance of common stock under the 2018 employee stock purchase plan																						Issuance of common stock under the 2018 employee stock purchase plan	93			—				—			—			47				—				—				47
Sales of common stock, net of issuance costs																						Sales of common stock, net of issuance costs	19,107			2				—			—			6,994				—				—				6,996
Common stock issued upon conversion of 2022 Promissory Note																						Common stock issued upon conversion of 2022 Promissory Note	3,399			—				—			—			800				—				—				800
Stock-based compensation expense	Stock-based compensation expense	—	—		—	—		1,336				—			—				1,336			Stock-based compensation expense	—			—				—			—			3,658				—				—				3,658
Cumulative translation adjustment	Cumulative translation adjustment	—	—		—	—		—				—			23				23			Cumulative translation adjustment	—			—				—			—			—				—				9				9
Treasury stock repurchase	Treasury stock repurchase	—	—		(462)	(475)		—				—			—				(475)			Treasury stock repurchase	—			—				(507)			(502)			—				—				—				(502)
Net loss	Net loss	—	—		—	—		—				(4,269)			—				(4,269)			Net loss	—			—				—			—			—				(29,772)				—				(29,772)
Balance - March 31, 2023		104,470	$	10	(462)	$	(475)	$	277,303			$	(254,488)		$	(449)			$	21,901
Balance - September 30, 2023																						Balance - September 30, 2023	129,062			$	13			(507)			$	(502)		$	287,498			$	(279,991)			$	(463)			$	6,555

Common Stock Additional
Paid-in
Capital Accumulated
Deficit Other
Comprehensive
Loss Total Stockholders’
Equity
Shares Amount
Balance - December 31, 2021 96,752 $ 10 $ 264,944 $ (199,325) $ (352) $ 65,277
Exercise of stock options, net of vesting of restricted shares 23 — 16 — — 16
Release of restricted stock 92 — — — — —
Issuance of common stock in connection with acquisition of Lyte Technology, Inc. 384 — 1,125 — — 1,125
Stock-based compensation expense — — 521 — — 521
Cumulative translation adjustment — — — — (32) (32)
Net loss — — — (14,917) — (14,917)
Balance - March 31, 2022 97,251 $ 10 $ 266,606 $ (214,242) $ (384) $ 51,990

Table of Contents


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
Balance - June 30, 2022	98,137	$	10	$	267,465	$	(231,313)	$	(469)	$	35,693

Release of restricted stock	527	—		—		—		—		—
Issuance of common stock in connection with acquisition of Lyte Technology, Inc.	464	—		689		—		—		689
Sales of common stock, net of issuance costs	2,193	—		3,654		—		—		3,654
Stock-based compensation expense	—	—		849		—		—		849
Cumulative translation adjustment	—	—		—		—		(84)		(84)
Net loss	—	—		—		(8,018)		—		(8,018)
Balance - September 30, 2022	101,321	$	10	$	272,657	$	(239,331)	$	(553)	$	32,783

Balance - December 31, 2021	96,752	$	10	$	264,944	$	(199,325)	$	(352)	$	65,277
Exercise of stock options, net of vesting of restricted shares	23	—		16		—		—		16
Release of restricted stock	1,409	—		—		—		—		—
Issuance of common stock under the 2018 employee stock purchase plan	96	—		116		—		—		116
Issuance of common stock in connection with acquisition of Lyte Technology, Inc.	848	—		1,814		—		—		1,814
Sales of common stock, net of issuance costs	2,193	—		3,654						3,654
Stock-based compensation expense	—	—		2,113		—		—		2,113
Cumulative translation adjustment	—	—		—		—		(201)		(201)
Net loss	—	—		—		(40,006)		—		(40,006)
Balance - September 30, 2022	101,321	$	10	$	272,657	$	(239,331)	$	(553)	$	32,783

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

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Phunware, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


		Three Months Ended March 31,					Nine Months Ended September 30,
		2023		2022			2023		2022
Operating activities	Operating activities					Operating activities
Net loss	Net loss	$	(4,269)	$	(14,917)	Net loss	$	(29,772)	$	(40,006)
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:
Amortization of debt discount and deferred financing costs	Amortization of debt discount and deferred financing costs	289		155		Amortization of debt discount and deferred financing costs	832		690
(Gain) loss on change in fair value of warrant liability		(253)		213
Loss on extinguishment of debt						Loss on extinguishment of debt	237		—
Gain on change in fair value of warrant liability						Gain on change in fair value of warrant liability	(256)		(3,267)
Gain on sale of digital assets	Gain on sale of digital assets	(3,214)		(26)		Gain on sale of digital assets	(5,310)		(195)
Impairment of digital assets	Impairment of digital assets	50		9,353		Impairment of digital assets	50		21,511

Impairment of goodwill						Impairment of goodwill	14,391		—
Stock-based compensation	Stock-based compensation	1,362		564		Stock-based compensation	3,662		2,169
Other adjustments	Other adjustments	357		(71)		Other adjustments	1,945		1,185
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(245)		(248)		Accounts receivable	(122)		(723)
Inventory	Inventory	241		(2,063)		Inventory	1,470		(731)
Prepaid expenses and other assets	Prepaid expenses and other assets	261		(687)		Prepaid expenses and other assets	583		(254)
Accounts payable	Accounts payable	67		219		Accounts payable	269		925
Accrued expenses	Accrued expenses	(89)		(1,489)		Accrued expenses	(921)		(1,118)

Lease liability payments	Lease liability payments	(345)		(173)		Lease liability payments	(1,008)		(594)
Deferred revenue	Deferred revenue	(1,594)		(1,001)		Deferred revenue	(1,919)		(2,464)
Net cash used in operating activities	Net cash used in operating activities	(7,382)		(10,171)		Net cash used in operating activities	(15,869)		(22,872)
Investing activities	Investing activities					Investing activities
Proceeds received from sale of digital assets	Proceeds received from sale of digital assets	10,790		—		Proceeds received from sale of digital assets	15,390		—
Purchase of digital assets	Purchase of digital assets	—		(489)		Purchase of digital assets	—		(923)
Acquisition payment						Acquisition payment	—		(1,125)
Capital expenditures	Capital expenditures	(6)		(80)		Capital expenditures	(7)		(238)
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	10,784		(569)		Net cash provided by (used in) investing activities	15,383		(2,286)
Financing activities	Financing activities					Financing activities

Proceeds from borrowings, net of issuance costs						Proceeds from borrowings, net of issuance costs	—		11,795

Payments on borrowings	Payments on borrowings	(4,270)		(1,566)		Payments on borrowings	(5,056)		(4,698)

Proceeds from sales of common stock, net of issuance costs						Proceeds from sales of common stock, net of issuance costs	6,879		3,655

Proceeds from exercise of options to purchase common stock	Proceeds from exercise of options to purchase common stock	58		16		Proceeds from exercise of options to purchase common stock	58		16

Payment for stock repurchase	Payment for stock repurchase	(475)		—		Payment for stock repurchase	(502)		—
Net cash used in financing activities		(4,687)		(1,550)
Net cash provided in financing activities						Net cash provided in financing activities	1,379		10,768
Effect of exchange rate on cash	Effect of exchange rate on cash	24		(32)		Effect of exchange rate on cash	9		(209)
Net decrease in cash		(1,261)		(12,322)
Net increase (decrease) in cash						Net increase (decrease) in cash	902		(14,599)
Cash at the beginning of the period	Cash at the beginning of the period	1,955		23,137		Cash at the beginning of the period	1,955		23,137
Cash at the end of the period	Cash at the end of the period	$	694	$	10,815	Cash at the end of the period	$	2,857	$	8,538

Supplemental disclosure of cash flow information:
Interest paid $ 434 $ 204
Income taxes paid $ — $ —
Supplemental disclosures of non-cash financing activities:
Issuance of common stock in connection with acquisition of Lyte Technology, Inc. $ — $ 1,125
Issuance of common stock for payment of bonuses previously accrued $ 347 $ —

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Supplemental disclosure of cash flow information:
Interest paid	$	1,140	$	613
Income taxes paid	$	—	$	—
Supplemental disclosures of non-cash investing and financing activities:
Issuance of common stock for 2022 Promissory Note	$	800	$	—
Right-of-use assets obtained in exchange for operating lease obligations	$	—	$	3,053
Non-cash exchange of digital assets	$	557	$	911
Issuance of common stock in connection with acquisition of Lyte Technology, Inc.	$	—	$	1,814
Issuance of common stock under the 2018 Employee Stock Purchase Plan previously accrued	$	47	$	116
Issuance of common stock for payment of bonuses previously accrued	$	379	$	—

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

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Phunware, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share information)

(Unaudited)

1. The Company and Basis of Presentation

The Company

Phunware, Inc. and its subsidiaries (the “Company”, "we", "us", or "our") offers a fully integrated software platform that equips companies with the products, solutions and services necessary to engage, manage and monetize their anytime, anywhere users worldwide. Our location-based software-as-a-service platform provides the entire mobile lifecycle of applications and media in one login through one procurement relationship. Our technology is available in Software Development Kit ("SDK") form for organizations developing their own application, via customized development services and prepackaged solutions. Through our integrated mobile advertising platform of publishers and advertisers, we provide in-app application transactions for mobile audience building, user acquisition, application discovery, audience engagement and audience monetization. During 2021, we began to sell PhunToken to consumers, developers and brands. PhunToken is an innovative digital asset utilized within our token ecosystem to help drive engagement by unlocking features and capabilities of our 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. On November 1, 2023, we discontinued the operations of Lyte. See Note 12 for further discussion. 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, 2022 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, 2022, which are referenced herein. The accompanying interim condensed consolidated financial statements as of ~~March 31,~~September 30, 2023 and for the three and nine months ended ~~March 31,~~September 30, 2023 and 2022, 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,~~September 30, 2023 and the results of operations for the three and nine months ended ~~March 31,~~September 30, 2023 and 2022, and cash flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 and 2022. The results for the three and nine months ended ~~March 31,~~September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future interim period.

Certain reclassifications have been made to to the presentation for the ~~three~~nine months ended ~~March 31,~~September 30, 2022. Gain on sale of digital assets for the ~~three~~nine months ended ~~March 31,~~September 30, 2022, which was previously included in Other income, net in the condensed consolidated statement of operations and comprehensive loss and Other adjustments in the statement of cash flows has been reclassified to Gain on sale of digital assets in each respective financial statement.

Going Concern

Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern 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 initial evaluation shall 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.

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We have a history of net losses since our inception. For the ~~three~~nine months ended ~~March 31,~~September 30, 2023, we incurred a net loss of ~~$4,269,~~$29,772, used ~~$7,382~~$15,869 in cash for operations and have a working capital ~~deficiency.~~deficiency of $12,721. The foregoing conditions raise substantial doubt about our ability to meet our financial obligations as they become due.

In performing the next step of our going concern assessment, we are required to evaluate whether our plans to mitigate the conditions above alleviate the substantial doubt. Our assessment included the preparation of a detailed cash forecast that included projected cash inflows and outflows. We continue to focus on growing our revenues, and accordingly, we expect operating expenditures to exceed future revenue for the foreseeable future. ~~Future~~We have implemented a plan to decrease our cash burn by reducing headcount and other operating expenditures. We have also raised additional funds in our at-the-market equity offering and entered into an amendment to our 2022 Promissory Note, which allows the holder to convert outstanding amounts due into shares of our common stock. In addition, in August 2023, we entered into a stock purchase agreement, which subject to limitations contained within the agreement, allows us to sell shares of our common stock to the investor. Our future plans may include ~~reducing~~additional reductions to operating expenses, ~~liquidating our digital asset holdings,~~additional sales of our common stock ~~under~~in our at-the-market offering and pursuant to a ~~sales~~stock purchase agreement ~~in an at-the-market offering,~~with a certain investor, and issuing additional shares of common stock, preferred stock, warrants or units pursuant to an effective shelf registration statement.

Despite a history of successfully implementing similar plans, these sources of working capital are not currently assured, and consequently do not sufficiently mitigate the risks and uncertainties disclosed above. There can be no assurance that we will be able to obtain additional funding on satisfactory terms or at all. In addition, no assurance can be given that any such financing, if obtained, will be adequate to meet our capital needs and support our growth. If additional funding cannot be obtained on a timely basis and on satisfactory terms, our operations would be materially negatively impacted. We have therefore concluded there is substantial doubt about our ability to continue as a going concern through one year from the issuance of these financial statements.

The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Nasdaq listing

On April 13, 2023, we received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”) because the bid price of the Company’s common stock on the Nasdaq Capital Market had closed below $1.00 per share for the previous 30 consecutive business days. The notice from Nasdaq stated that, under Nasdaq Listing Rule 5810(c)(3)(A), we had been provided a period of 180 calendar days, or until October 10, 2023, to regain compliance with the Bid Price Requirement.

On October 10, 2023, we submitted a request to Nasdaq for an additional 180-day extension to regain compliance with the Bid Price Requirement. On October 12, 2023, the Company received a letter from Nasdaq advising that the Company had been granted a 180-day extension to April 8, 2024, to regain compliance with the Bid Price Requirement, in accordance with Nasdaq Listing Rule 5810(c)(3)(A). To regain compliance, the bid price of the Company’s common stock must close at $1.00 per share or more for a minimum of ten consecutive business days.

We intend to monitor the closing bid price of our common stock and may, if appropriate, take all measures necessary to regain compliance with the Bid Price Requirement within the compliance period provided by Nasdaq, including effecting a reverse stock split.

If we fail to regain compliance with the Bid Price Requirement prior to the conclusion of the allotted compliance period, Nasdaq will provide the Company with written notification that its securities are subject to delisting from the Nasdaq Capital Market. At that time, we may appeal the delisting determination to a hearings panel. There can be no assurance that we will be able to regain compliance with the Bid Price Requirement or maintain compliance with other Nasdaq continued listing requirements.

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2. Summary of Significant Accounting Policies

There have been no changes in significant accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2022, except as set forth below.

Recently Adopted Accounting Pronouncements

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. We adopted this new standard effective January 1, 2023. The adoption of ASU 2016-13 did not have a material impact on our condensed consolidated financial statements and disclosures.

Recent Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for smaller reporting companies for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. ~~As the Company does not currently have any debt with conversion features outstanding, we do not expect the adoption of~~We plan to implement ASU 2020-06 ~~to have a material impact~~ on ~~our condensed consolidated financial statements and disclosures.~~January 1, 2024.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make certain estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates and such differences could be material.

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3. Supplemental Information

Risks and Uncertainties

Regulation governing blockchain technologies, cryptocurrencies, digital assets, digital asset exchanges, 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 and token ecosystem. Regulation of digital assets, like PhunCoin and PhunToken, cryptocurrencies, blockchain technologies and digital asset exchanges, is evolving and likely to continue to evolve. Regulation also varies significantly among international, federal, state and local jurisdictions and is subject to significant uncertainty. Various legislative and executive bodies in the United States and in other countries may in the future adopt laws, regulations, or guidance, or take other actions, which may severely impact the permissibility of tokens generally and the technology behind them or the means of transaction or in transferring them. Any such laws, regulations, guidance or other actions could adversely affect our ability to maintain PhunCoin and PhunToken, which could have a material adverse effect on our operations and financial condition. Failure by us to comply with any such laws and regulations, some of which may not exist yet or are subject to interpretation and may be subject to change, could also result in a material adverse effect on our operations and financial condition.

Concentrations of Credit Risk

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

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.~~

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

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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 affect our financial condition. The aggregate cost basis (prior to impairment) of our digital asset holdings was ~~$8,817~~$107 and $37,737 at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

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, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Customer A	Customer A	39	%	23	%	Customer A	21	%	—	%
Customer B	Customer B	14	%	—	%	Customer B	15	%	7	%
Customer C						Customer C	14	%	3	%
Customer D						Customer D	11	%	1	%
Customer E						Customer E	—	%	23	%

Inventory

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


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Raw materials	Raw materials	$	2,681	$	2,968	Raw materials	$	1,498	$	2,968
Work-in-process		82		—

Finished goods	Finished goods	38		50		Finished goods	74		50
Other	Other	6		30		Other	6		30
Inventory reserve	Inventory reserve	(136)		(268)		Inventory reserve	(679)		(268)
Total inventory	Total inventory	$	2,671	$	2,780	Total inventory	$	899	$	2,780

Goodwill Impairment

Goodwill arises from purchase business combinations and is measured as the excess of the cost of the business acquired over the sum of the acquisition-date fair values of tangible and identifiable intangible assets acquired, less any liabilities assumed. In accordance with ASC 350, Intangibles — Goodwill and Other, we do not amortize goodwill but rather assess its carrying value for indications of impairment annually, or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. We typically perform our annual goodwill impairment assessment as of October 1st of each year; however, as our stock has sustained a decline, we believe this, among other qualitative factors, including, but not limited to continued losses with our Lyte reporting unit, indicates the carrying amount of our goodwill may be impaired.

Our business is classified into two reporting units: Phunware and Lyte. We performed quantitative assessment on both our reporting units as of September 30, 2023, using a discounted cash flow model. Based on the analysis performed, we concluded that the carrying amount of both our reporting units exceeded their respective fair values resulting in non-cash impairment charges of $9,043 and $4,145, for our Phunware and Lyte reporting units, respectively for the three months ended September 30, 2023.

The goodwill impairment analysis referenced above used the discounted cash flow model (income approach) utilizing Level 3 unobservable inputs. Significant assumptions in this analysis included, but were not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate and the tax rate. Estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategies. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from estimates. If the Company’s ongoing estimates of future cash flows are not met or if discount rates change, the Company may have to record additional impairment charges in future periods. We also used the Guideline Public Company Method (market approach). The significant assumptions used in this analysis include, but are not limited to, the derived multiples from comparable market transactions and other market data. The selection of comparable businesses is based on the markets in which the reporting unit operates giving consideration

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to risk profiles, size, geography, and diversity of products. We applied an overall probability-weighting to the income and market approaches to determine the concluded fair value of the reporting unit. We believe the current assumptions and estimates utilized in the income and market approaches are both reasonable and appropriate.

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. 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.

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:


		Three Months Ended March 31,		September 30,
		2023	2022			2023	2022

Warrants	Warrants	6,632,561	5,636,801		Warrants	3,443,844	5,636,801
Options	Options	867,031	897,229		Options	880,510	934,729
Restricted stock units	Restricted stock units	5,480,225	3,480,102		Restricted stock units	7,446,264	3,353,776

Total	Total	12,979,817	10,014,132		Total	11,770,618	9,925,306

Fair Value Measurements

We follow the guidance in ASC 820, Fair Value Measurement, to measure certain assets and liabilities on a recurring and nonrecurring 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. We use a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires fair value measurements be classified and disclosed in one of the following three categories:


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

Determining which category an asset or liability falls within the hierarchy requires significant judgment. Our assets and liabilities measured at fair value on a recurring basis as of ~~March 31,~~September 30, 2023 are set forth below:

Level 1 Level 2 Level 3 Total
Liabilities:
Warrant liability $ — $ 3 $ — $ 3
Total $ — $ 3 $ — $ 3

Level 1

Level 2

Level 3

Total

Liabilities:

Warrant liability

—

Total

—

Our financial instruments measured at fair value on a recurring basis as of December 31, 2022 are set forth below:

Level 1 Level 2 Level 3 Total
Liabilities:
Warrant liability $ — $ 256 $ — $ 256
Total $ — $ 256 $ — $ 256

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	Level 1		Level 2		Level 3		Total





Liabilities:
Warrant liability	$	—	$	256	$	—	$	256
Total	$	—	$	256	$	—	$	256

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, 2023 December 31, 2022
Strike price per share $ 1.42 $ 1.42
Closing price per share $ 0.71 $ 0.77
Term (years) 0.28 0.53
Volatility 57 % 102 %
Risk-free rate 4.97 % 4.70 %
Dividend Yield — —


	September 30, 2023	December 31, 2022
Strike price per share	N/A	$	1.42
Closing price per share	N/A	$	0.77
Term (years)	N/A	0.53
Volatility	N/A	102		%
Risk-free rate	N/A	4.70		%
Dividend Yield	—	—

The carrying value of accounts receivable, prepaid expenses, other current assets, accounts payable and accrued expenses are considered to be representative of their respective fair values because of the short-term nature of those instruments.

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4. Revenue

Our platform revenue consists of SDK license subscriptions and application development services, as well as application transactions, which are comprised of in-app advertising and sales of our digital asset, PhunToken. Hardware revenue relates to the sale of high-performance personal computers. Refer to our revenue recognition policy under 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 March 31, 2023.

Disaggregation of Revenue

The following table sets forth our net revenues by category:


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022				2023		2022		2023		2022
Platform revenue	Platform revenue	$	1,345	$	2,492		Platform revenue	$	1,253	$	1,259	$	3,893	$	5,379
Hardware revenue	Hardware revenue	3,402		4,286			Hardware revenue	1,539		3,499		7,133		11,642
Net revenues	Net revenues	$	4,747	$	6,778		Net revenues	$	2,792	$	4,758	$	11,026	$	17,021

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 ~~100% and 95%~~over 99% of our net revenues from within the United States for the three and nine months ended ~~March 31, 2023~~September 30, 2023. During the three and nine months ended September 30, 2022, ~~respectively.~~

~~Table~~we derived 100% and 97% of ~~Contents~~

our net revenues from the United States, respectively.

Deferred Revenue

Our deferred revenue balance consisted of the following:


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Current deferred revenue	Current deferred revenue					Current deferred revenue
Platform revenue	Platform revenue	$	1,405	$	1,531	Platform revenue	$	1,437	$	1,531
Hardware revenue	Hardware revenue	107		1,373		Hardware revenue	79		1,373
Total current deferred revenue	Total current deferred revenue	$	1,512	$	2,904	Total current deferred revenue	$	1,516	$	2,904

Non-current deferred revenue	Non-current deferred revenue					Non-current deferred revenue
Platform revenue	Platform revenue	$	1,072	$	1,274	Platform revenue	$	743	$	1,274
Total non-current deferred revenue	Total non-current deferred revenue	$	1,072	$	1,274	Total non-current deferred revenue	$	743	$	1,274
Total deferred revenue	Total deferred revenue	$	2,584	$	4,178	Total deferred revenue	$	2,259	$	4,178

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~~nine months ended ~~March 31,~~September 30, 2023, we recognized revenue of ~~$2,133~~$3,167 that was included in our deferred revenue balance as of December 31, 2022.

Remaining Performance Obligations

Remaining performance obligations were ~~$5,696~~$4,788 as of ~~March 31,~~September 30, 2023, of which we expect to recognize approximately ~~42%~~37% as revenue over the next 12 months and the remainder thereafter.

PhunToken

In 2021, we announced the commencement of the selling of PhunToken. PhunToken is our innovative digital asset intended to be utilized within our token ecosystem, once developed, to help drive engagement by unlocking features and capabilities of our platform. We did not sell any PhunToken during ~~three~~the nine months ended ~~March 31,~~September 30, 2023. During the ~~three~~ nine

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months ended ~~March 31,~~September 30, 2022, we sold ~~115.8~~186.8 million PhunToken for an aggregate of ~~$973,~~$1,533, for which we received both cash and digital assets from customers. Sales of PhunToken are recorded within platform revenue in the table above.

As of ~~March 31,~~September 30, 2023 and December 31, 2022, total issued PhunToken were 377.2 million. Total supply of PhunToken is capped at 10 billion.

5. Digital Assets

Payments by customers in and purchases by us of digital assets were primarily of bitcoin and ethereum. We currently account for all digital assets held as a result of these transactions as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other. We have ownership of and control over our digital assets and we may use third-party custodial services or self-custody solutions to secure them. The digital assets are initially recorded at cost and are subsequently remeasured, net of any impairment losses incurred since acquisition.

We determine the fair value of our digital assets on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on quoted prices on the active exchange(s) that we have determined is the principal market for bitcoin, ethereum and other digital asset holdings (Level 1 inputs). We perform an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges, indicate that it is more likely than not that our digital assets are impaired. In determining if an impairment has occurred, we consider the lowest intraday market price quoted on an active exchange since acquiring the respective digital asset. If the then current carrying value of a digital asset exceeds the fair value, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the fair value. The fair value of our digital asset holdings at ~~March 31,~~September 30, 2023 is ~~$4,708.~~$78.

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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 income (expense) in our condensed consolidated statements of operations and comprehensive loss. Impairment loss was ~~$50~~$0 and ~~$9,353~~$0 for the three months ended ~~March 31,~~September 30, 2023 and 2022, respectively. We recognized $50 and $21,511 of impairment losses during the nine months ended September 30, 2023 and 2022, respectively.

The following table ~~set~~sets forth our digital asset holdings as of ~~March 31,~~September 30, 2023:


Asset	Asset	Gross Carrying Amount		Accumulated Digital Asset Impairment		Digital Asset Carrying Value		Asset	Gross Carrying Amount		Accumulated Digital Asset Impairment		Digital Asset Carrying Value
Bitcoin	Bitcoin	$	6,177	$	(4,267)	$	1,910	Bitcoin	$	20	$	(3)	$	17
Ether	Ether	1,391		(1,060)		$	331	Ether	80		(28)		$	52
Other	Other	1,249		(960)		$	289	Other	7		(1)		$	6
Total	Total	$	8,817	$	(6,287)	$	2,530	Total	$	107	$	(32)	$	75

The following table sets forth our digital asset holdings as of December 31, 2022:


Asset	Gross Carrying Amount		Accumulated Digital Asset Impairment		Digital Asset Carrying Value
Bitcoin	$	34,994	$	(25,534)	$	9,460
Ether	1,506		(1,156)		350
Other	1,237		(910)		327
Total	$	37,737	$	(27,600)	$	10,137

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Gross carrying amount and accumulated digital asset impairment noted above represent carrying amount and impairment, respectively, on the remaining cost lots as of the respective dates. Changes in our digital asset holdings for ~~three~~nine months ended ~~March 31,~~September 30, 2023 were as follows:


		Bitcoin		Ethereum		Other		Total			Bitcoin		Ethereum		Other		Total
Net balance at December 31, 2022		$	9,460	$	350	$	327	$	10,137
Net balance as of December 31, 2022										Net balance as of December 31, 2022	$	9,460	$	350	$	327	$	10,137
Received from customers, net of expenses	Received from customers, net of expenses	—		—		19		19		Received from customers, net of expenses	4		(1)		65		68

Exchanges of digital assets	Exchanges of digital assets	—		7		(7)		—		Exchanges of digital assets	—		557		(557)		—
Disposal proceeds	Disposal proceeds	(10,739)		(51)		—		(10,790)		Disposal proceeds	(14,154)		(1,236)		—		(15,390)
Gain on sale of digital assets	Gain on sale of digital assets	3,189		25		—		3,214		Gain on sale of digital assets	4,707		382		221		5,310
Impairment expense	Impairment expense	—		—		(50)		(50)		Impairment expense	—		—		(50)		(50)
Net balance at March 31, 2023		$	1,910	$	331	$	289	$	2,530
Net balance as of September 30, 2023										Net balance as of September 30, 2023	$	17	$	52	$	6	$	75

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6. Debt

2022 Promissory Note

On July 6, 2022, we entered into a note purchase agreement and completed the sale of an unsecured promissory note (the "2022 Promissory Note") with an original principal amount of $12,809 in a private placement. The 2022 Promissory Note was sold with an original issue discount of $492 and we paid at closing issuance costs totaling $522. After deducting all transaction fees paid by us at closing, net cash proceeds to the Company at closing were $11,795. No interest ~~will~~was to accrue on ~~the 2022 Promissory Note unless and until the occurrence of an event of default, as defined in~~ the 2022 Promissory Note. Beginning on November 1, 2022, our monthly amortization payment was approximately $1,566, until the original maturity date of July 1, 2023. We ~~have~~had the right to defer any monthly payment by one month up to twelve times so long as certain conditions, as defined in the 2022 Promissory Note, are satisfied. In the event we exercise the deferral right for any given month: (i) the outstanding balance will automatically increase by 1.85%; (ii) we will not be obligated to make the monthly payment for such month; and (iii) the maturity date will be extended for one month. We may prepay any or all outstanding balance of the 2022 Promissory Note earlier than it is due by paying the noteholder 110% of the portion of the outstanding balance we elect to prepay. The prepayment premium also applies to the monthly amortization payments.

On March 15, 2023, we elected to defer monthly payment obligations for April, May, June and July 2023, as permitted, at the time, by the 2022 Promissory Note. In connection therewith, we ~~also~~ entered into a waiver agreement with the holder waiving the Payment Deferral Conditions, as defined in the 2022 Promissory Note. For agreeing to waive the Payment Deferral Conditions, we agreed to compensate the noteholder an amount equal to 5% of the outstanding balance immediately before entering into the waiver agreement. As a result of our election to defer the four (4) monthly payments, the outstanding balance of the 2022 Promissory Note ~~will be~~was increased by 1.85% on the first day of each month beginning on April 1, 2023 and concluding on July 1, 2023. The waiver fee and the additional principal ~~will~~was to be paid in connection with our monthly installment payments once the deferral period ~~concludes.~~concluded. Beginning on August 1, 2023 and on the same day of each month thereafter, we ~~will be~~were required to pay to the noteholder the new monthly amortization payment in the amount of ~~$1,769 until the new maturity date of November 1, 2023.~~$1,769. We evaluated the modification in accordance with the guidance as in ASC 470 - Debt, and we concluded that the modification was not an extinguishment of the original debt; therefore, no gain or loss was recognized upon modification. ~~As a result~~

On August 14, 2023, we entered into an amendment to the 2022 Promissory Note with the noteholder. The amendment extends the maturity date to May 31, 2024 and provides that effective August 1, 2023, we are required to make monthly amortization payments of ~~entering into the waiver agreement, the new effective interest rate of~~at least $800 commencing on August 31, 2023 until the 2022 Promissory Note is paid-in-full. Furthermore, the amendment removed the required payment of $1,769 that was due on August 1, 2023. We also granted the holder certain limited conversion rights, subject to advance payment and volume conditions. Conversions into shares of our common stock made pursuant to the limited conversion rights will be calculated on a conversion price equal to 90% of the lower of (i) the closing trading price of our common stock on the trading day immediately preceding the date for such conversion or (ii) the average closing trading price of our common stock for the five trading days immediately preceding the date for such conversion. If the holder elects to convert pursuant to the limited conversion option, such conversions will reduce the current month’s monthly amortization payment. Any conversions in any given month in excess of the $800 monthly payment will be applied to reduce the following month's required monthly amortization payment. In connection with the amendment, we agreed to pay an extension fee equal to approximately ~~34.98%.~~$708, which is 10% of the outstanding principal balance of the 2022 Promissory Note. The amendment also provides that the outstanding balance shall accrue interest at a rate of 8% beginning on August 1, 2023, and payment deferrals are no longer permitted under the 2022 Promissory Note. We evaluated the amendment in accordance with ASC 470 - Debt, and we concluded that the modification was an extinguishment of the original debt. Accordingly, we recorded a loss on extinguishment of debt of $237 for the three and nine months ended September 30, 2023. In accounting for the amendment, we reviewed other applicable guidance and determined the amendment met the criteria to be accounted for as share-settled debt pursuant to ASC 480-10-25-14(a) as the settlement amount is based on a fixed monetary amount settled in a variable number of shares.

The 2022 Promissory Note had a principal balance of ~~$6,432~~$5,563 and $9,962 and debt discount of ~~$745~~$0 and $295 at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

Other Debt Obligations

Other than the 2022 Promissory Note referenced above, there have been no material changes to the terms and conditions of our other debt obligations since the filing of our Annual Report on Form 10-K. See Note 8, "Debt", in our Annual Report on Form 10-K filed with the SEC on March 31, 2022.

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Interest Expense

Interest expense amounted to ~~$537~~$264 and ~~$381~~$991 for the three months ended ~~March 31,~~September 30, 2023 and 2022, respectively. Interest expense was $1,354 and $1,645 for the nine months ended September 30, 2023 and 2022, respectively.

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7. Leases

Further information regarding our other office leases and accounting thereof are located in Note 2, "Summary of Significant Accounting Policies," and Note 9, "Leases," in our Annual Report on Form 10-K filed with the SEC on March 31, 2023.

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,~~September 30, 2023 and 2022 was ~~$325~~$305 and ~~$204,~~$338, respectively. Lease expense for the nine months ended September 30, 2023 and 2022 was $954 and $778, respectively. The weighted-average remaining lease term for operating leases as of ~~March 31,~~September 30, 2023 was ~~3.8~~3.4 years.

Future minimum lease obligations are set forth below:


Future minimum lease obligations years ending December 31,	Future minimum lease obligations years ending December 31,	Lease Obligations		Future minimum lease obligations years ending December 31,	Lease Obligations
2023 (Remainder)	2023 (Remainder)	$	951	2023 (Remainder)	$	288
2024	2024	1,305		2024	1,305
2025	2025	929		2025	929
2026	2026	744		2026	744
2027	2027	508		2027	508
Thereafter	Thereafter	—		Thereafter	—
		$	4,437		$	3,774
Less: Portion representing interest	Less: Portion representing interest	(628)		Less: Portion representing interest	(458)
		$	3,809		$	3,316

8. Commitments and Contingencies

Litigation

Except as set forth below, there have been no material changes to the disclosures related to our litigation matters since the filing of our Annual Report on Form 10-K. See Note 10, "Commitments and Contingencies," in our Annual Report on Form 10-K filed with the SEC on March 31, 2023 for further information.

On February 18, 2022, certain stockholders filed a lawsuit against Phunware and its individual officers and directors. The case, captioned Wild Basin Investments, LLC, et al. v. Phunware, Inc., et al., was filed in the Court of Chancery of the state of Delaware (Cause No. 2022-0168-LWW). Plaintiffs alleged that they invested in various early rounds of financing while the Company was private and that Phunware should not have subjected their shares to a 180-day “lock up” period. Plaintiffs also allege that Phunware’s stock price dropped significantly during the lock up period and seek damages, costs and professional fees. We filed a motion to dismiss the complaint on May 27, 2022 and on July 15, 2022, Plaintiffs filed their answering brief in opposition to the motion to dismiss and a partial motion for summary judgement. All briefing and oral argument on the motion to dismiss and motion for partial summary judgement is complete. Both parties argued their positions before the Court of Chancery during a hearing on April 4, 2023. ~~The~~On June 16, 2023, the Court ~~did not rule from~~ruled on the motions without filing a written opinion. From the bench, atVice Chancellor Cook granted Phunware’s motion to dismiss on the ~~hearing, but instead took~~Texas law-based claims and denied both the ~~matter under advisement~~motion to dismiss and ~~will rule~~partial motion for summary judgment on the Delaware law claims. The parties engaged in ~~due course.~~mediation in July 2023. We intend to vigorously defend against this lawsuit and any appeals. We have not recorded ~~an expense~~a liability related to this matter because any potential loss is not currently probable or reasonably estimable. Additionally, we cannot presently estimate the range of loss, if any, that may result from the matter. It is possible that the ultimate resolution of the foregoing matter, or other similar matters, if resolved in a manner unfavorable to us, may be materially adverse to our business, financial condition, results of operations or liquidity.

From time to time, we are and may become involved in various legal proceedings in the ordinary course of business. The outcomes of our legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular reporting period. In addition, for the matters disclosed above that do not

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include an estimate of the amount of loss or range of losses, such an estimate is not possible, and we may be unable to estimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies.

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9. Stockholders’ Equity

Common Stock

Total common stock authorized to be issued as of ~~March 31,~~September 30, 2023 was 1,000,000,000 shares, with a par value of $0.0001 per share. ~~At March 31,~~As of September 30, 2023 and December 31, 2022, there were ~~104,007,810~~128,555,644 and 103,153,337 shares of our common stock ~~outstanding.~~outstanding, respectively.

On January 31, 2022, we entered into an At Market Issuance Sales Agreement with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which 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 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 pursuant to the sales agreement with Wainwright.~~ Sales of shares of our common stock sold under the sales agreement ~~will be~~are made pursuant to an effective shelf registration statement on Form S-3 in the amount of $200,000 filed with the SEC on February 1, 2022. During the nine months ended September 30, 2023, we sold 17,394,716 shares of our common stock for aggregate net cash proceeds of $7,003. Transaction costs were $209. As of ~~March 31,~~September 30, 2023, ~~$95.4~~$88.5 million of shares of our common stock remains issuable pursuant to the sales agreement with Wainwright.

On August 22, 2023, we entered into a common stock purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, we have the right, but not the obligation, to sell to Lincoln Park up to $30 million in value of shares of our common stock from time to time over the 24-month term of the purchase agreement. On any business day selected by us, we may direct Lincoln Park to purchase up to 250,000 shares of our common stock subject to adjustment as set forth below, on such business day (or the purchase date), which we refer to as a "Regular Purchase," provided, however, that (i) a Regular Purchase may be increased to up to 350,000 shares if the closing sale price of our common stock on the Nasdaq is not below $0.20 on the applicable purchase date; (ii) a Regular Purchase may be increased to up to 450,000 shares if the closing sale price of our common stock on Nasdaq is not below $0.30 on the applicable purchase date; (iii) a Regular Purchase may be increased to up to 550,000 shares if the closing sale price of our common stock on Nasdaq is not below $0.50 on the applicable purchase date; and (iv) a Regular Purchase may be increased to up to 650,000 shares if the closing sale price of our common stock on Nasdaq is not below $0.75 on the applicable purchase date. Lincoln Park’s committed obligation under any single Regular Purchase, subject to certain exceptions, cannot exceed $1,000. We may direct Lincoln Park to purchase shares in Regular Purchases as often as every business day, so long as the closing sale price of our common stock on such business day is not less than the floor price of $0.10 per share. Concurrently with entering into the purchase agreement, we also entered into a registration rights agreement with Lincoln Park pursuant to which the Company agreed to register the sale of the shares of the Company’s common stock that have been and may be issued to Lincoln Park under the purchase agreement pursuant to the Company’s existing shelf registration statement on Form S-3. During the nine months ended September 30, 2023, we sold 1,712,503 shares of our common stock, including certain commitment shares issued to Lincoln Park in connection with the transaction, for aggregate gross cash proceeds of $88. Transaction costs were $97. As of September 30, 2023, $29.9 million in value of shares of our common stock remains issuable pursuant to the purchase agreement with Lincoln Park.

Stock Repurchase Plan

On January 5, 2023, our board of directors authorized and approved a stock repurchase program for the repurchase of outstanding shares of our common stock with an aggregate value of up to $5,000. The authorization permits us to repurchase shares of our common stock from time-to-time through open market repurchases at prevailing market prices, in accordance with federal securities laws. The stock repurchase plan is expected to be completed over the next twelve (12) months and may be amended or terminated at any time, in the sole discretion of the board. The exact means, number and timing of stock repurchases ~~will~~ depend on market conditions, applicable legal requirements and other factors, and ~~will be~~have been funded through the liquidation of our bitcoin holdings. During the ~~three~~nine months ended ~~March 31,~~September 30, 2023, we repurchased ~~461,500~~506,500 shares of our common stock at an aggregate repurchase price of ~~$475.~~$502.

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Warrants

We have various warrants outstanding. A summary of our outstanding warrants is set forth below:


		March 31, 2023					December 31, 2022									September 30, 2023				December 31, 2022
Warrant Type	Warrant Type	Cash Exercise Price per share				Number of warrants	Cash Exercise Price per share			Number of warrants				Warrant Type		Cash Exercise Price per share			Number of warrant shares	Cash Exercise Price per share				Number of warrant shares
									Warrant Type			Cash Exercise Price per share	Number of warrant shares		Cash Exercise Price per share			Number of warrant shares
2020 Convertible Note warrant	2020 Convertible Note warrant			$	1.42		2,811,315				$			1.42					2,811,315		2020 Convertible Note warrant	$	1.42	—	$	1.42	2,811,315
Common stock warrants (Series F)	Common stock warrants (Series F)	$	9.22			377,402	$	9.22		377,402				Common stock warrants (Series F)		$	9.22		—	$	9.22			377,402
Public warrants (PHUNW)	Public warrants (PHUNW)	$	11.50			1,761,291	$	11.50		1,761,291				Public warrants (PHUNW)		$	11.50		1,761,291	$	11.50			1,761,291
Private placement warrants	Private placement warrants	$	11.50			1,658,381	$	11.50		1,658,381				Private placement warrants		$	11.50		1,658,381	$	11.50			1,658,381
Unit purchase option warrants	Unit purchase option warrants	$	11.50			24,172	$	11.50		24,172				Unit purchase option warrants		$	11.50		24,172	$	11.50			24,172
Total	Total					6,632,561				6,632,561				Total					3,443,844					6,632,561

Except as set forth below, there have been no material changes to the terms of our outstanding warrants. Additional information about our various warrants outstanding is in included under the subheading, "Warrants", in Note 12, "Stockholders' Equity," in our Annual Report on Form 10-K filed with the SEC on March 31, 2023.

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. Furthermore, in October 2021, we issued shares to the seller of Lyte as purchase consideration at a price of $1.4246 per share, and as a result, the exercise price of

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the warrant adjusted accordingly and the number of shares exercisable thereunder increased to 2,811,315. The holder also partially exercised the warrant in 2021.

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.~~expired July 15, 2023.

10. Stock-Based Compensation

Stock-Based Compensation

Compensation costs that have been included in our condensed consolidated statements of operations and comprehensive loss for all stock-based compensation arrangements is set forth below:


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
Stock-based compensation	Stock-based compensation	2023		2022			Stock-based compensation	2023		2022		2023		2022
Cost of revenues	Cost of revenues	$	253	$	46		Cost of revenues	$	80	$	59	$	444	$	154
Sales and marketing	Sales and marketing	97		18			Sales and marketing	24		35		156		80
General and administrative	General and administrative	859		472			General and administrative	699		760		2,818		1,827
Research and development	Research and development	153		28			Research and development	35		45		244		108
Total stock-based compensation	Total stock-based compensation	$	1,362	$	564		Total stock-based compensation	$	838	$	899	$	3,662	$	2,169

As of ~~March 31,~~September 30, 2023, there was approximately ~~$1,176, $4,607,~~ $295, $958, $2,830, $124 and ~~$0.4~~$0 of total unrecognized compensation cost related to the 2023 Inducement Plan, the 2022 Inducement Plan, ~~2018 Plan,~~ the 2018 ~~ESPP~~Equity Incentive Plan (the "2018 Plan"), the 2018 Employee Stock Purchase Plan (the "2018 ESPP") and the 2009 Equity Incentive Plan (the "2009 Plan"), respectively. These unrecognized compensation costs are expected to be recognized over an estimated weighted-average period of approximately ~~2.8~~2.7 years, ~~1.9~~2.2 years, 2.4 years, 1.7 years and ~~0.5~~0.0 years for the 2023 Inducement Plan, 2022 Inducement Plan, 2018 Plan, the 2018 ESPP and 2009 Plan, respectively.

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Except as set forth below, there have been no material changes to the terms of ~~our~~the 2018 ~~Equity Incentive~~ Plan, ~~(the "2018 Plan"),~~the 2018 ~~Employee Stock Purchase~~ESPP and the 2009 Plan ~~(the "2018 ESPP") and 2009 Equity Incentive Plan (the "2009 Plan")~~ since the filing of our Annual Report on Form 10-K. Refer to Note 13, "Stock-Based Compensation," in our Annual Report on Form 10-K filed with the SEC on March 31, 2023 for more information on our various equity incentive plans.

2023 Inducement Plan

Our board of directors adopted the Phunware, Inc. 2023 Inducement Plan (the "2023 Inducement Plan") in June 2023. As permitted by Nasdaq Stock Market rules, our stockholders were not required to approve the 2023 Inducement Plan. The plan provides of up to 600,000 shares of our common stock under awards granted to newly hired employees. An "award" is any right to receive common stock of the Company consisting of nonstatutory stock options, stock appreciation rights, restricted stock awards or restricted stock units.

On June 30, 2023, we made an inducement grant to a newly hired officer of the Company of 600,000 restricted stock units under the 2023 Inducement Plan with a grant date fair value of $0.54 per share. One-third of the restricted stock units will vest on June 3, 2024 and the remainder will vest in equal installments over two annual periods beginning on June 2, 2025 and concluding on June 1, 2026, subject to the employee's continued service on such vesting date. Shares will be delivered electronically to the holder shortly after each vesting date.

2022 Inducement Plan

Our board of directors adopted the Phunware, Inc. 2022 Inducement Plan (the "2022 Inducement Plan") in January 2023. As permitted by Nasdaq Stock Market rules, our stockholders were not required to approve the 2022 Inducement Plan. The plan provides of up to 1,470,588 shares of our common stock under awards granted to ~~newly-hired~~newly hired employees. An "award" is any right to receive common stock of the Company consisting of nonstatutory stock options, stock appreciation rights, restricted stock awards or restricted stock units.

In January 2023, we made an inducement grant to a ~~newly-hired~~newly hired officer of the Company of 1,470,588 restricted stock units under the 2022 Inducement Plan with a grant date fair value of $0.87 per share. One-third, or 490,196, of the restricted stock units ~~will~~was scheduled to vest on December 28, 2023 and the remainder ~~will vest~~ in equal installments over eight quarterly periods beginning on March 31, 2024 with the final vesting date occurring on December 28, ~~2025, subject~~2025. On October 25, 2023, we entered into a separation agreement with the executive, pursuant to which the ~~employee's continued service~~vesting of this grant was modified such that 500,000 restricted stock units vested on ~~such vesting date. Shares~~October 25, 2023 and 500,000 restricted stock units will ~~be delivered electronically to the holder shortly after~~ vest ~~date.~~on November 30, 2023. The balance, 470,588 unvested restricted stock units, will terminate.

2018 Equity Incentive Plan

Shares of common stock reserved for issuance under the 2018 Plan also include any shares of common stock subject to stock options, restricted stock units or similar awards granted under 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,~~September 30, 2023, the maximum number of shares of

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common stock that may be added to the 2018 Plan pursuant to the foregoing is ~~779,531.~~755,510. Not including the maximum number of shares from the 2009 Plan that may be added to the 2018 Plan, the 2018 Plan had ~~7,267,124~~3,870,016 and 4,382,662 shares of common stock reserved for future issuances as of ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

Restricted Stock Units

A summary of our restricted stock unit activity under the 2018 Plan for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 is set forth below:

Shares Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2022 2,957,995 $ 1.75
Granted 2,293,704 0.92
Released (1,221,562) 0.97
Forfeited (20,500) 2.69
Outstanding as of March 31, 2023 4,009,637 $ 1.37

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	Shares	Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2022	2,957,995	$	1.75
Granted	6,211,386	0.53
Released	(3,215,131)	1.19
Forfeited	(578,574)	1.43
Outstanding as of September 30, 2023	5,375,676	$	0.62

During the first quarter of 2023, we granted 1,921,000 restricted stock unit awards to team members with an average grant date fair value of $0.92 per share. The vesting provisions were generally such that one-third of the awards vested immediately with the remaining vesting at various dates through November 2024. We also granted 372,704 restricted stock unit awards to members of our team in lieu of cash bonus earned during 2022 with a grant date fair value of $0.93. These awards vested immediately.

During the second quarter of 2023, we granted 323,000 restricted stock unit awards to team members with an average grant date fair value of $0.60 per share. The vesting of these awards occurs at various dates through May 2027.

During the third quarter of 2023, we granted 3,533,000 restricted stock unit awards to team members with an average grant date fair value of $0.28 per share. The vesting of these awards occurs at three equal installments on August 1, 2023, August 1, 2024 and August 1, 2025. We also granted 61,682 restricted stock units to a consultant. Those restricted stock units vested in full at August 31, 2023.

Stock Options

A summary of our stock option activity under the 2018 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, 2022	Outstanding as of December 31, 2022	87,500	$	1.43	5.6	$	—	Outstanding as of December 31, 2022	87,500	$	1.43	5.6	$	—
Granted	Granted	—	—					Granted	75,000	0.76
Exercised	Exercised	—	—					Exercised	—	—
Forfeited	Forfeited	—	—					Forfeited	(37,500)	1.08
Outstanding as of March 31, 2023		87,500	$	1.43	5.4	$	—
Exercisable as of March 31, 2023		87,500	$	1.43	5.4	$	—
Outstanding as of September 30, 2023								Outstanding as of September 30, 2023	125,000	$	1.14	5.4	$	—
Exercisable as of September 30, 2023								Exercisable as of September 30, 2023	106,250	$	1.20	5.4	$	—

2018 Employee Stock Purchase Plan

We use a Black-Scholes option pricing model to determine the fair value of shares to be purchased under the 2018 ESPP. Stock-based compensation expense related to our 2018 ESPP for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 was not significant. There were ~~1,621,717~~1,528,745 and 802,893 shares of common stock available for sale and reserved for issuance as of ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

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2009 Equity Incentive 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
Outstanding as of December 31, 2022 874,279 $ 0.80 4.2 $ 130
Granted — —
Exercised (94,748) 0.61
Forfeited — —
Outstanding as of March 31, 2023 779,531 $ 0.83 4.5 $ 73
Exercisable as of March 31, 2023 779,138 $ 0.83 4.5 $ 73

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	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2022	874,279	$	0.80	4.2	$	130
Granted	—	—
Exercised	(94,748)	0.61
Forfeited	(24,021)	1.31
Outstanding as of September 30, 2023	755,510	$	0.81	4.0	$	—
Exercisable as of September 30, 2023	755,510	$	0.81	4.0	$	—

For the three months ended ~~March 31,~~September 30, 2023, the aggregate intrinsic value of options exercised was $16 and the total fair value of options vested was not significant.

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11. Segment and Geographic Information

Our chief operating decision maker is our Chief Executive Officer ("CEO"). Our CEO reviews operating segment information for the purposes of allocating resources and evaluating financial performance. We have determined that the Company operates in a two reporting segments: Phunware and Lyte.

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, 2023						Three Months Ended March 31, 2022							Three Months Ended September 30, 2023						Three Months Ended September 30, 2022
		Phunware		Lyte		Consolidated		Phunware		Lyte		Consolidated			Phunware		Lyte		Consolidated		Phunware		Lyte		Consolidated
Net revenues	Net revenues	$	1,345	$	3,402	$	4,747	$	2,492	$	4,286	$	6,778	Net revenues	$	1,253	$	1,539	$	2,792	$	1,259	$	3,499	$	4,758

Loss before taxes	Loss before taxes	$	(3,712)	$	(557)	$	(4,269)	$	(14,359)	$	(558)	$	(14,917)	Loss before taxes	$	(14,217)	$	(4,762)	$	(18,979)	$	(6,858)	$	(1,160)	$	(8,018)

March 31, 2023 December 31, 2022
Phunware Lyte Consolidated Phunware Lyte Consolidated
Goodwill $ 25,788 $ 5,348 $ 31,136 $ 25,765 $ 5,348 $ 31,113
Total assets $ 33,476 $ 11,981 $ 45,457 $ 42,349 $ 12,486 $ 54,835


	Nine Months Ended September 30, 2023								Nine Months Ended September 30, 2022
	Phunware		Lyte		Consolidated				Phunware		Lyte		Consolidated
Net revenues	$	3,893	$	7,133	$	11,026			$	5,379	$	11,642	$	17,021

















Loss before taxes	$	(22,231)	$	(7,541)	$	(29,772)	$	(29,772)	$	(37,925)	$	(2,081)	$	(40,006)


	September 30, 2023						December 31, 2022
	Phunware		Lyte		Consolidated		Phunware		Lyte		Consolidated
Goodwill	$	16,731	$	—	$	16,731	$	25,765	$	5,348	$	31,113
Total assets	$	18,534	$	9,276	$	27,810	$	42,349	$	12,486	$	54,835

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,~~September 30, 2023 and December 31, 2022, all of our identifiable long-lived assets were in the United States.

12. Subsequent Events

~~On April 13,~~From October 1, 2023 we received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”) because the bid price of the Company’s common stock on the Nasdaq Capital Market had closed below $1.00 per share for the previous 30 consecutive business days. The notice from Nasdaq states that, under Nasdaq Listing Rule 5810(c)(3)(A), we have been provided a period of 180 calendar days, or until October 10, 2023 (the “Compliance Date”), to regain compliance with the Bid Price Requirement. To regain compliance, the bid price of our common stock must close at $1.00 per share or more for a minimum of ten consecutive business days.

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If we fail to regain compliance with the Bid Price Requirement prior to the Compliance Date, the Company may be eligible for an additional 180 calendar day compliance period, provided (i) it meets the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital Market (except for the Bid Price Requirement), and (ii) it provides written notice to Nasdaq of its intention to cure this deficiency during the second compliance period by effecting a reverse stock split, if necessary. In the event the Company does not regain compliance with the Bid Price Requirement prior to the expiration of the initial period, and if it appears to Nasdaq that the Company will not be able to cure the deficiency, or if we are not otherwise eligible, Nasdaq will provide us with written notification that its securities are subject to delisting from the Nasdaq Capital Market. At that time, we may appeal the delisting determination to a hearings panel.

~~Through May 12,~~through November 9, 2023, we sold ~~221,632~~an additional 1,040,613 shares of our common stock pursuant to the terms of our At Market Issuance Sales Agreement with Wainwright for aggregate net cash proceeds of ~~$129.~~$181. Transaction costs were not significant.

~~Through May 12,~~From October 1, 2023 through November 9, 2023, we sold an additional 1,254,882 shares of our common stock, including certain commitment shares issued to Lincoln Park in connection with the transaction, for aggregate net cash proceeds of $215.

From October 1, 2023 through November 9, 2023, vested ~~RSUs~~restricted stock units covering ~~428,703~~850,116 shares of our common stock were released to team members and service providers that related to grants previously awarded to those individuals. This figure is inclusive of the 500,000 shares issued to our former chief executive officer as more fully described in Note 10 above.

From October 1, 2023 through November 9, 2023, we issued 3,738,500 shares of our common stock pursuant to conversion under our amended 2022 Promissory Note, which represented $600 in related principle and interest payments thereunder.

On October 4, 2023, we entered into a lease termination agreement with the landlord of our office space in San Diego, California, in which the landlord and us agreed to terminate our lease effective October 31, 2023. We agreed to forfeit our security deposit of approximately $14 and pay an early termination fee in the amount of approximately $68 on October 31, 2023. The lease was originally scheduled to conclude on June 30, 2025.

On November 1, 2023, we committed to a plan to discontinue and wind down, either by sale or closing, operations of Lyte. We expect to complete this process by the end of 2023. As of result, the Company estimates that it will incur cash costs

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related to the wind down of between $0.2 million and $0.4 million. We currently expect these costs to be paid during the fourth quarter of 2023 and primarily funded from proceeds from sale of Lyte’s assets. In addition, the Company currently expects to incur pre-tax, non-cash losses that could approximate up to $3.0 million during the fourth quarter of 2023. In connection therewith, on November 9, 2023, we entered into a lease termination agreement with Jonsson ATX Warehouse, LLC, the landlord of our Lyte warehouse facility, in which the landlord and us agreed to terminate the lease for our Lyte facility effective November 30, 2023. We agreed to forfeit our security deposit of approximately $77 and we paid on November 9, 2023 a termination fee of approximately $120. The lease was originally scheduled to conclude on July 31, 2027.

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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, Inc. References to “management” or “management team” refer to our officers and directors.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto presented in “Part I – Item 1. Financial Statements.” As discussed in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our 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, but not limited to, 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.

Key Events and Recent Developments

The Board of Directors has fixed December 20, 2023 as the date for our 2023 Annual Meeting of Stockholders. The 2023 Annual Meeting of Stockholders is delayed by more than 30 days after the anniversary of the 2022 Annual Meeting of Stockholders.

On October 25, 2023, we entered into a separation agreement with Russell Buyse, our Chief Executive Officer, in which Mr. Buyse's employment terminated with the Company effective immediately. On the same date, our Board of Directors appointed Mr. Michael Snavely, our Chief Revenue Officer, as Chief Executive Officer. Mr. Buyse and the Company entered into a consulting agreement that concluded on November 10, 2023.

On November 1, 2023, we announced the suspension of our Lyte Technology operations. The suspension is expected to relieve strain on the Company's cash burn, while realigning emphasis on our software solutions, while exploring additional monetization of our intellectual property, as well as, our goal to complete our blockchain ecosystem. We estimate to incur cash charges related to the shutdown of between $0.2 million to $0.4 million, a substantial portion of which will be allocated to our efforts to negotiate a buyout of the real estate facilities utilized for the Lyte segment. We may also incur non-cash charges related to impairment of intangibles and inventory.

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 location-based software-as-a-service platform provides the entire mobile lifecycle of applications, media and data in one login through one procurement relationship. Our offerings include:


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

We ~~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 the expansion of our ability to market, sell and provide our current and future products and services to customers globally. We also

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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 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 revenue, 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 ~~45%~~53% of our backlog as of ~~March 31,~~September 30, 2023 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.

In addition, our deferred revenue consists of amounts that have been invoiced but have not yet been recognized as revenues as of the end of athe reporting period. Together, the sum of deferred revenue and backlog represents the total billed and unbilled contract value yet to be recognized in revenues and provides visibility into future revenue streams.

The following table sets forth our backlog and deferred revenue:


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
(in thousands)	(in thousands)					(in thousands)
Backlog	Backlog	$	3,112	$	3,824	Backlog	$	2,529	$	3,824
Deferred revenue	Deferred revenue	2,584		4,178		Deferred revenue	2,259		4,178
Total backlog and deferred revenue	Total backlog and deferred revenue	$	5,696	$	8,002	Total backlog and deferred revenue	$	4,788	$	8,002

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 our employees, (iii) for planning purposes including the preparation of our 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, 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 our financial performance. Each of the normal recurring adjustments and other adjustments described in this paragraph help management with a measure of our operating performance over time by removing items that are not related to day-to-day operations or are non-cash expenses.

The following table sets forth the non-GAAP financial measures we monitor.


		Three Months Ended March 31,						Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands, except percentages)	(in thousands, except percentages)	2023			2022				(in thousands, except percentages)	2023			2022			2023			2022
Adjusted gross profit (1)	Adjusted gross profit (1)	$	614		$	1,817			Adjusted gross profit (1)	$	275		$	854		1,456			4,240
Adjusted gross margin (1)	Adjusted gross margin (1)	12.9		%	26.8		%		Adjusted gross margin (1)	9.8		%	17.9		%	13.2		%	24.9		%
Adjusted EBITDA (2)	Adjusted EBITDA (2)	$	(5,599)		$	(4,246)			Adjusted EBITDA (2)	$	(4,264)		$	(6,741)		$	(15,080)		$	(17,590)

(1)Adjusted gross profit and adjusted gross margin are non-GAAP financial measures. We believe that adjusted gross profit and adjusted gross margin provide supplemental information with respect to gross profit and gross margin regarding ongoing performance. We define adjusted gross profit as net revenues less cost of revenue, adjusted to exclude one-time revenue adjustments, stock-based compensation and amortization of intangible assets. We define adjusted gross margin as adjusted gross profit as a percentage of net revenues.

(2)Adjusted EBITDA is a non-GAAP financial measure. We believe adjusted EBITDA provides helpful information with respect to operating performance as viewed by management, including a view of our business that is not dependent on (i) the impact of our capitalization structure and (ii) items that are not part of day-to-day operations. We define adjusted EBITDA as net loss plus (i) interest expense, (ii) income tax expense, (iii) depreciation, (iv) amortization, and further adjusted for (v) non-cash impairment, (vi) valuation adjustments and (vii) 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,						Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands, except percentages)	(in thousands, except percentages)	2023			2022				(in thousands, except percentages)	2023			2022			2023			2022
Gross profit	Gross profit	$	361		$	1,771			Gross profit	$	195		$	795		$	1,012		$	4,086

Add back: Stock-based compensation	Add back: Stock-based compensation	253			46				Add back: Stock-based compensation	80			59			444			154
Adjusted gross profit	Adjusted gross profit	$	614		$	1,817			Adjusted gross profit	$	275		$	854		$	1,456		$	4,240
Adjusted gross margin	Adjusted gross margin	12.9		%	26.8		%		Adjusted gross margin	9.8		%	17.9		%	13.2		%	24.9		%


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2023		2022			(in thousands)	2023		2022		2023		2022
Net loss	Net loss	$	(4,269)	$	(14,917)		Net loss	$	(18,979)	$	(8,018)	$	(29,772)	$	(40,006)
Add back: Depreciation and amortization	Add back: Depreciation and amortization	188		186			Add back: Depreciation and amortization	188		185		564		553
Add back: Interest expense	Add back: Interest expense	537		381			Add back: Interest expense	264		991		1,354		1,645

EBITDA	EBITDA	(3,544)		(14,350)			EBITDA	(18,527)		(6,842)		(27,854)		(37,808)

Add Back: Stock-based compensation	Add Back: Stock-based compensation	1,362		564			Add Back: Stock-based compensation	838		899		3,662		2,169

Add Back: Loss on extinguishment of debt							Add Back: Loss on extinguishment of debt	237		—		237		—
Add Back: Impairment of digital currencies	Add Back: Impairment of digital currencies	50		9,353			Add Back: Impairment of digital currencies	—		—		50		21,511
(Less)/Add back: Fair value adjustment for warrant liabilities		(253)		213
Add Back: Impairment of goodwill							Add Back: Impairment of goodwill	13,188		—		14,391		—
Less: Fair value adjustment for warrant liabilities							Less: Fair value adjustment for warrant liabilities	—		(797)		(256)		(3,267)
Less: Gain on sale of digital assets	Less: Gain on sale of digital assets	(3,214)		(26)			Less: Gain on sale of digital assets	—		(1)		(5,310)		(195)
Adjusted EBITDA	Adjusted EBITDA	$	(5,599)	$	(4,246)		Adjusted EBITDA	$	(4,264)	$	(6,741)	$	(15,080)	$	(17,590)

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Components of Results of Operations

Revenue and Gross Profit

There are a number of factors that impact the revenue and margin profile of the product, service and technology offerings we provide, including, but not limited to, solution and technology complexity, technical expertise requiring the combination of products and types of services provided, as well as other elements that may be specific to a particular client solution.

Platform Revenue and Gross Profit

Our platform revenue consists of software subscriptions, application development services and support and application transactions, which are comprised of in-app advertising and PhunToken sales.

Subscription revenue is derived from software license fees, which are comprised of subscription fees from customers licensing our Software Development Kits (SDKs), that include access to our platform. Subscription revenue from SDK licenses gives the customer the right to access our location-based software 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 for customer applications, software updates and technical support for application development services for a support term. From time to time, we may also provide professional services by outsourcing employees’ time and materials to customers.

We generate application transaction revenue by charging advertisers to deliver advertisements (ads) to users of mobile connected devices. Depending on the specific terms of each advertising contract, we generally recognize revenue based on the activity of mobile users viewing these ads. Fees from advertisers are commonly based on the number of ads delivered or views, clicks or actions by users on mobile advertisements delivered, and we recognize revenue at the time the user views, clicks or otherwise acts on the ad. We sell ads through several offerings: cost per thousand impressions and cost per click. In 2021, we commenced PhunToken sales. PhunToken is designed to reward consumers for their activity, such as watching branded videos, completing surveys and visiting points of interest. We recognize revenue related to PhunToken at time of delivery to a customer's ethereum-based wallet.

Platform gross profit is equal to subscriptions and services revenue less the cost of personnel and related costs for our support and professional services employees, external consultants, stock-based compensation and allocated overhead. Costs associated with our development and project management teams are generally recognized as incurred. Costs directly attributable to the development or support of applications relating to subscription customers are included in cost of sales, whereas costs related to the ongoing development and maintenance of our software platform are expensed in research and development. Furthermore, gross profit related to application transactions is equal to application transaction revenue less cost of revenue associated with application transactions, which is impacted by the cost of advertising traffic we pay to our suppliers, the amount of traffic which we can purchase from those suppliers and ethereum blockchain fees paid to deliver PhunToken.

As a result, platform gross profit may fluctuate from period to period.

Hardware Revenue and Gross Profit

We acquired Lyte in October 2021. Revenue from Lyte is primarily derived from the sale of high-performance personal computers. Lyte computers are sold with a variety of pre-packaged solutions, as well as customizable solutions selected by our customers. A majority of Lyte's customers pay us via credit card payments, which is managed through a ~~third~~third- party processor. We recognize revenue at the time a completed unit ships from our facility.

Hardware gross profit is equal to hardware revenue less the costs associated with the assembly of computers. Hardware gross profit is impacted by the costs that we pay for parts incorporated into a Lyte computer system, as well as labor costs of our employees directly attributable to building computer systems and shipping. Demand may exceed available supply at times, which may hamper our ability to deliver computer systems in a timely manner 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~~Effective November 1, 2023, we ~~plan to invest in~~suspended our Lyte ~~for future growth, we may experience revenue and gross profit fluctuations as a result of seasonality.~~operations.

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Gross Margin

Gross margin measures gross profit as a percentage of revenue. Gross margin is generally impacted by the same factors that affect changes in the mix of platform and hardware revenue.

Operating Expenses

Our operating expenses include sales and marketing expenses, general and administrative expenses, research and development expenses, depreciation and amortization of acquired intangible assets. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation and, in sales and marketing expense, commissions.

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. Our sales and marketing expense may increase in absolute dollars as we increase our sales and marketing organizations as we plan to increase revenue but may fluctuate as a percentage of our total revenue from period to period.

General and Administrative Expense. General and administrative expense is comprised of compensation and benefits of administrative personnel, including variable incentive pay and stock-based compensation, bad debt expenses and other administrative costs such as facilities expenses, professional fees and travel expenses. We incur 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.~~services, including, but not limited to legal and audit related expenses. We also expect to increase the size of our general and administrative function to support the growth of our business. As a result, our general and administrative expenses may 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, our research and development expenses may increase in absolute dollars as our business grows but may fluctuate as a percentage of revenue from period to period.

Impairment of Goodwill. Goodwill impairment consists of non-cash impairment charges related to goodwill. We review goodwill for impairment annually on October 1 and more frequently if events or changes in circumstances indicate an impairment may exist. If the carrying value of the reporting unit continues to exceed its fair value, the fair value of the Company’s goodwill is calculated and an impairment charge equal to the excess is recorded.

Interest Expense

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

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

We also may seek additional debt ~~financings~~financing 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					Three Months Ended September 30,						Change
(in thousands, except percentages)	(in thousands, except percentages)	2023			2022			Amount		%		(in thousands, except percentages)	2023			2022			Amount		%
Net Revenues	Net Revenues											Net Revenues
Platform revenue	Platform revenue	$	1,345		$	2,492		$	(1,147)	(46.0)	%	Platform revenue	$	1,253		$	1,259		$	(6)	(0.5)	%
Hardware revenue	Hardware revenue	3,402			4,286			(884)		(20.6)	%	Hardware revenue	1,539			3,499			(1,960)		(56.0)	%
Net revenues	Net revenues	$	4,747		$	6,778		$	(2,031)	(30.0)	%	Net revenues	$	2,792		$	4,758		$	(1,966)	(41.3)	%
Platform revenue as percentage of total revenue	Platform revenue as percentage of total revenue	28.3		%	36.8		%					Platform revenue as percentage of total revenue	44.9		%	26.5		%
Hardware revenue as percentage of total revenue	Hardware revenue as percentage of total revenue	71.7		%	63.2		%					Hardware revenue as percentage of total revenue	55.1		%	73.5		%


	Nine Months Ended September 30,						Change
(in thousands, except percentages)	2023			2022			Amount		%
Net Revenues
Platform revenue	$	3,893		$	5,379		$	(1,486)	(27.6)	%
Hardware revenue	7,133			11,642			(4,509)		(38.7)	%
Net revenues	$	11,026		$	17,021		$	(5,995)	(35.2)	%
Platform revenue as percentage of total revenue	35.3		%	31.6		%
Hardware revenue as percentage of total revenue	64.7		%	68.4		%

Net revenues decreased $2.0 million, or ~~30.0%~~41.3%, for the three months ended ~~March 31,~~September 30, 2023 compared to the corresponding period in 2022 as a result of lower orders and resulting shipments for Lyte computers.

Net revenues decreased $6.0 million, or (35.2)%, for the nine months ended September 30, 2023 compared to the corresponding period in 2022.

Platform revenue decreased ~~$1.1~~$1.5 million, or ~~(46.0)~~(27.6)%, for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 compared to the corresponding period in 2022, primarily due to PhunToken sales of ~~$1.0~~$1.5 million in 2022. We did not sell any PhunToken during ~~three~~the nine months ended ~~March 31,~~September 30, 2023.

Hardware revenue decreased by ~~$0.9~~$4.5 million, or ~~(20.6)~~(38.7)%, for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 compared to the corresponding period in 2022, as a result of lower order backlog as of December 31, 2022, as compared to December 31, ~~2021.~~2021 and lower sales of Lyte computers in 2023, as compared to the prior year.

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Cost of Revenues, Gross Profit and Gross Margin


		Three Months Ended March 31,						Change					Three Months Ended September 30,						Change
(in thousands, except percentages)	(in thousands, except percentages)	2023			2022			Amount		%		(in thousands, except percentages)	2023			2022			Amount		%
Cost of Revenues	Cost of Revenues											Cost of Revenues
Platform revenue	Platform revenue	$	1,271		$	1,067		$	204	19.1	%	Platform revenue	$	622		$	674		$	(52)	(7.7)	%
Hardware revenue	Hardware revenue	3,115			3,940			(825)		(20.9)	%	Hardware revenue	1,975			3,289			(1,314)		(40.0)	%
Total cost of revenues	Total cost of revenues	$	4,386		$	5,007		$	(621)	(12.4)	%	Total cost of revenues	$	2,597		$	3,963		$	(1,366)	(34.5)	%

Gross Profit	Gross Profit											Gross Profit
Platform revenue	Platform revenue	74			$	1,425		$	(1,351)	(94.8)	%	Platform revenue	$	631		$	585		$	46	7.9	%
Hardware revenue	Hardware revenue	287			$	346		$	(59)	(17.1)	%	Hardware revenue	(436)			210			(646)		(307.6)	%
Total gross profit	Total gross profit	$	361		$	1,771		$	(1,410)	(79.6)	%	Total gross profit	$	195		$	795		$	(600)	(75.5)	%

Gross Margin	Gross Margin											Gross Margin
Platform revenue	Platform revenue	5.5		%	57.2		%					Platform revenue	50.4		%	46.5		%
Hardware revenue	Hardware revenue	8.4		%	8.1		%					Hardware revenue	(28.3)		%	6.0		%
Total gross margin	Total gross margin	7.6		%	26.1		%					Total gross margin	7.0		%	16.7		%


	Nine Months Ended September 30,						Change
(in thousands, except percentages)	2023			2022			Amount		%
Cost of Revenues
Platform revenue	$	2,652		$	2,313		$	339	14.7	%
Hardware revenue	7,362			10,622			(3,260)		(30.7)	%
Total cost of revenues	$	10,014		$	12,935		$	(2,921)	(22.6)	%

Gross Profit
Platform revenue	1,241			$	3,066		$	(1,825)	(59.5)	%
Hardware revenue	(229)			$	1,020		$	(1,249)	(122.5)	%
Total gross profit	$	1,012		$	4,086		$	(3,074)	(75.2)	%

Gross Margin
Platform revenue	31.9		%	57.0		%
Hardware revenue	(3.2)		%	8.8		%
Total gross margin	9.2		%	24.0		%

Total gross profit decreased ~~$1.4~~$0.6 million, or ~~79.6%~~75.5%, three months ended September 30, 2023 compared to the corresponding period in 2022, as a result of the revenue items described above, as well as $0.5 million charge recorded for obsolete Lyte inventory component.

Total gross profit decreased $3.1 million, or 75.2%, for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 compared to the corresponding period of 2022, as a result of the revenue items and Lyte inventory charge described above. Further decreases in gross profit are attributable to ~~$0.2~~a $0.4 million increase in stock-based compensation expense ~~$0.2~~as well as $0.8 million ~~in less lower gross margin as a result of a lower transactional revenue.~~charge recorded for obsolete Lyte inventory component.

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Operating Expenses


		Three Months Ended March 31,				Change					Three Months Ended September 30,				Change
(in thousands, except percentages)	(in thousands, except percentages)	2023		2022		Amount		%		(in thousands, except percentages)	2023		2022		Amount		%
Operating expenses	Operating expenses									Operating expenses
Sales and marketing	Sales and marketing	$	1,128	$	1,485	$	(357)	(24.0)	%	Sales and marketing	$	1,027	$	1,819	$	(792)	(43.5)	%
General and administrative	General and administrative	4,712		4,305		407		9.5	%	General and administrative	3,478		5,189		(1,711)		(33.0)	%
Research and development	Research and development	1,772		1,003		769		76.7	%	Research and development	1,042		1,665		(623)		(37.4)	%

Impairment of goodwill										Impairment of goodwill	13,188		—		13,188		100.0	%
Total operating expenses	Total operating expenses	$	7,612	$	6,793	$	819	12.1	%	Total operating expenses	$	18,735	$	8,673	$	10,062	116.0	%


	Nine Months Ended September 30,				Change
(in thousands, except percentages)	2023		2022		Amount		%
Operating expenses
Sales and marketing	$	3,627	$	5,232	$	(1,605)	(30.7)	%
General and administrative	12,956		14,745		(1,789)		(12.1)	%
Research and development	4,026		4,544		(518)		(11.4)	%
Impairment of goodwill	14,391		—		14,391		100.0	%
Total operating expenses	$	35,000	$	24,521	$	10,479	42.7	%

Sales and Marketing

Sales and marketing expense decreased ~~$0.4~~$0.8 million, or ~~(24.0)~~(43.5)%, for the three months ended ~~March 31,~~September 30, 2023 compared to the corresponding period of 2022, primarily due to ana decrease ofin marketing related expenditures for Lyte.

Sales and marketing expense decreased $1.6 million, or (30.7)%, for the nine months ended September 30, 2023 compared to the corresponding period of 2022, primarily due to a decrease in marketing related expenditures for Lyte and PhunToken.

General and Administrative

General and administrative expense ~~increased $0.4~~decreased $1.7 million, or ~~9.5%~~33.0%, for the three months ended ~~March 31,~~September 30, 2023 compared to the corresponding period of 2022, due to ana $1.1 million decrease in legal fees and $0.4 decrease in compensation related expenses, mainly related to a decrease in headcount.

General and administrative expense decreased $1.8 million, or (12.1)%, for the nine months ended September 30, 2023 compared to the corresponding period of 2022, due to a $0.9 million decrease in compensation related expenses, mainly related to decrease in bonus accrual, and $1.8 million decrease in professional fees for legal expenses and consultants. These decreases were mostly offset by a $1.0 million increase in stock-based compensation ~~expense.~~expense and $0.3 million in facility related expenses.

Research and Development

Research and development expense ~~increased $0.8~~decreased $0.6 million, or ~~76.7%~~(37.4)%, for the three months ended ~~March 31,~~September 30, 2023 compared to the corresponding period of 2022, as a result of ~~$0.6~~a $0.5 million decrease in compensation expenses, mainly related decrease in employee headcount.

Research and development expense increased $0.5 million, or (11.4)%, for the nine months ended September 30, 2023 compared to the corresponding period of 2022, as a result of $0.4 million in ~~increased~~ compensation expenses, ~~$0.1 million~~mainly related to decrease in ~~contract labor~~bonus accrual and ~~$0.1 million in stock-based compensation expenses.~~employee headcount.

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Impairment of Goodwill

We recorded an impairment of goodwill related to our Phunware and Lyte operating segments for the three and nine months ended September 30, 2023. Refer to Note 3 "Supplemental Information" of the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion on our goodwill impairment.

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Other expense


		Three Months Ended March 31,				Three Months Ended September 30,
(in thousands, except percentages)	(in thousands, except percentages)	2023		2022			(in thousands, except percentages)	2023		2022
Other income (expense)	Other income (expense)						Other income (expense)
Interest expense	Interest expense	$	(537)	$	(381)		Interest expense	$	(264)	$	(991)
Loss on extinguishment of debt							Loss on extinguishment of debt	(237)		—

Impairment of digital assets		(50)		(9,353)
Gain on sale of digital assets	Gain on sale of digital assets	3,214		26			Gain on sale of digital assets	—		1
Fair value adjustment of warrant liability	Fair value adjustment of warrant liability	253		(213)			Fair value adjustment of warrant liability	—		797

Other income	Other income	102		26			Other income	62		53
Total other income (expense)	Total other income (expense)	$	2,982	$	(9,895)		Total other income (expense)	$	(439)	$	(140)


	Nine Months Ended September 30,
(in thousands, except percentages)	2023		2022
Other income (expense)
Interest expense	$	(1,354)	$	(1,645)
Loss on extinguishment of debt	(237)		—
Impairment of digital assets	(50)		(21,511)
Gain on sale of digital assets	5,310		195
Fair value adjustment of warrant liability	256		3,267

Other income	291		123
Total other income (expense)	$	4,216	$	(19,571)

During the three and nine months ended ~~March 31,~~September 30, 2023, we recorded other income of ~~$3.0~~$(0.4) million and $4.2 million, respectively, primarily as a result of expenses related to our debt offerings and realized gains on the sales of our bitcoin ~~holdings.~~holdings, respectively.

During the three months ended ~~March 31,~~September 30, 2022, we recorded other expenses of ~~$9.9~~$0.1 million , primarily as a result of interest expense on our outstanding debt, which was mostly offset by a gain in the fair value adjustment of our warrant liability. During the nine months ended September 30, 2022, we recorded other expense of $19.6 million, primarily as a result of impairment charges related to our digital asset ~~holding.~~holdings, which was partially offset by warrant fair value adjustments.

Refer to Note 5, "Digital ~~Assets,~~Assets" and Note 6, "Debt," of the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion regarding our digital asset ~~holdings.~~holdings and debt, respectively.

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Liquidity and Capital Resources

As of ~~March 31,~~September 30, 2023, we held total cash of ~~$0.7~~$2.9 million, all of which was held in the United States. We have a history of operating losses and negative operating cash flows. As we continue to focus on growing our revenues, we expect these trends to continue into the foreseeable future.

We may, if needed, sell our digital asset holdings for cash to fund our ongoing operations. As of March 31, 2023, we held 122 bitcoins and 377 ethereum, 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 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 pursuant to 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. As of ~~March 31,~~September 30, 2023, ~~2,623,460~~20,018,176 shares of our common stock have been sold for aggregate gross cash proceeds of ~~$4.6~~$11.5 million.

On July 6, 2022, we entered into a note purchase agreement and completed the sale of an unsecured promissory note with an original principal amount of $12.8 million in a private placement (the "2022 Promissory Note"). After deducting all transaction fees paid by us at closing, net cash proceeds to us at closing were $11.8 million. No interest ~~will~~was to accrue on the 2022 Promissory ~~Note unless and until the occurrence of an event of default (as defined in the 2022 Promissory Note).~~Note. Beginning on November 1, 2022 and on the same day of each month thereafter until the 2022 Promissory Note is paid in full, we ~~are~~were required to make monthly amortization payments ~~in the amount~~ of approximately $1.6 million until the original maturity date of July 1, ~~2022,~~2023, which iswas subject to adjustment for any payment deferrals we elect. We may prepay any or all of the outstanding balance of the 2022 Promissory Note earlier than it is due with a prepayment premium of 110%. The prepayment premium also applies to the monthly amortization payments.elected. On March 15, 2023, we entered into a waiver agreement with the holder of our 2022 Promissory Note, waiving the Payment Deferral Conditions, as defined, at that time, in the 2022 Promissory Note. For agreeing to waive the Payment Deferral Conditions, we agreed to compensate the noteholder an amount equal to 5% of the outstanding balance immediately before entering into the waiver agreement. In connection therewith, we elected to defer the monthly payments under the 2022 Promissory Note for the months of April, May, June and July 2023. As a result of our election to defer the monthly payments, the outstanding balance of the 2022 Promissory Note ~~will be~~was increased by 1.85% on the first day of each month beginning on April 1, 2023 and concluding on July 1, 2023. The waiver fee and the additional principal ~~will~~was to be paid in connection with our monthly installment payments once the deferral period ~~concludes.~~concluded. Beginning on August 1, 2023 and on the same day of each month thereafter, we ~~are~~were required to pay to the noteholder the new monthly amortization payment in the amount of ~~$1,769~~approximately $1.8 million. On August 14, 2023, we entered into an amendment to the 2022 Promissory Note with the noteholder. The amendment extends the maturity date to June 1, 2024 and provides that effective August 1, 2023, we are required to make monthly amortization payments of at least $800 thousand commencing on August 31, 2023 until the ~~new maturity~~2022 Promissory Note is paid-in-full. We also granted the noteholder certain limited conversion rights, which if elected by the noteholder, would reduce the required monthly payment. The limited conversion rights are subject to advance payment and volume conditions. The amendment also provides that the outstanding balance shall accrue interest at a rate of 8% and payment deferrals are no longer permitted under the 2022 Promissory Note. Furthermore, the amendment removed the required payment of approximately $1.8 million that was due on August 1, 2023.

In July 2023, we implemented a plan to decrease our cash burn by reducing employee headcount and other operating expenditures.

On August 22, 2023, we entered into a common stock purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, we have the right, but not the obligation, to sell to Lincoln Park up to $30 million in value of shares of our common stock from time to time over the 24-month term of the purchase agreement. On any business day selected by us, we may direct Lincoln Park to purchase up to 250,000 shares of our common stock subject to adjustment as set forth below, on such business day (or the purchase date), which we refer to as a "Regular Purchase," provided, however, that (i) a Regular Purchase may be increased to up to 350,000 shares if the closing sale price of our common stock on the Nasdaq is not below $0.20 on the applicable purchase date; (ii) a Regular Purchase may be increased to up to 450,000 shares if the closing sale price of our common stock on Nasdaq is not below $0.30 on the applicable purchase date; (iii) a Regular Purchase may be increased to up to 550,000 shares if the closing sale price of our common stock on Nasdaq is not below $0.50 on the applicable purchase date; and (iv) a Regular Purchase may be increased to up to 650,000 shares if the closing sale price of our common stock on Nasdaq is not below $0.75 on the applicable purchase date. Lincoln Park’s committed obligation under any single Regular Purchase, subject to certain exceptions, cannot exceed $1,000. We may direct Lincoln Park to purchase shares in Regular Purchases as often as every business day, so long as the closing sale price of our common stock on such business day is not less than the floor price of $0.10 per share. Concurrently with entering into the purchase agreement, we also entered into a registration rights agreement with Lincoln Park pursuant to which the Company agreed to register the sale of the shares of the Company’s common stock that have been and may be issued to Lincoln Park under the purchase agreement pursuant to the Company’s existing shelf registration statement on Form S-3. During the nine months ended September 30, 2023, we sold 1,712,503 shares of our common stock, including certain commitment shares issued to Lincoln Park in connection with the transaction, for aggregate net cash proceeds of $88. Transaction costs were $97. As of September 30, 2023, $29.9 million in value of shares of our common stock remains issuable pursuant to the purchase agreement with Lincoln Park.

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Subsequent to September 30, 2023, we also raised approximately $0.2 million in our at-the-market equity offering under our At Market Issuance Sales Agreement we entered into with H.C. Wainwright & Co., LLC. Our future plans may include additional reductions to operating expenses, additional sales of our common stock in our at-the-market offering, and issuing additional shares of common stock, preferred stock, warrants or units pursuant to an effective shelf registration statement. Plans to generate cash sufficient to meet our capital requirements may include selling shares of our common stock in our at-the-market equity offering, and as of the date of ~~November 1, 2023.~~this Report, shares of our common stock with a maximum aggregate offering price of up to $88.4 million may be sold pursuant to the sales agreement. We may also issue shares of our common stock, preferred stock, warrants and units in other offerings pursuant to our effective registration statement.

Our expectation that we will generate operating losses and negative operating cash flows in the future and the need for additional funding to support our planned operations raise substantial doubt regarding our ability to continue as a going concern. Management believes that our existing cash ~~and liquidation of some, or all, of our digital asset holdings~~ would not be sufficient to satisfy our operating cash needs for the year after the filing of this Quarterly Report on Form 10-Q, and substantial doubt exists about our ability to continue as a going concern for ~~a period of at~~ one year following the filing date of this Quarterly Report on Form 10-Q.

Additional plans may include selling shares of our common stock in our "at the market" offering, and as of the date of this Report, shares of our common stock with a maximum aggregate offering price of up to $95.3 million may be sold pursuant to the sales agreement. We may also issue shares of our common stock, preferred stock, warrants and units in other offerings pursuant to our effective registration statement.

Our future capital requirements will depend on many factors, including our pace of growth, subscription renewal activity, the timing and extent of spend to support development efforts, ~~the pace at which we can scale Lyte,~~ the expansion of sales and marketing activities and the market acceptance of our products and services. We believe that it is likely we will in the future enter into arrangements to acquire or invest in complementary businesses, technologies and intellectual property rights. We may be required to seek additional equity or debt ~~financings,~~financing, or issue securities under our 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

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acceptable to us, or at all. Furthermore, we are currently not in compliance with the Bid Price Requirement of the Nasdaq. Although the Company is attempting to regain compliance, there can be no assurance that we will regain compliance with the Bid Price Requirement or maintain compliance with other Nasdaq continued listing requirements. This may also affect our ability to raise additional funds and the liquidity of our common stock. 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.

The accompanying consolidated financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the ordinary course of business.

The following table summarizes our cash flows for the periods presented:


		Three Months Ended March 31,				Nine Months Ended September 30,
(in thousands, except percentages)	(in thousands, except percentages)	2023		2022			(in thousands, except percentages)	2023		2022
Consolidated statement of cash flows
Consolidated cash flows							Consolidated cash flows
Net cash used in operating activities	Net cash used in operating activities	$	(7,382)	$	(10,171)		Net cash used in operating activities	$	(15,869)	$	(22,872)
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	$	10,784	$	(569)		Net cash provided by (used in) investing activities	$	15,383	$	(2,286)
Net cash used in financing activities		$	(4,687)	$	(1,550)
Net cash provided in financing activities							Net cash provided in financing activities	$	1,379	$	10,768

Operating Activities

The primary source of cash from operating activities is receipts from sales of our various product and service offerings to customers. The primary uses of cash from operating activities are payments to employees for compensation and related expenses, publishers and other vendors for the purchase of digital media inventory and related costs, payments to vendors for the costs of inventory related to the assembly and shipping of Lyte computers, sales and marketing expenses and general operating expenses.

We utilized ~~$7.4~~$15.9 million of cash from operating activities during the ~~three~~nine months ended ~~March 31,~~September 30, 2023, resulting in a net loss of ~~$4.3~~$29.8 million. The net loss included a gain on the sale of digital assets of ~~$3.2~~$5.3 million and non-cash charges of ~~$1.8~~$20.9 million, primarily consisting of stock-based ~~compensation.~~compensation and impairment of goodwill. In addition, certain changes in our operating assets and liabilities resulted in a cash ~~decreases~~decrease of ~~$1.7~~$1.6 million, primarily relating to a decrease in deferred ~~revenue.~~revenue and inventory.

We utilized ~~$10.2~~$22.9 million of cash from operating activities during the ~~three~~nine months ended ~~March 31,~~September 30, 2022, ~~resulting in~~primarily as a result of a net loss of ~~$14.9~~$40.0 million. The net loss included non-cash charges of ~~$10.2~~$22.1 million, primarily consisting of impairment of digital assets, ($3.2) million gain on fair value adjustment of our outstanding warrant and $2.2 million of

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stock-based compensation. In addition, certain changes in our operating assets and liabilities resulted in significant cash (decreases) as follows: ~~$(1.3)~~a decrease in deferred revenue of ($2.5) million as a result of revenue recognized from aexisting customer contracts and timing of invoices to customers, ($0.7) million increase in accounts receivable due to the timing of customer invoices and related payments to us, ($0.6) million increase in inventory for computer hardware components as we prepare for the holiday season, ($0.6) million for lease liability payments and $(0.2) million 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.~~expenses.

Investing Activities

Investing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 and 2022 primarily consisted ~~mainly~~ of the ~~sales~~purchases and ~~purchases~~sales of digital assets ~~respectively.~~and payments relating to the acquisition of Lyte Technology, Inc.

Financing Activities

Our financing activities during the ~~three~~nine months ended ~~March 31,~~September 30, 2023 consisted of $6.9 million in proceeds from the sale of our common stock. We also had payments on our 2022 Promissory Note of ~~$4.3~~$5.1 million and $0.5 million for repurchases of shares of our common stock. 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~~nine months ended ~~March 31,~~September 30, 2022 ~~primarily~~ consisted of proceeds from equity financings and debt borrowings offset by payments on debt. We acquired $10.8 million of cash from financing activities resulting primarily from $11.8 million in proceeds from our 2022 Promissory Note and $3.7 million in proceeds from the sales of our common stock. We had payments on debt of ~~$1.6~~$4.7 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.

Contractual Obligations

Information set forth in Note 7, "Leases," in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

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Off-Balance Sheet Arrangements

Through ~~March 31,~~September 30, 2023, 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 Item I, Part I of this Quarterly Report on Form 10-Q for analysis of recent accounting pronouncements applicable to our business.

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

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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 included in Item I, Part I of 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, 2022 filed with the SEC on March 31, 2023.

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.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in conjunction with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended ~~March 31,~~September 30, 2023 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 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, 2023 for the year ended December 31, 2022 and the information set forth below or contained elsewhere in this Report. The risks and uncertainties described within our Form 10-K for the year ended December 31, 2022 and as set forth below are not the only 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.

Our future performance will depend on the successful transition of our Chief Executive Officer (CEO).

On October 25, 2023, we announced the transition of our Chief Executive Officer and further announced the appointment of Michael Snavely to serve as our Chief Executive Officer effective as of that date. If we ~~cannot meet~~are unable to execute a timely and orderly transition and successfully integrate our new Chief Executive Officer into our leadership team, revenue, operating results and our financial condition may be adversely impacted.

Our future performance also will continue to depend on the ~~continued listing~~services and contributions of our other senior management and key employees to execute on our business plan and to identify and pursue new opportunities as well as service and product innovations. These changes, and any future changes, in our operations and management team could be disruptive to our operations. Further, if our new Chief Executive Officer formulates different or changed views, the future strategy and plans of our business may differ materially from those of the past.

If we fail to comply with the minimum closing bid requirements of Nasdaq by April 8, 2024, or other requirements for continued listing on the Nasdaq, including stockholder equity and market value requirements, the Nasdaq may delist our common stock, which would have an adverse impact on the trading volume, liquidity and market price of our common stock and would trigger a default under our 2022 Promissory Note.

Our common stock is currently listed on the Nasdaq Capital Market. On April 13, 2023, we were notified by the Nasdaq Stock Market LLC (the “Nasdaq”) that the closing bid price for our common stock had been below $1.00 for the last 30 consecutive business days and that the Company therefore is not in compliance with the minimum bid price requirement for continued inclusion on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”). Under the Nasdaq Listing Rules, the Company ~~has~~was granted a period of 180 calendar days from the date of the notice, or October 10, 2023, ~~(the "Compliance Date"),~~ to regain compliance with the Bid Price Requirement. On October 10, 2023, pursuant to Nasdaq Listing Rules, we submitted a request to Nasdaq for an additional 180-day extension to regain compliance with the Bid Price Requirement and notice of our intention to cure the deficiency, including by effecting a reverse stock split, if necessary. On October 12, 2023, Nasdaq advised us that we were provided an additional 180 calendar day compliance period, or until April 8, 2024, to regain compliance with the Bid Price Requirement.

To regain compliance, the closing bid price of the Company’s common stock must be at least $1.00 for a minimum of ten consecutive business ~~days prior to the Compliance Date.~~

days. We intend to monitor the closing bid price of our common stock and may, if appropriate, consider available options to regain compliance with the Bid Price Requirement. To regain compliance with Nasdaq listing standards we may have to implement a reverse stock split, subject to approval of our board of directors and stockholders. However, there can be no assurance that we will be able to regain compliance with the Bid Price Requirement or will otherwise be in compliance with other Nasdaq Listing Rules.

If ~~our common stock ultimately were~~we are unable to ~~be delisted for~~regain compliance with the Bid Price Requirement by April 8, 2024, or if we fail to meet any ~~reason,~~other continued listing requirements, including stockholders equity and market value requirements, it could negatively impact us as it would likely reduce the liquidity and market price of our common stock; reduce the number of investors willing to hold or acquire our common stock; and negatively impact our ability to access equity markets and obtain financing. If our common stock were to be removed from listing on the Nasdaq (and our common stock ~~were~~is not ~~to become~~ listed on other specified stock exchanges),

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it would trigger a default under our 2022 Promissory Note, as amended, and the outstanding balance would be immediately due and payable in cash at the Mandatory Default Amount, ~~(as~~as defined in the 2022 Promissory ~~Note).~~Note.

If we implement a reverse stock split, the liquidity of our common stock may be adversely effected.

The Company intends to request stockholder approval at its next annual meeting of stockholders for an amendment to our certificate of incorporation to effect a reverse stock split, if necessary, of our issued and outstanding shares of common stock to regain compliance with the Bid Price Requirement. However, there can be no assurance that the post-reverse stock split market price of our common stock will increase in proportion to the reduction in the number of shares of our common stock outstanding immediately before the reverse stock split. The liquidity of the shares of our common stock may be affected adversely by any reverse stock split given the reduced number of shares of our common stock that will be outstanding following the reverse stock split. In addition, the reverse stock split may increase the number of stockholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.

Following any reverse stock split, the resulting market price of our common stock may not attract new investors and may not satisfy the investing requirements of those investors. Although we believe that a higher market price of our common stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our common stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our common stock may not necessarily improve.

We may incur additional costs with respect to our wind down of Lyte. These costs may be in the form of cash and non-cash charges, each of which may be material and have an adverse affect on our liquidity and financial statements.

On November 1, 2023, we committed to a plan to discontinue and wind down, either by sale or closing, operations of our PC manufacturing assembly business, Lyte. We expect to complete this process by the end of 2023. As of result, the Company currently estimates that it will incur cash costs related to the wind down of Lyte of between $0.2 million and $0.4 million, and we currently expect these costs to be paid during the fourth quarter of 2023 and primarily funded from proceeds from sale of Lyte’s assets. In addition, we currently expect to incur pre-tax, non-cash losses that could approximate up to $3.0 million during the fourth quarter of 2023.

The Company may incur additional costs or charges related to the actions described above. Although the Company cannot currently predict the amount or timing of these other charges, at this time, these additional costs or charges could be material to our liquidity and financial statements.

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

~~The following table summarizes the Company's stock repurchase activity for the three months ended March 31, 2023:~~

Issuer Purchases of Common Stock
Total Number of Shares Purchased Average Price Paid per Common Share
Total Number of Shares Purchased as Part of Publicly Announced Programs (1)
Maximum Dollar Value of Shares That May Yet Be Purchased Under the Programs (in thousands) (1)
January 2023 328,907 $ 1.04 328,907 $ 4,658
February 2023 132,593 $ 1.00 132,593 $ 4,525
March 2023 — $ — — $ 4,525
Total quarter ended March 31, 2023 461,500 $ 1.03 461,500 $ 4,525


~~(1)~~			On January 5, 2023, our board of directors authorized and approved a stock repurchase program for the repurchase of outstanding shares of our common stock with an aggregate value of up to $5 million. The authorization permits us to repurchase shares of our common stock from time-to-time through open market repurchases at prevailing market prices, in accordance with federal securities laws. The stock repurchase plan is expected to be completed over the next twelve (12) months and may be amended or terminated at any time, in the sole discretion of our board of directors. The exact means, number and timing of stock repurchases will depend on market conditions, applicable legal requirements and other factors, and will be funded through the liquidation of our bitcoin holdings.

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~The information set forth under the subheading "Key Events and Recent Developments" included in Part I, Item 2, of this Quarterly Report on Form 10-Q is incorporated herein by reference.

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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~~3.1 of the Registrant’s Form 8-K (File No. 001-37862), filed with the SEC on ~~January 2, 2019)~~November 4, 2022).
~~10.1+~~10.1						Purchase Agreement, dated August 22, 2023 by and between Phunware, Inc. ~~2022 Inducement Plan (Incorporated~~ and Lincoln Park Capital, LLC (Incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K (File No. 001-37862), filed with the SEC on ~~January 6,~~August 23, 2023).
~~10.2+~~10.2						~~Amended and Restated Employment~~Registration Rights Agreement, dated August 22, 2023 by and between Phunware, Inc. and ~~Matt Lull~~Lincoln Park Capital, LLC (Incorporated by reference to Exhibit ~~10.44~~10.1 of the Registrant's Form ~~10-K~~8-K (File No. 001-37862), filed with the SEC on ~~March 31,~~August 23, 2023).
10.3+						~~Amended~~Confidential Separation, Consulting and ~~Restated~~General Release Agreement by and between Phunware, Inc. and Russell Buyse dated October 25, 2023 (Incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K (File No. 001-37862) filed with the SEC on October 26, 2023).
10.4+						Confidential Employment Agreement by and between Phunware, Inc. and ~~Chris Olive (Incorporated~~Mike Snavely dated October 25, 2023 Incorporated by reference to Exhibit ~~10.43~~10.1 of the Registrant's Form ~~10-K~~8-K (File No. 001-37862), filed with the SEC on ~~March 31,~~October 26, 2023).
10.5*						Lease Termination Agreement by and between Phunware, Inc. and Jonsson ATX Warehouse, LLC dated November 9, 2023.
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)~~ 32.1**						Certification of the Principal Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350*
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

** Furnished herewith

+ Indicates a management contract or compensatory plan or arrangement

~~(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.

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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 12,~~November 9, 2023	Phunware, Inc.

	By:	/s/ ~~Russell Buyse~~Michael Snavely
		Name:	~~Russell Buyse~~Michael Snavely
		Title:	Chief Executive Officer
			(Principal Executive Officer)


~~May 12,~~November 9, 2023	By:	/s/ ~~Matt Aune~~Troy Reisner
		Name:	~~Matt Aune~~Troy Reisner
		Title:	Chief Financial Officer
			(Principal Accounting and Financial Officer)

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Issuer Purchases of Common Stock
	Total Number of Shares Purchased	Average Price Paid per Common Share		Total Number of Shares Purchased as Part of Publicly Announced Programs (1)	Maximum Dollar Value of Shares That May Yet Be Purchased Under the Programs (in thousands) (1)
January 2023	328,907	$	1.04	328,907	$	4,658
February 2023	132,593	$	1.00	132,593	$	4,525
March 2023	—	$	—	—	$	4,525
Total quarter ended March 31, 2023	461,500	$	1.03	461,500	$	4,525