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What changed in Phunware, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Phunware, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+233 added−305 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-31)

Top changes in Phunware, Inc.'s 2023 10-K

233 paragraphs added · 305 removed · 187 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeOur Products and Services Our mobile software subscriptions and services, application transaction solutions and hardware product offerings include the following: • Cloud-based mobile software licenses in software development kits (“SDKs”) form utilized inside mobile applications for the following: • Analytics (SDK that provides data related to application use and engagement); • Content Management (SDK that allows application administrators to create and manage app content in a cloud-based portal); • Alerts, Notifications & Messaging (SDK that enables brands to send messages to app users through the app); • Marketing Automation (SDK that enables location-triggered messages and workflow); • Advertising (SDK that enables in-app audience monetization); and • Location-Based Services (module that include mapping, navigation, wayfinding, workflow, asset management and policy enforcement); • 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; • Application transactions, including re-occurring and one-time transactional media purchases for application discovery, user acquisition and audience building, audience engagement and audience monetization; and • Pre-packaged and custom high-end personal computer systems for gaming, streaming and cryptocurrency mining enthusiasts.
Biggest changeWe generally completed such plan as of December 31, 2023. 4 Table of Contents Our Products and Services Our mobile software subscriptions and services and application transaction solutions offerings include the following: • Integration of our software development kit (“SDK”) licenses into existing applications maintained by our customers, including: • Analytics (SDK that provides data related to application use and engagement); • Content Management (SDK that allows application administrators to create and manage app content in a cloud-based portal); • Alerts, Notifications & Messaging (SDK that enables brands to send messages to app users through the app); • Marketing Automation (SDK that enables location-triggered messages and workflow); • Advertising (SDK that enables in-app audience monetization); and • Location-Based Services (module that include mapping, navigation, wayfinding, workflow, asset management and policy enforcement); • Cloud-based vertical solutions, which are off-the-shelf, iOS- and Android-based mobile application solutions 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, including re-occurring and one-time transactional media purchases for application discovery, user acquisition and audience building, audience engagement and audience monetization.
Our competitors include Airship, Apadmi, Appcelerator, Mutual Mobile, Pointr, Purple and as well as many competitors in the desktop personal computing business. 10 Table of Contents We believe the principal competitive factors in our market include the following: • product features and functionality; • location accuracy and latency; • technology architecture; • level of customer satisfaction; • ease of use and integration of products and services; • deployment options and hardware flexibility; • breadth and depth of application functionality; • professional services and customer support; • total costs of ownership; • brand awareness and reputation; • sophistication of technology platform; • actionable insights through big data analytics; • capability for customization, configurability, integration, security, scalability and reliability of applications; • ability to innovate and respond to customer needs rapidly; • domain expertise; • global reach; • size of customer base and level of user adoption; and • ability to integrate with legacy enterprise infrastructures and third-party applications.
Our competitors include Airship, Apadmi, Appcelerator, Mutual Mobile, Pointr, Purple and as well as many competitors in the desktop personal computing business. 8 Table of Contents We believe the principal competitive factors in our market include the following: • product features and functionality; • location accuracy and latency; • technology architecture; • level of customer satisfaction; • ease of use and integration of products and services; • deployment options and hardware flexibility; • breadth and depth of application functionality; • professional services and customer support; • total costs of ownership; • brand awareness and reputation; • sophistication of technology platform; • actionable insights through big data analytics; • capability for customization, configurability, integration, security, scalability and reliability of applications; • ability to innovate and respond to customer needs rapidly; • domain expertise; • global reach; • size of customer base and level of user adoption; and • ability to integrate with legacy enterprise infrastructures and third-party applications.
Despite our efforts to protect our technology and proprietary rights through intellectual property rights, licenses and confidentiality agreements, unauthorized parties may still copy or otherwise obtain and use our software and other technology. In addition, if we expand international operations, an effective patent, copyright, trademark and trade secret protections may not be available or may be limited in foreign countries.
Despite our efforts to protect our technology and proprietary rights through intellectual property rights, licenses and confidentiality agreements, unauthorized parties may still copy or otherwise obtain and use our software and other technology. In addition, if we expand international operations, effective patent, copyright, trademark and trade secret protections may not be available or may be limited in foreign countries.
We sell and will continue to sell PhunToken. During 2018 and 2019, we sold rights to the future issuances of PhunCoin. To date, we have recorded the rights purchases as a liability in our consolidated balance sheets as of December 31, 2022 and 2021, as we have yet to issue any PhunCoin pursuant to our rights offerings.
We sell and will continue to sell PhunToken. During 2018 and 2019, we sold rights to the future issuances of PhunCoin. To date, we have recorded the rights purchases as a liability in our consolidated balance sheets as of December 31, 2023 and 2022, as we have yet to issue any PhunCoin pursuant to our rights offerings.
The SEC also maintains an Internet website that contains reports and other information regarding issuers, such as Phunware, that can be filed electronically with the SEC. The SEC's Internet website is located at http://www.sec.gov. 13 Table of Contents
The SEC also maintains an Internet website that contains reports and other information regarding issuers, such as Phunware, that can be filed electronically with the SEC. The SEC's Internet website is located at http://www.sec.gov. 11 Table of Contents
We believe the multi-year nature of our software and managed services projects, agreements and related recurring revenues provides revenue visibility. Our subscription and services agreements with our customers consist of terms relating to length of agreement (for subscriptions and application support), payment, performance, cancellation and termination, 8 Table of Contents confidentiality, indemnification obligations and limitation of liability, among other provisions.
We believe the multi-year nature of our software and managed services projects, agreements and related recurring revenues provides revenue visibility. Our subscription and services agreements with our customers consist of terms relating to length of agreement (for subscriptions and application support), payment, performance, cancellation and termination, confidentiality, indemnification obligations and limitation of liability, among other provisions.
Intellectual property portfolio development and world-class engineering resources : Through our world-class in-house technical and engineering organization, we have focused developing our patents and other intellectual property, including methods of accessing wireless account information, rendering content on a wireless device, indoor and outdoor navigation with a mobile device and more.
Intellectual property portfolio development and world-class engineering resources : Through our world-class in-house technical and engineering organization, we have focused on developing our patents and other intellectual property, which includes methods of accessing wireless account information, rendering content on a wireless device, indoor and outdoor navigation with a mobile device and more.
Furthermore, even if a patent is issued, we cannot assure that such patent will be adequate to protect our business. We also license software from third parties for integration into our solutions, including open source software and other software available on commercially reasonable terms.
Furthermore, even if a patent is issued, we cannot provide assurance that such patent will be adequate to protect our business. We also license software from third parties for integration into our solutions, including open source software and other software available on commercially reasonable terms.
Proposition 24 took effect January 1, 2023 for personal data collected after January 1, 2022. 11 Table of Contents Following California's lead, Colorado, Connecticut, Utah and Virginia have been or will be enforcing new laws around data privacy and protection in 2023.
Proposition 24 took effect January 1, 2023 for personal data collected after January 1, 2022. 9 Table of Contents Following California's lead, Colorado, Connecticut, Utah and Virginia have been or will be enforcing new laws around data privacy and protection.
Our research and development expenses were $6.1 million and $4.2 million for the fiscal years ended December 31, 2022 and 2021, respectively. 9 Table of Contents PhunCoin and PhunToken Our research and development team is also working to continue our vision of a future in which consumers own, control and are rewarded for the access to and use of their personal data and information.
Our research and development expenses were $4.4 million and $6.1 million for the fiscal years ended December 31, 2023 and 2022, respectively. 7 Table of Contents PhunCoin and PhunToken Our research and development team is also working to continue our vision of a future in which consumers own, control and are rewarded for the access to and use of their personal data and information.
Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act are available free of charge on the investor relations section of our website, which we post as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act are available free of charge on the investor relations section of our website, located at https://www.phunware.com, which we post as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
In the United States, we have 15 patents issued and 5 pending non-provisional patent applications. The issued patents expire between the years 2027 and 2037, which are subject to the payment of maintenance fees. We also have one patent in Japan, which expires in 2031, that is subject to the payment of annual fees.
In the United States, we have 18 patents issued and 6 pending non-provisional patent applications. The issued patents expire between the years 2027 and 2037, which are subject to the payment of maintenance fees. We also have one patent in Japan, which expires in 2031, that is subject to the payment of annual fees.
All of these agreements contain terms of service that are generally consistent across our customers. Our subscription and services agreements generally do not impose obligation upon us, such as exclusivity or other terms.
All of these agreements contain terms of service that are generally consistent across our customers. Our subscription and services agreements generally do not impose obligations of exclusivity or other limiting terms upon us.
We believe that we are well positioned to identify new opportunities or enhance existing services and solutions within and provide additional products and services to our existing customer base. We expect to create cross and upsell opportunities as our customers seek to deepen their approach to mobile application lifecycle management. Development of new relationships to expand our customer base.
We believe that we are well positioned to identify new opportunities or enhance existing services and solutions within and provide additional products and services to our existing customer base. We have historically created and expect to continue to create cross and upsell opportunities as our customers seek to deepen their approach to mobile application lifecycle management.
Item 1. Business. General Phunware, Inc. and its subsidiaries (the “Company”, "we", "us", or "our") offers a fully integrated software platform that equips companies with the products, services and solutions necessary to engage, manage and monetize their mobile application portfolios globally at scale.
Item 1. Business. General Phunware, Inc. and its subsidiaries (the "Company," "we," "us," or "our") offers a fully integrated cloud platform for mobile that provides companies the products, services and solutions necessary to engage, manage and monetize their mobile application portfolios and audiences at scale.
Primary indirect channels include hardware, software, carriers and systems integrators/consultancies. We are focused on building our brand to grow within existing and target end markets where there is strong demand for the products and solutions we provide.
We are able to leverage our mobile expertise and capabilities to compete effectively for new customers both directly and indirectly. Primary indirect channels include hardware, software, carriers and systems integrators/consultancies. We are focused on building our brand to grow within existing and target end markets where there is strong demand for the products and solutions we provide.
Although a 6 Table of Contents majority of our product and service offerings have been sold utilizing an internal sales team, we have also sold our product and service offerings through various sales partners. We continue to invest in these relationships. Lyte Technology, Inc.
Although a majority of our product and service offerings have been sold utilizing an internal sales team, we have also sold our product and service offerings through various sales partners, including value added resellers and systems integrators. We continue to invest in these relationships. Lyte Technology, Inc. In October 2021, we acquired Lyte Technology, Inc.
We are also hoping to expand our media offerings by attracting new business from local and national advertising agencies. Our contract term for application transactions can be as short as a few days to three months for larger advertising campaigns. Our sales cycle is typically short for direct to business customers, whereby it may be longer when partnering with agencies.
Our contract term for application transactions can be as short as a few days to three months for larger advertising campaigns. Our sales cycle is typically short for direct to business customers, whereby it may be longer when partnering with agencies.
Built to be mobile-first, native-first, cloud-based: Phunware was built from the ground up to focus on native mobile development, while other companies in the mobile space have attempted to create shortcuts with “write once, run anywhere” software.
Built to be mobile-first, native-first, cloud-based: Phunware was built from the ground up to focus on native mobile development, while other companies in the mobile space have attempted to create shortcuts with “write once, run anywhere” software. The result is over a decade of platform-specific mobile expertise, which we believe to be a major competitive differentiator.
We view the agreements as contracts that ordinarily accompany the business conducted by Phunware and, because of the lack of any commitments to provide a certain amount of business, we are not substantially dependent on the agreements. We sell our Lyte computer systems directly to individual consumers with a focus on for gaming, streaming and cryptocurrency mining enthusiasts.
We view the agreements as contracts that ordinarily accompany the business conducted by Phunware and, because of the lack of any commitments to provide a certain amount of business, we are not substantially dependent on the agreements.
PhunCoin security features and compliance protocols have been and continue to be implemented. We are planning for future enhancements of the Token Ecosystem in 2023; however, there can be no assurance as to when (or if) we will be able to successfully complete the development of the Token Ecosystem.
We may generate additional funding from sales of PhunCoin in the future. We are planning for future enhancements of the Token Ecosystem in 2024; however, there can be no assurance as to when (or if) we will be able to successfully complete the development of the Token Ecosystem.
Once contracted, our program management team collaborates with customers to ensure timely deliverables of contracted licenses and services. Post implementation, customers are supported post-sale by our customer success function managed within our program management team. Our sales cycle can range many months for large organizations. We market our application transaction product line direct to businesses and agencies.
Post implementation, customers are supported post-sale by our customer success function managed within our program management team. Our sales cycle can range many months for large organizations. We market our application transaction product line direct to businesses and agencies. We are also hoping to expand our media offerings by attracting new business from local and national advertising agencies.
We plan to continue to evaluate strategic acquisitions, partnerships and other transactions that enhance our capabilities and expand our geographic footprint, both domestically and internationally. Expansion of our partnership network with third-party providers of products and services. We are able to leverage our mobile expertise and capabilities to compete effectively for new customers both directly and indirectly.
Addition of new capabilities and geographic regions through strategic transactions. We operate in a fragmented market that offers significant consolidation opportunities. We plan to continue to evaluate strategic acquisitions, partnerships and other transactions that enhance our capabilities and expand our geographic footprint, both domestically and internationally. Expansion of our partnership network with third-party providers of products and services.
Competitive Strengths Fully integrated and comprehensive solutions: Our comprehensive solutions can be used across mobile application experience definition, application portfolio creation, user discovery, user acquisition, user engagement and user monetization. Data from application analytics and our database of over one petabyte can be used to inform business decisions related to mobile strategy, marketing, operations and more.
Competitive Strengths Fully integrated and comprehensive solutions: Our solutions can be used across mobile application experience definition, application portfolio creation, user discovery, user acquisition, user engagement and user monetization.
We believe our relations with our employees are good. 12 Table of Contents Corporate Information Our principal executive offices are located at 1002 West Avenue, Austin, Texas 78701, and our telephone number is (512) 693-4199. Our website address is https://www.phunware.com.
Corporate Information Our principal executive offices are located at 1002 West Avenue, Austin, Texas 78701, and our telephone number is (512) 693-4199. Our website address is https://www.phunware.com. The information on, or that can be accessed through, our 10 Table of Contents website is not part of this Annual Report on Form 10-K.
The result is almost a decade of platform-specific mobile expertise, a major competitive differentiator. 7 Table of Contents Results-driven culture : Our employees are granted restricted stock units upon and from time to time after commencement of their employment and are encouraged to think of Phunware as a company they own rather than a company for which they work.
Results-driven culture : Our employees are granted restricted stock units upon and from time to time after commencement of their employment and are encouraged to think of Phunware as a company they own rather than a company for which they work. We also promote from within to reward top performers and encourage leadership development.
Our indirect sales function works with our partners to identify sales opportunities, as well as identify new sales partner relationships. Our marketing efforts focus on building brand reputation, expanding market awareness, driving customer demand and enabling our sales team. Our platform subscription and services sales organization is supported by our customer solutions team, which has deep technical expertise.
Our marketing efforts focus on building brand reputation, expanding market awareness, driving customer demand and enabling our sales team. 6 Table of Contents Our platform subscription and services sales organization is supported by our customer solutions team, which has deep technical expertise. Once contracted, our program management team collaborates with customers to ensure timely deliverables of contracted licenses and services.
We intend to continue to grow our customer base by developing our indirect sales and distribution relationships. We also have partnered with technology providers, who serve as a referral source and provide us with quality leads for businesses interested in our products and services and enable us to integrate our products into their offerings.
We also have partnered with technology providers, who serve as a referral source and provide us with quality leads for businesses interested in our products and services and enable us to integrate our products into their offerings. We are able to leverage our mobile expertise and capabilities to compete effectively for new customers both directly and indirectly.
Our product and service offerings include cloud-based recurring software license subscriptions, with terms ranging from one to three years, application development and support services and application transaction-based media.
Our product and service offerings include cloud-based recurring software license subscriptions, most of which are multi-year, application development and support services and application transaction-based media.
The dual-token ecosystem is designed to both empower consumers and brands to engage with each other and other audiences by creating a blockchain-enabled data and engagement exchange that recognizes the value of data and engagement, the Token Ecosystem.
The dual-token ecosystem is designed to both empower consumers and brands to engage with each other and other audiences by creating a blockchain-enabled data and engagement exchange that recognizes the value of data and engagement, which we refer to herein as our "Token Ecosystem." PhunCoin is intended to be the “Value of Data” that empowers consumers to take control of and be compensated for their data and will allow holders to participate in the economics of the Token Ecosystem.
For the year ended December 31, 2022, no individual customer represented greater than 10% of our net revenue. Sales and Marketing Our internal salesforce is focused on direct sales opportunities for our platform subscription and services and application transaction product lines. They are experienced across all verticals in which we serve and can assist small, mid-sized and large organizations.
Sales and Marketing Our salesforce is focused on direct sales opportunities for our platform subscription and services and application transaction product lines. They are experienced across all verticals in which we serve and can assist small, mid-sized and large organizations. Our indirect sales function works with our partners to identify sales opportunities, as well as identify new sales partner relationships.
We also promote from within to reward top performers and encourage leadership development. The result is an employee base singularly focused on solving problems and driving results.
The result is an employee base singularly focused on solving problems and driving results.
Concentration of Major Customers Due to the nature of our business, we have in the past and may, at times, in the future have a material concentration of our revenue with a small number of customers. However, with the acquisition of Lyte and sales of PhunToken, we expect this to be less frequent.
Concentration of Major Customers Due to the nature of our business, we have in the past and may, at times, in the future have a material concentration of our revenue with a small number of customers. For the year ended December 31, 2023, three customers collectively represented 35% of our net revenues.
We have made significant investments in research and development and plan to continue extending the functionality and breadth of our applications in the future, including, but not limited to, our healthcare and luxury hospitality solutions. Deepening of existing customer relationships.
Mobile applications and in-application advertising media are among the fastest-growing and complex technology markets. We have made significant investments in research and development and plan to continue extending the functionality and breadth of our applications in the future. 5 Table of Contents Deepening of existing customer relationships.
According to eMarketer, adults in the U.S. spend more than four hours daily on mobile internet, of which approximately 90% of that time is spent in mobile apps (versus mobile web).
According to eMarketer, adults in the U.S. spend more than four hours daily on mobile internet; 90% of that time in mobile apps (versus mobile web). We believe brands must establish a strong identity on mobile, especially on devices and platforms specific to the Apple iOS and Google Android operating systems and ecosystems.
We intend to continue to opportunistically expand into and within industry verticals that benefit from our integrated solutions, comprehensive lifecycle approach and ability to engage users in both digital and physical worlds, particularly healthcare and hospitality. Addition of new capabilities and geographic regions through strategic transactions. We operate in a fragmented market that offers significant consolidation opportunities.
Primary indirect channels and distributors include hardware, software, carriers and systems integrators/consultancies. Continued growth of our customer base through targeted marketing and outreach. We intend to continue to opportunistically expand into and within industry verticals that benefit from our integrated solutions, comprehensive lifecycle approach and ability to engage users in both digital and physical worlds, particularly healthcare and hospitality.
Employees We leverage our employees’ long-standing, deep customer relationships and strong technical expertise to deliver complex solutions that meet customer needs and advance mobile technology. As of December 31, 2022, we had 106 full-time employees: including 50 software developers, engineers, QA engineers and product managers; a sales and marketing force of approximately 20 professionals and 19 employees at Lyte.
Employees We leverage our employees’ long-standing, deep customer relationships and strong technical expertise to deliver complex solutions that meet customer needs and advance mobile technology. As of December 31, 2023, we had 25 full-time employees. None of our employees are currently covered under any collective bargaining agreements. We believe our relations with our employees are good.
We are developing creative solutions to solve complex technical problems and create competitive advantages for our customers. Our Growth Strategy Key elements of our growth strategy include: Expansion of Lyte customer base and footprint . We plan to grow our Lyte operations, both domestically and internationally, as the gaming and cryptocurrency market expands.
We are developing creative solutions to solve complex technical problems and create competitive advantages for our customers. We hold eighteen issued patents and six pending patents in various areas including content management, location services and cryptocurrency. Our Growth Strategy Key elements of our growth strategy include: Expansion of mobile products and services.
Given this reality, we believe brands must establish a strong identity on mobile, especially on devices and platforms specific to the Apple iOS and Google Android operating systems and ecosystems. Phunware helps brands define, create, launch, promote, monetize and scale their mobile identities as a means to anchor the consumer journey and improve brand interactions.
Phunware helps brands define, create, launch, promote, monetize and scale their mobile identities as a means to anchor the consumer journey and improve brand interactions. Our platform allows for the licensing and creation of category-defining mobile experiences for customers and their application users worldwide.
The information on, or that can be accessed through, our website is not part of this Annual Report on Form 10-K. We have included our website address as an inactive textual reference only.
We have included our website address as an inactive textual reference only.
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Our Multiscreen-as-a-Service ("MaaS") platform provides the entire mobile lifecycle of applications and media in one login through one procurement relationship. Our MaaS technology is available in software development kit form for organizations developing their own application, via customized development services and prepackaged solutions.
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Our mission is to foster an ecosystem where digital interactions enable a more engaged, interactive, and valuable experience for all stakeholders. We are redefining connectivity by ensuring the widespread adoption of our technologies amongst brands, mobile consumers, partners, digital asset holders, and market participants. Founded in 2009, we are a Delaware corporation headquartered in Austin, Texas.
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Through our integrated mobile advertising platform of publishers and advertisers, we provide in-app application transactions for mobile audience building, user acquisition, application discovery, audience engagement and audience monetization. During 2021, we began to sell PhunToken to consumers, developers and brands.
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In November 2023, we announced our Phunware 3.0 strategy with three pillars: • continued sales of our cloud-based platform offerings to hospitality, healthcare, connected workplace, luxury residential and other markets; • monetization of our patent portfolio in ways other than embedding it in our software; and • a digital asset strategy that capitalizes on PhunCoin, PhunToken and those assets' ability to return control of their data and use to consumers.
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PhunToken is an innovative digital asset, which is intended to be used or consumed within our Token Ecosystem to help drive engagement between or among Phunware, its customers and business partners and consumers by unlocking features and capabilities of our MaaS platform (the "Token Ecosystem").
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(“Lyte”), a provider of high-performance computer systems to individual consumers. On November 1, 2023, we committed to a plan to discontinue and wind down, either by sale or closing, operations of Lyte.
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PhunToken is also designed to reward consumers for their activity within our Token Ecosystem, such as watching branded videos, completing surveys and visiting points of interest. In October 2021, we acquired Lyte Technology, Inc. ("Lyte"), a provider of high-performance personal computer systems which we market and sell to individual consumers.
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Data from application analytics and our analysis of over one petabyte of user data tied to the anonymous Phunware ID can be used to inform business decisions related to mobile strategy, marketing, operations and more.
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Founded in 2009, we are a Delaware corporation headquartered in Austin, Texas. Overview of Business Our MaaS platform is a fully integrated cloud platform for mobile that provides companies the products, services and solutions necessary to engage, manage and monetize their mobile application portfolios and audiences at scale.
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Development of new relationships to expand our customer base. We intend to continue to grow our customer base by developing our indirect sales and distribution relationships.
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Our MaaS platform provides the entire mobile lifecycle of applications through one procurement relationship. Our MaaS platform allows for the licensing and creation of category-defining mobile experiences for customers and their application users worldwide. Since our founding in 2009, we have amassed a database of proprietary Phunware IDs.
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In some cases, we partner with law firms and others to seek enforcement of our rights under the patents we hold and to recover damages for any finding of infringement thereof.
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Phunware IDs are unique identifiers assigned to a mobile device when it becomes first visible across our network of mobile application portfolios. We measure and accumulate Phunware IDs through queries that count unique devices that access our mobile application portfolio across our network of mobile applications that we have developed and/or support.
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Through our subsidiary Lyte, we also derive revenue by manufacturing and selling custom and pre-packaged personal computer systems.
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In October 2021, we acquired Lyte Technology, Inc., a provider of high-performance computer systems to individual consumers. Lyte derives its revenue by manufacturing and selling custom and pre-packaged personal computer systems. Total consideration for the acquisition consisted of cash and common stock of the Company valued at approximately $10.5 million.
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During second quarter of 2022, we relocated Lyte from Gurnee, Illinois to Round Rock, Texas. Our acquisition of Lyte enabled us to enter the personal computer hardware market. We will continue to pursue a direct to consumer selling strategy. During 2022, we began selling Lyte computers in Canada.
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We intend to grow Lyte revenue and its customer base by expanding its business to offer laptops and selling into additional international markets. We believe our acquisition of Lyte will also leverage a new distribution network for our blockchain initiatives, which are more fully described below.
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In conjunction with the acquisition, we also entered into a note purchase agreement with an original principal amount of $5.22 million in a private placement that closed on October 18, 2021. This note was paid in full in 2022.
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We may also offer different technology offerings and computer-builds that keep up with changing demand. Expansion of mobile products and services. Mobile applications and in-application advertising media are among the fastest-growing and complex technology markets.
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We are able to leverage our mobile expertise and capabilities to compete effectively for new customers both directly and indirectly. Primary indirect channels and distributors include hardware, software, carriers and systems integrators/consultancies. Continued growth of our customer base through targeted marketing and outreach.
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Lyte customers purchase their systems via Lyte's website. Purchasers of Lyte game systems agree to terms and conditions governing the purchase during the online check-out process.
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Our marketing efforts for our Lyte operations currently consist of purchasing advertisements on various social media platforms. We do not maintain an internal salesforce, as sales are e-commerce based and derived from Lyte's website. We also maintain a customer service and success function for our Lyte computer customers.
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PhunCoin is intended to be the “Value of Data” that empowers consumers to take control of and be compensated for their data and will allow holders to participate in the economics of the Token Ecosystem.
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Although we currently do not anticipate the selling of additional PhunCoin rights, we may generate additional funding from sales of PhunCoin in the future. A multidisciplinary team (design, engineering, quality assurance, crypto, product and legal) is actively developing all aspects of the Token Ecosystem for iOS and Android.
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In addition, we have a team of 11 individuals responsible for the assembly of Lyte computers. None of our employees are currently covered under any collective bargaining agreements.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

87 edited+9 added−54 removed340 unchanged
Biggest changeIf we do not sufficiently invest in new technology, industry developments and our personnel, or evolve and expand our business at sufficient speed and scale, or if we do not make the right strategic investments to respond to these developments and successfully drive innovation, our technology, products and services, our results of operations and our ability to develop and maintain a competitive advantage and growth could be negatively affected. 16 Table of Contents In addition, if we are unable to keep up with changes in technology and new hardware, software and services offerings, for example, by providing the appropriate training to our customer solutions team, sales directors, program management team, channel partners and software development and product engineers to enable them to effectively sell and deliver such new offerings to customers, our business, results of operations, or financial condition could be adversely affected.
Biggest changeIn addition, if we are unable to keep up with changes in technology and new hardware, software and services offerings, for example, by providing the appropriate training to our customer solutions team, sales directors, program management team, channel partners and software development and product engineers to enable them to effectively sell and deliver such new offerings to customers, our business, results of operations, or financial condition could be adversely affected.
If we or our third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to our digital asset holdings, we may lose some or all of our digital assets and our financial condition and results of operations could be materially adversely affected. Security breaches and cyberattacks are of particular concern with respect to digital assets.
If we or third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to our digital asset holdings, we may lose some or all of our digital assets and our financial condition and results of operations could be materially adversely affected. Security breaches and cyberattacks are of particular concern with respect to digital assets.
Our financial results and the market price of our common stock would be adversely affected and our business and financial condition could be negatively impacted if the price of bitcoin decreased substantially, including as a result of: 39 Table of Contents • decreased user and investor confidence in digital assets; • investment and trading activities of highly active retail and institutional users, speculators, miners and investors; • negative publicity or events relating to digital assets; • negative or unpredictable media or social media coverage on digital assets; • public sentiment related to the actual or perceived environmental impact of bitcoin, ethereum and related activities, including environmental concerns raised by private individuals and governmental actors related to the energy resources consumed in the bitcoin mining process; • changes in consumer preferences and the perceived value of bitcoin or ethereum; • competition from other crypto assets that are believed to exhibit better speed, security, scalability, or other characteristics, or that are backed by governments, including the U.S. government; • correlations between the prices of digital assets, including the potential that a crash in one digital asset or widespread defaults on one digital asset exchange or trading venue may cause a crash in the price of bitcoin, or a series of defaults by counterparties on bitcoin asset exchanges or trading venues; • the identification of Satoshi Nakamoto, the pseudonymous person or persons who purportedly developed bitcoin, or the transfer of Satoshi’s bitcoin; • interruptions in service or failures of the principal markets for or market participants active in trading involving bitcoin, ethereum or other digital assets; • further reductions in mining rewards of bitcoin, including block reward halving events, which are events that occur after a specific period of time that reduce the block reward earned by “miners” who validate bitcoin and ethereum transactions; • transaction congestion and fees associated with processing transactions on the bitcoin or ethereum network; • changes in the level of interest rates and inflation, monetary policies of governments, trade restrictions, and fiat currency devaluations; • developments in mathematics or technology, including in digital computing, algebraic geometry and quantum computing, that could result in the cryptography being used by digital assets becoming insecure or ineffective; and • national and international economic and political conditions.
Our financial results and the market price of our common stock would be adversely affected and our business and financial condition could be negatively impacted if the price of bitcoin decreased substantially, including as a result of: 36 Table of Contents • decreased user and investor confidence in digital assets; • investment and trading activities of highly active retail and institutional users, speculators, miners and investors; • negative publicity or events relating to digital assets; • negative or unpredictable media or social media coverage on digital assets; • public sentiment related to the actual or perceived environmental impact of bitcoin, ethereum and related activities, including environmental concerns raised by private individuals and governmental actors related to the energy resources consumed in the bitcoin mining process; • changes in consumer preferences and the perceived value of bitcoin or ethereum; • competition from other crypto assets that are believed to exhibit better speed, security, scalability, or other characteristics, or that are backed by governments, including the U.S. government; • correlations between the prices of digital assets, including the potential that a crash in one digital asset or widespread defaults on one digital asset exchange or trading venue may cause a crash in the price of bitcoin, or a series of defaults by counterparties on bitcoin asset exchanges or trading venues; • the identification of Satoshi Nakamoto, the pseudonymous person or persons who purportedly developed bitcoin, or the transfer of Satoshi’s bitcoin; • interruptions in service or failures of the principal markets for or market participants active in trading involving bitcoin, ethereum or other digital assets; • further reductions in mining rewards of bitcoin, including block reward halving events, which are events that occur after a specific period of time that reduce the block reward earned by “miners” who validate bitcoin and ethereum transactions; • transaction congestion and fees associated with processing transactions on the bitcoin or ethereum network; • changes in the level of interest rates and inflation, monetary policies of governments, trade restrictions, and fiat currency devaluations; • developments in mathematics or technology, including in digital computing, algebraic geometry and quantum computing, that could result in the cryptography being used by digital assets becoming insecure or ineffective; and • national and international economic and political conditions.
Several factors may influence the interest in digital assets such as PhunCoin and PhunToken, including, but not limited to: 47 Table of Contents • global digital asset supply; • businesses’ acceptance of digital assets like cryptocurrencies as payment for goods and services, the security of online digital asset exchanges and digital wallets that hold blockchain assets, the perception that the use and holding of digital assets is safe and secure, and the regulatory restrictions on their use; • purchasers’ expectations with respect to the rate of inflation; • changes in the software, software requirements or hardware requirements underlying the Token Ecosystem; • changes in the rights, obligations, incentives, or rewards for the users of and other participants in the Token Ecosystem; • interest rates; • currency exchange rates, including the rates at which digital assets may be exchanged for fiat currencies; • fiat currency withdrawal and deposit policies of digital asset exchanges on which users may trade digital assets and liquidity on such exchanges; • interruptions in service from or failures of major digital asset exchanges in which users may trade digital assets; • investment and trading activities of large investors, including private and registered funds, that may directly or indirectly puchase PhunCoin or other digital assets; • monetary policies of governments, trade restrictions, currency devaluations and revaluations; • regulatory measures that may affect the purchase or use of digital assets, including PhunCoin and PhunToken; • the maintenance and development of the open-source software protocol of certain digital assets; • global or regional political, economic or financial events and conditions; or • expectations among the Token Ecosystem or other digital asset market participants that the value and/or utility of certain digital assets will soon change.
Several factors may influence the interest in digital assets such as PhunCoin and PhunToken, including, but not limited to: 43 Table of Contents • global digital asset supply; • businesses’ acceptance of digital assets like cryptocurrencies as payment for goods and services, the security of online digital asset exchanges and digital wallets that hold blockchain assets, the perception that the use and holding of digital assets is safe and secure, and the regulatory restrictions on their use; • purchasers’ expectations with respect to the rate of inflation; • changes in the software, software requirements or hardware requirements underlying the Token Ecosystem; • changes in the rights, obligations, incentives, or rewards for the users of and other participants in the Token Ecosystem; • interest rates; • currency exchange rates, including the rates at which digital assets may be exchanged for fiat currencies; • fiat currency withdrawal and deposit policies of digital asset exchanges on which users may trade digital assets and liquidity on such exchanges; • interruptions in service from or failures of major digital asset exchanges in which users may trade digital assets; • investment and trading activities of large investors, including private and registered funds, that may directly or indirectly puchase PhunCoin or other digital assets; • monetary policies of governments, trade restrictions, currency devaluations and revaluations; • regulatory measures that may affect the purchase or use of digital assets, including PhunCoin and PhunToken; • the maintenance and development of the open-source software protocol of certain digital assets; • global or regional political, economic or financial events and conditions; or • expectations among the Token Ecosystem or other digital asset market participants that the value and/or utility of certain digital assets will soon change.
Our servers may also be vulnerable to computer viruses, break-ins, denial-of-service attacks and similar disruptions from unauthorized tampering with our computer systems, which could lead to interruptions, delays, loss of critical data. We may not have sufficient protection or recovery plans in some circumstances, such as natural disasters affecting California, Texas or Florida.
Our servers may also be vulnerable to computer viruses, break-ins, denial-of-service attacks and similar disruptions from unauthorized tampering with our computer systems, which could lead to interruptions, delays, loss of critical data. We may not have sufficient protection or recovery plans in some circumstances, such as natural disasters affecting California or Texas.
In February 2022, we filed a registration statement on Form S-3, which was subsequently declared effective by the SEC, pursuant to which we may issue up to $200 million in common stock, preferred stock, warrants and units, and contained therein was a prospectus supplement in which we may sell up to $100 million in sales of our common stock deemed to be an “at the market" offering.
In February 2022, we filed a shelf registration statement on Form S-3, which was subsequently declared effective by the SEC, pursuant to which we may issue up to $200 million in common stock, preferred stock, warrants and units, and contained therein was a prospectus supplement in which we may sell up to $100 million in sales of our common stock deemed to be an “at the market" offering.
A change in the accounting treatment of our bitcoin holdings could have a material impact on our results of operations in future periods and could increase the volatility of our reported results of operations as well as affect the carrying value of our bitcoin on our balance sheet, which in turn could have a material adverse effect on our financial results and the market price of our common stock.
A change in the accounting treatment could have a material impact on our results of operations in future periods and could increase the volatility of our reported results of operations as well as affect the carrying value of our bitcoin on our balance sheet, which in turn could have a material adverse effect on our financial results and the market price of our common stock.
In addition, as a Delaware corporation, we are subject to provisions of Delaware law, including Section 203 of the DGCL, which may generally prohibit certain stockholders holding 15% or more of our outstanding capital stock from engaging in certain business combinations with us for a specified period of time unless certain conditions are met. 37 Table of Contents Any provision of our certificate of incorporation, bylaws or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our common stock.
In addition, as a Delaware corporation, we are subject to provisions of Delaware law, including Section 203 of the DGCL, which may generally prohibit certain stockholders holding 15% or more of our outstanding capital stock from engaging in certain business combinations with us for a specified period of time unless certain conditions are met. 34 Table of Contents Any provision of our certificate of incorporation, bylaws or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our common stock.
If we fail to accurately estimate the resources or time required for a project or future rates of wage inflation, or if we fail to perform contractual obligations within the contractual timeframe, our profitability could suffer. 18 Table of Contents The challenges of managing larger and more complex projects include: • maintaining high quality control and process execution standards; • maintaining planned resource utilization rates on a consistent basis; • maintaining productivity levels and implementing necessary process improvements; • controlling project costs; • maintaining close customer contact and high levels of customer satisfaction; • recruiting and retaining sufficient numbers of skilled engineering, design and program management professionals; and • maintaining effective customer relationships.
If we fail to accurately estimate the resources or time required for a project or future rates of wage inflation, or if we fail to perform contractual obligations within the contractual timeframe, our profitability could suffer. 15 Table of Contents The challenges of managing larger and more complex projects include: • maintaining high quality control and process execution standards; • maintaining planned resource utilization rates on a consistent basis; • maintaining productivity levels and implementing necessary process improvements; • controlling project costs; • maintaining close customer contact and high levels of customer satisfaction; • recruiting and retaining sufficient numbers of skilled engineering, design and program management professionals; and • maintaining effective customer relationships.
As we rely heavily on our data centers, computer and communications systems and the internet to conduct our business and provide high-quality customer service, such disruptions could negatively impact our ability to run our business and either directly or indirectly disrupt our customers’ business, which could have a material adverse effect on our business, results of operations and financial condition. 32 Table of Contents Risks Related to Capitalization Matters, Corporate Governance and Market Volatility We have and may sell additional equity or debt securities or enter into other arrangements to fund our operations, which may result in dilution to our stockholders and impose restrictions or limitations on our business.
As we rely heavily on our data centers, computer and communications systems and the internet to conduct our business and provide high-quality customer service, such disruptions could negatively impact our ability to run our business and either directly or indirectly disrupt our customers’ business, which could have a material adverse effect on our business, results of operations and financial condition. 29 Table of Contents Risks Related to Capitalization Matters, Corporate Governance and Market Volatility We have and may sell additional equity or debt securities or enter into other arrangements to fund our operations, which may result in dilution to our stockholders and impose restrictions or limitations on our business.
Our failure to comply with evolving interpretations of applicable laws and regulations relating to privacy and data protection, or to adequately protect personal data, could result in enforcement action against us or reputational harm, which could have a material adverse impact on our business, financial condition and results of operations. 29 Table of Contents In addition to compliance with applicable laws and regulations, we voluntarily participate in trade associations and industry self-regulatory groups that promulgate best practices or codes of conduct addressing the provision of internet advertising.
Our failure to comply with evolving interpretations of applicable laws and regulations relating to privacy and data protection, or to adequately protect personal data, could result in enforcement action against us or reputational harm, which could have a material adverse impact on our business, financial condition and results of operations. 26 Table of Contents In addition to compliance with applicable laws and regulations, we voluntarily participate in trade associations and industry self-regulatory groups that promulgate best practices or codes of conduct addressing the provision of internet advertising.
As a result, we may be unable to renew our agreements with existing customers or attract new customers or new business from existing customers on terms that would be favorable or comparable to prior periods, which could have an adverse effect on our revenue and growth. 25 Table of Contents Because we recognize revenue from application development services as deliverables are transferred to customers and platform subscriptions over the term of the relevant contract, downturns or upturns in sales are not immediately reflected in full in our operating results.
As a result, we may be unable to renew our agreements with existing customers or attract new customers or new business from existing customers on terms that would be favorable or comparable to prior periods, which could have an adverse effect on our revenue and growth. 22 Table of Contents Because we recognize revenue from application development services as deliverables are transferred to customers and platform subscriptions over the term of the relevant contract, downturns or upturns in sales are not immediately reflected in full in our operating results.
In addition, if bitcoin or any other digital asset we hold are determined to be securities for purposes of the federal securities laws, the additional regulatory restrictions imposed by such a determination could adversely affect the market price of bitcoin or such other digital assets and in turn adversely affect the market price of our common stock. 43 Table of Contents Risks Related to our Token Ecosystem and Tokens We have raised capital to fund a Token Generation Event of rights to receive future PhunCoin, and beginning in 2021 we created and sold PhunToken.
In addition, if bitcoin or any other digital asset we hold are determined to be securities for purposes of the federal securities laws, the additional regulatory restrictions imposed by such a determination could adversely affect the market price of bitcoin or such other digital assets and in turn adversely affect the market price of our common stock. 39 Table of Contents Risks Related to our Token Ecosystem and Tokens We have raised capital to fund a Token Generation Event of rights to receive future PhunCoin, and beginning in 2021 we created and sold PhunToken.
The open-source structure of some of the Token Ecosystem protocols means that the Token Ecosystem may be susceptible to developments by users or contributors that could damage the Token Ecosystem and our reputation and could affect the sale and utilization of PhunCoin, PhunToken and he Token Ecosystem.
The open-source structure of some of the Token Ecosystem protocols means that the Token Ecosystem may be susceptible to developments by users or contributors that could damage the Token Ecosystem and our reputation and could affect the sale and utilization of PhunCoin, PhunToken and the Token Ecosystem.
Reliance upon another blockchain technology to create, develop and maintain the Token Ecosystem subjects us and Token Ecosystem users to the risk of digital wallet incompatibility, or additional ecosystem malfunction, unintended function, unexpected functioning of, or attack on, the providers' blockchain protocol, which may cause PhunCoin or PhunToken to malfunction or function in an unexpected manner, including, but not limited to, slowdown or complete cessation in functionality of the Token Ecosystem. 44 Table of Contents The development and operation of the Token Ecosystem will likely require additional technology and intellectual property rights.
Reliance upon another blockchain technology to create, develop and maintain the Token Ecosystem subjects us and Token Ecosystem users to the risk of digital wallet incompatibility, or additional ecosystem malfunction, unintended function, unexpected functioning of, or attack on, the providers' blockchain protocol, which may cause PhunCoin or PhunToken to malfunction or function in an unexpected manner, including, but not limited to, slowdown or complete cessation in functionality of the Token Ecosystem. 40 Table of Contents The development and operation of the Token Ecosystem will likely require additional technology and intellectual property rights.
As a result, stockholders must rely on sales of their common stock after price appreciation as the only way to realize any future gains on their investment, if any. 36 Table of Contents Delaware law and our certificate of incorporation and bylaws contain certain provisions, including anti-takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.
As a result, stockholders must rely on sales of their common stock after price appreciation as the only way to realize any future gains on their investment, if any. 33 Table of Contents Delaware law and our certificate of incorporation and bylaws contain certain provisions, including anti-takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.
The development of an alternative “marketplace” in which consumers can, or believe they can, purchase PhunToken at a price lower than our current sales price, may result in lower sales and harm our financial performance. 46 Table of Contents The regulatory regime governing blockchain technologies, digital assets, digital asset exchanges and offerings of and transactions in digital assets is uncertain, and new regulations or policies may materially adversely affect the development and the value of our tokens.
The development of an alternative “marketplace” in which consumers can, or believe they can, purchase PhunToken at a price lower than our current sales price, may result in lower sales and harm our financial performance. 42 Table of Contents The regulatory regime governing blockchain technologies, digital assets, digital asset exchanges and offerings of and transactions in digital assets is uncertain, and new regulations or policies may materially adversely affect the development and the value of our tokens.
Any difficulties in implementing changes in accounting standards or adequately accounting after adoption could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us. 21 Table of Contents We may experience quarterly fluctuations in our operating results due to a number of factors, which makes our future results difficult to predict and could cause our operating results to fall below expectations.
Any difficulties in implementing changes in accounting standards or adequately accounting after adoption could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us. 18 Table of Contents We may experience quarterly fluctuations in our operating results due to a number of factors, which makes our future results difficult to predict and could cause our operating results to fall below expectations.
The Sarbanes-Oxley Act requires, among other things, that we maintain 31 Table of Contents effective disclosure controls and procedures and internal control over financial reporting. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming.
The Sarbanes-Oxley Act requires, among other things, that we maintain 28 Table of Contents effective disclosure controls and procedures and internal control over financial reporting. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming.
Further, if our new CEO formulates different or changed views, the future strategy and plans of our business may differ materially from those of the past. We are currently operating in a period of significant macro-economic uncertainty, including supply-chain disruptions, COVID-related disruptions and inflationary pressures. Weakened economic conditions may have an adverse impact on our business and results of operations.
Further, if our new CEO formulates different or changed views, the future strategy and plans of our business may differ materially from those of the past. We are currently operating in a period of significant macro-economic uncertainty, including supply-chain disruptions and inflationary pressures. Weakened economic conditions may have an adverse impact on our business and results of operations.
We may not be able to accurately forecast the amount and mix of future technology, products and services, size or duration of contracts, revenue and expenses and, as a result, our operating results may fall below our estimates. 22 Table of Contents We could be held liable for damages or our reputation could suffer from security breaches or disclosure of confidential information or personal data.
We may not be able to accurately forecast the amount and mix of future technology, products and services, size or duration of contracts, revenue and expenses and, as a result, our operating results may fall below our estimates. 19 Table of Contents We could be held liable for damages or our reputation could suffer from security breaches or disclosure of confidential information or personal data.
As of December 31, 2022, a total of $1.2 million has been raised in both Rights offerings. During the second quarter of 2019, Phunware announced the launch of a separate token, PhunToken, by our wholly owned subsidiary, Phun Token International, which enables holders to participate in our blockchain-enabled data exchange and mobile loyalty engagement ecosystem.
As of December 31, 2023, a total of $1.2 million has been raised in both Rights offerings. During the second quarter of 2019, Phunware announced the launch of a separate token, PhunToken, by our wholly owned subsidiary, Phun Token International, which enables holders to participate in our blockchain-enabled data exchange and mobile loyalty engagement ecosystem.
Furthermore, advertisers may request that we discontinue using data obtained from their campaigns that have already been aggregated with 28 Table of Contents other advertisers’ campaign data. It would be difficult, if not impossible, to comply with these requests and complying with these kinds of requests could cause us to spend significant amounts of resources.
Furthermore, advertisers may request that we discontinue using data obtained from their campaigns that have already been aggregated with 25 Table of Contents other advertisers’ campaign data. It would be difficult, if not impossible, to comply with these requests and complying with these kinds of requests could cause us to spend significant amounts of resources.
If we fail to detect fraud or other 26 Table of Contents malicious activities that impact the performance of our brand advertising campaigns, we could harm our reputation with our advertisers or agencies and our revenue and business could suffer. Further, if advertisers demand fraud-free inventory, our supply could fall drastically, making it impossible to sustain our current business model.
If we fail to detect fraud or other 23 Table of Contents malicious activities that impact the performance of our brand advertising campaigns, we could harm our reputation with our advertisers or agencies and our revenue and business could suffer. Further, if advertisers demand fraud-free inventory, our supply could fall drastically, making it impossible to sustain our current business model.
Additional increases in labor costs, for example, as a result of increased competition for skilled labor, or 24 Table of Contents employee benefit costs, such as healthcare costs or otherwise, could further impact our business, results of operations or financial condition. Our global operations are subject to complex risks, some of which might be beyond our control.
Additional increases in labor costs, for example, as a result of increased competition for skilled labor, or employee benefit costs, such as healthcare costs or otherwise, could further impact our business, results of operations or financial condition. 21 Table of Contents Our global operations are subject to complex risks, some of which might be beyond our control.
As of December 31, 2022, we sold an aggregate of $2.6 million of PhunToken. Upon sale of PhunToken to customers, we deliver PhunToken to the respective customer's Etherum-based wallet. We will use commercially reasonable efforts to develop the Token Ecosystem, deliver PhunCoin and PhunToken, respectively, but there is no assurance that such efforts will be successful.
As of December 31, 2023, we sold an aggregate of $2.6 million of PhunToken. Upon sale of PhunToken to customers, we deliver PhunToken to the respective customer's Etherum-based wallet. We will use commercially reasonable efforts to develop the Token Ecosystem, deliver PhunCoin and PhunToken, respectively, but there is no assurance that such efforts will be successful.
This could have an adverse effect on our business, results of operations and financial condition. 34 Table of Contents Specifically, while we cannot state for certainty what circumstances are causing volatility in our stock price, such volatility may be attributable in part to the following factors: • price and volume fluctuations in the overall stock market from time to time; • the announcement of new products, solutions or technologies, investments, commercial relationships, acquisitions or other events by us or our competitors; • changes in how customers perceive the benefits of our products and future offerings; • the addition or departure of key personnel, including, but not limited to the successful transition of our Chief Executive Officer; • the public’s reaction to our press releases, other public announcements and filings with the SEC; • sales of large blocks of our common stock or warrants; • developments concerning intellectual property rights; • changes in legal, regulatory and enforcement frameworks impacting our products; • variations in our and our competitors’ results of operations; • whether our results of operations meet the expectations of securities analysts or investors; • actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry; • the failure of securities analysts to publish research about us, or shortfalls in our results of operations compared to levels forecast by securities analysts; • actual or perceived significant data breach involving our products or website; • litigation involving us, our industry or both; • governmental or regulatory actions or audits; • general economic conditions and trends; • "flash crashes,” “freeze flashes” or other glitches that disrupt trading on the securities exchange on which we are listed; and • major catastrophic events in our domestic and foreign markets, such as, but not limited to, natural disasters, terrorist attacks, cyber-attacks or disease outbreak, epidemic or pandemic, including the ongoing effects of COVID-19 and its variants.
This could have an adverse effect on our business, results of operations and financial condition. 31 Table of Contents Specifically, while we cannot state for certainty what circumstances are causing volatility in our stock price, such volatility may be attributable in part to the following factors: • price and volume fluctuations in the overall stock market from time to time; • the announcement of new products, solutions or technologies, investments, commercial relationships, acquisitions or other events by us or our competitors; • changes in how customers perceive the benefits of our products and future offerings; • the addition or departure of key personnel, including, but not limited to the successful transition of our Chief Executive Officer; • the public’s reaction to our press releases, other public announcements and filings with the SEC; • sales of large blocks of our common stock or warrants; • developments concerning intellectual property rights; • changes in legal, regulatory and enforcement frameworks impacting our products; • variations in our and our competitors’ results of operations; • whether our results of operations meet the expectations of securities analysts or investors; • actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry; • the failure of securities analysts to publish research about us, or shortfalls in our results of operations compared to levels forecast by securities analysts; • actual or perceived significant data breach involving our products or website; • litigation involving us, our industry or both; • governmental or regulatory actions or audits; • general economic conditions and trends; • "flash crashes,” “freeze flashes” or other glitches that disrupt trading on the securities exchange on which we are listed; and • major catastrophic events in our domestic and foreign markets, such as, but not limited to, natural disasters, terrorist attacks, cyber-attacks or disease outbreak, epidemic or pandemic.
In addition, we may experience greater dis-synergies than expected and the impact of the divestiture on our revenue may be larger than projected. 19 Table of Contents Future acquisitions could disrupt our business and may divert management’s attention and, if unsuccessful, harm our business. We may choose to expand by making additional acquisitions that could be material to our business.
In addition, we may experience greater dis-synergies than expected and the impact of the divestiture on our revenue may be larger than projected. 16 Table of Contents Future acquisitions could disrupt our business and may divert management’s attention and, if unsuccessful, harm our business. We may choose to expand by making additional acquisitions that could be material to our business.
The trading price of our common stock and warrants might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past, following periods of volatility in the trading price of a company’s securities, securities class action litigation has often been brought against that company.
The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past, following periods of volatility in the trading price of a company’s securities, securities class action litigation has often been brought against that company.
The liquidity of bitcoin and ethereum may also be reduced and damage to the public perception of bitcoin and ethereum may occur, if financial institutions were to 40 Table of Contents deny banking services to businesses that hold digital assets, provide digital asset-related services or accept digital assets as payment, which could also decrease the price of our digital asset holdings.
The liquidity of bitcoin and ethereum may also be reduced and damage to the public perception of bitcoin and ethereum may occur, if financial institutions were to 37 Table of Contents deny banking services to businesses that hold digital assets, provide digital asset-related services or accept digital assets as payment, which could also decrease the price of our digital asset holdings.
Our failure to meet all the obligations, or otherwise meet a customer’s 20 Table of Contents expectations, may result in us having to record the cost related to the performance of services in the period that services were rendered, but delay the timing of revenue recognition to a future period in which all service obligations have been met.
Our failure to meet all the obligations, or otherwise meet a customer’s 17 Table of Contents expectations, may result in us having to record the cost related to the performance of services in the period that services were rendered, but delay the timing of revenue recognition to a future period in which all service obligations have been met.
These losses were due to both a decline in platform revenue in 2021 and 2022, as compared to previous years, losses related to our digital asset holdings and the substantial investments we made to build our products and services, grow and maintain our business, acquire customers and service our various debt obligations.
These losses were due to both a decline in platform revenue in 2022 and 2023, as compared to previous years, losses related to our digital asset holdings and the substantial investments we made to build our products and services, grow and maintain our business, acquire customers and service our various debt obligations.
Accordingly, certain information concerning users may be shared outside Phunware. 45 Table of Contents The Token Ecosystem may be the target of malicious cyberattacks or may contain exploitable flaws in its underlying code, which may result in security breaches and the loss or theft of PhunCoin or PhunToken.
Accordingly, certain information concerning users may be shared outside Phunware. 41 Table of Contents The Token Ecosystem may be the target of malicious cyberattacks or may contain exploitable flaws in its underlying code, which may result in security breaches and the loss or theft of PhunCoin or PhunToken.
In addition to the other risks described herein, factors that may affect our quarterly operating results include: • the amount and timing of completion of application development services and other service-related engagements; • changes in spending on subscriptions, services and application transactions media offerings and services by our current or prospective customers; • our ability to scale and expand the Lyte business; • pricing our technology, product, and services effectively so that we are able to attract and retain customers without compromising our operating results; • one-time, non-recurring revenue events; • attracting new customers and increasing our existing customers’ use of our technology offerings and services; • the mix between new contracts and renewals of existing contracts; • customer renewal rates and the amounts for which agreements are renewed; • seasonality and its effect on customer demand for Lyte personal computers; • awareness of our brand; • changes in the competitive dynamics of our market, including consolidation among competitors or customers and the introduction of new technologies and technology enhancements; • our ability to manage our existing business and future growth; • unforeseen costs and expenses related to the expansion of our business, operations and infrastructure, including disruptions in our hosting network infrastructure and privacy and data security; • customer delays in purchasing decisions in anticipation of new products or product enhancements by us or our competitors; • budgeting cycles of our customers; • changes in the competitive dynamics of our market, including consolidation among competitors or customers; • the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses (including marketing events and commissions and bonuses associated with performance) and employee benefit expenses; • changes to the commission plans, quotas and other compensation related metrics for our sales representatives; • the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments and other non-cash charges; • the amount and timing of costs associated with recruiting, training and integrating new employees; • the amount and timing of cash collections from our customers and the mix of quarterly and annual billings; • unforeseen costs and expenses related to the expansion of our business, operations and infrastructure; • changes in the levels of our capital expenditures; • foreign currency exchange rate fluctuations; and • general economic and political conditions.
In addition to the other risks described herein, factors that may affect our quarterly operating results include: • the amount and timing of completion of application development services and other service-related engagements; • changes in spending on subscriptions, services and application transactions media offerings and services by our current or prospective customers; • pricing our technology, products, and services effectively so that we are able to attract and retain customers without compromising our operating results; • one-time, non-recurring revenue events; • attracting new customers and increasing our existing customers’ use of our technology offerings and services; • the mix between new contracts and renewals of existing contracts; • customer renewal rates and the amounts for which agreements are renewed; • awareness of our brand; • changes in the competitive dynamics of our market, including consolidation among competitors or customers and the introduction of new technologies and technology enhancements; • our ability to manage our existing business and future growth; • unforeseen costs and expenses related to the expansion of our business, operations and infrastructure, including disruptions in our hosting network infrastructure and privacy and data security; • customer delays in purchasing decisions in anticipation of new products or product enhancements by us or our competitors; • budgeting cycles of our customers; • changes in the competitive dynamics of our market, including consolidation among competitors or customers; • the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses (including marketing events and commissions and bonuses associated with performance) and employee benefit expenses; • changes to the commission plans, quotas and other compensation related metrics for our sales representatives; • the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments and other non-cash charges; • the amount and timing of costs associated with recruiting, training and integrating new employees; • the amount and timing of cash collections from our customers and the mix of quarterly and annual billings; • unforeseen costs and expenses related to the expansion of our business, operations and infrastructure; • changes in the levels of our capital expenditures; • foreign currency exchange rate fluctuations; and • general economic and political conditions.
If 27 Table of Contents we are unable to deliver successful advertising campaigns, our ability to attract potential advertisers and retain and expand business with existing advertisers could be harmed and our business, financial condition and operating results could be adversely affected.
If 24 Table of Contents we are unable to deliver successful advertising campaigns, our ability to attract potential advertisers and retain and expand business with existing advertisers could be harmed and our business, financial condition and operating results could be adversely affected.
Various legislative and executive bodies in the United States and in other countries may in the future adopt laws, regulations, or guidance, or take other actions, which may severely impact the permissibility of tokens generally and the technology behind them or digital asset trasnactions.
Various legislative and executive bodies in the United States and in other countries may in the future adopt laws, regulations, or guidance, or take other actions, which may severely impact the permissibility of tokens generally and the technology behind them or digital asset transactions.
As a result of this analysis of all available evidence, both positive and negative, we concluded that a valuation allowance against our net U.S. deferred tax assets should be applied as of December 31, 2022.
As a result of this analysis of all available evidence, both positive and negative, we concluded that a valuation allowance against our net U.S. deferred tax assets should be applied as of December 31, 2023.
These fluctuations could cause you to lose all or part of your investment in our common stock. In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock and/or warrants could decline for reasons unrelated to our business, results of operations or financial condition.
These fluctuations could cause you to lose all or part of your investment in our common stock. 30 Table of Contents In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock and/or warrants could decline for reasons unrelated to our business, results of operations or financial condition.
We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of 30 Table of Contents future taxable income and ongoing prudent and feasible profits.
We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of 27 Table of Contents future taxable income and ongoing prudent and feasible profits.
Although international revenue currently represents a small portion of our revenue, our business from outside of the United States may expand in the future as we expand our international presence, including but not limited to our subscription, application transaction, Lyte personal computing, services and digital asset offerings.
Although international revenue currently represents a small portion of our revenue, our business from outside of the United States may expand in the future as we expand our international presence, including but not limited to our subscription, application transaction, services and digital asset offerings.
A perceived lack of stability among digital asset exchanges and the closure or temporary shutdown of any significant digital asset exchanges due to business failure, hackers or malware, government-mandated regulation, or fraud, may reduce 41 Table of Contents confidence in digital asset networks and result in greater volatility in digital asset values.
A perceived lack of stability among digital asset exchanges and the closure or temporary shutdown of any significant digital asset exchanges due to business failure, hackers or malware, government-mandated regulation, or fraud, may reduce confidence in digital asset networks and result in greater volatility in digital asset values.
Threats can come from a variety of sources, including criminal hackers, 42 Table of Contents hacktivists, state-sponsored intrusions, industrial espionage and insiders. In addition, certain types of attacks could harm us even if our systems are left undisturbed.
Threats can come from a variety of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage and insiders. In addition, certain types of attacks could harm us even if our systems are left undisturbed.
Attacks upon systems across a variety of industries, including industries related to digital assets, are increasing in frequency, persistence and sophistication, and, in many cases, are being conducted by sophisticated, well-funded and organized groups and individuals, including state actors.
Attacks upon systems across a variety of industries, including industries related to digital assets, are increasing in frequency, persistence and sophistication, and, in many cases, are being conducted by sophisticated, well-funded and organized 38 Table of Contents groups and individuals, including state actors.
Inflation rates, particularly in the United States, have increased recently to levels not seen in years, and increased inflation may result in decreased demand for our products and services, increases in our operating costs (including our labor costs), reduced liquidity and limits on our ability to access credit or otherwise raise capital.
Inflation rates, particularly in the United States, have increased recently to levels not seen in years, and increased inflation 12 Table of Contents may result in decreased demand for our products and services, increases in our operating costs (including our labor costs), reduced liquidity and limits on our ability to access credit or otherwise raise capital.
We experienced a consolidated net loss for the years ended December 31, 2022 and December 31, 2021.
We experienced a consolidated net loss for the years ended December 31, 2023 and December 31, 2022.
Current and future litigation could adversely affect us. We, along with certain of our former and current executive officers and certain former and current board members, are parties to litigation with Wild Basin Investments, LLC as further described on our Current Report on Form 8-K filed with the SEC on January 10, 2020.
We, along with certain of our former executive officers and certain former board members, are parties to litigation with Wild Basin Investments, LLC as further described on our Current Report on Form 8-K filed with the SEC on January 10, 2020.
Although we do not have any funds deposited with SVB and Signature Bank, we regularly maintain cash balances with other financial institutions in excess of the FDIC insurance limit.
Although we did not have any funds deposited with SVB or Signature Bank, we regularly maintain cash balances with other financial institutions in excess of the FDIC insurance limit.
At December 31, 2022, we had state and local net operating loss carryforwards of approximately $95.9 million, with the majority beginning to expire in 2030 if not utilized. We periodically assess the likelihood that we will be able to recover net deferred tax assets.
At December 31, 2023, we had state and local net operating loss carryforwards of approximately $133.1 million, with the majority beginning to expire in 2030 if not utilized. We periodically assess the likelihood that we will be able to recover net deferred tax assets.
Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations could materially adversely affect demand for our products and services.
Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations could materially adversely affect demand for our products and services. Our principal operating expense is compensation related costs.
If a court were to find either exclusive-forum provision in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm its results of operations. 38 Table of Contents Risks Related to our Digital Asset Holdings Our bitcoin acquisition strategy exposes us to various risks associated with bitcoin.
If a court were to find either exclusive-forum provision in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm its results of operations. 35 Table of Contents Risks Related to our Digital Asset Holdings We may acquire additional digital assets in the future, which may expose us to various risks associated with bitcoin and other digital assets.
Technology stocks have historically experienced high levels of volatility. The trading price and volume of our common stock and warrants have fluctuated, and may continue to fluctuate, substantially due to a variety of factors, including those described in this “ Risk Factors ” section, many of which are beyond our control and may not be related to our operating performance.
The trading price and volume of our common stock have fluctuated, and may continue to fluctuate, substantially due to a variety of factors, including those described in this “ Risk Factors ” section, many of which are beyond our control and may not be related to our operating performance.
As of December 31, 2022, we had federal net operating loss carryforwards of approximately $195.0 million, of which $109.4 million will never expire and $85.7 million will expire at various dates beginning in 2030.
As of December 31, 2023, we had federal net operating loss carryforwards of approximately $236.7 million, of which $151.0 million will never expire and $85.7 million will expire at various dates beginning in 2030.
An organization may be reluctant or unwilling to invest in new technology offerings and services. If we fail to attract new 15 Table of Contents customers and maintain and expand those customer relationships, our revenue may grow more slowly than expected, may not grow at all, or may decline and our business may be harmed.
An organization may be reluctant or unwilling to invest in new technology offerings and services. If we fail to attract new customers and maintain and expand those customer relationships, our revenue may grow more slowly than expected, may not grow at all, or may decline and our business may be harmed. We have incurred a goodwill impairment charge.
We have in the past made several acquisitions of complementary businesses, including acquisitions of Odyssey, Simplikate, Digby, Tapit!, GoTV and our most recently completed acquisition of Lyte.
We have in the past made several acquisitions of complementary businesses, including acquisitions of Odyssey, Simplikate, Digby, Tapit!, GoTV and Lyte.
If we change the means by which we hold our bitcoin assets, the accounting treatment for our bitcoin may correspondingly change.
If we change the means by which we have historically held bitcoin assets, the accounting treatment for our bitcoin may correspondingly change.
During 2022, we issued common stock in various sales of our common stock via at-the-market offerings. Additional capital may be needed in the future to continue our planned operations, and we may seek additional funding through a combination of equity offerings, debt financings, strategic alliances, licensing and collaboration arrangements, or other third-party business arrangements.
Additional capital may be needed in the future to continue our planned operations, and we may seek additional funding through a combination of equity offerings, debt financings, strategic alliances, licensing and collaboration arrangements, or other third-party business arrangements.
Bankruptcy law. We cannot say with certainty whether bitcoin held in custody by a bankrupt custodian would be treated as property of a bankruptcy estate and, accordingly, whether the owner of that bitcoin would be treated as a general unsecured creditor. The concentration of our digital asset holdings enhances the risks inherent in our digital asset treasury strategy.
Bankruptcy law. We cannot say with certainty whether bitcoin held in custody by a bankrupt custodian would be treated as property of a bankruptcy estate and, accordingly, whether the owner of that bitcoin would be treated as a general unsecured creditor.
Examples of areas of significant change in the industry include cloud, software defined infrastructure, virtualization, security, mobility, data analytics and IoT, the continued shift from maintenance to managed services and ultimately to cloud based services, as-a-service solutions, security and information technology automation. In addition, enterprises are continuing to shift from on-premise, hardware infrastructure to software centric hosted solutions.
Examples of areas of significant change in the industry include cloud, software defined 13 Table of Contents infrastructure, virtualization, security, mobility, data analytics and IoT, the continued shift from maintenance to managed services and ultimately to cloud based services, as-a-service solutions, security and information technology automation.
Our revenue and profitability depend on the demand for our technology, product and service offerings, which could be negatively affected by numerous factors, many of which are beyond our control. Volatile, negative, or uncertain economic conditions, including those caused by the COVID-19 pandemic affect our customers’ businesses and the markets we serve.
Demand for our technology, product and service offerings could be adversely affected by volatile, negative, or uncertain economic conditions and the effects of these conditions on our customers’ businesses. Our revenue and profitability depend on the demand for our technology, product and service offerings, which could be negatively affected by numerous factors, many of which are beyond our control.
Global political conditions may create uncertainties that could adversely affect our business. The United States has been and may continue to be involved in armed conflicts that could have a further impact on our sales and our supply chain related to acquiring necessary inventory to assemble Lyte computers.
Global political conditions may adversely affect demand for our products. Global political conditions may create uncertainties that could adversely affect our business. The United States has been and may continue to be involved in armed conflicts that could have a further impact on our sales.
If the customer demand for our products or services or the adoption rate in our target markets does not meet our expectations, our ability to generate revenue from customers and meet our financial targets could be adversely affected. 17 Table of Contents Substantial competition could reduce our market share and significantly harm our financial performance.
If the customer demand for our products or services or the adoption rate in our target markets does not meet our expectations, our ability to generate revenue from customers and meet our financial targets could be adversely affected.
The theft and/or unauthorized use or publication of our, or our customers’, confidential information or other proprietary business information as a result of such an incident could adversely affect our competitive position and reduce marketplace acceptance of our products and services.
In addition, many of our engagements involve projects that are critical to the operations of our customers’ businesses. The theft and/or unauthorized use or publication of our, or our customers’, confidential information or other proprietary business information as a result of such an incident could adversely affect our competitive position and reduce marketplace acceptance of our products and services.
Bitcoin is a highly volatile asset that has traded below $16,000 and above $48,000 per bitcoin during 2022.
Bitcoin is a highly volatile asset that has traded below $17,000 and above $44,000 per bitcoin during 2023.
We cannot be sure that our brand, software solution and personal computing products and services do not infringe upon the intellectual property rights of third parties, who could claim that we or our customers are infringing upon their intellectual property rights.
Our technology offerings and services could infringe upon the intellectual property rights of others or we might lose our ability to use intellectual property of others. 20 Table of Contents We cannot be sure that our brand, software solution and products and services do not infringe upon the intellectual property rights of third parties, who could claim that we or our customers are infringing upon their intellectual property rights.
We have an office and at least one data center located in California, a region known for earthquakes and mudslides. A significant amount of our development and ad operations work is also located in California.
We have an office and at least one data center located in California, a region known for earthquakes and mudslides. A significant amount of our development and ad operations work is also located in California. We also have corporate offices in Texas, which is susceptible to floods, extreme temperatures, heavy winds, ice, snow and tornadoes.
Some investors and other market participants may disagree with this strategy or actions we undertake to implement it. If the price of bitcoin falls or our bitcoin acquisition strategy otherwise proves unsuccessful, it would adversely impact our financial condition, results of operations, and the market price of our common stock.
If the price of bitcoin falls or our bitcoin acquisition strategy otherwise proves unsuccessful, it would adversely impact our financial condition, results of operations, and the market price of our common stock. In connection with owning bitcoin, we may investigate other potential approaches to holding our bitcoin assets.
Furthermore, the trading price of our Common Stock has recently been volatile during relatively short time periods. For example, on December 28, 2022 our Common Stock traded at an intraday low of $0.75, whereas on February 2, 2023 our Common Stock traded at an intraday high of $1.15.
Furthermore, the trading price of our Common Stock has recently been volatile during relatively short time periods. For example, on January 12, 2024 our Common Stock traded at an intraday low of $0.08, whereas on January 16, 2024 our Common Stock traded at an intraday high of $0.49.
In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our common stock to be listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq listing requirements. 35 Table of Contents If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our common stock adversely, the price and trading volume of our common stock could decline.
In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our common stock to be listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq listing requirements.
Goodwill impairment charges of $2.1 million were recorded during the year ended December 31, 2022. For additional details, refer to Note 6 " Goodwill " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion on our goodwill impairment.
For additional details, refer to Note 6 " Goodwill " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion on our goodwill impairment. Current and future litigation could adversely affect us.
We may also face competition from a variety of vendors of software and products that address only a portion of our platform. In addition, other companies that provide cloud-based software in different target markets may develop software or acquire companies that operate in our target markets, and some potential customers may elect to develop their own internal software.
In addition, other companies that provide cloud-based software in different target markets may develop software or acquire companies that operate in our target markets, and some potential customers may elect to develop their own internal software. With the introduction of new technologies and market entrants, we expect this competition to intensify in the future.
In addition, customers may delay spending under existing contracts and engagements and may delay entering into new contracts while they evaluate new technologies.
These technologies and others that may emerge, could reduce and, over time, replace some of our current business. In addition, customers may delay spending under existing contracts and engagements and may delay entering into new contracts while they evaluate new technologies.
We cannot assure you that we will reach profitability in the future or at any specific time in the future or that, if and when we do become profitable, we will sustain profitability. If we are ultimately unable to generate sufficient revenue to meet our financial targets, become profitable and have sustainable positive cash flows, investors could lose their investment.
If we are ultimately unable to generate sufficient revenue to meet our financial targets, become profitable and have sustainable positive cash flows, investors could lose their investment. Our future performance will depend on the successful transition of our Chief Executive Officer (CEO).
Furthermore, our current or potential competitors may be acquired by third parties with greater available resources and the ability to initiate or withstand substantial price competition. In addition, many of our competitors have established marketing relationships, access to larger customer bases and major distribution agreements with consultants, system integrators and resellers.
In addition, many of our competitors have established marketing relationships, access to larger customer bases and major distribution agreements with consultants, system integrators and resellers. Our competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their product offerings or resources.
Furthermore, should our customers have relationships with financial institutions that fail, this may result in a delay of collecting outstanding receivables, if at all, which could have a material adverse affect on our business. 33 Table of Contents The SBA may review our Paycheck Protection Program (“PPP”) forgiveness application and if the SBA disagrees with our certification we could be subject to penalties and the repayment of our PPP loan, which could negatively impact our business, financial condition and results of operations and prospects.
Furthermore, should our customers have relationships with financial institutions that fail, this may result in a delay of collecting outstanding receivables, if collectible at all, which could have a material adverse affect on our business.
During the fourth quarter of 2021, our board of directors approved certain purchases by the Company of bitcoin, which we currently hold. We are continually examining the risks and rewards of our bitcoin acquisition strategy. This strategy has not been tested over time or under various market conditions.
We are continually examining the risks and rewards of our bitcoin acquisition strategy. This strategy has not been tested over time or under various market conditions. Some investors and other market participants may disagree with this strategy or actions we undertake to implement it.
The complexity of these solutions, our learning curve in developing and supporting them and significant competition in the markets for these solutions could make it difficult for us to market and implement these solutions successfully. Additionally, there is a risk that our customers may not adopt these solutions widely, which could prevent us from realizing expected returns on these investments.
Additionally, there is a risk that our customers may not adopt these solutions widely, which could prevent us from realizing expected returns on these investments. Even if these solutions are successful in the market, they may rely on third-party technology, software, services and our ability to meet stringent service levels.
Some of our competitors are larger and have greater name recognition, much longer operating histories, larger marketing budgets and significantly greater resources than we do. We also face competition from custom-built software vendors and from vendors of specific applications, some of which offer cloud-based solutions, as well as custom-built personal computer hardware vendors.
Some customers may be hesitant to switch vendors or to adopt cloud-based software such as ours and prefer to maintain their existing relationships. Some of our competitors are larger and have greater name recognition, much longer operating histories, larger marketing budgets and significantly greater resources than we do.
Technological developments such as these may materially affect the cost and use of technology and services by our customers and could affect the nature of how our revenue is generated. These technologies and others that may emerge, could reduce and, over time, replace some of our current business.
In addition, enterprises are continuing to shift from on-premise, hardware infrastructure to software centric hosted solutions. Technological developments such as these may materially affect the cost and use of technology and services by our customers and could affect the nature of how our revenue is generated.
Even if these solutions are successful in the market, they may rely on third-party technology, software, services and our ability to meet stringent service levels. If we are unable to deploy these solutions successfully or profitably, it could adversely impact our business, results of operations or financial condition.
If we are unable to deploy these solutions successfully or profitably, it could adversely impact our business, results of operations or financial condition. Our industry is undergoing significant change and our business strategy is continuing to evolve to meet these changes.
Security breaches of this infrastructure could lead to shutdowns or disruptions of our systems and potential loss or unauthorized disclosure of confidential information or data, including personal data. In addition, many of our engagements involve projects that are critical to the operations of our customers’ businesses.
We are also dependent on technology networks and systems to process, transmit and securely store electronic information and to communicate among our locations and with our customers. Security breaches of this infrastructure could lead to shutdowns or disruptions of our systems and potential loss or unauthorized disclosure of confidential information or data, including personal data.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe currently do not anticipate difficulty in either retaining occupancy of any of our facilities through lease renewals prior to expiration or through month-to-month occupancy arrangements or replacing them with equivalent facilities. We believe that our existing facilities are suitable and adequate for our present purposes.
Biggest changeWe may also further sublease certain of these facilities where space is not fully utilized. We currently do not anticipate difficulty in either retaining occupancy of any of our facilities through lease renewals prior to expiration or through month-to-month occupancy arrangements or replacing them with equivalent facilities.
Item 2. Properties . Our corporate headquarters is located in Austin, Texas, where, in June 2022, we entered into a lease agreement for approximately 7,458 square feet of professional office space.
Item 2. Properties . Our corporate headquarters is located in Austin, Texas, where, in June 2022, we entered into a lease agreement for approximately 7,458 square feet of professional office space. We also currently lease professional office facilities in Irvine, California, which we are currently subleasing.
Removed
In March 2022, we entered into a lease agreement for approximately 21,830 square feet of manufacturing and warehouse space for our Lyte operations in Round Rock, Texas, and we relocated our Lyte operations from Gurnee, Illinois to Round Rock during the second quarter of 2022.
Added
We believe that our existing facilities are suitable and adequate for our present purposes.
Removed
We also currently lease professional office facilities in Irvine, California; San Diego, California; and Miami, Florida. We are currently subleasing our Irvine, California and Miami, Florida office facilities. We may also further sublease certain of these facilities where space is not fully utilized.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. The information set forth under the subheading " Litigation" in Note 10, " Commitments and Contingencies " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K is incorporated herein by reference. Item 4. Mine Safety Disclosures. Not applicable. 49 Table of Contents PART II
Biggest changeThe information set forth under the subheading " Litigation" in Note 10, " Commitments and Contingencies " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K is also incorporated herein by reference. Item 4. Mine Safety Disclosures. Not applicable. 46 Table of Contents PART II
Added
Item 3. Legal Proceedings. As previously reported, on March 30, 2021, the Company filed an action against its former counsel Wilson Sonsini Goodrich & Rosati, PC (“WSGR”), which was styled Phunware, Inc., v.
Added
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Does 1-25, Case No. 21CV381517 and filed in the Superior Court of the State of California for the County of Santa Clara (the “Uber Litigation”). The Company’s claims asserted in the Uber Litigation were subsequently ordered to arbitration (the “Uber Arbitration”).
Added
In the Uber Arbitration, WSGR sought to recover attorney’s fees and costs for services rendered to the Company in connection with a separate litigation matter against Uber Technologies, Inc. On March 5, 2024, the Company entered into a Settlement Agreement and Release of Claims (the “Settlement Agreement”) with WSGR settling the Uber Litigation.
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As part of the Settlement Agreement, the Company was required to (i) pay WSGR a total sum of $2,193,852.02 no later than March 8, 2024, (ii) file requests for dismissal of the Uber Litigation, with prejudice, with the Santa Clara Superior Court, and (iii) request that the Uber Arbitration be dismissed and closed with prejudice.
Added
In addition, WSGR is required to request that the Uber Arbitration be dismissed and closed with prejudice. The Settlement Agreement also provides that the Company and WSGR release each other from all claims that the Company or WSGR may have against one another with respect to the Uber Litigation or the Uber Arbitration.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSecurities Authorized for Issuance Under Equity Compensation Plans The information set forth under the subheading " Securities Authorized for Issuance Under Equity Compensation Plans" included in Part III, Item 12 of this Annual Report on Form 10-K is incorporated herein by reference. Recent Sales of Unregistered Securities None. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None.
Biggest changeSecurities Authorized for Issuance Under Equity Compensation Plans The information set forth under the subheading " Securities Authorized for Issuance Under Equity Compensation Plans" included in Part III, Item 12 of this Annual Report on Form 10-K is incorporated herein by reference.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock, $0.0001 par value, began trading on the Nasdaq Capital Market on December 28, 2018 under the symbol “PHUN”. Holders On March 27, 2023, there were approximately 171 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock, $0.0001 par value, began trading on the Nasdaq Capital Market on December 28, 2018 under the symbol “PHUN”. Holders On March 8, 2024, there were approximately 171 holders of record of our common stock.
Added
Recent Sales of Unregistered Securities On July 6, 2022, we issued an unsecured promissory note to Streeterville Capital, LLC ("Streeterville") with an original principal amount of $12.8 million in a private placement (the "2022 Promissory Note"). On August 14, 2023, we entered into an amendment to the 2022 Promissory Note with the noteholder providing for limited conversion rights.
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On October 4, 2023, Streeterville converted $200,000 of obligations under the 2022 Promissory Note for 24,287 shares of common stock. On October 17, 2023, Streeterville converted $250,000 of obligations under the 2022 Promissory Note for 31,327 shares of common stock. On October 30, 2023, Streeterville converted $150,000 of obligations under the 2022 Promissory Note for 19,158 shares of common stock.
Added
On November 13, 2023, Streeterville converted $200,000 of obligations under the 2022 Promissory Note for 30.379 shares of common stock. On November 22, 2023, Streeterville converted $200,000 of obligations under the 2022 Promissory Note for 35,330 shares of common stock. On January 23, 2024, Streeterville converted $2,900,000 of obligations under the 2022 Promissory Note for 224,251 shares of common stock.
Added
On February 5, 2024, Streeterville converted $1,604,622 of obligations under the 2022 Promissory Note for 112,224 shares of common stock. The 2022 Promissory Note was paid-in-full in connection with the final conversion on February 5, 2024.
Added
The 2022 Promissory Note and the shares of our common stock issuable upon conversion or in payment thereof under the amendment thereto were offered and sold pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded by Section 4(a)(2) thereof, for the sale of securities not involving a public offering.
Added
Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 6. [Reserved] 47

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeRefer to Note 14 " Income Taxes " of the notes to consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion. 56 Table of Contents Results of Operations Comparison of Fiscal Years Ended December 31, 2022 and 2021 Net Revenue Year Ended December 31, Change (in thousands, except percentages) 2022 2021 Amount % Net Revenue Platform revenue $ 6,521 $ 7,548 $ (1,027) (13.6) % Hardware revenue 15,273 3,095 12,178 393.5 % Total revenue $ 21,794 $ 10,643 $ 11,151 104.8 % Platform revenue as percentage of total revenue 29.9 % 70.9 % Hardware revenue as percentage of total revenue 70.1 % 29.1 % Total revenue increased $11.2 million, or 104.8%, in the year ended December 31, 2022 compared to the corresponding period in 2021.
Biggest changeRefer to Note 14 " Income Taxes " of the notes to consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion. 53 Table of Contents Results of Operations Comparison of Fiscal Years Ended December 31, 2023 and 2022 Net Revenue, Cost of Revenue, Gross Profit and Gross Margin Year Ended December 31, Change (in thousands, except percentages) 2023 2022 Amount % Net Revenues, Cost of Revenues, Gross Profit & Margin Net revenues $ 4,832 $ 6,521 $ (1,689) (25.9) % Cost of revenues 3,146 3,012 134 4.4 % Gross Profit $ 1,686 $ 3,509 $ (1,823) (52.0) % Gross Margin 34.9 % 53.8 % Total revenue decreased $1.7 million, or (25.9)%, in the year ended December 31, 2023 compared to the corresponding period in 2022 due to decreased PhunToken sales of $1.5 million.
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.
Operating Expenses Our operating expenses include sales and marketing expenses, general and administrative expenses, research and development expenses, depreciation and amortization of acquired intangible assets. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation and, in sales and marketing expense, commissions. Sales and Marketing Expense.
Financing Activities Our financing activities during 2022 consisted of proceeds from equity financings and debt borrowings offset by payments on debt. We acquired $8.1 million of cash from financing activities resulting primarily from $11.8 million in proceeds from our 2022 Promissory Note and $4.3 million in proceeds from the sale of our common stock.
Our financing activities during 2022 consisted of proceeds from equity financings and debt borrowings offset by payments on debt. We acquired $8.1 million of cash from financing activities resulting primarily from $11.8 million in proceeds from our 2022 Promissory Note and $4.3 million in proceeds from the sale of our common stock.
Refer to Note 6 " Goodwill " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion on our goodwill impairment.
Refer to Note 6 " Goodwill " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion on our goodwill impairment.
Overview Phunware, Inc. offers a fully integrated software platform that equips companies with the products, solutions and services necessary to engage, manage and monetize their mobile application portfolios globally at scale. Our MaaS platform provides the entire mobile lifecycle of applications, media and data in one login through one procurement relationship.
Overview Phunware, Inc. offers a fully integrated software platform that equips companies with the products, solutions and services necessary to engage, manage and monetize their mobile application portfolios globally at scale. Our platform provides the entire mobile lifecycle of applications, media and data in one login through one procurement relationship.
Platform gross profit is equal to subscriptions and services revenue less the cost of personnel and related costs for our support and professional services employees, external consultants, stock-based compensation and allocated overhead. Costs associated with our development and project management teams are generally recognized as incurred.
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.
On February 1, 2022, we filed a registration statement on Form S-3, which was subsequently declared effective by the SEC on February 9, 2022, pursuant to which we may issue up to $200 million in common stock, preferred stock, warrants and units.
On February 1, 2022, we filed a shelf registration statement Form S-3, which was subsequently declared effective by the SEC on February 9, 2022, pursuant to which we may issue up to $200 million in common stock, preferred stock, warrants and units.
Some of these limitations include: 52 Table of Contents • 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.
Some of these limitations include: 49 Table of Contents • 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 define adjusted EBITDA as net loss plus (i) interest expense, (ii) income tax expense (benefit), (iii) depreciation, (iv) amortization, and further adjusted for (v) one-time adjustments and (vi) stock-based compensation expense. 53 Table of Contents 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.
We define adjusted EBITDA as net loss plus (i) interest expense, (ii) income tax expense (benefit), (iii) depreciation, (iv) amortization, and further adjusted for (v) one-time adjustments and (vi) stock-based compensation expense. 50 Table of Contents 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.
Our revenue recognition policy follows guidance from Accounting Standards Codification ("ASC") No. 606, Revenue from Contracts with Customers (Topic 606) . 63 We determine revenue recognition through the following five-step framework: • Identification of the contract, or contracts, with a customer; • Identification of the performance obligations in the contract or contracts; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and • Recognition of revenue when, or as, we satisfy a performance obligation.
Our revenue recognition policy follows guidance from Accounting Standards Codification ("ASC") No. 606, Revenue from Contracts with Customers (Topic 606) . 59 We determine revenue recognition through the following five-step framework: • Identification of the contract, or contracts, with a customer; • Identification of the performance obligations in the contract or contracts; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and • Recognition of revenue when, or as, we satisfy a performance obligation.
Contained therein, was a prospectus supplement in which we may sell up to $100 million of our common stock in an “at the market" offering pursuant to an At Market Issuance Sales Agreement we entered into with H.C. Wainwright & Co., LLC on January 31, 2022.
Contained therein, was a prospectus supplement pursuant to which we may sell up to $100 million of our common stock in an “at the market offering” pursuant to an At Market Issuance Sales Agreement we entered into with H.C. Wainwright & Co., LLC on January 31, 2022.
We reasonably expect approximately 40% of our backlog as of December 31, 2022 will be invoiced during the subsequent 12-month period, primarily due to the fact that our contracts are typically one to three years in length.
We reasonably expect approximately 40% of our backlog as of December 31, 2023 will be invoiced during the subsequent 12-month period, primarily due to the fact that our contracts are typically one to three years in length.
On July 6, 2022, we entered into a note purchase agreement and completed the sale of an unsecured promissory note with an original principal amount of $12.8 million in a private placement (the "2022 Promissory Note"). After deducting all transaction fees paid by us at closing, net cash proceeds to us at closing were $11.8 million.
On July 6, 2022, we entered into a note purchase agreement and completed the sale of an unsecured promissory note (referred to herein as the 2022 Promissory Note) with an original principal amount of $12.8 million in a private placement. After deducting all transaction fees paid by us at closing, net cash proceeds to us at closing were $11.8 million.
Refer to Note 2, " Summary of Significant Accounting Policies " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion regarding our digital asset holdings.
Refer to Note 2, " Summary of Significant Accounting Policies " and Note 5, " Digital Assets " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion regarding our digital asset holdings.
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 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 52 Table of Contents administrative and professional services.
In the event that additional financing is required from outside sources, we may not be able to raise it on terms 60 Table of Contents acceptable to us, or at all. If we are unable to raise additional capital when desired and/or on acceptable terms, our business, operating results and financial condition could be adversely affected.
In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital when desired and/or on acceptable terms, our business, operating results and financial condition could be adversely affected.
Fees from advertisers are commonly based on the number of ads delivered or views, clicks or actions by users on mobile advertisements delivered, and we recognize revenue at the time the user views, clicks or otherwise acts on the ad. We sell ads through several offerings: cost per thousand impressions and cost per click.
Fees from advertisers are commonly based on the number of ads delivered or views, clicks or actions by users on mobile advertisements delivered, and we recognize revenue at the time the user views, clicks or otherwise acts on the ad. We sell ads through several offerings: cost per thousand impressions and cost per click. In 2021, we commenced PhunToken sales.
Costs directly attributable to the development or support of applications relating to subscription customers are included in cost of sales, whereas costs related to the ongoing development and maintenance of Phunware’s MaaS platform are expensed in research and development.
Costs directly attributable to the development or support of applications relating to subscription customers are included in cost of sales, whereas costs related to the ongoing development and maintenance of our software platform are expensed in research and development.
The following table sets forth our contractual obligations as of December 31, 2022 (in thousands): Payments due by period Contractual obligations Total Less than 1 year 1-3 years 3-5 years More than 5 years Operating lease obligations $ 4,782 $ 1,296 $ 2,234 $ 1,252 $ — Off-Balance Sheet Arrangements During the years ended December 31, 2022 and 2021, 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.
The following table sets forth our contractual obligations as of December 31, 2023 (in thousands): Payments due by period Contractual obligations Total Less than 1 year 1-3 years 3-5 years More than 5 years Operating lease obligations $ 1,868 $ 751 $ 833 $ 284 $ — Off-Balance Sheet Arrangements During the years ended December 31, 2023 and 2022, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.
During 2021, we announced the commencement of PhunToken sales. PhunToken is designed to reward consumers for their activity, such as watching branded videos, completing surveys and visiting points of interest. We recognize revenue related to PhunToken at time of delivery to a customer's ethereum-based wallet.
PhunToken is designed to reward consumers for their activity, such as watching branded videos, completing surveys and visiting points of interest. We recognize revenue related to PhunToken at time of delivery to a customer's ethereum-based wallet.
Our future capital requirements will depend on many factors, including our pace of growth, subscription renewal activity, the timing and extent of spend to support development efforts, the pace at which we can scale Lyte, the expansion of sales and marketing activities and the market acceptance of our products and services.
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.
Our 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, vendors for costs of inventory related to the assembly of Lyte computers, sales and marketing expenses and general operating expenses.
Our 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, general operating expenses and employee and material costs for Lyte in discontinued operations.
For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding. Key Events and Recent Developments In October 2022, Alan S.
For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.
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 software subscription and services customer agreements. At any point in the contract term, there can be amounts that we have not yet been contractually able to invoice.
Backlog represents future amounts to be invoiced under our current software subscription and services customer agreements. At any point in the contract term, there can be amounts that we have not yet been contractually able to invoice.
Recent Accounting Standards Recent accounting standards applicable to our business are described under the subheading " Recently Adopted Accounting Policies " in Note 2 " Summary of Significant Accounting Policies " of the notes to consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
For additional information, see Note 3, " Discontinued Operation" of the notes to consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.. 60 Table of Contents Recent Accounting Standards Recent accounting standards applicable to our business are described under the subheading " Recently Adopted Accounting Policies " in Note 2 " Summary of Significant Accounting Policies " of the notes to consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
General and Administrative General and administrative expense increased $6.3 million, or 47.5%, for the year ended December 31, 2022 compared to the corresponding period of 2021, as a result of an increase of $1.8 million in legal fees attributable to legal matters more fully described under the subheading " Litigation" in Note 10, " Commitments and Contingencies " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
General and Administrative General and administrative expense decreased $3.5 million, or (20.2)%, for the year ended December 31, 2023 compared to the corresponding period of 2022, as a result of a decrease of $2.6 million in professional fees mainly related to legal expenses attributable to legal matters more fully described under the subheading " Litigation" in Note 10, " Commitments and Contingencies " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Goodwill We review goodwill for impairment annually during the fourth quarter or more frequently if events or changes in circumstances would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. As of December 31, 2022, we identified an impairment related to our Lyte computer division of approximately $2.1 million.
Goodwill We review goodwill for impairment annually during the fourth quarter or more frequently if events or changes in circumstances would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. As of December 31, 2023, we identified an impairment of approximately $25.8 million.
The following table summarizes our cash flows for the periods presented: Year Ended December 31, (in thousands, except percentages) 2022 2021 Consolidated statement of cash flows Net cash used in operating activities $ (26,827) $ (22,514) Net cash used in investing activities (2,287) (46,385) Net cash provided by financing activities 8,055 88,019 Operating Activities Our primary source of cash from operating activities is receipts sales for our various product and service offerings as further described elsewhere in this Annual Report.
The following table summarizes our cash flows for the periods presented: Year Ended December 31, (in thousands, except percentages) 2023 2022 Consolidated statement of cash flows Net cash used in operating activities $ (18,435) $ (26,856) Net cash used in investing activities 15,382 (2,258) Net cash provided by financing activities 4,975 8,055 Operating Activities Our primary source of cash from operating activities is receipts sales for our various product and service offerings as further described elsewhere in this Annual Report.
The following table sets forth our backlog and deferred revenue: December 31, 2022 2021 (in thousands) Backlog $ 3,824 $ 3,316 Deferred revenue 4,178 5,272 Total backlog and deferred revenue $ 8,002 $ 8,588 For further information regarding our deferred revenue balances, refer to Note 4 “ Revenue ” of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
The following table sets forth our backlog and deferred revenue: December 31, 2023 2022 (in thousands) Backlog $ 2,750 $ 3,824 Deferred revenue 1,909 2,805 Total backlog and deferred revenue $ 4,659 $ 6,629 For further information regarding our deferred revenue balances, refer to Note 4 “ Revenue ” of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Subscription revenue from SDK licenses gives the customer the right to access our MaaS platform. Application development revenue is derived from development services around designing and building new applications or enhancing existing applications. Support revenue is comprised of support and maintenance fees of customer applications, software updates and technical support for application development services for a support term.
Application development revenue is derived from development services around designing and building new applications or enhancing existing applications. Support revenue is comprised of support and maintenance fees for customer applications, software updates and technical support for application development services for a support term.
For further information on all significant accounting policies, refer to Note 2 “ Summary of Significant Accounting Policies ” of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
For further information on all significant accounting policies, refer to Note 2 “ Summary of Significant Accounting Policies ” of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. Revenue We derive our revenue primarily from our platform subscription fees, application development and support fees.
The terms of the lease agreements provide for rental payments on a graduated basis. We recognize rent expense on a straight-line basis over the lease periods. Rent expense under operating leases totaled $1.1 million and $0.8 million for the years ended December 31, 2022 and 2021, respectfully.
We recognize rent expense on a straight-line basis over the lease periods. Rent expense under operating leases for our continued operations totaled $0.8 million and $0.9 million for the years ended December 31, 2023 and 2022, respectfully.
In addition, certain changes in our operating assets and liabilities resulted in significant cash (decreases) as follows: $(5.7) million from a decrease in accounts payable, accrued expenses and an installment payments to Uber related to the settlement of our lawsuit, as well as $(3.3) million from other working capital changes, primarily related to a decrease in post-acquisition deferred revenue and inventory purchases.
In addition, certain changes in our operating assets and liabilities resulted in significant cash (decreases) as follows: $(1.6) million from a combined decrease in accounts payable and accrued expenses and lease liability payments, $(1.3) million from the discontinued operation of Lyte, as well as $(0.4) million from other working capital changes, primarily related to a decrease in deferred revenue.
Reference is made to Note 8 " Debt " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion on our debt holdings.
Further reference is made to Note 8 " Debt " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion on the 2022 Promissory Note. During 2022, we recorded other expense of $21.4 million, which primarily consisted of impairment charges related to our digital asset holdings.
Revenue We derive our revenue primarily from MaaS subscription fees, application development and support fees, as well as revenue from the sale of high-performance personal computer systems. Revenue is recognized when control of these products or services are transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
Revenue is recognized when control of these products or services are transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
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. 51 Table of Contents Key Business Metrics Our management regularly monitors certain financial measures to track the progress of our business against internal goals and targets.
We currently do not expect to be profitable in the near future. 48 Table of Contents Key Business Metrics Our management regularly monitors certain financial measures to track the progress of our business against internal goals and targets. We believe that the most important of these measures include backlog and deferred revenue. Backlog and Deferred Revenue.
We also offer and sell pre-packaged and custom high-end personal computer systems for gaming, streaming and cryptocurrency mining enthusiasts. We intend to continue investing for long-term growth. We have invested and expect to continue investing in the expansion of our ability to market, sell and provide our current and future products and services to customers globally.
We intend to continue investing for long-term growth. We have invested and expect to continue investing in the expansion of our ability to market, sell and provide our current and future products and services to customers globally. We also expect to continue investing in the development and improvement of new and existing products and services to address customers' needs.
Although we plan to invest in Lyte for future growth, we may experience revenue and gross profit fluctuations as a result of seasonality. 55 Table of Contents Gross Margin Gross margin measures gross profit as a percentage of revenue. Gross margin is generally impacted by the same factors that affect changes in the mix of platform and hardware revenue.
As a result, gross profit may fluctuate from period to period. 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 revenue.
We utilized $22.5 million of cash from operating activities during 2021 resulting from a net loss of $53.5 million.
We utilized $18.4 million of cash from operating activities during 2023 resulting from a net loss from continuing operations of $41.9 million.
These 61 Table of Contents sources of financing were partially offset by $26.2 million of payments on debt, a majority of which related to payments on the 2020 Convertible Notes. 62 Contractual Obligations We lease various office facilities, including our corporate headquarters in Austin, Texas, our Lyte warehouse facility in Round Rock, Texas, as well as offices in California and Florida, under non-cancellable operating lease agreements that expire through 2027.
These sources of financings were partially offset by $8.1 million of payments on debt. 58 Contractual Obligations We lease various office facilities, including our corporate headquarters in Austin, Texas, as well as an office in Irvine, California, under non-cancellable operating lease agreements that expire through 2027. The terms of the lease agreements provide for rental payments on a graduated basis.
Operating Expenses Year Ended December 31, Change (in thousands, except percentages) 2022 2021 Amount % Operating expenses Sales and marketing $ 6,814 $ 3,022 $ 3,792 125.5 % General and administrative 19,554 13,256 6,298 47.5 % Research and development 6,149 4,179 1,970 47.1 % Impairment of goodwill 2,061 — 2,061 100.0 % Total operating expenses $ 34,578 $ 20,457 $ 14,121 69.0 % Sales and Marketing Sales and marketing expense increased $3.8 million, or 125.5% for the year ended December 31, 2022 compared to the corresponding period of 2021, primarily due to an increase of $3.1 million of marketing related expenditures mostly related to Lyte and PhunToken.
Operating Expenses Year Ended December 31, Change (in thousands, except percentages) 2023 2022 Amount % Operating expenses Sales and marketing $ 3,329 $ 4,114 $ (785) (19.1) % General and administrative 13,780 17,277 (3,497) (20.2) % Research and development 4,449 6,149 (1,700) (27.6) % Impairment of goodwill 25,819 — 25,819 100.0 % Total operating expenses $ 47,377 $ 27,540 $ 19,837 72.0 % Sales and Marketing Sales and marketing expense decreased $0.8 million, or (19.1)% for the year ended December 31, 2023 compared to the corresponding period of 2022, primarily due to a decrease of $0.5 million of marketing related expenditures generally related to PhunToken and a $0.3 million decrease related to lower sales and marketing personnel headcount.
Year Ended December 31, 2022 2021 (in thousands, except percentages) Adjusted gross profit (1) $ 5,286 $ 4,670 Adjusted gross margin (1) 24.3 % 43.9 % Adjusted EBITDA (2) $ (23,480) $ (11,662) (1) Adjusted gross profit and adjusted gross margin are non-GAAP financial measures.
Year Ended December 31, 2023 2022 (in thousands, except percentages) Adjusted gross profit (1) $ 2,133 $ 3,719 Adjusted gross margin (1) 44.1 % 57.0 % Adjusted EBITDA (2) $ (15,487) $ (20,761) (1) Adjusted gross profit and adjusted gross margin are non-GAAP financial measures.
Other income (expense) Year Ended December 31, (in thousands, except percentages) 2022 2021 Other income (expense) Interest expense $ (2,406) $ (4,481) Loss on extinguishment of debt — (7,952) Impairment of digital assets (22,911) (9,383) Fair value adjustment for warrant liabilities 3,349 (18,139) Gain on forgiveness of Paycheck Protection Program ("PPP") loan — 2,850 Other income, net 580 1 Total other expense $ (21,388) $ (37,104) During 2022, we recorded other expense of $21.4 million, which primarily consisted of impairment charges related to our digital asset holdings.
Other income (expense) Year Ended December 31, (in thousands, except percentages) 2023 2022 Other income (expense) Interest expense $ (1,733) $ (2,406) Loss on extinguishment of debt (237) — Impairment of digital assets (50) (22,911) Fair value adjustment for warrant liabilities 256 3,349 Gain on sale of digital currencies 5,310 367 Other income, net 230 211 Total other income (expense) $ 3,776 $ (21,390) During 2023, we recorded other income of $3.8 million, as a result of a $5.3 million gain on sale of our digital asset holdings, primarily bitcoin and ethereum.
The net loss included non-cash charges of $40.0 million, primarily consisting of the change in fair value of warrants, impairment of digital assets, the loss on the extinguishment and amortization of debt issuance costs related to our 2020 Convertible Notes, as well as stock-based compensation.
The net loss included non-cash charges of $26.9 million, primarily consisting from an impairment of goodwill, amortization of debt issuance costs primarily related to our 2022 Promissory Note, and stock-based compensation, offset by a gain in the sale of our digital assets.
These expenses were partially offset by the gain on forgiveness of our Paycheck Protection Program loan. 59 Table of Contents Liquidity and Capital Resources As of December 31, 2022, we held total cash of $2.0 million, all of which was held in the United States. We have a history of operating losses and negative operating cash flows.
These expenses were offset by a gain related to the change in the fair value of our warrants issued in connection with a convertible note we issued in 2020. 55 Table of Contents Liquidity and Capital Resources As of December 31, 2023, we held total cash of $3.9 million, all of which was held in the United States.
Investing Activities Our investing activities during 2022 consisted of the purchase of digital assets and cash payments for the acquisition of Lyte. This was partially offset by proceeds from the sale of digital assets. Our investing activities during 2021 consisted of the purchase of digital assets and the acquisition of Lyte.
This was partially offset by proceeds from the sale of digital assets. 57 Table of Contents Financing Activities Our financing activities during 2023 consisted of proceeds from sales of our common stock through various financing arrangements, offset by payments on our 2022 Promissory Note and the repurchases of our common stock.
As we continue to focus on growing our revenues, we expect these trends to continue into the foreseeable future. We may, if needed, sell our digital asset holdings for cash to fund our ongoing operations.
We have a history of operating losses and negative operating cash flows. As we continue to focus on growing our revenues, we expect these trends to continue into the foreseeable future.
Buyse to serve as a Class III director until the 2024 annual meeting of stockholders. Mr. Buyse filled the vacancy on our board of directors created by the resignation of Randall Crowder, which occurred in September 2022. In addition, in January 2023, we announced that we had entered into a separation agreement with Luan Dang, our Chief Technology Officer.
On October 25, 2023, we entered into an employment agreement with Michael Snavely to serve as our Chief Executive Officer effective the same date. Our board of directors also appointed Mr. Snavely to serve as a Class III director until the 2024 annual meeting of stockholders.
Research and Development Research and development expense increased $2.0 million, or 47.1% for the year ended December 31, 2022, compared to the corresponding period of 2021, primarily resulting from increased headcount dedicated to research and development projects. This increase was minimally offset by in decrease in stock-based compensation.
Research and Development Research and development expense decreased $1.7 million, or (27.6)% for the year ended December 31, 2023, compared to the corresponding period of 2022, primarily resulting from lower headcount dedicated to research and development projects. 54 Table of Contents Impairment of Goodwill We recorded an impairment of goodwill of $25.8 million for the year ended December 31, 2023.
We also experienced an increase of $1.2 million in payroll costs, as a result of an higher headcount in our general and administrative function and employee retention credit received during 2021. Increases in these payroll-related items were partially offset by a decrease in accruals for employee bonuses.
We also experienced a decrease of $1.0 million in payroll costs, as a result of lower headcount in our general and administrative function and lower bonus expense.
Platform Revenue and Gross Profit Our platform revenue consists of software subscriptions, application development services and support, application transactions (which are comprised of in-app advertising) and PhunToken sales. Subscription revenue is derived from software license fees, which comprise subscription fees from customers licensing our Software Development Kits (SDKs), that includes accessing the MaaS platform.
Subscription revenue is derived from software license fees, which are comprised of subscription fees from customers licensing our Software Development Kits (SDKs), that include access to our platform. Subscription revenue from SDK licenses gives the customer the right to access our location-based software platform.
Beginning on November 1, 2022 and on the same day of each month thereafter until the promissory note is paid in full, we are required to make monthly amortization payments in the amount of $1.6 million until the maturity date of July 1, 2022, which is subject to adjustment for any payment deferrals we elect.
The amendment extended the maturity date to June 1, 2024 and provided that effective August 1, 2023, we were required to make monthly amortization payments of at least $800 thousand commencing on August 31, 2023 until the 2022 Promissory Note is paid-in-full.
We also recorded interest expense related to our 2021 Promissory Note and 2022 Promissory Note (defined elsewhere herein) and accretion of debt discounts thereunder. These expenses were offset by a gain related to the change in the fair value of our warrants issued in connection with our 2020 Convertible Notes.
This gain was offset by interest expense recorded related to our 2022 Promissory Note (defined elsewhere herein).
Additional plans may include selling shares of our common stock in our "at the market" offering, and as of the date of this Annual Report on Form 10-K, a total of $95.4 million may be sold pursuant to the sales agreement.
As of December 31, 2023, approximately 421,176 shares of our common stock have been sold for aggregate gross cash proceeds of approximately $12.0 million. As of the date of this Report, shares of our common stock with a maximum aggregate offering price of up to $88.0 million may be sold pursuant to the sales agreement.
Removed
Knitowski, our Chief Executive Officer, submitted notice of resignation to the Company effective December 27, 2022. In November 2022, we entered into an employment agreement with Russell Buyse to serve as our Chief Executive Officer effective December 28, 2022. Our board of directors also appointed Mr.
Added
Key Events and Recent Developments In October 2023, the Company entered into separation agreement with Russell Buyse, who was then serving as our Chief Executive Officer. The separation agreement provides that Mr. Buyse's employment with the Company terminated effective October 25, 2023.
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Year Ended December 31, 2022 2021 (in thousands, except percentages) Gross profit $ 5,076 $ 3,613 Add back: Amortization of intangibles — 7 Add back: Stock-based compensation 210 1,050 Adjusted gross profit $ 5,286 $ 4,670 Adjusted gross margin 24.3 % 43.9 % Year Ended December 31, 2022 2021 (in thousands) Net loss $ (50,894) $ (53,522) Add back: Depreciation and amortization 739 240 Add back: Interest expense 2,406 4,481 Add back (Less): Income tax expense (benefit) 4 (426) EBITDA (47,745) (49,227) Add back: Stock-based compensation 3,009 4,941 Add back: Loss on extinguishment of debt — 7,952 Add back: Impairment of digital assets 22,911 9,383 Add back: Impairment of goodwill 2,061 — Less (Add back): Fair value adjustment for warrant liabilities (3,349) 18,139 Less: Gain on forgiveness of Paycheck Protection Program loan — (2,850) Less: Gain on sale of digital assets (367) — Adjusted EBITDA $ (23,480) $ (11,662) 54 Table of Contents Components of Results of Operations Revenue and Gross Profit There are a number of factors that impact the revenue and margin profile of the product, service and technology offerings we provide, including, but not limited to, solution and technology complexity, technical expertise requiring the combination of products and types of services provided, as well as other elements that may be specific to a particular client solution.
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Year Ended December 31, 2023 2022 (in thousands, except percentages) Gross profit $ 1,686 $ 3,509 Add back: Stock-based compensation 447 210 Adjusted gross profit $ 2,133 $ 3,719 Adjusted gross margin 44.1 % 57.0 % Year Ended December 31, 2023 2022 (in thousands) Net loss from continuing operations $ (41,944) $ (45,425) Add back: Depreciation 84 50 Add back: Interest expense 1,733 2,406 Add back: Income tax expense 29 4 EBITDA (40,098) (42,965) Add back: Stock-based compensation 4,071 3,009 Add back: Loss on extinguishment of debt 237 — Add back: Impairment of digital assets 50 22,911 Add back: Impairment of goodwill 25,819 — Less: Fair value adjustment for warrant liabilities (256) (3,349) Less: Gain on sale of digital assets (5,310) (367) Adjusted EBITDA $ (15,487) $ (20,761) 51 Table of Contents Components of Results of Operations Revenue and Gross Profit Our revenue consists of software subscriptions, application development services and support and application transactions, which are comprised of in-app advertising and PhunToken sales.
Removed
As a result, platform gross profit may fluctuate from period to period. Hardware Revenue and Gross Profit We acquired Lyte in October 2021. Revenue from Lyte is primarily derived from the sale of high-performance personal computers. Lyte computers are sold with a variety of pre-packaged solutions, as well as customizable solutions selected by our customers.
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Gross profit decreased $1.8 million, or (52.0)%, as a result of decreased PhunToken revenue mentioned above.
Removed
A majority of Lyte's customers pay us via credit card payments, which is managed through a third party processor. We recognize revenue at the time a completed unit ships from our facility. Hardware gross profit is equal to hardware revenue less the costs associated with the assembly of computers.
Added
We also recorded interest expense related to our various debt instruments and accretion of debt discounts thereunder.
Removed
Hardware gross profit is impacted by the costs that we pay for parts incorporated into a Lyte computer system, as well as labor costs of our employees directly attributable to building computer systems and shipping.
Added
No interest was to accrue on the 2022 Promissory Note. On August 14, 2023, we entered into an amendment to the 2022 Promissory Note with the noteholder.
Removed
Demand may exceed available supply at times, which may hamper our ability to deliver computer systems timely and may increase the costs at which we can obtain inventory needed for computer builds. Customizable solutions we offer our customers may also vary from time to time. As a result, computer hardware revenue and gross profit may fluctuate from period to period.
Added
We also granted the noteholder certain limited conversion rights, which if elected by the noteholder, would reduce the required monthly payment. The limited conversion rights were subject to advance payment and volume conditions.
Removed
Legal settlements pertaining to litigation brought as a result of the Company's operations is also included in operating expenses. Sales and Marketing Expense.
Added
The amendment also provided that the outstanding balance shall accrue interest at a rate of 8% and payment deferrals are no longer permitted under the 2022 Promissory Note. During 2023, we made payments in the form of both cash and holder-elected conversions.
Removed
Platform revenue decreased $1.0 million, or (13.6)% as a result of a $1.5 million decrease of development, licensing and support services provided to two customers, one of which whose contract has expired. These decreases were minimally offset by an increase in PhunToken revenue of $0.5 million.
Added
Further, during the first quarter of 2024, the holder elected to convert the remaining balance of the 2022 Promissory Note and the 2022 Promissory Note was paid-in-full in February 2024. In July 2023, we implemented a plan to decrease our cash burn by reducing employee headcount and other operating expenditures.
Removed
Computer hardware revenue increased by $12.2 million, which was the result of the acquisition of Lyte in October 2021. 57 Table of Contents Cost of Revenue, Gross Profit and Gross Margin Year Ended December 31, Change (in thousands, except percentages) 2022 2021 Amount % Cost of Revenue Platform revenue $ 3,012 $ 4,013 $ (1,001) (24.9) % Hardware revenue 13,706 3,017 10,689 354.3 % Total cost of revenue $ 16,718 $ 7,030 $ 9,688 137.8 % Gross Profit Platform revenue $ 3,509 $ 3,535 $ (26) (0.7) % Hardware revenue 1,567 78 1,489 1,909.0 % Total gross profit $ 5,076 $ 3,613 $ 1,463 40.5 % Gross Margin Platform revenue 53.8 % 46.8 % Hardware revenue 10.3 % 2.5 % Total gross margin 23.3 % 33.9 % Total gross profit increased $1.5 million, or 40.5%, in the year ended December 31, 2022, compared to the corresponding period of 2021 primarily due to revenue items discussed above.
Added
On August 22, 2023, we entered into a common stock purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, we have the right, but not the obligation, to sell to Lincoln Park up to $30 million in value of shares of our common stock from time to time over the 24-month term of the purchase agreement.
Removed
The decrease in platform revenue noted above was offset by a decrease of $0.8 million of stock-based compensation. Increase in platform gross margin is the result of higher PhunToken revenue in 2022, as compared to 2021. Increase in Lyte gross margin is the result of operational efficiencies captured as we integrated Lyte during 2022.
Added
On any business day selected by us, we may direct Lincoln Park to purchase up to 5,000 shares of our common stock subject to adjustment as set forth below, on such business day (or the purchase date), which we refer to as a "Regular Purchase," provided, however, that (i) a Regular Purchase may be increased to up to 7,000 shares if the closing sale price of our common stock on the Nasdaq is not below $10.00 on the applicable purchase date; (ii) a Regular Purchase may be increased to up to 9,000 shares if the closing sale price of our common stock on Nasdaq is not below $15.00 on the applicable purchase date; (iii) a Regular Purchase may be increased to up to 11,000 shares if the closing sale price of our common stock on Nasdaq is not below $25.00 on the applicable purchase date; and (iv) a Regular Purchase may be increased to up to 13,000 shares if the closing sale price of our common stock on Nasdaq is not below $37.50 on the applicable purchase date, provided, however, that if such Regular Purchase would not equal or exceed $100 thousand, then the number of shares that may be sold pursuant to such Regular Purchase is the maximum number of shares that would enable us to sell to Lincoln Park a Regular Purchase amount equal to, or as closely approximating without exceeding, $100 thousand.
Removed
Total gross margin percentage decreased primarily due to product mix between platform and hardware revenue, as Lyte comprised of larger percentage of our revenue mix in 2022, as compared to 2021.
Added
Lincoln Park’s committed obligation under any single Regular Purchase, subject to certain exceptions, cannot exceed $1 million. We may direct Lincoln Park to purchase shares in Regular Purchases as often as every business day, so long as the closing sale price of our common stock on such business day is not less than the floor price of $5.00 per share.
Removed
Other increases of $0.9 million of employee compensation costs were due to higher headcount. These increases were minimally offset by the decrease in stock-based compensation of $0.3 million.
Added
Concurrently with entering into the purchase agreement, we also entered into a registration rights agreement with Lincoln Park pursuant to which the Company agreed to register the sale of the shares of the Company’s common stock that have been and may be issued to Lincoln Park under the purchase agreement pursuant to the Company’s existing shelf registration statement on Form S-3.
Removed
Other increases are the result of $0.8 million of facility expenses for new corporate office space 58 Table of Contents in Austin, Texas and the Lyte warehouse facility, $0.6 million in audit and other professional services, $0.6 million in bad debt recoveries and accounts payable settlements that occurred in 2021, $0.6 million in other general and administrative expenses, $0.4 million related to amortization of trade name related to the Lyte acquisition and a $0.3 million increase in credit card processing fees for Lyte.
Added
During 2023, we sold 164,106 shares of our common stock, including certain commitment shares issued to Lincoln Park in connection with the transaction, for aggregate gross cash proceeds of $978 thousand. Transaction costs were $97 thousand.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk. We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, we are not required to provide the information required under this Item. 65
Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk. We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, we are not required to provide the information required under this Item. 61

Other PHUN 10-K year-over-year comparisons