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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10-Q
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20202021
☐    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)
Delaware26-441377430-1205798
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification Number)

7800 Shoal Creek BlvdSuite 230-SAustinTX78757
(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 sharePHUNThe NASDAQ Capital Market
Warrants to purchase one share of Common StockPHUNWThe 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 ☒
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 sharePHUNThe NASDAQ Capital Market
Warrants to purchase one share of Common StockPHUNWThe NASDAQ Capital Market
As of May 12, 2020, 40,950,20610, 2021, 71,662,933 shares of common stock, par value $0.0001 per share, were issued and outstanding.


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Condensed Consolidated Balance Sheets as of March 31, 20202021 and December 31, 20192020
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Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 20202021 and 20192020
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Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity for the three months ended March 31, 20202021 and 20192020
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Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 20202021 and 20192020
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report (the “Report”) includes forward-looking statements.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,“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.“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”“Risk Factors” may not be exhaustive.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Phunware, Inc.
Condensed Consolidated Balance Sheet
(In thousands, except per share information)
March 31,
2020		December 31,
2019
(Unaudited)
Assets
Current assets:
Cash$833  $276  
Accounts receivable, net of allowance for doubtful accounts of $3,153 and $3,179 at March 31, 2020 and December 31, 2019, respectively913  1,671  
Prepaid expenses and other current assets475  368  
Total current assets2,221  2,315  
Property and equipment, net16  24  
Goodwill25,784  25,857  
Intangible assets, net212  253  
Deferred tax asset – long term241  241  
Restricted cash91  86  
Other assets276  276  
Total assets$28,841  $29,052  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$10,670  $10,159  
Accrued expenses4,404  4,035  
Deferred revenue3,132  3,360  
PhunCoin deposits1,202  1,202  
Factored receivables payable450  1,077  
Current maturities of long-term debt, net1,195  —  
Total current liabilities21,053  19,833  
Long-term debt2,104  910  
Long-term debt - related party755  195  
Deferred tax liability241  241  
Deferred revenue3,200  3,764  
Deferred rent135  83  
Total liabilities27,488  25,026  
Commitments and contingencies
Stockholders’ equity
Common stock, $0.0001 par value4  4  
Additional paid in capital129,370  128,008  
Accumulated other comprehensive loss(454) (382) 
Accumulated deficit(127,567) (123,604) 
Total stockholders’ equity1,353  4,026  
Total liabilities and stockholders’ equity$28,841  $29,052  
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Phunware, Inc.
Condensed Consolidated Statements of Operations and Comprehensive LossBalance Sheet
(In thousands, except share and per share information)
(Unaudited)
Three Months Ended
March 31,
20202019
Net revenues$2,640  $5,315  
Cost of revenues1,091  2,617  
Gross profit1,549  2,698  
Operating expenses:
Sales and marketing605  724  
General and administrative3,945  3,975  
Research and development861  1,309  
Total operating expenses5,411  6,008  
Operating loss(3,862) (3,310) 
Other income (expense):
Interest expense(101) (188) 
Other income—  4  
Total other expense(101) (184) 
Net loss(3,963) (3,494) 
Other comprehensive loss:
Cumulative translation adjustment(72) 27  
Comprehensive loss$(4,035) $(3,467) 
Net loss per common share, basic and diluted$(0.10) $(0.12) 
Weighted-average common shares used to compute net loss per share, basic and diluted40,095  30,264  
March 31,
2021		December 31,
2020
(Unaudited)
Assets
Current assets:
Cash$23,469 $3,940 
Accounts receivable, net of allowance for doubtful accounts of $122 and $356 at March 31, 2021 and December 31, 2020, respectively937 664 
Digital currencies1,098 0 
Prepaid expenses and other current assets794 304 
Total current assets26,298 4,908 
Property and equipment, net12 13 
Goodwill25,911 25,900 
Intangible assets, net79 111 
Deferred tax asset537 537 
Restricted cash91 91 
Right-of-use asset1,723 0 
Other assets276 276 
Total assets$54,927 $31,836 
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable$7,781 $8,462 
Accrued expenses3,190 5,353 
Accrued legal settlement3,000 3,000 
Lease liability530 0 
Deferred revenue2,180 2,397 
PhunCoin deposits1,202 1,202 
Current maturities of long-term debt, net10,012 4,435 
Warrant liability2,499 1,614 
Total current liabilities30,394 26,463 
Long-term debt3,741 3,762 
Long-term debt - related party195 195 
Deferred tax liability537 537 
Deferred revenue2,054 2,678 
Lease liability1,447 0 
Deferred rent0 180 
Total liabilities38,368 33,815 
Commitments and contingencies00
Stockholders’ equity (deficit)
Common stock, $0.0001 par value; 1,000,000,000 shares authorized at March 31, 2021 and December 31, 2020; 71,211,399 and 56,380,111 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively7 6 
Additional paid-in capital175,046 144,156 
Accumulated other comprehensive loss(328)(338)
Accumulated deficit(158,166)(145,803)
Total stockholders’ equity (deficit)16,559 (1,979)
Total liabilities and stockholders’ equity (deficit)$54,927 $31,836 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Phunware, Inc.
Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred StockOperations and Stockholders’ EquityComprehensive Loss
(In thousands)
(Unaudited)thousands, except per share information)

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

Preferred StockCommon StockAdditional
Paid-in
Capital		Accumulated
Deficit		Other
Comprehensive
Loss		Total
Stockholders’
Equity
SharesAmountSharesAmount
Balance - December 31, 20186  5,377  27,253  $3  $118,062  $(111,820) $(418) $5,827  
Cumulative-effect adjustment resulting from the adoption of ASU 2014-09 (Note 2)—  —  —  —  —  1,087  —  1,087  
Exercise of stock options, net of vesting of restricted shares—  —  61  —  35  —  —  35  
Issuance of common stock related to cash-based exercise of common stock warrants—  —  617  —  6,184  —  6,184  
Issuance of common stock related to cashless exercise of warrants—  —  10,400  1  (1) —  —  —  
Series A convertible preferred stock redeemed for cash(6) (5,377) —  —  (863) —  —  (863)
Waiver of sponsor promissory note originally issued in conjunction with business combination—  —  —  —  1,993  —  —  1,993
Stock-based compensation expense—  —  —  —  11  —  —  11
Cumulative translation adjustment—  —  —  —  —  —  27  27
Net loss—  —  —  —  —  (3,494) —  (3,494)
Balance - March 31, 2019—  —  38,331  $4  $125,421  $(114,227) $(391) $10,807  
Three Months Ended
March 31,
20212020
Net revenues$1,646 $2,640 
Cost of revenues692 1,091 
Gross profit954 1,549 
Operating expenses:
Sales and marketing556 605 
General and administrative2,758 3,945 
Research and development1,052 861 
Total operating expenses4,366 5,411 
Operating loss(3,412)(3,862)
Other expense:
Interest expense(2,219)(101)
Loss on extinguishment of debt(5,768)0 
Loss on change in fair value of warrant liability(885)0 
Other expense(79)0 
Total other expense(8,951)(101)
Loss before taxes(12,363)(3,963)
Income tax expense0 0 
Net loss(12,363)(3,963)
Other comprehensive income (loss):
Cumulative translation adjustment10 (72)
Comprehensive loss$(12,353)$(4,035)
Net loss per common share, basic and diluted$(0.19)$(0.10)
Weighted-average common shares used to compute net loss per share, basic and diluted64,587 40,095 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Phunware, Inc.
Condensed Consolidated Statements of Cash FlowsChanges in Stockholders’ Equity (Deficit)
(In thousands)
(Unaudited)
Three Months Ended
March 31,
20202019
Operating activities
Net loss$(3,963) $(3,494) 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation8  16  
Amortization of acquired intangibles41  75  
Amortization of debt discount and deferred financing costs13  —  
Loss on sale of digital currencies—  4  
Bad debt (recovery) expense(16) 15  
Stock-based compensation635  11  
Changes in operating assets and liabilities:
Accounts receivable783  850  
Prepaid expenses and other assets(108) (34) 
Accounts payable851  (1,290) 
Accrued expenses643  (87) 
Deferred revenue(792) (182) 
Net cash used in operating activities(1,905) (4,116) 
Investing activities
Proceeds received from sale of digital currencies—  88  
Net cash provided by investing activities—  88  
Financing activities
Proceeds from borrowings, net of issuance costs2,595  —  
Proceeds from related party bridge loans560  
Net repayments on factoring agreement(627) (803) 
Proceeds from warrant exercises—  5,731  
Proceeds from exercise of options to purchase common stock15  35  
Series A convertible preferred stock redemptions and dividend payments—  (6,240) 
Net cash provided by (used in) financing activities2,543  (1,277) 
Effect of exchange rate on cash and restricted cash(76) 26  
Net increase (decrease) in cash and restricted cash562  (5,279) 
Cash and restricted cash at the beginning of the period362  6,344  
Cash and restricted cash at the end of the period$924  $1,065  
Supplemental disclosure of cash flow information
Interest paid$98  $213  
Income taxes paid$—  $—  
Non-cash investing and financing activities:
Proceeds due from transfer agent for warrant exercises $—  $361  
Issuance of common stock for payment of legal and board of director fees $492  $—  
Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Other
Comprehensive
Loss		Total
Stockholders’
Equity (Deficit)
SharesAmount
Balance - December 31, 202056,371 $6 $144,156 $(145,803)$(338)$(1,979)
Exercise of stock options, net of vesting of restricted shares120 — 65 — — 65 
Release of restricted stock183 — — — — — 
Issuance of common stock for payment of board of director fees99 — 66 — — 66 
Sales of common stock, net of issuance costs14,431 1 29,704 — — 29,705 
Stock-based compensation expense— — 1,055 — — 1,055 
Cumulative translation adjustment— — — — 10 10 
Net loss— — — (12,363)— (12,363)
Balance - March 31, 202171,204 $7 $175,046 $(158,166)$(328)$16,559 
Common StockAdditional Paid-in CapitalAccumulated DeficitOther Comprehensive LossTotal Stockholders’ Equity
SharesAmount
Balance - December 31, 201939,811 $4 $128,008 $(123,604)$(382)$4,026 
Exercise of stock options, net of vesting of restricted shares33 — 16 — — 16 
Vesting of restricted stock units116 — — — — — 
Issuance of common stock for payment of legal and board of director fees733 — 492 — — 492 
Stock-based compensation expense— — 635 — — 635 
Equity classified cash conversion feature of Senior Convertible Note    — — 219 — — 219 
Cumulative translation adjustment— — — — (72)(72)
Net loss— — — (3,963)— (3,963)
Balance - March 31, 202040,693 $4 $129,370 $(127,567)$(454)$1,353 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Phunware, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
20212020
Operating activities
Net loss$(12,363)$(3,963)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization33 49 
Amortization of debt discount and deferred financing costs1,642 13 
Amortization of right-of-use asset114 0 
Loss on change in fair value of warrant liability885 0 
Impairment of right-of-use asset77 0 
Loss on extinguishment of debt5,768 0 
Bad debt recovery(234)(16)
Stock-based compensation1,055 635 
Changes in operating assets and liabilities:
Accounts receivable(40)783 
Prepaid expenses and other assets(490)(108)
Accounts payable(682)851 
Accrued expenses(2,287)643 
Lease liability64 0 
Deferred revenue(841)(792)
Net cash used in operating activities(7,299)(1,905)
Investing activities
Purchase of digital currencies(1,098)0 
Net cash provided by investing activities(1,098)0 
Financing activities
Proceeds from borrowings, net of issuance costs9,981 2,595 
Proceeds from related party bridge loans0 560 
Payments on senior convertible notes(11,835)0 
Net repayments on factoring agreement0 (627)
Proceeds from exercise of options to purchase common stock65 15 
Proceeds from sales of common stock, net of issuance costs29,705 0 
Net cash provided by (used in) financing activities27,916 2,543 
Effect of exchange rate on cash and restricted cash10 (76)
Net increase (decrease) in cash and restricted cash19,529 562 
Cash and restricted cash at the beginning of the period4,031 362 
Cash and restricted cash at the end of the period$23,560 $924 

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Supplemental disclosure of cash flow information:
Interest paid$567 $98 
Income taxes paid$0 $0 
Supplemental disclosures of non-cash financing activities:
Issuance of common stock for payment of legal and board of director fees$66 $492 
Equity classified cash conversion feature of Senior Convertible Note$0 $219 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Phunware, Inc
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share information)
(Unaudited)
1. The Company and Basis of Presentation
The Company
Phunware, Inc. and its subsidiaries (the “Company”, "we", "us", or "our") offers a fully integrated software platform that equips companies with the products, solutions and services necessary to engage, manage and monetize their mobile application portfolios globally at scale. Phunware’s Multiscreen as a ServiceMultiscreen-as-a-Service ("MaaS") platform provides the entire mobile lifecycle of applications media and datamedia in one login through one procurement relationship. The Company’s MaaS technology is available in software development kit form for organizations developing their own application, via customized development services and prepackaged solutions. Through its integrated mobile advertising platform of publishers and advertisers, the Company provides in-app application transactions for mobile audience building, user acquisition, application discovery, audience engagement and audience monetization. Founded in 2009, the Company iswe 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, 20192020 was derived from the Company’sour audited consolidated financial statements, but these interim condensed consolidated financial statements do not include all the annual disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with the Company’sour audited consolidated financial statements and the notes thereto for the year ended December 31, 2019,2020, which are referenced herein. The accompanying interim condensed consolidated financial statements as of March 31, 20202021 and for the three months ended March 31, 20202021 and 2019,2020, are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the audited financial statements, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to fairly state the Company’sour financial position as of March 31, 20202021 and the results of operations for the three months ended March 31, 20202021 and 2019,2020, and cash flows for the three months ended March 31, 20202021 and 2019.2020. The results for the three months ended March 31, 20202021 are not necessarily indicative of the results to be expected for the year ending December 31, 20202021 or for any future interim period.
Reclassifications of Prior Year Presentation
Certain amounts in the financial statements of prior periods have been reclassified to conform to the current period financial statement presentation. This reclassification had no effect on the Company's reported results of operations. A reclassification was made to the condensed consolidated balance sheet as of December 31, 2019 to identify related parties for debt issuances.
Concentrations of Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and trade accounts receivable. Although the Company limits its exposure to credit loss by depositing its cash with established financial institutions that management believes have good credit ratings and represent minimal risk of loss of principal, its deposits, at times, may exceed federally insured limits. Collateral is not required for accounts receivable, and the Company believes the carrying value approximates fair value.

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The following table sets forth the Company's concentration of revenue sources as a percentage of total net revenues.
Three Months Ended March 31,
20202019
Fox Networks Group— %63 %
American Made Media Consultants, LLC31 %— %
Houston Methodist11 %13 %

The following table sets forth the Company's concentration of accounts receivable, net of specific allowances for doubtful accounts.
March 31, 2020December 31, 2019
American Made Media Consultants, LLC30 %15 %
Presidio Networked Solutions LLC23 %11 %
Fort Lauderdale International Airport/Starmark10 %— %
HID Global (through Bluvision Inc.)— %23 %
MD Anderson— %10 %
The Company completed its contractual obligations under its statement of work with Fox Networks Group ("Fox") as of September 30, 2019. While the underlying master services agreement with Fox (setting forth general terms and conditions) remains in place, the Company does not have any active statements of work with Fox.
Going Concern
Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern ("ASC 205-40") requires management to assess the Company’s ability to continue as a going concern for one year after the date the financial statements are issued. Under ASC 205-40, management has the responsibility to evaluate whether conditions and/or events raise substantial doubt about the Company’s ability to meet future financial obligations as they become due within one year after the date that the financial statements are issued. As required by this standard, management’s evaluation shall initially not take into consideration the potential mitigating effects of management’s plans that have not been fully implemented as of the date the financial statements are issued.
The Company’s assessment included the preparation of a detailed cash forecast that included all projected cash inflows and outflows. The Company continues to focus on growing its revenues. Accordingly, operating expenditures may exceed the revenue it expects to receive for the foreseeable future. Additionally, the Company has a history of operating losses and negative operating cash flows and expects these trends to continue into the foreseeable future.
Future plans may include obtaining new debt financings and credit lines, utilizing existing or expanding existing credit lines, issuing equity securities, including the exercise of warrants, and reducing overhead expenses. Despite a history of successfully implementing similar plans to alleviate the adverse financial conditions, these sources of working capital are not currently assured, and consequently do not sufficiently mitigate the risks and uncertainties disclosed above. There can be no assurance that the Company will be able to obtain additional funding on satisfactory terms or at all. In addition, no assurance can be given that any such financing, if obtained, will be adequate to meet the Company’s capital needs and support its growth. If additional funding cannot be obtained on a timely basis and on satisfactory terms, its operations would be materially negatively impacted. The Company has therefore concluded there is substantial doubt about its ability to continue as a going concern through one year from the issuance of these condensed consolidated financial statements.
The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.
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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 filed with the SEC on March 30, 2020 for the year ended December 31, 2019,2020, except as set forth below.
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2019-12, Income Taxes(Topic 740):Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 includes the removal of certain exceptions to the general principles of ASC 740 and simplifies the accounting for income taxes by clarifying and amending existing guidance. We adopted the update January 1, 2021 and it did not have a material impact on our condensed consolidated financial statements and disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). We adopted ASU 2016-02 effective January 1, 2021. The core principle of ASU 2016-02 is that a lessee should recognize the assets and liabilities that arise from leases. For operating leases, a lessee is required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position. We have elected certain practical expedients permitted under the transition guidance that allows us to use the beginning of the period of adoption (January 1, 2021) as the date of initial recognition. As a result, prior period comparative financial information was not recast under the new
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standard and continues to be presented under the prior lease accounting standards. Other practical expedients include our election to not separate non-lease components from lease components and to not reassess lease classification, treatment of initial direct costs or whether an existing or expired contract contains a lease. We have also elected to apply the short-term lease exception for all leases, which we will not recognize right-of-use assets or lease liabilities for leases that, at the commencement date, have a term of twelve (12) months or less.
The adoption of the new lease standard on January 1, 2021, resulted in the recognition of right-of-use assets and operating lease liabilities of $2,101 on the condensed consolidated balance sheet. In connection with the adoption of this standard, short-term deferred rent of $8, which was previously recorded in accrued expenses and long term deferred rent of $180 previously recorded in deferred rent on the condensed consolidated balance sheet was offset against the right-of-use asset. The details of our right-of-use asset and lease liability recognized upon adoption of ASC 842 are set forth below:
January 1, 2021
Right-of-use asset$2,101 
Straight-line rent accrual(188)
$1,913 
Lease liability, current$500 
Lease liability, non-current1,601
$2,101 
Concentrations of Credit Risk
Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and trade accounts receivable. Although we limit our exposure to credit loss by depositing our cash with established financial institutions that management believes have good credit ratings and represent minimal risk of loss of principal, our deposits, at times, may exceed federally insured limits. Collateral is not required for accounts receivable, and we believe the carrying value approximates fair value.
The following table sets forth our concentration of accounts receivable, net of specific allowances for doubtful accounts.
March 31, 2021December 31, 2020
Customer A20 %0 %
Customer B19 %0 %
Customer C18 %16 %
Customer D0 %55 %
Customer E0 %13 %
Customer F25 %0 %
Digital Assets
During the three months ended March 31, 2021, we purchased an aggregate of $1,098 in digital assets, comprised solely of bitcoin. We currently account for all digital assets held as a result of these transactions as indefinite-lived intangible assets in accordance with Accounting Standards Codification ("ASC") 350, Intangibles—Goodwill and Other. We have ownership of and control over our bitcoin and we may use third-party custodial services to secure it. The digital assets are initially recorded at cost and are subsequently remeasured on the condensed consolidated balance sheet at cost, net of any impairment losses incurred since acquisition.
We determine the fair value of our bitcoin on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on quoted prices on the active exchange(s) that we have determined is its principal market for bitcoin (Level 1 inputs). We perform an analysis each quarter to identify whether events or changes in circumstances, principally
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decreases in the quoted prices on active exchanges, indicate that it is more likely than not that our digital assets are impaired. In determining if an impairment has occurred, we consider the lowest market price of one bitcoin quoted on the active exchange since acquiring the bitcoin. 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 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 to be recognized upon sale, we calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale. Impairment losses and gains or losses on sales are recognized within other expense in our condensed consolidated statements of operations and comprehensive loss. Impairment loss was immaterial and we did not sell any bitcoin during the three months ended March 31, 2021.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Items subject to the use of estimates include, but are not limited to, the standalone selling price for our products and services, stock-based compensation, useful lives of long-lived assets including intangibles, fair value of intangible assets and the recoverability or impairment of tangible and intangible assets, including goodwill, reserves and certain accrued liabilities, the benefit period of deferred commissions, fairassumptions used in Black-Scholes valuation method, such as expected volatility, risk-free interest rate and expected dividend rate, our incremental borrowing rate in determining the present value of debt component of convertible notesremaining lease payments, and provision for (benefit from) income taxes. Actual results could differ from those estimates and such differences could be material to the condensed consolidated financial statements.
Senior Convertible Note
In March 2019, the Company issued a 7% Senior Convertible Note (defined below) with a principal amount of $3,000 for gross proceeds at closing of $2,371. In accounting for the issuance, the Company separated the note into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar liabilities that do not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the carrying amount of the liability component from the par value of the notes. The difference represents the debt discount, recorded as a reduction of the senior convertible notes on our condensed consolidated balance sheet, and is amortized to interest expense over the term of the notes using the effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the notes, we allocated the total amount of issuance costs incurred to liability and equity components based on their relative values. Issuance costs attributable to the liability component are being amortized using the effective interest rate method, to interest expense over the term of the notes. The issuance costs attributable to the equity component are recorded as a reduction of the equity component within additional paid-in capital.
Loss per Common Share
Basic loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Restricted shares subject to repurchase provisions relating to early exercises under the Company'sour 2009 Equity Incentive Plan were excluded from basic shares outstanding. Diluted loss per common share is computed by giving effect to all potential shares of common stock, including those related to the Company'sour 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.
As of March 31, 2020 and December 31, 2019, 4,689 and 6,219 shares were restricted, respectively, relating to early exercises of the Company’s 2009 Stock Option Plan and areThe following table sets forth common stock equivalents that have been excluded from basicthe computation of dilutive weighted average shares outstanding for the years then ended.as their inclusion would have been anti-dilutive:
Recently Adopted Accounting Pronouncements
March 31,
20212020
Convertible notes4,920,00021,740
Warrants5,996,1123,836,112
Options1,087,0331,381,173
Restricted stock units5,545,4543,124,460
Restricted shares5744,689
Total17,549,1738,368,174
Fair Value of Financial Instruments
We follow the guidance in ASC 820, In January 2017, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2017-04, Fair Value MeasurementIntangibles—Goodwill and Other (Topic 350): Simplifying the Test, to account for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 simplifies how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step; comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company adopted this standard on January 1, 2020. The adoption of this standard did not have a material impact on our consolidated financial statements or disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). The core principle of ASU 2016-02 is that a lessee should recognize the assets and liabilities measured on a recurring basis. Fair value is the price that arise from leases. For operating leases,would be received to sell an asset or paid to transfer a lessee is required to recognize a right-of-use asset and a lease liability initially measuredin an orderly transaction between market participants at the presentmeasurement date. As such, fair value of the lease payments,is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own
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assumptions (unobservable inputs). The guidance requires fair value measurements be classified and disclosed in one of the statementfollowing three categories:
•Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
•Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
•Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Determining which category an asset or liability falls within the hierarchy requires significant judgment. Our financial instruments measured at fair value as of March 31, 2021 are set forth below:
Level 1Level 2Level 3Total
Assets:
Digital currencies$1,098 $0 $0 $1,098 
Total$1,098 $0 $0 $1,098 
Liabilities:
Warrant liability$0 $2,499 $0 $2,499 
Total$0 $2,499 $0 $2,499 

    
Our financial position. For leases with a terminstruments measured at fair value as of 12 months or less, a lessee is permittedDecember 31, 2020 are set forth below:
Level 1Level 2Level 3Total
Liabilities:
Warrant liability$0 $1,614 $0 $1,614 
Total$0 $1,614 $0 $1,614 
The carrying value of accounts receivable, prepaid expenses, other current assets, accounts payable and accrued expenses are considered to make an accounting policy election by classbe representative of underlying asset not to recognize lease assets and lease liabilities. Under current U.S. GAAP,their respective fair values because of the Company recognizes rent expense on a straight-line basis for all operating leases, taking into account fixed accelerations, as well as reasonably assured renewal periods. In November 2019, the FASB issued ASU No. 2019-10 ("ASU 2019-10"). ASU 2019-10 delayed the effective dateshort-term nature of ASU 2016-02 for certain types of businesses, including private companies. Under the JOBS Act, the Company has previously elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an Emerging Growth Company ("EGC"), can adopt the new or revised standard at the time private companies adopt the new or revised standard. Accordingly, this ASU is now effective for the Company for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Although earlier application is permitted, the Company plans to implement this guidance beginning the first quarter of its fiscal year 2021. The Company currently does not expect the ASU 2016-02 to materially impact our results of operations; although, based upon our current operating leases outstanding, we believe this guidance may have a material impact on our consolidated balance sheet. We do not plan on recasting prior periods.instruments.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 introduces a model based on expected losses to estimate credit losses for most financial assets and certain other instruments. In addition, for available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a Smaller Reporting Company ("SRC") as defined by the SEC,smaller reporting company, the standard is currently effective for the Companyus for annual reporting periods beginning after December 15, 2022, with early adoption permitted for annual reporting periods beginning after December 15, 2019. We currently intend to adopt ASU No. 2016-13this new standard effective January 1, 2023. Entities will apply the standard’s provisions by recording a cumulative-effect adjustment to retained earnings. We currently do not expect the adoption of ASU 2016-13 to have a material impact on our condensed consolidated financial statements and disclosures.
In December 2019,August 2020, the FASB issued Accounting Standard Update No. 2019-12,ASU 2020-06, Income TaxesDebt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)(Topic 740):Simplifying the Accounting for Income Taxes, (“ASU 2019-12”2020-06”), which. ASU 2020-06 simplifies the accounting for income taxes. Should the Company retain its EGC status through the fifth anniversarycertain financial instruments with characteristics of the date of its initial public offering, this guidance will beliabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for us in our financial statementssmaller reporting companies for fiscal years beginning after December 15, 2023, and consolidated notes thereto for theinterim periods within those fiscal year ending December 31, 2021 on a prospective basis.years. Early adoption is permitted. The Company ispermitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the impact of the newthis guidance on itsour condensed consolidated financial statements.statements and disclosures.

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3. Revenue
Disaggregation of Revenue
The following table sets forth our net revenues by category:

Three Months Ended March 31,
20212020
Net Revenues
Platform subscriptions and services$1,521 $2,391 
Application transaction125 249 
Net revenues$1,646 $2,640 
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 90%99% and 99%90% of our net revenues from within the United States for the three months ended March 31, 2021 and 2020, and March 31, 2019, respectively. During the three months ended March 31, 2020, the Company derived 10% of its net revenues from outside the United States.

The following table sets forth the Company'sour concentration of revenue sources as a percentage of total net revenues:
Three Months Ended March 31,
20202019
Net Revenues
Platform subscriptions and services$2,391  $4,821  
Application transaction249  494  
Net revenues$2,640  $5,315  
revenues.

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Three Months Ended March 31,
20212020
Customer A13 %0 %
Customer B15 %0 %
Customer F1 %31 %
Customer G17 %11 %
Customer H10 %9 %
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Deferred Revenue
The Company’sOur deferred revenue balance consisted of the following:
March 31,
2020		December 31,
2019		March 31,
2021		December 31,
2020
Current deferred revenueCurrent deferred revenueCurrent deferred revenue
Platform subscriptions and services revenuePlatform subscriptions and services revenue$3,052  $3,278  Platform subscriptions and services revenue$2,100 $2,317 
Application transaction revenueApplication transaction revenue80  82  Application transaction revenue80 80 
Total current deferred revenueTotal current deferred revenue$3,132  $3,360  Total current deferred revenue$2,180 $2,397 
Non-current deferred revenueNon-current deferred revenueNon-current deferred revenue
Platform subscriptions and services revenuePlatform subscriptions and services revenue$3,200  $3,764  Platform subscriptions and services revenue$2,054 $2,678 
Total non-current deferred revenueTotal non-current deferred revenue$3,200  $3,764  Total non-current deferred revenue$2,054 $2,678 
Total deferred revenueTotal deferred revenue$6,332  $7,124  Total deferred revenue$4,234 $5,075 

Deferred revenue consists of customer billings or payments received in advance of the recognition of revenue under the arrangements with customers. The Company recognizesWe recognize deferred revenue as revenue only when revenue recognition criteria are met. During the three months ended March 31, 2020, the Company2021, we recognized revenue of $1,484$1,279 that was included in its deferred revenue balance as of December 31, 2019.2020.

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Remaining Performance Obligations
Remaining performance obligations were $11,219$7,768 as of March 31, 2020,2021, of which the Company expectswe expect to recognize 45%42% as revenue over the next 12 months and the remainder thereafter.

4. Cash, Cash Equivalents, and Restricted Cash

The Company considers all investments with a maturity of three months or less from the date of acquisition to befollowing table sets forth our cash equivalents. The Company had 0 cash equivalents as of March 31, 2020 and December 31, 2019.
As a result of the issuance of the Notes (defined and discussed further below), the Company had $91 and $86 in restricted cash as of March 31, 20202021 and December 31, 2019, respectively.2020:
Cash and restricted cashMarch 31, 2021December 31, 2020
Cash$23,469 $3,940 
Restricted cash91 91 
Total cash and restricted cash$23,560 $4,031 

5. Factoring Agreement
On June 15, 2016 the Company entered into a factoring agreement with CSNK Working Capital Finance Corp. (d/b/a Bay View Funding) (“Bay View”) whereby it sells select accounts receivable with recourse.
Under the terms of the agreement, Bay View may make advances to the Company of amounts representing up to 80% of the net amount of eligible accounts receivable. The factor facility is collateralized by a general security agreement over all the Company’s personal property and interests. Fees paid to Bay View for factored receivables are 1.80% for the first 30 days and 0.65% for every ten days thereafter, to a maximum of 90 days total outstanding. The Company bears the risk of credit loss on the receivables. These receivables are accounted for as a secured borrowing arrangement and not as a sale of financial assets.
The Company's factor expense is recorded as interest expense in the condensed consolidated statement of operations and comprehensive loss. Factor expense totaled $53 and $186 for the three months ended March 31, 2020 and March 31, 2019, respectively.
The amount of factored receivables outstanding was $450 and $1,077 as of March 31, 2020 and December 31, 2019, respectively. There was $2,550 and $1,923 available for future advances as of March 31, 2020 and December 31, 2019, respectively.
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6. Debt

A summary of the Company'sThe following table sets forth our various debt obligations is set forth below:obligations:

March 31, 2021December 31, 2020
Series A Note (principal amount)$0 $2,481 
Series B Note (principal amount)11,071 3,585 
Paycheck Protection Program Loan2,850 2,850 
Convertible notes250 250 
Promissory notes905 905 
Total debt$15,076 $10,071 
Debt discount - warrants (2020 Convertible Notes)0 (1,029)
Debt discount - issuance costs (2020 Convertible Notes)(1,128)(650)
Less: current maturities of long-term debt(10,012)(4,435)
Less: related-party debt(195)(195)
Long-term debt$3,741 $3,762 


March 31, 2020December 31, 2019
Senior convertible note$2,339  $—  
Convertible notes250  250  
Promissory notes905  855  
Related-party bridge loans560  —  
Total debt$4,054  $1,105  
Less: current maturities of long-term debt$(1,195) $—  
Less: related-party debt$(755) $(195) 
Long-term debt$2,104  $910  
2020 Convertible Notes


On July 15, 2020, we issued a Series A Senior Convertible Note
In March 2020, the Company issued a Senior Convertible Note (a “Series A Note”) to an institutional investor with an initial principal amount of $3,000 (the “Senior Convertible Note”) for a cash purchase price of $2,760$4,320 (reflecting an original issue discount of $240)$320) in a private placement. We repaid in full the outstanding principal balance, accrued and unpaid interest and make-whole amount on a separate senior convertible note issued on March 20, 2020 to the same investor. After the payoff of the senior convertible note and deducting the placement agent fee and other estimated expenses,transaction costs, net cash proceeds atto the closing were approximately $2,371.Company was $1,751.
TheOn the same date, we issued a Series B Senior Secured Convertible Note bears interest at a rate of 7% per annum(a “Series B Note,” and includes a make-whole of interest fromtogether with the date of issuance throughSeries A Note, the maturity date of December 31, 2021.
Interest expense related“2020 Convertible Notes”) to the Senior Convertible Notesame investor with an initial principal amount of $17,280 (reflecting an original issue discount of $1,280). The investor paid for the three months ended March 31, 2020 and interest payable at March 31, 2020 was immaterial.Series B Note by delivering a secured promissory note (the “Investor Note”) with an initial principal amount of $16,000.
Monthly Payments and Conversion
Starting on April 30, 2020 and on
    We received cash under the last trading daySeries B Note only upon cash repayment of the monthcorresponding Investor Note. The investor, at its option and onat any time, had the maturity date,right to voluntarily prepay the Company is required to make monthly payments. On each payment date, the Company will be required to settle a principal repayment of approximately $143 plus interest thereon (the “Installment Amount”) which shall be satisfied in shares of common stock of the Company at 100% of the Installment Amount, or at the election of the Company,Investor Note, in whole or in part, in cash, at 105%part. Until the Investor Note was repaid, the principal (and related original issue discount) of the Installment Amount. Installment payments made in common stock areSeries B Note was considered to be "restricted." The Series B Note and the Investor Note were subject to customary equity conditions (including minimum floor pricethe terms of a Master Netting Agreement between us and volume thresholds), and are calculated on a conversion price equal to the lower of (x) the conversion price then in effect and (y) the greater of the Floor Price (as defined in the Senior Convertible Note) and 85% of the lowest volume weighted average price in the 10 days prior to the payment date.
Subject to certain beneficial ownership limitations, the Senior Convertible Note is convertible, at the option of the noteholder, into shares of our common stock at a conversion price of $3.00 per share. The conversion price is subject to full ratchet antidilution protection upon any subsequent transaction at a price lower than the conversion price then in effect and standard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other similar transaction.
Redemption
The noteholder has the option to require the Company to redeem all or a portion of the Senior Convertible Note then unpaid and outstanding, as follows:
•Subsequent Placement Optional Redemption - At any time after the earlier of the date a noteholder becomes aware of any placement by us of equity or equity-linked securities or the date of consummation of such a placement with net proceeds in the aggregate exceeding $5,000, subject to certain limited exceptions, the noteholder will have the right to have us redeem a portion of the Senior Convertible Note not in excess of 30% of the net proceeds from such placement at a redemption price of 110% of the portion of the Senior Convertible Note.investor. Upon
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•Change in Control - In connection with a Change of Control (as defined in the Senior Convertible Note), the noteholder may require us to redeem all or any portionrepayment of the Senior Convertible Note. The redemption price per share willInvestor Note, an equal the greatest of (i) 115%amount of the outstanding principalSeries B Note became "unrestricted" and recorded as debt in our condensed consolidated balance sheets.
As a result of the Senior Convertible Note to be redeemed, and accrued and unpaid interest, (ii) 115%multiple offerings of the market valuesales of the shares of our common stock underlyingas more fully described Note 9 below, the Seniorinvestor elected to require us to use forty percent (40%) of the net proceeds from those offerings to satisfy obligations under the 2020 Convertible Notes. During January and February 2021, we paid approximately $11,507, of which $5,717 was recorded as a loss on extinguishment of debt.
In March 2021, the investor voluntarily prepaid an aggregate of $10,250 pursuant to the terms of the Investor Note. As a result, we received cash proceeds of $10,250 and this amount of principal of the Series B Note, along with $820 of original issue discount became "unrestricted" and outstanding. After the aggregate payments pursuant to the Investor Note by the investor to us, there was no balance outstanding under the Investor Note and (iii) 115%no restricted balance under the Series B Note.
On March 25, 2021, we delivered a Company Optional Redemption Notice (as defined in the Series B Note) to the holder of our Series B Note exercising our right to redeem and fully satisfy all obligations under the Series B Note on April 5, 2021. See Note 13 below.
We recorded a loss on extinguishment of debt of $51 for the three months ended March 31, 2021 related to monthly installment payments made to the investor.
Warrant

In addition to the 2020 Convertible Notes, we issued a warrant exercisable for 3 years for the purchase of an aggregate of up to 2,160,000 shares of the aggregate cash consideration that would have been payableCompany's common stock, with a current exercise price of $2.25 per share, which decreased from $4.00 in respectFebruary 2021 as a result of our underwritten public offering. The number of shares and exercise price are each subject to adjustment provided under the warrant. If, at the time of exercise of the warrant, there is no effective registration statement registering, or no current prospectus available for, the issuance of the shares, then the warrant may also be exercised, in whole or in part, by means of our common stock underlyinga “cashless exercise.” The warrant may not be exercised if, after giving effect to the Senior Convertible Note, as determinedexercise, the investor would beneficially own amounts in accordance withexcess of those permissible under the Senior Convertible Note.
•Event of Default – Upon occurrence of an Event of Default, the noteholder may require us to redeem in any or allterms of the Senior Convertible Note at cash redemption price equa1warrant.

Upon issuance of the warrant, we recorded a warrant liability as a discount to the greater2020 Convertible Notes. We revalued the warrant as of (i) 115%March 31, 2021, and accordingly recorded a loss of $885 as a result of the outstanding principal, and accrued and unpaid interest and unpaid late charges, or (ii)change in the marketfair value of the shares ofwarrant liability for the common stock underlyingthree months ended March 31, 2021. The following table sets forth the Senior Convertible Note.
At any time on or priorassumptions used to May 19, 2020,calculate the Company may redeem the Senior Convertible Note at a price equal to 100% of the outstanding principal or, if greater, the marketfair value of the common stock underlying the Senior Convertible Note to be redeemed, and accrued and unpaid interest and unpaid late charges thereon. Thereafter, the Company’s optional redemption price will equal 110% of the outstanding principal or, if greater, the market value of the shares underlying the Senior Convertible Note to be redeemed, and accrued and unpaid interest and unpaid late charges thereon.
Covenants
Under the Senior Convertible Note, the Company is subject to certain customary affirmative and negative covenants regarding the incurrence of indebtedness, the existence of liens, the repayment of indebtedness, the payment of cash in respect of dividends, distributions or redemptions, and the transfer of assets, among other matters, including the following provisions.
The Company is subject to a financial covenant that requires it to maintain available cash in the amount of $200our warrant liability at the end of each fiscal quarter.respective dates:

March 31, 2021December 31, 2020
Strike price per share$2.25 $4.00 
Closing price per share$1.65 $1.26 
Term (years)2.282.53
Volatility150 %146 %
Risk-free rate0.17 %0.17 %
Dividend Yield00

Participation Rights

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

On April 10, 2020, we received loan proceeds in the first quarteramount of $2,850 from JPMorgan Chase, N.A. pursuant to the PPP under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), which was enacted on March 27, 2020. The loan, which was in the form of a note dated April 9, 2020, matures on April 9, 2022 and bears interest at a rate of 0.98% per annum. The Paycheck Protection Flexibility Act of 2020, various related parties loanedextended the Company $560. The Related-Party Bridge Loans ("RPBLs") bear an interestdeferral period for loan payments to either (i) the date that SBA remits the borrower’s loan forgiveness amount to the lender or (ii) if the borrower does not apply for loan
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Table of 10% per annum and will mature on November 14, 2024. Payments on or payoffContents
forgiveness, ten months after the end of the RPBLsborrower’s loan forgiveness covered period. The note may be made earlyprepaid by us at any time prior to the maturity with no penalty. prepayment penalties.

The RPBLsprincipal amount of our PPP loan is subject to forgiveness under the PPP upon our request and amounts thereofto the extent that PPP loan proceeds were madeused to pay expenses permitted by the following related parties: (i) $204 by Cane Capital, LLC, an entity owned inPPP. Although we currently anticipate a portion of the loan to be forgiven, there can be no assurance that any part by our Chief Executive Officer; (ii) $151 by Curo Capital Appreciation Fund, LLC, an entity in whichof the Company's Chief Executive Officer and Chief Technology Officer serve as co-presidents, (iii) $155 by various individuals associated by familiar relationship with our Chief Executive Officer; and (iv) $50 by Luan Dang, the Company's Chief Technology Officer. Transaction costs related to the RPBLs were not significant. Interest expense related to the RPBLs for the three months ended March 31, 2020 was not significant and interest payable as of March 31, 2020 was not significant.PPP loan will be forgiven.
Convertible Notes
InDuring April 2019, the Company’sour board of directors authorized the issuance of $20,000 of convertible promissory notes (the “Convertible Notes”), which may be paid by investors in the form of cash or, in the Company’s sole discretion, cryptocurrency, such as Bitcoin or Ethereum. The Convertible Notes will be sold in reliance on an exemption from registration. The Company may not issue Convertible Notes under the Purchase Agreement in excess of $20,000, in the aggregate, unless otherwise agreed by the holders of a majority in interest of the principal outstanding under the Convertible Notes.
. The Convertible Notes bear ordinary interest at a rate of 7% per annum. Interest under the Convertible Notes is payable quarterly beginning on September 30, 2019, and interest and principal under the Convertible Notes is payable monthly beginning on June 30, 2021. However, at the holder’s election, interest payments may be deferred until the earlier of (i) repayment in full of all remaining unpaid principal and (ii) conversion. The Convertible Notes mature on June 3, 2024.
The Convertible Notes are convertible into shares of the Company’s common stock at a price of $11.50 per share. Eachshare and mature on June 3, 2024. Additional information about our Convertible Notes is included in Note will convert voluntarily upon a holder’s election, or automatically upon the closing sale price8, "Debt" of the Company’s common stock equals or exceeds $17.25 per share for 20 out of 30 consecutive trading days, if a registration statement is then in effect covering the disposition of the converted shares. Assuming the Convertible Notes in an aggregate principal amount of $20,000
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are sold under the Purchase Agreement, and assuming that all interest payments are deferred until maturity, the Convertible Notes would be convertible to a maximum total of approximately 2,347,826 shares of the Company’s common stock.
The Company has one Convertible Note with a balance outstanding of $250 as of March 31, 2020. Transaction costs relatednotes to the issuance of the Convertible Note were immaterial. Interest expense related to the Convertible Note for the three months ended March 31, 2020 was immaterial and interest payable as of March 31, 2020 and December 31, 2019 was immaterial.consolidated financial statements included in our Annual Report on Form 10-K.
Promissory Notes
In October 2019, the Company’sour board of directors authorized the issuance of $20,000 of promissory notes (the “Notes”), which may be paid by investors in the form of cash or, in the Company’s sole discretion, cryptocurrency, such as Bitcoin or Ethereum. The Notes will be sold in reliance on an exemption from registration. The Company may prepay the Notes at any time without penalty. The Company may not issue Notes under the Purchase Agreement in excess of $20,000, in the aggregate, unless otherwise agreed by the holders of a majority in interest of the principal outstanding under the Notes.
. The Notes bear ordinary interest at a rate of 10% per annum. Interest under the Notes is payable monthly beginning on November 30, 2019. During the term of the Notes, the Company willwe are required to maintain a restricted bank account with a minimum balance of one year of interest payments on the aggregate principal balance of all Notes, which will be available for use exclusively to satisfy any payments owed by the Company under the Notes. The principal and unpaid accrued interest on the Notes will be due and payable on demand by the majority Note holders on or after the date that is 60 months following November 15, 2019. If an event of default occurs under theAdditional information about our Notes the majorityis included in Note holders may cause all principal and unpaid interest under the Notes to become immediately due and payable. In such event, the Notes will thereafter accrue interest at a rate of 12% per annum. Upon agreement between the Company and any senior creditor, the Notes will be subject to subordination in the right of payment to all current and future indebtedness or obligations8, "Debt" of the Company for borrowed moneynotes to banks, commercial finance lenders, and other institutions regularly engagedthe consolidated financial statements included in the business of lending money, or for factoring arrangements to parties providing such factoring.our Annual Report on Form 10-K.
During 2019, the Companywe issued a Note in the principal amount of $195, in exchange for cash consideration, to Cane Capital, LLC, an entity owned in part by Alan S. Knitowski, the Company’sour Chief Executive Officer and a member of itsour board of directors.
Interest Expense
The Notes have a balance outstandingfollowing table sets forth interest expense for our various debt obligations included on the condensed consolidated statements of $905operations:
Three Months Ended March 31,
20212020
2020 Convertible Notes$452 $0 
Accretion of debt discount - issuance costs62013
Accretion of debt discount - warrants1,0290
All other debt and financing obligations11888
Total$2,219 $101 

6. Leases
As described in Note 2, we adopted ASU 2016-02, Leases (Topic 842) as of March 31, 2020. Transaction costs related toJanuary 1, 2021. We lease our corporate offices under operating leases and determine if an arrangement is or contains a lease at inception. The initial terms of our real property lease agreements are generally five years and typically allows for renewals in five-year increments. We may, at times, negotiate a shorter lease renewal term. We generally do not account for any renewals at the issuance of the Notes were immaterial. Interest expense related to the Notes for the three months ended March 31, 2020 was immaterial and interest payable as of March 31, 2020 and December 31, 2019 was immaterial.
7. Commitments and Contingencies
Leases
The Company has operating office space leaseslease adoption date. We maintain 4 corporate offices located in Austin, Texas; Irvine, California; San Diego, California; and Miami, Florida. Rent expense under operatingThe earliest of our lease agreements currently ends in March 2022 with the latest terminating in June 2025. Some of our leases totaled $211include both lease and $165non-lease components, which we have elected not to account for the three months ended March 31, 2020separately. Lease components generally include rent, taxes and March 31, 2019, respectively.
Future minimum annual lease payments as of March 31, 2020 under the Company’s operating leases are set forth as follows:
Future minimum lease obligations years ending December 31,Lease
Obligations
2020 (Remainder)$542  
2021836  
2022725  
2023622  
2024609  
Thereafter274  
Total$3,608  
Litigation
On September 26, 2017, the Company filed a breach of contract complaint against Uber Technologies, Inc. ("Uber") seeking approximately $3,000 (plus interest) for unpaid invoices for advertising campaign services provided for Uber in the first quarterinsurance, while non-lease components generally include common area or other maintenance.
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The weighted-average remaining lease term for operating leases as of 2017.March 31, 2021 was 3.79 years. As our leases generally do not include an implicit rate, we compute our incremental borrowing rate based on information available at the lease commencement date applying a rate to each lease. We used incremental borrowing rates that match the duration of the remaining lease terms of our operating leases on a fully collateralized basis upon adoption as of January 1, 2021 to initially measure our lease liability. The case, captioned Phunware, Inc. v.weighted average incremental borrowing rate used to measure our lease liability as of March 31, 2021 was 19.13%.
We recognize lease expense on a straight-line basis over the lease term with variable lease expense recognized in the period in which the costs are incurred. The components of lease expense are included in general and administrative expense in our condensed consolidated statement of operations and comprehensive loss. Lease expense for the three months ended March 31, 2021 was $212.
Future minimum lease obligations are set forth below:
Future minimum lease obligations years ending December 31,Lease
Obligations
2021 (Remainder)$636 
2022725 
2023622 
2024609 
2025208 
Thereafter0 
$2,800 
Less: Portion representing interest(823)
$1,977 
On March 16, 2021, we entered into a sublease agreement pursuant to which we will sublease our existing office space in Irvine, California. The term of the sublease commences on April 1, 2021 and terminates on March 31, 2025. The subtenant will pay us initial base rent of approximately $17 per month, which is subject to certain discounts throughout the sublease, as well as rent escalations. We recognized an impairment of our right-to-use asset related to the sublease of $77, which is recorded in other expense in our condensed consolidated statement of operations and comprehensive loss for the three months ended March 31, 2021.
7. Commitments and Contingencies
Litigation

There have been no changes to the disclosure related to our settlements with Uber Technologies, Inc., Case No. CGC-17-561546 was and Ellenoff Grossman & Schole LLP, as well as, the dismissal of claims brought by Sha-Poppin Gourmet Popcorn, LLC since the filing of our Annual Report on Form 10-K. See Note 9, "Commitments and Contingencies" in our Annual Report on Form 10-K filed inwith the Superior Court of the State of California County of San Francisco. On November 13, 2017, Uber generally denied the allegations in the Company's complaint and also filed a cross-complaint against Phunware and Fetch Media, Ltd. ("Fetch") - the advertising agency Uber retained to run its mobile advertising campaign for the period 2014 through the first quarter of 2017 (the “Fetch Campaign”), asserting numerous fraud and contract-based claims. All the claims stem from Uber’s allegation that Fetch and/or the Company (and/or other-as-yet-unidentified ad networks and publishers) are liable for the Fetch Campaign, under which Uber allegedly overpaid Fetch and mobile advertising providers due to allegedly fraudulent attribution for installments of the Uber application. Uber did not allege any specific dollar amount that it is seeking in damages against either of the named cross-defendants (Fetch and Phunware). Phunware filed a motion to dismiss the cross-complaint, which was heard on February 7, 2018. The motion was granted in part and denied in part by the Court. On April 16, 2018, the action was designated complex, and the matter was assigned for all purposes to Judge Wiss of the Superior Court of California, San Francisco County (Department 305). In March 2019, Uber and Fetch settled Uber’s claims against Fetch on terms that have not been disclosed to Phunware at this time. On May 7, 2019, the Company retained new counsel. In June 2019, the Court set a new trial date of April 20, 2020. On June 26, 2019, the case was reassigned for all purposes to Judge Jackson of the Superior Court of California, San Francisco County (Department 613). On July 12, 2019, Uber filed its First Amended Cross-Complaint, naming new individual cross-defendants (Phunware Chief Executive Officer Alan S. Knitowski, and former Phunware employees D. Stasiuk, M. Borotsik, and A. Cook) accused of civil RICO violations and civil conspiracy to violate RICO, in addition to fraud, negligence, and unfair competition-based claims, and adding a fraud-based claim against Phunware. Uber’s First Amended Cross-Complaint alleges that cross-defendants fraudulently obtained approximately $17,000 from Uber, and claims treble damages, general and punitive damages, and attorneys’ fees and costs. On October 1, 2019, Alan S. Knitowski (“Knitowski”) filed his Motion to Quash Service of Summons, which was denied on October 29, 2019. On October 7, 2019, D. Stasiuk, M. Borotsik, and A. Cook filed their Motion to Quash Service of Summons, which was denied on December 17, 2019. On December 2, 2019, the case was reassigned for all purposes to Judge Cheng of the Superior Court of California, San Francisco County (Department 613). On January 22, 2020, the Court assigned the case to Judge Wiss of the Superior Court of California, San Francisco County (Department 305) for purposes of trial. On March 13, 2020, the Court announced that jury trials will be continued for 90 days from the date they have been scheduled in response to the COVID-19 pandemic. Additionally,SEC on March 13, 2020, the Court ordered Phunware to pay $78 in monetary sanctions based on a discovery motion brought by Uber. On March 19, 2020, Uber filed a31, 2021 for further discovery motion for sanctions with is due to be heard in June 2020. Discovery is continuing. On May 5, 2020, the court ordered a new trial date of September 21, 2020. The Company maintains that its claims against Uber are meritorious and that Uber’s claims against the Company are not. However, Phunware makes no predictionsinformation on the likelihood of success of prevailing on its contract action against Uber or on the likelihood of defeating Uber’s claims against the Company.these matters.
On December 17, 2019, certain stockholders (the "Plaintiffs") filed a lawsuit against the Company.Phunware. The case, captioned Wild Basin Investments, LLC, et al. v. Phunware, Inc., et al.; Cause No. D-1-GN-19- 008846D-1-GN-19-008846 was filed in the 126th Judicial District Court of Travis County, Texas. The Plaintiffsplaintiffs invested in various early rounds of financing while the Company was private and claim the CompanyPhunware should not have subjected their shares to a 180-day "lock up" period. According to the Plaintiffs,plaintiffs, the price of Phunwareour stock dropped significantly during the lock up period. The Plaintiffsplaintiffs seek unspecified damages in excess of 1 million dollars. The Company maintains$1,000. We maintain the Plaintiffs'plaintiffs' claims are without merit and intends to contest vigorously the claims asserted in the lawsuit.lawsuit, but there can be no guarantees that a favorable resolution will be successful. All defendants have answered. The Courtcourt has not yet set a trial date or pretrial deadlines. Certain written discovery has been propounded, but responses are not yet due.
On March 9, 2020, Ellenoff Grossman & Schole LLP (“EGS”) filed a lawsuit against the Company. The complaint, captioned Ellenoff Grossman & Schole LLP versus Stellar Acquisition III, Corp a/k/a Stellar Acquisition III, Inc. n/k/a Phunware, Inc., was filed in the Supreme Court of the State of New York, New York County (Case No. 152585/2020). EGS is seeking monetary damages in the amount of $690 for alleged unpaid invoices related to legal services rendered for Stellar in conjunction with the reverse merger with the Company, plus legal and court costs. Pursuant to a stipulation, the Company currently has until June 12, 2020 to respond to the complaint. The Company has $690 in accounts payable in the condensed consolidated balance sheet as of March 31, 2019 and December 31, 2019 related to the alleged unpaid invoices.
On April 24, 2020 Sha-Poppin Gourmet Popcorn, LLC (the “Popcorn Company”) filed a lawsuit against certain defendants, including the Company. The case captioned, Sha-Poppin Gourmet Popcorn, LLC versus JPMorgan Chase Bank, N.A., RCSH Operations, LLC, RCSH Operations, Inc (together d/b/a Ruth’s Chris Steakhouse), and Phunware, Inc., was filedis in the Northern Districtearly stage of Illinois, Eastern Division. The Popcorn Company alleges, among other claims, the Company was unjustly enriched by JPMorgan Chase for the Company's loan made pursuant to the Paycheck Protection Program ("PPP") under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). (See Note 13 for discussion related to the Company's CARES Act loan.) The Company was served notice on April 27, 2020 and has 21 days after this date to answer. The Company disputes these claims and intends to defend the matter vigorously.discovery. Given the preliminary stage of the case, the Company iswe are unable to predict the outcome of this dispute, or estimate the loss or range of loss, if any, associated with this matter.
On March 30, 2021, Phunware filed an action against its former counsel Wilson Sonsini Goodrich & Rosati, PC (“WSGR”). The matter is Phunware, Inc., v. Wilson Sonsini Goodrich & Rosati, Professional Corporation, Does 1-25, Case No. 21CV381517, filed in the Superior Court of the State of California for the County of Santa Clara. The complaint alleges a single cause of action for negligence related to services provided by WSGR to Phunware. We’re seeking compensatory and
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consequential damages, attorney’s fees and costs, interest and other relief the Court deems just and proper. The case is in the early stages of litigation; the outcome is not certain.
From time to time, the Company iswe are and may become involved in various legal proceedings in the ordinary course of business. The outcomes of our legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular reporting period. In addition, for the matters disclosed above that do not include an estimate of the amount of loss or range of losses, such an estimate is not possible, and we may be unable to estimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies.
8. PhunCoin & PhunToken
PhunCoin
InDuring 2018 and 2019, PhunCoin, Inc., the Company’sour wholly-owned subsidiary, launched an offering pursuant to Rule 506(c) of Regulation D (the "Reg D Offering") as promulgated under the Securities Actofferings of rights to acquire a token denominated as "PhunCoin" (the "Rights"). In addition, in 2019, we commenced an offering of Rights pursuant to Regulation CF (the "Reg CF Offering"). PhunCoin, Inc. accepts payment in the form of cash and digital currencies for purchases of the Rights. The amount of PhunCoin to be issued to the purchaser is equal to the dollar amount paid by the purchaser divided by the price of PhunCoin at the time of issuance of PhunCoin during the launch of the Token Ecosystem (as defined below) before taking into consideration an applicable discount rate, which is based on the time of the purchase (early purchasers will receive a larger discount rate).purchase.
Through March 31, 2021, we received aggregate net cash proceeds from our Rights offerings of $1,202. Proceeds from the Rights are recorded as PhunCoin deposits in the condensed consolidated balance sheet as of March 31, 2021 and December 31, 2020.
PhunCoin is expected to be issued to Rights holders the earlier of (i) the launch of the Company’sPhunCoin’s, Inc.’s blockchain technology enabled rewards marketplace and data exchange ("(“Token Ecosystem"Ecosystem” or "Token Generation Event"), (ii) one (1) year after the issuance of the Rights to the purchaser or (iii) the date the CompanyPhunCoin, Inc. determines that it has the ability to enforce resale restrictions with respect to PhunCoin pursuant to applicable federal securities laws. Proceeds from the Rights offering are generally not refundable; however,refundable if the Company believes it has a contractual obligation to use good faith efforts to issue a token to Rights holders under the token rights agreement. The CompanyToken Generation Event is not consummated. We currently anticipatesanticipate that PhunCoin will be issued to the holders of the Rights in 2020. Holders of the Rights may be issued PhunCoin even if the Token Ecosystem is not yet operational. PhunCoin will have no usefulness until the Token Ecosystem is operational because PhunCoin is expected to only be useable on the Token Ecosystem. There2021; however, there can be no assurance as to when (or if) the Companyor if we will be able to successfully launch the Token Ecosystem. The Company
Additional information about PhunCoin is currently developing multiple aspectsincluded in Note 10, "PhunCoin and PhunToken" of the Token Ecosystem and expects that a review (beta) period will likely concludenotes to the consolidated financial statements included in in the first half of 2020. The final software readiness date of the Token Ecosystem may be adjusted basedour Annual Report on user feedback provided in the review (beta) period and thus a specific launch date is difficult to determine at this time, as it is based on many external factors outside of our control.
As of March 31, 2020, the Company has received aggregate cash proceeds from the Reg D Offering and Reg CF Offering of $1.2 million, pursuant to which the holders of the Rights will receive an aggregate of approximately 577.9 million PhunCoin if the launch of the Token Ecosystem occurs. The Reg CF Offering closed May 1, 2019. While the Reg D Offering is ongoing, the Company does not anticipate any additional proceeds to be raised.Form 10-K.
PhunToken ("Phun"PHTK")
During the second quarter of 2019, Phunware announced the launch of a separate token, Phun,PhunToken, which is meant to act as a medium of exchange within the Token Ecosystem. PhunPhunToken will be issued through a separate, wholly-owned subsidiary, Phun Token International, available initially only to persons outside of the United States and Canada. Consumers may receive PhunPhunToken for actively engaging in marketing campaigns; developers and publishers may receive PhunPhunToken for utilizing Phunware’s loyalty software development kit in order to better engage, manage and monetize their consumers; and brands will gain access to more relevant, verifiable data by accessing Phunware’s data exchange and using Phun for their own loyalty programs. As of March 31, 2020, the Company has2021, we had not issued or sold any Phun.PhunToken.
9. Stockholders’ Equity
Common Stock
Total common stock authorized to be issued as of March 31, 20202021 was 1,000,000,000 shares, with a par value of $0.0001 per share. At March 31, 20202021 and December 31, 2019,2020, there were 40,700,20671,211,399 and 39,817,91756,380,111 shares outstanding, respectively, inclusive of 4,689 and 6,219574 restricted shares subject to repurchase for unvested shares related to early option exercises under the Company’s stock equity plans, respectively.plans.
During 2019,On August 14, 2020, we entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with Ascendiant Capital Markets, LLC (“Ascendiant”), as sales agent, pursuant to which the Company issued an aggregate of 11,530,442would offer and sell, from time to time, through Ascendiant shares of common stock relatedfor an aggregate offering price of up to various cash and cashless (net) exercises of warrants for common stock. Cash exercises for warrants for 617,296$15,000. In January 2021, we issued 2,670,121 shares of our common stock resulted inwere sold for aggregate grossnet cash proceeds of approximately $6,184,$5,058. Transaction costs were $156. We terminated the Sales Agreement with Ascendiant effective as of March 28, 2021.
In February 2021, we entered into an underwriting agreement with Northland Securities, Inc. and Roth Capital Partners, LLC, relating to an underwritten public offering to which $6,092 was received in cash, $92 was received in digitalwe issued 11,761,111 shares of our common stock at an
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currencies. Furthermore, there were 13,975,359 warrants exercised under cashless (net) provisions resulting in the issuanceoffering price of 10,913,146 shares$2.25 per share. Aggregate cash proceeds at closing, net of common stock.transaction costs of $1,740, totaled $24,722. We incurred additional transaction costs paid outside of closing of $75.
Warrants
The Company hasWe have various warrants outstanding. A summary of the Company’s warrant activityour outstanding warrants as of March 31, 2021 and December 31, 2020 is set forth below:
Warrant TypeCash Exercise
Price per
share		Warrants Outstanding December 31,
2019		Warrants ExercisedWarrants Outstanding March 31,
2020
CashCashless
Common stock warrant (Series D-1)$5.54  14,866  —  —  14,866  
Common stock warrants (Series F)$9.22  377,402  —  —  377,402  
Public Warrants (PHUNW)$11.50  1,761,291  —  —  1,761,291  
Private Placement Warrants$11.50  1,658,381  —  —  1,658,381  
Unit Purchase Option Warrants$11.50  24,172  —  —  24,172  
Total3,836,112  —  —  3,836,112  

Warrant TypeCash Exercise
Price per
share		Warrants Outstanding
2020 Convertible Note warrants$2.25 2,160,000 
Common stock warrant (Series D-1)$5.54 14,866 
Common stock warrants (Series F)$9.22 377,402 
Public Warrants (PHUNW)$11.50 1,761,291 
Private Placement Warrants$11.50 1,658,381 
Unit Purchase Option Warrants$11.50 24,172 
Total5,996,112 

10. Stock-Based Compensation
2018 Equity Incentive Plan
In 2018, our board of directors adopted, and our stockholders approved, the 2018 Equity Incentive Plan (the “2018 Plan”). The purposes of the 2018 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to employees, directors and consultants who perform services to the Company, and to promote the success of our business. These incentives are provided through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares.
The number of shares of common stock available for issuance under the 2018 Plan will also include an annual increase on the first day of each fiscal year, equal to the lesser of: (i) 10% of the post-closing outstanding shares of common stock; (ii) 5% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year; or (iii) such other amount as our board of directors may determine.
In addition, the shares of common stock reserved for issuance under the 2018 Plan also will include any shares of common stock subject to stock options, restricted stock units or similar awards granted under the 2009 Equity Incentive Plan (the “2009 Plan”), that, on or after the 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, 2020,2021, the maximum number of shares of common stock that may be added to the 2018 Plan pursuant to the foregoing equals 1,385,862.1,087,607.
During the three months ended March 31, 2020,Since its inception, restricted stock units werehave been the only stock-based incentives granted under the 2018 Plan. A summary of the Company’sour restricted stock unit activity under the 2018 Plan for the three months ended March 31, 2021 is set forth below:
SharesWeighted Average Grant Date Fair ValueSharesWeighted Average Grant Date Fair Value
Outstanding as of December 31, 20192,436,968  $3.15  
Outstanding as of December 31, 2020Outstanding as of December 31, 20201,677,060 $1.41 
GrantedGranted1,624,607  1.11Granted4,238,176 1.88 
ReleasedReleased(848,615) 0.97  Released(280,788)1.22 
ForfeitedForfeited(88,500) 5.56  Forfeited(88,994)1.47 
Outstanding as of March 31, 20203,124,460  $2.61  
Outstanding as of March 31, 2021Outstanding as of March 31, 20215,545,454 $1.78 
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Not including the maximum number of shares from the 2009 Plan that may be added to the 2018 Plan noted above, the 2018 Plan had 712,8741,134,393 and 205,2062,551,720 shares of common stock reserved for future issuances as of March 31, 20202021 and December 31, 2019,2020, respectively.
During the first quarter of 2020,2021, we granted 123,084 restricted stock units to non-employee directors, each with a grant date fair value of $1.25 per share in lieu of cash compensation board fees for services provided. The awards vested immediately. We also granted 125,523 restricted stock units to non-employee directors, with a grant date fair value of $1.25 per share. The awards vest over ten months in four equal installments on March 26, 2020, June 26, 2020, September 18, 2020, and December 25, 2020, respectively, and are subject to service conditions. We also granted 756,0003,488,262 restricted stock unit awards to team members with an average grant date fair value of $1.25$2.03 per share. The awards granted to team members vest over an averagerange of 4210 to 51 months with various installment and vesting dates, and are subject to service conditions. We also granted 610,000652,170 restricted stock units to non-employee service provider that were for the satisfaction of legal fees owed. The awards granted to the legal service provider vested immediately and had an averagedirectors, each with a grant date fair value $0.89.of $1.22. The awards vest in four equal installments on March 4, 2021, June 4, 2021, September 4, 2021, and December 4, 2021, respectively, and are subject to service conditions. We also granted 97,744 restricted stock units to non-employee directors, with a grant date fair value of $1.22 per share in lieu of cash compensation board fees for services provided. These awards vested immediately.
The restricted stock unit grants were valued based on the fair value of our common stock on the date of grant.
2018 Employee Stock Purchase Plan
Also, in 2018, our board of directors adopted, and our stockholders approved, the 2018 Employee Stock Purchase Plan (the “2018 ESPP”). The 2018 ESPP will be administered by our board of directors or a committee appointed by the board (the “administrator”). The purpose of the 2018 ESPP is to provide eligible employees with an opportunity to purchase shares of our common stock through accumulated contributions. The 2018 ESPP permits participants to purchase shares of common stock through contributions (generally in the form of payroll deductions) of up to an amount of their eligible compensation determined by the administrator. Subject to certain other limitations or unless otherwise determined by the administrator, a participant may purchase a maximum of 2,000 shares of common stock during a purchase period. The offering periods under the 2018 ESPP will begin on such date as determined by the administrator and expire on the earliest to occur of (a) the completion of the purchase of shares on the last exercise date occurring within 27 months of the applicable enrollment date of the offering period on which the purchase right was granted, or (b) a shorter period established by the administrator prior to an enrollment date for all options to be granted on such enrollment date. Amounts deducted and accumulated by the participant are used to purchase shares of common stock on each exercise date. The purchase price of the shares will be determined by the administrator but in no event will be less than 85% of the lower of the fair market value of common stock on the enrollment date or on the exercise date. Participants may end their participation at any time during an offering period and will be paid their accrued contributions that have not yet been used to purchase shares of common stock. Participation ends automatically upon termination of employment with the Company.
The number of shares of common stock that may be made available for sale under the 2018 ESPP also includes an annual increase on the first day of each fiscal year beginning for the fiscal year following the fiscal year in which the first enrollment date (if any) occurs equal to the lesser of (i) 3% of the expected post-closing outstanding shares of common stock; (ii) 1.5% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year; or such other amount as the administrator may determine.
As of March 31, 2020, the Company has2021, we had not consummated an enrollment or offering period related to the 2018 ESPP. The 2018 ESPP had 272,942 shares of common stock available for sale and reserved for issuance as of March 31, 20202021 and December 31, 2019.2020. Additional information about our 2018 ESPP can be found in Note 12, "Stock-Based Compensation" in our Annual Report on Form 10-K.
2009 Equity Incentive Plan
In 2009, the Companywe adopted its 2009 Equity Incentive Plan (the “2009 Plan”), which allowed for the granting of incentive and non-statutory stock options, as defined by the Internal Revenue Code, to employees, directors, and consultants. The exercise price of the options granted was generally equal to the value of the Company’s common stock on the date of grant, as determined by the Company’s board of directors. The awards are exercisable and vest, generally over four years, in accordance with each option agreement. The term of each option is no more than ten years from the date of the grant. The 2009 Plan allows for options to be immediately exercisable, subject to the Company’s right of repurchase for unvested shares at the original exercise price. The total amount received in exchange for these shares has been included in accrued expenses on the accompanying condensed consolidated balance sheets and is reclassified to equity as the shares vest. As of March 31, 20202021 and December 31, 2019, 4,689 and 6,2192020, 574 shares were unvested amounting to $3 and $3$1 in accrued expenses, respectively.expenses. Effective with the adoption of the 2018 Plan, no additional grants will be made under the 2009 Plan.

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A summary of the Company’s stockour option activity under the 2009 Plan and related information is as follows:
Number of SharesWeighted Average
Exercise Price		Weighted Average
Remaining
Contractual Term
(years)		Aggregate Intrinsic
Value
Outstanding as of December 31, 20191,465,450  $0.80  6.86$771  
Granted—  
Released(31,506) 0.47  
Forfeited(52,771) 1.20  
Outstanding as of March 31, 20201,381,173  $0.79  6.41$115  
Exercisable as of March 31, 20201,033,654  $0.72  5.94$96  
Number of SharesWeighted Average
Exercise Price		Weighted Average
Remaining
Contractual Term
(years)		Aggregate Intrinsic
Value
Outstanding as of December 31, 20201,208,740 $0.80 6.19$700 
Granted— 
Exercised(119,268)0.55 
Forfeited(2,439)2.31 
Outstanding as of March 31, 20211,087,033 $0.82 6.38$986 
Exercisable as of March 31, 2021991,476 $0.78 6.33$926 
For the three months ended March 31, 2020,2021, the aggregate intrinsic value of options exercised was $17$214 and the total fair value of options vested was $34.
The Company has not granted any equity awards under the 2009 Plan since 2018.$20.
Stock-Based Compensation
Compensation costs that have been included on the Company’sin our condensed consolidated statements of operations and comprehensive loss for all stock-based compensation arrangements are detailed as follows:is set forth below:
Three Months Ended March 31,
Stock-based compensation20202019
Cost of revenues$51  $14  
Sales and marketing7  (25) 
General and administrative599  23  
Research and development(22) (1) 
Total stock-based compensation$635  $11  
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The Company recognizes
Three Months Ended March 31,
Stock-based compensation20212020
Cost of revenues$210 $51 
Sales and marketing102 7 
General and administrative624 599 
Research and development119 (22)
Total stock-based compensation$1,055 $635 
We recognize forfeitures as they occur. As of March 31, 2020,2021, the unamortized fair value of the restricted stock units under the 2018 Plan was approximately $6.3 million.$8,852. The weighted-average remaining recognition period over which these costs will be amortized was approximately 2.5 years. Unrecognized stock compensation expense for options granted under the 2009 Plan was $177$64 as of March 31, 2020.2021.
11. Domestic and Foreign Operations
Identifiable long-lived assets attributed to the United States and international geographies are based upon the country in which the asset is located or owned. As of March 31, 20202021 and December 31, 2019,2020, all of the Company’sour identifiable long-lived assets were in the United States.
12. Related-Party Transactions

Accounts Payable
AtThere are $255 included in accounts payables in our condensed consolidated balance sheet as of March 31, 20202021 and December 31, 2019, there is $255 recorded in accounts payable due to2020 for Nautilus Energy Management Corporation, an affiliate of a current member and former member of the Company’sour board of directors.
Debt

As more fully discussed in Note 6,5, Debt, the Company entered into a Note and RPBLs (both defined(defined above) with a certain related parties.party.
13. Subsequent Events
We have evaluated subsequent events through the date the financial statements were issued.
On April 5, 2021, we paid $13,902 in cash to the noteholder of our 2020 Convertible Notes in full satisfaction of all obligations under our Series B Note, which amounted to $11,718 of principal, interest and make-whole and $2,184 for the loss on extinguishment of debt.
On April 7, 2021, we entered into an At Market Issuance Sales Agreement with B. Riley Securities, Inc. ("B. Riley"), pursuant to which we may offer and sell, from time to time, shares of our common stock through or to B. Riley, for an aggregate offering price of $25,000. We will pay B. Riley a commission of 3% of the gross proceeds of the sales price per share for sales of our common stock sold through or to B. Riley. The sales agreement with B. Riley will terminate the earlier of (i) the sale of all shares of our common stock permitted under the sales agreement; (ii) we and B. Riley may terminate by giving the other party five days notice to the other party; and (iii) any other termination permitted therein. We are not obligated to sell shares under the sales agreement with B. Riley and as of the date noted above, we have not done so.
On May 11, 2021, we announced the commencement of the selling of PhunToken. As of the date the financial statements were issued, sales of PhunToken were immaterial.
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13. Subsequent Events
The Company has evaluated subsequent events through May 15, 2020.
On April 10, 2020, the Company received loan proceeds in the amount of $2,850 from JPMorgan Chase, N.A. pursuant to the PPP under the CARES Act, which was enacted on March 27, 2020. The loan, which was in the form of a note dated April 9, 2020, matures on April 9, 2022, bears interest at a rate of 0.98% per annum and is payable monthly commencing on November 9, 2020. The note may be prepaid by the Company at any time prior to the maturity with no prepayment penalties. In accordance with the CARES Act, funds from the loan used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities and interest on other debt obligations incurred before February 15, 2020 may be eligible for forgiveness should the Company meet certain criteria through the 8-week period following the date of receipt of loan proceeds. The Company is currently unable to determine the amount, if any, of loan may be forgiven.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this section to “we,” “us,” "our," or “the Company” refer to Phunware. References to “management” or “management team” refer to Phunware’s officers and directors.
The following discussion and analysis of Phunware’s financial condition and results of operations should be read in conjunction with Phunware’s condensed consolidated financial statements and the related notes to those statements presented in “Part I – Item 1. Financial Statements.” In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Phunware’s actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed in the section titled “Risk Factors” and elsewhere in this Report.
Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our condensed consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.
Key Events and Recent Developments
On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) as a pandemic. The outbreak is having an impact on the global economy, resulting in rapidly changing market and economic conditions. The COVID-19 outbreak in the United States has caused business disruption through mandated and voluntary closing of businesses and cancellation of events for which the Company's application transition business serves. Furthermore, the Company’s platform software and services business serves healthcare and hospitals throughout the United States. While the disruption is currently expected to be temporary, there is considerable uncertainty around the duration of the closings and cancellations.
The related financial impact and duration cannot be reasonably estimated at this time. We implemented a work-from-home policy for our employees effective March 16, 2020 and we are taking steps to implement measures to reduce operating expenses. To that end, on March 27, 2020, the Company committed to cost reduction by furloughing 37 persons, or approximately 42% of its workforce.
On April 10, 2020, the Company received loan proceeds in the amount of $2.85 million from JPMorgan Chase, N.A. pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act, which was enacted on March 27, 2020. Funds from the loan used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities and interest on other debt obligations incurred before February 15, 2020 may be eligible for forgiveness should the Company meet certain criteria through the 8-week period following the date of receipt of loan proceeds. The Company is currently unable to determine the amount, if any, of loan may be forgiven. See Item 1A. Risk Factors, in Part II of this Quarterly Report on Form 10-Q and Part I of in our Annual Report on Form 10-K filed with the SEC on March 30, 2020, for additional information.
Overview
Phunware, Inc. offers a fully integrated software platform that equips companies with the products, solutions and services necessary to engage, manage and monetize their mobile application portfolios globally at scale. Phunware’s Multiscreen as a ServiceOur Multiscreen-as-a-Service ("MaaS") platform provides the entire mobile lifecycle of applications, media and data in one login through one procurement relationship. ItsOur offerings include:
•Enterprise mobile software including content management, location-based services, marketing automation, business intelligence and analytics, alerts, notifications and messaging, audience engagement, audience monetization, vertical solutions and cryptonetworking, MaaS software application framework that pre-integrates all of our MaaS software ingredients for use within mobile application portfolios, solutions and services;
•Application transactions for mobile audience building, user acquisition, application discovery, audience engagement and audience monetization; and
•Data for data enrichment expanding connections and attributes of a Phunware ID and building custom audience for use in mobile media campaigns.
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Additionally, we plan to launch PhunCoin and Phun, blockchain-powered tokens, and our associated Token Ecosystem which will enable consumers, brands and application developers to transact directly and create a value-based and voluntary data exchange.
•Enterprise mobile software development kits (SDKs) including content management, location-based services, marketing automation, business intelligence and analytics, alerts, notifications and messaging, audience engagement, and audience monetization;
•Integration of our SDK licenses into existing applications maintained by our customers, as well as custom application development and support services;
•Cloud-based vertical solutions, which are off-the-shelf, iOS- and Android-based mobile application portfolios, solutions and services that address: the patient experience for healthcare, the shopper experience for retail, the fan experience for sports, the traveler experience for aviation, the luxury resident experience for real estate, the luxury guest experience for hospitality, the student experience for education and the generic user experience for all other verticals and applications; and
•Application transactions for mobile audience building, user acquisition, application discovery, audience engagement and audience monetization.
We intend to continue investing for long-term growth. We have invested and expect to continue investing in expanding our ability to market, sell and provide our current and future products and services to customers globally. We also expect to continue investing in the development and improvement of new and existing products and services to address customers' needs. We currently do not expect to be profitable in the near future.
Key Business Metrics
Our management regularly monitors certain financial measures to track the progress of its business against internal goals and targets. We believe that the most important of these measures include backlog and deferred revenue.
Backlog and Deferred Revenue. Backlog represents future amounts to be invoiced under our current agreements. At any point in the contract term, there can be amounts that we have not yet been contractually able to invoice. Until such time as these amounts are invoiced, they are not recorded in revenues, deferred revenue, accounts receivable or elsewhere in our condensed consolidated financial statements, and are considered by us to be backlog. We expect backlog to fluctuate up or down from period to period for several reasons, including the timing and duration of customer contracts, varying billing cycles and the timing and duration of customer renewals. We reasonably expect approximately half of our backlog as of March 31, 2021 will be invoiced during the subsequent 12-month period, primarily due to the fact that our contracts are typically one to three years in length.
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In addition, our deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenues as of the end of a reporting period. Together, the sum of deferred revenue and backlog represents the total billed and unbilled contract value yet to be recognized in revenues, and provides visibility into future revenue streams.
The following table sets forth the backlog and deferred revenue:
March 31, 2020December 31, 2019March 31, 2021December 31, 2020
(in thousands)
(in thousands)(in thousands)
BacklogBacklog$4,562  $5,496  Backlog$3,452 $3,991 
Deferred revenueDeferred revenue6,332  7,124  Deferred revenue4,234 5,075 
Total backlog and deferred revenueTotal backlog and deferred revenue$10,894  $12,620  Total backlog and deferred revenue$7,686 $9,066 

Non-GAAP Financial Measures
Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA
We report our financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP"). We also use certain non-GAAP financial measures that fall within the meaning of Securities and Exchange Commission Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior period results. Our non-GAAP financial measures include adjusted gross profit, adjusted gross margin and adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") (our "non-GAAP financial measures"). Management uses these measures (i) to compare operating performance on a consistent basis, (ii) to calculate incentive compensation for its employees, (iii) for planning purposes including the preparation of its internal annual operating budget and (iv) to evaluate the performance and effectiveness of operational strategies.
Our non-GAAP financial measures should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. They are not measurements of our financial performance under GAAP and should not be considered as alternatives to revenue or net loss, 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 its ongoing operating performance for a particular period;
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•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
•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.
We compensate for these limitations to our non-GAAP financial measures by relying primarily on itsour 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 including transaction costs and the income tax impact of adjustments in order to facilitate a more useful period-over-period comparison of its financial performance. Each of the normal recurring adjustments and other adjustments described in this paragraph help management with a measure of our operating performance over time by removing items that are not related to day-to-day operations or are non-cash expenses.
The following table sets forth the non-GAAP financial measures we monitor.
Three Months Ended March 31,
20202019
(in thousands)
Adjusted gross profit (1)
$1,607  $2,723  
Adjusted gross margin (1)
60.9 %51.2 %
Adjusted EBITDA (2)
$(3,178) $(3,204) 
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Three Months Ended March 31,
(in thousands, except percentages)20212020
Adjusted gross profit (1)
$1,168 $1,607 
Adjusted gross margin (1)
71.0 %60.9 %
Adjusted EBITDA (2)
$(2,403)$(3,178)
(1)Adjusted gross profit and adjusted gross margin are non-GAAP financial measures. We believe that adjusted gross profit and adjusted gross margin provide supplemental information with respect to gross profit and gross margin regarding ongoing performance. We define adjusted gross profit as net revenues less cost of revenue, adjusted to exclude one-time revenue adjustments, stock-based compensation and amortization of intangible assets. We define adjusted gross margin as adjusted gross profit as a percentage of net revenues.
(2)Adjusted EBITDA is a non-GAAP financial measure. We believe Adjusted EBITDA provides helpful information with respect to operating performance as viewed by management, including a view of our business that is not dependent on (i) the impact of our capitalization structure and (ii) items that are not part of day-to-day operations. We define adjusted EBITDA as net loss plus (i) interest expense, (ii) income tax expense, (iii) depreciation, (iv) amortization, and further adjusted for (v) one-time revenue adjustments and (vi) stock-based compensation expense.
Reconciliation of Non-GAAP Financial Measures
The following tables set forth a reconciliation of the most directly comparable GAAP financial measure to each of the non-GAAP financial measures discussed above.
Three Months Ended March 31,
(in thousands, except percentages)20212020
Gross profit$954 $1,549 
Add back:  Amortization of intangibles4 7 
Add back:  Stock-based compensation210 51 
Adjusted gross profit$1,168 $1,607 
Adjusted gross margin71.0 %60.9 %
Three Months Ended March 31,
20202019
(in thousands)
Gross profit$1,549  $2,698  
Add back:  Amortization of intangibles7  11  
Add back:  Stock-based compensation51  14  
Adjusted gross profit$1,607  $2,723  
Adjusted gross margin60.9 %51.2 %
Three Months Ended March 31,
(in thousands)20212020
Net loss$(12,363)$(3,963)
Add back:  Depreciation and amortization33 49 
Add back:  Interest expense2,219 101 
EBITDA(10,111)(3,813)
Add back: Stock-based compensation1,055 635 
Add back: Loss on extinguishment of debt5,768 — 
Add back: Loss on change in fair value of warrant liability885 — 
Adjusted EBITDA$(2,403)$(3,178)


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Three Months Ended March 31,
20202019
(in thousands)
Net loss$(3,963) $(3,494) 
Add back:  Depreciation and amortization49  91  
Add back:  Interest expense101  188  
EBITDA(3,813) (3,215) 
Add Back:  Stock-based compensation635  11  
Adjusted EBITDA$(3,178) $(3,204) 

Components of Results of Operations
Revenue and Gross Profit
There are a number of factors that impact the revenue and margin profile of the services and technology offerings we provide, including, but not limited to, solution and technology complexity, technical expertise requiring the combination of products and types of services provided, as well as other elements that may be specific to a particular client solution.
Platform Subscriptions and Services Revenue. Subscription revenue is derived from software license fees, which comprise subscription fees from customers licensing the Company’sour Software Development Kits (SDKs), whichthat includes accessing the MaaS platform and/or MaaS platform data;platform; application development service revenue from the development of customer applications, or apps, which are built and delivered to customers; and support fees.
Subscription revenue from SDK licenses gives the customer the right to access the Company’sour MaaS platform. Application development revenue is derived from development services around designing and building new applications or enhancing existing applications. Support revenue is comprised of support and maintenance fees of customer applications, software updates and technical support for application development services for a support term.
From time to time, the Companywe also providesprovide professional services by outsourcing employees’ time and materials to customers.
Platform subscriptions and services gross profit is equal to subscriptions and services revenue less the cost of personnel and related costs for our support and professional services employees, external consultants, stock-based compensation and allocated overhead. Costs associated with our development and project management teams are generally recognized as incurred. Costs directly attributable to the development or support of applications relating to platform subscription customers are included in cost of sales, whereas costs related to the ongoing development and maintenance of Phunware’s MaaS platform are expensed in research and development. As a result, platform subscriptions and services gross profit may fluctuate from period to period.
Application Transaction Revenue. We also generate revenue by charging advertisers to deliver advertisements (ads) to users of mobile connected devices. Depending on the specific terms of each advertising contract, we generally recognize revenue based on the activity of mobile users viewing these ads. Fees from advertisers are commonly based on the number of ads delivered or views clicks, or actionsclicks by users on mobile advertisements delivered, and we recognize revenue at the time the user views clicks, or otherwise actsclicks on the ad. We sell our ads through several offerings:by cost per thousand impressions cost per click and cost per action. In addition, we generate application transaction revenue thru in-app purchases from application on our platform.click.
Application transaction gross profit is equal to application transaction revenue less cost of revenue associated with application transactions. Application transaction gross profit is impacted by the cost of direct premium, performanceadvertising traffic we pay to our suppliers and network cost as well as based on the activityamount of mobile users viewing ads and marketing engagements through mobile applications.traffic which we can purchase from those suppliers. As a result, our application transaction gross profit may fluctuate from period to period due to variable activitycosts of mobile users.advertising traffic.
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Gross Margin
Gross margin measures gross profit as a percentage of revenue. Gross margin is generally impacted by the same factors that affect changes in the mix of subscriptions and services and application transactions.
Operating Expenses
Our operating expenses include sales and marketing expenses, general and administrative expenses, research and development expenses, depreciation and amortization of acquired intangible assets. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation and, in sales and marketing expense, commissions. Legal settlements pertaining to litigation brought as a result of the Company's operations is also included in operating expenses.
Sales and Marketing Expense. Sales and marketing expense is comprised of compensation, commission expense, variable incentive pay and benefits related to sales personnel, along with travel expenses, other employee related costs, including stock-based compensation and expenses related to marketing programs and promotional activities. We expect our sales and marketing expense towill increase in absolute dollars as we increase our sales and marketing organizations as we plan to increase revenue but may fluctuate as a percentage of our total revenue from period to period.
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General and Administrative Expense. General and administrative expense is comprised of compensation and benefits of administrative personnel, including variable incentive pay and stock-based compensation, bad debt expenses and other administrative costs such as facilities expenses, professional fees and travel expenses. We expect to incur additional general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and listing standards of Nasdaq, additional insurance expenses, investor relations activities and other administrative and professional services. We also expect to increase the size of our general and administrative function to support the growth of our business. As a result, we expect that our general and administrative expenses will increase in absolute dollars but may fluctuate as a percentage of our total revenue from period to period.
Research and Development Expense. Research and development expenses consist primarily of employee compensation costs and overhead allocation. We believe that continued investment in our platform is important for our growth. As a result, we expect our research and development expenses will increase in absolute dollars as our business grows but may fluctuate as a percentage of revenue from period to period.
Interest Expense 

Interest expense includes factoring fees related to our factoring financing arrangement and interest related to our outstanding debt.

Our boarddebt, including amortization of directors has authorized two different debt offerings allowing the Company to seek up to $20 million in each debt offering. We further have entered into certain related party bridge loansdiscounts and a senior convertible note.deferred issuance costs.

Refer to Note 5 "Factoring Agreement" and 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 factoring arrangement and debt offerings, respectively.offerings.

We also may seek additional debt financings to fund the expansion of our business or to finance strategic acquisitions in the future, which may have an impact on itsour interest expense.
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Results of Operations(In thousands, except per share information)
The following tables set forth our condensed consolidated financial data in dollar amounts and as a percentage of total revenue.
Three Months Ended March 31,
20202019
Net revenues$2,640  $5,315  
Cost of revenues1,091  2,617  
Gross profit1,549  2,698  
Operating expenses:
Sales and marketing605  724  
General and administrative3,945  3,975  
Research and development861  1,309  
Total operating expenses5,411  6,008  
Operating loss(3,862) (3,310) 
Other income (expense):
Interest expense(101) (188) 
Other income—  4  
Total other expense(101) (184) 
Net loss(3,963) (3,494) 
Other comprehensive loss:
Cumulative translation adjustment(72) 27  
Comprehensive loss$(4,035) $(3,467) 
Net loss per common share, basic and diluted$(0.10) $(0.12) 
Weighted-average common shares used to compute net loss per share, basic and diluted40,095  30,264  

Comparison of three months ended March 31, 2020 and 2019
Net Revenues
Three Months Ended March 31,Change
20202019Amount%
(in thousands)
Net Revenues
Platform subscriptions and services$2,391  $4,821  $(2,430) (50.4)%
Application transaction249  494  (245) (49.6)%
Net revenues$2,640  $5,315  $(2,675) (50.3)%
Platform subscriptions and services as a percentage of net revenues90.6 %90.7 %
Application transactions as a percentage of net revenues9.4 %9.3 %

Three Months Ended March 31,Change
(in thousands, except percentages)20212020Amount%
Net Revenues
Platform subscriptions and services$1,521 $2,391 $(870)(36.4)%
Application transaction125 249 (124)(49.8)%
Net revenues$1,646 $2,640 $(994)(37.7)%
Platform subscriptions and services as a percentage of net revenues92.4 %90.6 %
Application transactions as a percentage of net revenues7.6 %9.4 %
Net revenues decreased $2.7$1.0 million, or (50.3)(37.7)%, for the three months ended March 31, 20202021 compared to the corresponding period in 2019. 2020.
Platform subscriptions and services revenue decreased $2.4$0.9 million, or (50.4)(36.4)%, primarily driven by the completion of our statement of work with Fox Networks Group ("Fox") on September 30, 2019. Revenue from Fox was
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approximately $3.3 million three months ended March 31, 2019. See the subheading titled,development, licensing and support services provided to a customer during 2020. This customer is identified as "Concentrations of Credit Risk,Customer F"" in Note 1, "3, The Company and Basis of PresentationRevenue" in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Reportquarterly report on Form 10-Q. This decrease was partially offset by the fulfillment of new contracts during the quarter.
Application transaction revenue decreased $0.2$0.1 million, or (49.6)(49.8)%, for the three months ended March 31, 2020,2021, compared to the corresponding period in 2019,2020, primarily because of the various decreased or ceased advertising campaigns.due to a decrease in app store revenue.
Cost of Revenues, Gross Profit and Gross Margin
Three Months Ended March 31,ChangeThree Months Ended March 31,Change
20202019Amount%
(in thousands)
(in thousands, except percentages)(in thousands, except percentages)20212020Amount%
Cost of RevenuesCost of RevenuesCost of Revenues
Platform subscriptions and servicesPlatform subscriptions and services$1,046  $2,508  $(1,462) (58.3)%Platform subscriptions and services$648 $1,046 $(398)(38.0)%
Application transactionApplication transaction45  109  (64) (58.7)%Application transaction44 45 (1)(2.2)%
Total cost of revenuesTotal cost of revenues$1,091  $2,617  $(1,526) (58.3)%Total cost of revenues$692 $1,091 $(399)(36.6)%
Gross ProfitGross ProfitGross Profit
Platform subscriptions and servicesPlatform subscriptions and services1,345  $2,313  $(968) (41.9)%Platform subscriptions and services873 $1,345 $(472)(35.1)%
Application transactionApplication transaction204  385  (181) (47.0)%Application transaction81 204 (123)(60.3)%
Total gross profitTotal gross profit$1,549  $2,698  $(1,149) (42.6)%Total gross profit$954 $1,549 $(595)(38.4)%
Gross MarginGross MarginGross Margin
Platform subscriptions and servicesPlatform subscriptions and services56.3 %48.0 %Platform subscriptions and services57.4 %56.3 %
Application transactionApplication transaction81.9 %77.9 %Application transaction64.8 %81.9 %
Total gross marginTotal gross margin58.7 %50.8 %Total gross margin58.0 %58.7 %
Total gross profit decreased $1.1$0.6 million, or (42.6)(38.4)%, for the three months ended March 31, 20202021, when compared to the corresponding period of 2019,2020, due to the revenue items described above, as well as lower application transaction costs due to decreased or ceased advertising campaigns. This decrease was partially offset by improved margins on contracts delivered during the quarter.above.
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Operating Expenses
Three Months Ended March 31,ChangeThree Months Ended March 31,Change
20202019Amount%
(in thousands)
(in thousands, except percentages)(in thousands, except percentages)20212020Amount%
Operating expensesOperating expensesOperating expenses
Sales and marketingSales and marketing$605  $724  $(119) (16.4)%Sales and marketing$556 $605 $(49)(8.1)%
General and administrativeGeneral and administrative3,945  3,975  (30) (0.8)%General and administrative2,758 3,945 (1,187)(30.1)%
Research and developmentResearch and development861  1,309  (448) (34.2)%Research and development1,052 861 191 22.2 %
Total operating expensesTotal operating expenses$5,411  $6,008  $(597) (9.9)%Total operating expenses$4,366 $5,411 $(1,045)(19.3)%


Sales and Marketing
Sales and marketing expense decreased $0.1$0.05 million, or (16.4)(8.1)% for the three months ended March 31, 20202021 compared to the corresponding period of 2019,2020, primarily due to reduced employee compensation costs as a result of lower headcount.headcount of $0.1 million. This is partially offset with an increase in stock-based compensation expense.
General and Administrative
General and administrative expense decreased $0.03$1.2 million, or (0.8)(30.1)% for the three months ended March 31, 20202021 compared to the corresponding period of 2019, primarily2020, due to a decrease of $0.6$0.5 million in headcount related to professional costs, such as
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SEC filing fees for registration statements,$0.5 million in legal fees mainly related to our previous litigation with Uber, Technologies, Inc. (“Uber”), as describedwhich was settled in detailOctober 2020 and $0.2 million in the section titled “Legal Proceedings,” in Part II, Item 1 of this Quarterly Report on Form 10-Q, and software expenses. These decreases were primarily offset by a reduction of $0.6 million, related to stock-based compensation expense from awards granted during 2020.bad debt recovery.
Research and Development
Research and development expense decreased $0.4increased $0.2 million, or (34.2)%22.2%, for the three months ended March 31, 2020, respectively,2021, compared to the corresponding period of 2019,2020, primarily due to reduced employeeincreases of $0.1 million for headcount dedicated to research and development projects and $0.1 million in stock-based compensation costs as a resultexpense.
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Other expense
Three Months Ended March 31,ChangeThree Months Ended March 31,Change
20202019Amount%
(in thousands)
(in thousands, except percentages)(in thousands, except percentages)20212020Amount%
Other expenseOther expenseOther expense
Interest expenseInterest expense$(101) $(188) $87  (46.3)%Interest expense$(2,219)$(101)$(2,118)2,097.0 %
Loss on extinguishment of debtLoss on extinguishment of debt(5,768)— (5,768)100.0 %
Loss on change in fair value of warrant liabilityLoss on change in fair value of warrant liability(885)— (885)100.0 %
Other income (expense)Other income (expense)—  4  (4) (100.0)%Other income (expense)(79)— (79)100.0 %
Total other expenseTotal other expense$(101) $(184) $83  (45.1)%Total other expense$(8,951)$(101)$(8,850)8,762.4 %

Other expense decreased $83 thousandincreased $8.9 million for the three months ended March 31, 20202021, compared to the corresponding period of 2019,2020, primarily relateddue to the decreaselosses on extinguishment of financing used under our factoring financing arrangement partially offset by increase indebt and interest related to our debt borrowings as further described in Note 65 "Debt" in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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Liquidity and Capital Resources
As of March 31, 2020,2021, we hadheld total cash (including restricted cash) of $833 thousand,$23.6 million, all of which over 99% of our cash was held in the United States.
In 2019,On October 9, 2020, we entered into a settlement agreement with Uber Technologies, Inc. ("Uber") and certain other parties related to our complaint against Uber, Uber's cross-complaint and amended cross-complaint against us and certain individual defendants. The settlement agreement provides that we will pay to Uber a total sum of $4.5 million in a series of installments. We recorded a charge in the Company’s boardthird quarter of directors authorized2020 related to the issuancesettlement agreement. As of $20March 31, 2021, we owe $3 million of convertible promissory notes (the “Convertible Notes”). The Convertible Notes bear ordinary interest at a rate of 7% per annumrelated to the settlement, which will be paid in various installments ending no later than September 30, 2021. For further information related to the Uber settlement agreement, refer to Note 9 "Commitments and mature on June 3, 2024. The Convertible Notes are convertible into sharesContingencies" of the Company’s common stock atnotes to the consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K filed with the SEC on March 31, 2021.
As of March 31, 2021, the principal balance of our debt was approximately $15.1 million from various debt, including a price of $11.50 per share. Each Convertible NotePaycheck Protection Program ("PPP") loan and convertible debt offerings. The debt we believe will convert voluntarily upon a holder’s election, or automatically uponhave the closing sale price of the Company’s common stock equals or exceeds $17.25 per share for 20 out of 30 consecutive trading days, if a registration statementmost significant impact on our future liquidity and capital resources is then in effect covering the disposition of the converted shares. The Company has one Convertible Note with a balancediscussed below. For further information on all our debt outstanding of $250 thousand as of March 31, 2020. Refer2021, refer to Note 65 “Debt” inof 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 Convertible Notes.10-Q.
In 2019, the Company’s boardApril 2020, we received a PPP loan of directors authorized the issuance of $20approximately $2.85 million, of promissory notes (the “Notes”). The Notes bear ordinarywhich bears interest at a rate of 10%0.98% per annum. DuringThe Paycheck Protection Flexibility Act of 2020, extended the termdeferral period for loan payments. The Company currently anticipates its first PPP loan payment will be made in the third quarter of 2021. Although we intend to apply for forgiveness, as currently provided for under terms of the Notes,PPP loan and the CompanyCARES Act, there can be no assurance that any part of our PPP loan will maintainbe forgiven. The PPP loan matures in April 2022.
During 2020, we issued a restricted bank account with a minimum balanceseries of one yearconvertible notes to an institutional investor. As of interest payments onMarch 31, 2021, the aggregateunrestricted principal balance of all Notes, which will be available for use exclusively to satisfy any payments owed byour Series A Convertible Note and Series B Convertible Note (collectively, the Company under"2020 Convertible Notes") was $0 as we had paid the Notes. The principal and unpaid accrued interest on the Notes will be due and payable on demand by the majoritySeries A Convertible Note holders on or after the date that is 60 months following November 15, 2019. The Notes have a balance outstanding of $905 thousand as of March 31, 2020. Refer to Note 6 “Debt” in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on the Notes.
Duringfull during the first quarter of 2021 and $11.1 million, respectively. The 2020 various related parties loaned the Company $560 thousand. The Related-Party Bridge Loans ("RPBLs") have an interest of 10% per annum and will mature on November 14, 2024. Payments on or payoff of the RPBLs may be made earlyConvertible Notes were issued with no penalty. Refer to Note 6 “Debt” in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on the RPBLs.
On March 19, 2020, the Company entered into a Securities Purchase Agreement for the sale of a Senior Convertible Note with an institutional investor with an initial principal amount of $3.0 million (the “Senior Convertible Note”) for a cash purchase price of approximately $2.8 million (reflecting an original issue discount of 8% and each bear an interest rate of 7% per annum, which further includes a make-whole of interest (for unrestricted principal amounts) from the date of issuance through the maturity date of December 31, 2021. Outstanding principal on the 2020 Convertible Notes was subject to monthly installment payments in cash of 107% of the installment amount due. The noteholder had various redemption rights, such as the right to redeem an amount equal to 40% of the net proceeds from a qualified capital raise, or upon change of control or company default. The noteholder could also convert 2020 Convertible Notes into shares of our common at a current adjusted conversion price of $2.25 per share. Upon consummation of the issuance of the 2020 Convertible Notes, we also issued the note holder a warrant for the purchase of up to 2,160,000 shares of our common stock, which has a current adjusted exercise price of $2.25 per share. We also had the right to redeem the full amount of the outstanding principal under the 2020 Convertible Notes.
In January 2021, we issued 2,670,121 shares of common stock for aggregate proceeds of $5.1 million, net of $0.2 million)million of commissions (and before noteholder redemption payment) pursuant to the terms of an at-the-market offering, which has concluded. In February 2021, we also issued 11,761,111 shares of our common stock for aggregate proceeds at closing of $24.7 million in a private placement that closed on March 20, 2020. After deducting the placement agent feean underwritten public offering, net of $1.7 million of underwriter commissions and other estimated expenses,underwriter costs.

As a result of the fundraising events above, the holder of our 2020 Convertible Notes elected to require us to use forty percent (40%) of the net proceeds satisfy obligations under the 2020 Convertible Notes, pursuant to which we paid approximately $11.5 million to the noteholder.
Upon issuance of the 2020 Convertible Notes, the noteholder issued an investor note to us, which offset the combined restricted balances of the 2020 Convertible Notes. In March 2021, the noteholder voluntarily prepaid an aggregate of $10.3 million pursuant to the terms of the investor note. As a result, we received cash proceeds atof $10.3 million and the corresponding amount of principal of the Series B Note, representing the entire remaining amount remaining of restricted principal as of that date, along with $0.8 million of original issue discount became unrestricted and outstanding. As of March 31, 2021, the restricted principal balance of both the Series A Convertible Note and Series B Convertible Note was $0 and the balance of the corresponding investor note was $0.
On March 25, 2021, we delivered a Company Optional Redemption Notice to the holder of our Series B Note exercising our right to redeem and fully satisfy all obligations under the Series B Note on April 5, 2021. On April 5, 2021, we paid $13,902 in cash to the noteholder in full satisfaction of all obligations under our Series B Note, which amounted to $11,718 of principal, interest and make-whole and $2,184 for the loss on extinguishment of debt.
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closing were approximately $2.4 million. In addition,
Given the financings achieved above, we granted the noteholder participation rights in future equity and equity-linked offerings of securities during the two years after the closing in an amount of upbelieve our current cash position to 30% of the securities being sold in such offerings. Under the Senior Convertible Note, we are subjectbe sufficient to certain customary affirmative and negative covenants regarding the incurrence of indebtedness, the existence of liens, the repayment of indebtedness, the payment of cash in respect of dividends, distributions or redemptions, and the transfer of assets, among other matters. We also are subject to a financial covenant requiring that we have an unrestricted cash balance ofmeet our projected operating requirements for at least $200 thousand at each quarterly balance sheet date. The Company was in compliance with the financial covenant as of March 31, 2020. Refer to Note 6 “Debt” innext twelve months from the notes to the condensed consolidated financial statements included in Part I, Item 1filing of this Quarterly Report on Form 10-Q for information on the Senior Convertible Notes.10-Q.

Nasdaq Listing Compliance
On April 17, 2020, we received a written notification from the Listing Qualifications Staff of the Nasdaq Stock Market LLC (“Nasdaq”) notifying us 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”). Nasdaq has notified us weWe have until December 28, 2020 (the "Compliance Date") 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 until the Compliance Date. Furthermore, the Company must, amongst other requirements, including, but not limited to the Minimum Bid Requirement mentioned above, maintain a stockholders’ equity balance of at least $2.5 million pursuant to Nasdaq Listing Rule 5550(b). In that regard, on March 31, 2020, the Company’s stockholders’ equity totaled approximately $1.4 million, thereby potentially resulting in a stockholders’ equity deficiency upon the filing of the March 31, 2020 Form 10-Q. If our common stock ultimately were to be delisted for any reason, 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. See Part II, Item 1A, "Risk Factors" for more information.
Going Concern
The Company has a history of operating losses and negative operating cash flows. Although the Company continuesAs we continue to focus on growing itsour revenues, it expectswe expect these trends to continue into the foreseeable future. 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 expansion of sales and marketing activities and the market acceptance of our products and services. We believe that it is likely we will in the future enter into arrangements to acquire or invest in complementary businesses, technologies and intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital through debt or equity financings when desired and/or reduceon acceptable terms, our business, operating expenses. Despite a history of successfully implementing similar plans to alleviate adverseresults and financial conditions, these sources of working capital are not currently assured. There cancondition could be no assurance that we will be able to consummate such financings on favorable terms or at all. These conditions raise substantial doubt about our ability to continue as a “going concern”.adversely affected.
The following table summarizes our cash flows for the periods presented:

Three Months Ended March 31,Change
(in thousands, except percentages)20202019Amount%
Consolidated statement of cash flows
Net cash used in operating activities$(1,905) $(4,116) $2,211  (53.7)%
Net cash provided by investing activities—  88  (88) (100.0)%
Net cash (used in) provided by financing activities2,543  (1,277) 3,820  (299.1)%

Three Months Ended March 31,Change
(in thousands, except percentages)20212020Amount%
Consolidated statement of cash flows
Net cash used in operating activities$(7,299)$(1,905)$(5,394)283.1 %
Net cash provided by investing activities(1,098)— (1,098)100.0 %
Net cash provided by (used in) financing activities27,916 2,543 25,373 997.8 %
Operating Activities
The primary source of cash from operating activities is receipts from the sale of platform subscriptions and services and application transactions 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, sales and marketing expenses and general operating expenses.
We utilized $7.3 million of cash from operating activities during the three months ended March 31, 2021, primarily resulting from a net loss of $12.4 million, as adjusted $1.1 million for stock-based compensation $0.2 million for bad debt recovery, $1.6 million for amortization of debt discount and deferred financing costs, $0.9 million for loss on the change in fair value of warrants and $5.8 million for loss on extinguishment of debt related to our 2020 Convertible Notes. In addition, certain changes in our operating assets and liabilities resulted in significant cash increases (decreases) as follows: $(0.7) million from a decrease in accounts payable, $(2.3) million from a decrease in accrued expenses, $(0.8) million from a decrease in deferred revenue and $0.5 million from an increase in prepaid and other assets.
We utilized $1.9 million of cash from operating activities during the three months ended March 31, 2020, primarily resulting from a net loss of $4.0 million, as adjusted $0.6 million for stock-based compensation. In addition, certain changes in our operating assets and liabilities resulted in significant cash increases (decreases) as follows: $0.9 million from an increase in
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accounts payable, $0.6 million from an increase in accrued expenses, $0.8 million from an increase in account receivable and $(0.8) million from an decrease in deferred revenue.
We utilized $4.1 million of cash from operating activities during the quarter ending March 31, 2019, primarily resulting from a net loss of $3.5 million, as adjusted $0.1 million for depreciation and amortization, allowance for doubtful receivables and stock-based compensation. In addition, certain changes in our operating assets and liabilities resulted in significant cash increases (decreases) as follows: ($1.4) million from a decrease in accounts payable and accrued expenses, $0.9 million from an increase in accounts receivable, ($0.2) million from a decrease in deferred revenue. 
Investing Activities
Investing activities for the quarterthree months ended March 31, 20192021 consisted of the salepurchase of digital currencies received for warrant exercises.currencies.

Financing Activities
Our financing activities during the three months ended March 31, 2021 consisted of proceeds from equity financings and debt borrowings offset by payments on debt. We acquired $27.9 million of cash from financing activities resulting from $29.7 million in proceeds from the sale of our common stock and $10 million in proceeds from our Series B Convertible Note. These sources of financing were partially offset by $11.8 million of payments on debt, a majority of which were payments on the 2020 Convertible Notes. Refer to the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Report on Form 10-Q for information on the Company's financing activities.
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Our financing activities during the three months ended March 31, 2020 consisted of proceeds derived from debt borrowings offset by net repayments on our financing factoring agreement. We acquired $2.5 million of cash from financing activities, as a result ofresulting from $3.2 million in proceeds from new issuances of debt (inclusive of $0.6 million from related parties), partially offset of $(0.6) million in net repayments on our factoring financing agreement. Refer to Note 6 “Debt” in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on the Notes.
Our financing activities during the quarter ended March 31, 2019 consisted primarily of the proceeds from warrant exercises, and utilization of the Company’s financing factoring agreement, as well as redemptions and dividends of the Series A convertible preferred stock. The Company utilized $1.3 million of cash from financing activities, primarily as follows: ($6.2) million from redemptions and dividend payments of Series A convertible preferred stock, ($0.8) million of net proceeds from our factoring financing agreement; offset by $5.7 million provided by warrant exercises.
Off-Balance Sheet Arrangements
During the periods endedThrough March 31, 2020 and December 31, 2019, the Company2021, 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, the Company provideswe 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, the Company haswe 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 ourthe condensed consolidated financial statements included in Part I, Item 1 of this Report on Form 10-Q for analysis of recent accounting pronouncements that are applicable to our business.
Summary of Significant Accounting Policies
Management’sOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
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Except for the changes described in Note 2, "Summary of Significant Accounting Policies," in the notes to ourthe condensed consolidated financial statements related to the issuance of the Senior Convertible Note and the adoption of ASU 2017-04,2016-02 and our disclosure of our accounting policy related to our digital currencies purchsed during the current quarter, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 30, 2020 for the year ended December 31, 2019.2021.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
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.
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
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the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the three months ended covered by this Report on Form 10-Q,March 31, 2021, we implemented new controls related to the issuance and ongoing financial reportingadoption of the Senior Convertible Note.ASU 2016-02. There were no other changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth under the "Litigation" subheading in Note 7, "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 “PartPart I, Item 1A, — "Risk Factors”Factors” of our Annual Report on Form 10-K filed with the SEC on March 30, 202031, 2021 for the year ended December 31, 2019,2020, as supplemented by the "Risk Factors""Risk Factors" section in our prospectus filed with the SEC on February 12, 2021 (as amended and/or supplemented to date) and April 13, 20207, 2021 (as amended and/or supplemented to date) and the information set forth below. An investmentbelow or contained elsewhere in our securities involves a high degree of risk.this Report. The risks and uncertainties described below and within our Form 10-K for the year ended December 31, 20192020 and the prospectusprospectuses are not the only ones 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.

If we cannot meet the continued listing requirements of the Nasdaq, 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 senior convertible notes.
Our common stock is currently listed on the Nasdaq Capital Market. On April 17, 2020, 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 a period of 180 calendar days from the date of the Notice to regain compliance with the Bid Price Requirement. However due to recent market conditions, Nasdaq has determined to toll the compliance periods for the Bid Price Requirement through June 30, 2020. As a result, the compliance period for the Bid Price Requirement will be reinstated on July 1, 2020 (the "Reinstatement Date"). Accordingly, the Company has 180 calendar days from the Reinstatement Date, or until December 28, 2020 (the “Compliance Date”), 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 until the Compliance Date.
We intend to monitor the closing bid price of its 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.
To that effect, pursuant to Nasdaq Listing Rule 5550(b) we must maintain a stockholders’ equity balance of at least $2.5 million. On March 31, 2020, the Company’s stockholders’ equity totaled approximately $1.4 million, thereby potentially resulting in a stockholders’ equity deficiency upon the filing of this Quarterly Report on Form 10-Q.
If our common stock ultimately were to be delisted for any reason, 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 the Common Stock were not to become listed on other specified stock exchanges), this would trigger an Event of Default (as defined in the Senior Convertible Note), and the holder of our senior convertible note would have a right to convert the senior convertible note under the Alternate Conversion (as defined in the Senior Convertible Note), which would dilute stockholders.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
None.
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Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
The information set forth under the "
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Key Events and Recent Developments" subheading in Management's Discussion and Analysis included in Part I, Item 2Table of this Quarterly Report on Form 10-Q is incorporated herein by reference.Contents
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
3.2
3.3 
4.1
4.2 10.1
10.1 
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
31.1*
31.2*
32.1(1)
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101.INSXBRL Instance Document*
101.SCHXBRL Taxonomy Extension Schema*
101.CALXBRL Taxonomy Calculation Linkbase*
101.LABXBRL Taxonomy Label Linkbase*
101.PREXBRL Definition Linkbase Document*
101.DEFXBRL Definition Linkbase Document*
*Filed herewith
(1)The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
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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 15, 202014, 2021Phunware, Inc.
By:/s/ Alan S. Knitowski
Name:Alan S. Knitowski
Title:Chief Executive Officer
(Principal Executive Officer)

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

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