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What changed in Phunware, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Phunware, Inc.'s 2023 and 2024 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 2024 report.

+354 added−328 removedSource: 10-K (2025-03-31) vs 10-K (2024-03-15)

Top changes in Phunware, Inc.'s 2024 10-K

354 paragraphs added · 328 removed · 228 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

38 edited+27 added−19 removed21 unchanged
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.
Biggest changeHowever, our product and service capabilities also serve the employee experience in the workplace, the shopper experience for retail, the fan experience for sports, the traveler experience for aviation, the luxury resident experience for real estate and the student experience for education. • We offer integration of our software development kit (“SDK”) licenses into applications, including: o Analytics (SDK that provides data related to application use and engagement); o Content Management (SDK that allows application administrators to create and manage app content in a cloud-based portal); o Alerts, Notifications & Messaging (SDK that enables brands to send messages to app users through the app); and 4 Table of Contents o Location-Based Services (modules that include mapping, navigation, wayfinding, workflow, asset management and policy enforcement). • We also offer development services for customers who wish to have a customized application experience.
In 2018, we began offering rights to future issuances of PhunCoin, and in 2019 we expanded to a dual token structure by creating PhunToken.
PhunCoin and PhunToken In 2018, we began offering rights to future issuances of PhunCoin, and in 2019 we expanded to a dual token structure by creating PhunToken.
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.
Results-driven culture : Many of 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.
Business Model Our business model includes a combination of service, subscription and media transaction offerings that enable customers to engage, manage and monetize their mobile application portfolios throughout the mobile application lifecycle, which occurs in four phases: • Strategize — We help brands define the application experience and determine the operating systems, feature sets and use cases they want their mobile application to support. • Create — We help brands build their application portfolio. • Launch — We help brands launch their applications and build their mobile audience. • Engage, Monetize and Optimize — We help brands activate, monetize and optimize their mobile application portfolios.
Business Model Our mobile application business model includes a combination of mobile application software subscription and service offerings that enable customers to engage, manage and monetize their mobile application portfolios throughout the mobile application lifecycle, which occurs in four phases: • Strategize — We help brands define the application experience and determine the operating systems, feature sets and use cases they want their mobile application to support. • Create — We help brands build their application portfolio. • Launch — We help brands launch their applications and build their mobile audience. • Engage, Monetize and Optimize — We help brands activate, monetize and optimize their mobile application portfolios.
Successful claims of infringement by a third party could prevent us from continuing to offer our solution or performing certain services, require us to expend time and money to develop non-infringing solutions or force us to pay substantial damages, including treble damages if we are found to have willfully infringed patents or copyrights, royalties or other fees.
Successful claims of infringement by a third party could prevent us from continuing to offer our solution or performing certain services, require us to 9 Table of Contents expend time and money to develop non-infringing solutions or force us to pay substantial damages, including treble damages if we are found to have willfully infringed patents or copyrights, royalties or other fees.
With the introduction of new technologies and the potential entry of new competitors into the market, we expect competition to increase and intensify in the future, which could harm our ability to increase sales, maintain or increase renewals and maintain our prices.
With the introduction of new technologies, including AI, and the potential entry of new competitors into the market, we expect competition to increase and intensify in the future, which could harm our ability to increase sales, maintain or increase renewals and maintain our prices.
As a result, these competitors may be better able to respond quickly to new technologies and to undertake more extensive marketing campaigns. In a few cases, some competitors may also be able to offer competing solutions at little or no additional cost by bundling them with their existing suite of solutions.
As a result, these competitors may be better able to respond quickly to new technologies and to undertake more extensive marketing campaigns. In a 8 Table of Contents few cases, some competitors may also be able to offer competing solutions at little or no additional cost by bundling them with their existing suite of solutions.
Research and Development Our ability to compete depends in large part on our continuous commitment to research and development and our ability to rapidly introduce new applications, technologies, features and functionality into our products, services and solutions.
Research and Development Our ability to compete depends in large part on our continuous commitment to research and development and our ability to rapidly introduce new applications, technologies, features and functionalities into our products, services and solutions.
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.
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, 2024, we had 29 full-time employees. None of our employees are currently covered under any collective bargaining agreements. We believe our relations with our employees are good.
Our research and development efforts are focused on improving and enhancing our existing product and service offerings by working closely with our customers, conducting quality assurance testing and improving our core technology as well as developing new proprietary services and solutions.
Our research and development efforts are focused on improving and enhancing our existing product and service offerings by working closely with our customers, conducting quality assurance testing and improving our core technology as well as developing new proprietary services and solutions such as artificial intelligence.
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.
In the United States, we have 17 patents issued and six pending and one allowed 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 addition, we have registered “Phunware” as a trademark in the United States and Canada. We cannot provide assurance that any of our patent applications will result in the issuance of a patent or whether the examination process will require us to narrow our claims.
In addition, we have one pending international patent application. Further, we have registered “Phunware” as a trademark in the United States and Canada. We cannot provide assurance that any of our patent applications will result in the issuance of a patent or whether the examination process will require us to narrow our claims.
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.
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, 2024 and 2023, as we have yet to issue any PhunCoin pursuant to our rights offerings.
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.
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 by receiving PhunCoin based on how much information and data they are willing to share with the system.
As a result, the application, interpretation and enforcement of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices. Proposed or new legislation and regulations could also significantly affect our business.
As a result, the application, interpretation and enforcement of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices.
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.
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; • size of customer base and level of user adoption; and • ability to integrate with legacy enterprise infrastructures and third-party applications.
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
The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers, such as Phunware, that file electronically with the SEC. The SEC's Internet website is located at http://www.sec.gov. 10 Table of Contents
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.
We are developing creative solutions to solve complex technical problems and create competitive advantages for our customers. We hold 18 issued patents, six pending patents and one allowed patent in various areas including content management, location services and cryptocurrency.
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.
We are also hoping to expand our media offerings by attracting new business from local and national advertising agencies. Our contract term for advertising 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.
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.
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.
Our application transaction agreements, also known as insertion orders, are, for the most part, governed by the standard terms and conditions from the Interactive Advertising Bureau’s (“IAB”) Standard Terms and Conditions for Internet Advertising for Media Buys One Year or Less ("IAB Terms").
Our subscription and services agreements generally do not impose obligations of exclusivity or other limiting terms upon us. Our advertising agreements, also known as insertion orders, are, for the most part, governed by the standard terms and conditions from the Interactive Advertising Bureau’s (“IAB”) Standard Terms and Conditions for Internet Advertising for Media Buys One Year or Less ("IAB Terms").
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.
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. 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.
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.
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 advertising product line direct to businesses and agencies.
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.
Item 7 “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of this Annual Report on Form 10-K for additional discussion on additional recent developments. 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.
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.
Item 1. B usiness. General Phunware, Inc. (the "Company," "Phunware," "we," "us," or "our") is a technology company specializing in mobile application (app) software and services and mobile-app advertising. Our cloud-based platform for mobile provides companies with the solutions necessary to engage, manage and monetize their mobile application portfolios and audiences.
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.
Our software subscription and services agreements with our customers consist of terms relating to length of agreement (for software subscriptions and application support), payment, performance, cancellation and termination, confidentiality, indemnification obligations and limitation of liability, among other provisions. All of these agreements contain terms of service that are generally consistent across our customers.
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.
Primary indirect channels include hardware, software and systems integrators/consultancies. We are focused on building our brand and offerings to grow within existing and target markets where there is strong demand for the products and solutions we provide. Sales and Marketing Our salesforce is focused on direct sales opportunities for our software subscription and services and advertising product lines.
Competition The market for technology and solutions related to mobile application lifecycle management is evolving, highly competitive and significantly fragmented.
We are currently researching and assessing future opportunities and next steps for PhunCoin, PhunToken and the development of the Token Ecosystem. Competition The market for technology and solutions related to mobile application lifecycle management is evolving, highly competitive and significantly fragmented.
Our Customers Our target customers for our mobile software subscription and services are companies that are looking to enact digital transformation in their business — whether it is retail, healthcare, hospitality, entertainment, real estate, smart living and workspaces or any other industry. We provide technology and solutions to support these organizations through every stage of the mobile application lifecycle.
Our Customers Our target customers for our mobile software subscription and services are companies that are looking to enact digital transformation in their business. We provide technology and solutions to support these organizations through every stage of the mobile application lifecycle. We believe the multi-year nature of our software and services agreements and related recurring revenues provides revenue visibility.
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.
We intend to continue to opportunistically expand our reach in existing industry verticals and into and within new 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 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.
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. Continued growth of our customer base through targeted marketing and outreach.
PhunToken is intended to be the “Value of Engagement” that empowers consumers to monetize their data and to use PhunToken to engage with brands and others in the Token Ecosystem. In 2021, we commenced the selling of PhunToken to third parties. Upon the sale of PhunToken to customers, we transfer the PhunToken purchased to the customers' ethereum-based wallet address.
We may generate additional funding from sales of PhunCoin in the future. PhunToken is intended to be the “Value of Engagement” that empowers consumers to monetize their data and to use PhunToken to engage with brands and others in the Token Ecosystem.
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.
Our product and service offerings primarily include cloud-based recurring software license subscriptions, most of which are multi-year, application development and support services. 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.
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.
Our mission is to foster digital interactions that enable a more engaged, interactive, and valuable experience for all stakeholders. Founded in 2009, we are a Delaware corporation headquartered in Austin, Texas. Phunware helps brands define, create, launch, promote and monetize their mobile application 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.
Our platform allows for the sale, licensing and creation of category-defining mobile experiences for customers and their application users worldwide.
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.
We have made significant investments in research and development and plan to continue extending the functionality and scale of our mobile applications in the future. Deepening of existing customer relationships. 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.
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.
They are experienced across all verticals in which we serve and can assist small, medium and large-sized organizations. Our marketing efforts focus on building brand reputation, expanding market awareness, driving customer demand and enabling our sales team. Our software subscription and services sales team is supported by our customer solutions team, which has deep technical expertise.
We have included our website address as an inactive textual reference only.
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.
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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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We continue to invest in these relationships. We also provide in-application advertising services by charging advertisers to deliver advertisements (ads) to users of mobile connected devices.
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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.
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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.
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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.
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We generally sell ads on a cost per thousand impressions basis, on which advertisers are charged for each ad delivered to 1,000 consumers. Our Products and Services Our mobile software subscriptions and services offerings include the following: • A cloud-based application framework vertical solution license for iOS and Android-based mobile applications.
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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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We have focused a majority of our recent sales efforts on addressing the patient experience for healthcare and the luxury guest experience for hospitality.
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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.
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We also provide in-app advertising services, including re-occurring and one-time transactional media purchases for application discovery, user acquisition and audience building, audience engagement and audience monetization. Competitive Strengths Cloud-based vertical solution application framework: Phunware was built from the ground up to focus on native mobile application development and services.
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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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The result is over a decade of vertical-solution specific mobile application experience, which we believe is a major competitive differentiator.
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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.
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For the year ended December 31, 2024, three customers collectively represented 34% of our net revenues. 5 Table of Contents Our Growth Strategy Key elements of our growth strategy include: Expansion and scaling 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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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 research and development expenses were $2.3 million and $4.4 million for the fiscal years ended December 31, 2024 and 2023, respectively. 6 Table of Contents Artificial Intelligence (AI) In October 2024, we announced the commencement of the development of a new generative AI-driven software development platform to enable businesses of any size to design, create, build, and deploy high-quality custom mobile applications shorter periods of time.
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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.
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The platform will be designed to utilize generative AI in a manner that will enable businesses to develop and monetize custom mobile app solutions more quickly and at a lower cost, making them more accessible to small and medium-sized businesses. The “artificial intelligence” (AI) in the context of the Company’s platform will initially be generative pre-trained transformer (GPT) technology.
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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.
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We plan to use such AI in various contexts within our internal systems, product offerings and new software development platform, including the following: • Creator.phunware.com . We have created, deployed and are testing creator.phunware.com, an online platform which is the first step in the Company’s new software development platform initiative.
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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.
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This platform will in the future utilize generative AI (initially GPT technology) to simplify the mobile app request, submission, creation, development, customization and completion processes for customers.
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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.
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The platform is designed to include a Sales Companion GPT, a generative AI assistant that will guide customers step-by-step through the onboarding and sales processes, helping guide customer decisions in creating, developing, customizing and completing their mobile apps, making them even more intuitive, efficient and less expensive. • Generative AI Tools for Internal Systems .
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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.
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We actively utilize generative AI tools to streamline internal processes and workflows for mobile app creation and development. We also plan to use predictive AI tools in the future to further enhance these processes.
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For example, the European General Data Protection Regulation (GDPR) took effect in May 2018 and applies to all of our products and services used by people in Europe.
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By applying these technologies, we expect to improve the quality and personalization of our mobile apps for customers and drastically reduce the time required to adapt our mobile app development framework to meet specific customer needs.
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The GDPR includes operational requirements for companies that receive or process personal data of residents of the European Union that are different from those previously in place in the European Union, and includes significant penalties for non-compliance. Effective August 2020, the Brazilian General Data Protection Law imposes requirements similar to GDPR on products and services offered to users in Brazil.
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We anticipate that these efficiencies will enable the Company to reduce mobile app development costs significantly and make high-quality customized mobile apps more accessible and affordable for small to medium sized businesses ("SMBs") and enterprises. • AI Features and Functionalities for Engagement and Monetization .
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The California Consumer Privacy Act (CCPA), which took effect in January 2020, also establishes certain transparency rules and creates new data privacy rights for users. Furthermore, voters in California approved Proposition 24, which expanded the CCPA by limiting businesses' use of "sensitive business information," such as precise geolocating.
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We are also developing AI Personal Concierge features and functionalities to serve as a human-like interface in our mobile apps for customers and users thereof to enhance engagement and provide our customers with innovative opportunities to further monetize their products and services with users. • Automation Technology .
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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.
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In the future, we plan to further integrate generative AI into our App Creator process to facilitate collection and evaluation of inputs - such as customer-provided content, branding materials, and other relevant information - and automatically generate necessary configuration files.
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Similarly, there are a number of legislative proposals in the European Union, the United States, at both the federal and state level, as well as other jurisdictions that could impose new obligations or limitations in areas affecting our business, such as digital assets.
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PhunToken was created as and is intended to be a digital asset utility token which enables holders to engage via Phunware mobile applications initially with the Company and, when and if the ecosystem is further developed, eventually with brands, media buyers and other customers of the Company.
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In addition, some countries are considering or have passed legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our services.
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Such engagements would occur on the Company’s platform and are expected to consist of activities which may benefit the Company and sponsoring brands, media buyers and other customers when a user, for example participates in surveys, watches videos or verifies user locations for proximity-based marketing campaigns.
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The Company anticipates that participants in such engagement activities will be rewarded by earning and receiving PhunToken from the Company or other sponsoring parties, and that PhunToken will be redeemable for valuable 7 Table of Contents goods, services and experiences within branded marketplaces, similar to traditional loyalty or rewards programs.
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To date, opportunities to earn and utilize PhunToken in the Token Ecosystem have been limited and there is currently no mechanism for consumers to redeem PhunToken either from the Company or through the Token Ecosystem as the PhunToken ecosystem is still in development. In 2021, we commenced the selling of PhunToken to third parties.
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Upon the sale of PhunToken to customers, we transfer the PhunToken purchased to the customers' ethereum-based wallet address. We have sold PhunToken in the past and may sell additional PhunToken in the future; however, the amount of PhunToken sold in 2023 and 2024 was immaterial.
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Our competitors include Airship, Apadmi, Mutual Mobile, Pointr and Purple.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFurther, any actual or perceived security breach or cybersecurity attack directed at other companies with digital assets or companies that operate digital asset networks or exchanges, whether or not we are directly impacted, could lead to a general loss of confidence in the broader digital asset ecosystem or in the use of networks to conduct financial transactions, which could negatively impact us.
Biggest changeA successful security breach or cyberattack could result in: • a partial or total loss of our holdings in a manner that may not be covered by insurance; • harm to our reputation and brand; • improper disclosure of data and violations of applicable data privacy and other laws; or • significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory, contractual and financial exposure. 35 Table of Contents Further, any actual or perceived security breach or cybersecurity attack directed at other companies with digital assets or companies that operate digital asset networks or exchanges, whether or not we are directly impacted, could lead to a general loss of confidence in the broader digital asset ecosystem or in the use of networks to conduct financial transactions, which could negatively impact us.
In addition, if we experience an increase in the time to bill and collect for our services, our cash flows could be adversely affected. Increased costs of labor and employee health and welfare benefits may adversely impact our results of operations. Labor related costs represent a significant portion of our expenses and we have experienced increases compensation related expenses.
In addition, if we experience an increase in the time to bill and collect for our services, our cash flows could be adversely affected. Increased costs of labor and employee health and welfare benefits may adversely impact our results of operations. Labor related costs represent a significant portion of our expenses and we have experienced increases in compensation related expenses.
The pace of worldwide growth in the adoption and use of bitcoin may depend, for instance, on public familiarity with digital assets, ease of buying and accessing bitcoin, institutional demand for bitcoin as an investment asset or store of value, consumer demand for bitcoin as a means of payment or store of value, and the availability and popularity of alternatives to bitcoin.
For instance, the pace of worldwide growth in the adoption and use of bitcoin may depend on public familiarity with digital assets, ease of buying and accessing bitcoin, institutional demand for bitcoin as an investment asset or store of value, consumer demand for bitcoin as a means of payment or store of value, and the availability and popularity of alternatives to bitcoin.
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.
Several factors may influence the interest in digital assets such as PhunCoin and PhunToken, including, but not limited to: • global digital asset supply; 40 Table of Contents • 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 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.
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 prices of our digital assets decreased substantially, including as a result of: • 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; 33 Table of Contents • 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 digital 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 other digital assets, or a series of defaults by counterparties on digital 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.
Acquisitions involve many risks, including the following: • an acquisition may negatively affect our results of operations and financial condition because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by third parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition; • we may encounter difficulties or unforeseen expenditures in integrating the business, technologies, products, personnel, or operations of any company that we acquire, particularly if key personnel of the acquired company decide not to work for us; • an acquisition may disrupt our ongoing business, divert resources, increase our expenses, or distract our management; • an acquisition may result in a delay or reduction of customer purchases for both us and the company we acquired due to customer uncertainty about continuity and effectiveness of service from either company; • we may encounter difficulties in, or may be unable to, successfully sell any acquired technology, products or services; • an acquisition may involve the entry into geographic or business markets in which we have little or no prior experience or where competitors have stronger market positions; • the challenges inherent in effectively managing an increased number of employees in diverse locations; • the potential strain on our financial and managerial controls and reporting systems and procedures; • the potential known and unknown liabilities associated with an acquired company; • our use of cash to pay for acquisitions would limit other potential uses for our cash; • if we incur additional debt to fund such acquisitions, such debt may subject us to additional material restrictions on our ability to conduct our business as well as additional financial maintenance covenants; • the risk of impairment charges related to potential write-downs of acquired assets or goodwill in future acquisitions; • to the extent that we issue a significant amount of equity or equity linked securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease; and • managing the varying intellectual property protection strategies and other activities of an acquired company.
Acquisitions involve many risks, including the following: • an acquisition may negatively affect our results of operations and financial condition because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by third parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition; • we may encounter difficulties or unforeseen expenditures in integrating the business, technologies, products, personnel, or operations of any company that we acquire, particularly if key personnel of the acquired company decide not to work for us; • an acquisition may disrupt our ongoing business, divert resources, increase our expenses, or distract our management; • an acquisition may result in a delay or reduction of customer purchases for both us and the company we acquired due to customer uncertainty about continuity and effectiveness of service from either company; 15 Table of Contents • we may encounter difficulties in, or may be unable to, successfully sell any acquired technology, products or services; • an acquisition may involve the entry into geographic or business markets in which we have little or no prior experience or where competitors have stronger market positions; • the challenges inherent in effectively managing an increased number of employees in diverse locations; • the potential strain on our financial and managerial controls and reporting systems and procedures; • the potential known and unknown liabilities associated with an acquired company; • our use of cash to pay for acquisitions would limit other potential uses for our cash; • if we incur additional debt to fund such acquisitions, such debt may subject us to additional material restrictions on our ability to conduct our business as well as additional financial maintenance covenants; • the risk of impairment charges related to potential write-downs of acquired assets or goodwill in future acquisitions; • to the extent that we issue a significant amount of equity or equity linked securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease; and • managing the varying intellectual property protection strategies and other activities of an acquired company.
Among other things, our certificate of incorporation and bylaws include provisions regarding: • a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors; • the ability of our board of directors to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the limitation of the liability of, and the indemnification of, our directors and officers; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; • the requirement that directors may only be removed from our board of directors for cause; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of stockholders and could delay the ability of stockholders to force consideration of a stockholder proposal or to take action, including the removal of directors; • the requirement that a special meeting of stockholders may be called only by our board of directors, the chairperson of our board of directors, chief executive officer or president (in the absence of a chief executive officer), which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors; • controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; • the requirement for the affirmative vote of holders of at least 66 2/3 % of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend, alter, change or repeal any provision of our certificate of incorporation or bylaws, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our board of directors and also may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt; • the ability of our board of directors to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and • advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our board of directors and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
Among other things, our certificate of incorporation and bylaws include provisions regarding: • a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors; • the ability of our board of directors to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the limitation of the liability of, and the indemnification of, our directors and officers; 31 Table of Contents • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; • the requirement that directors may only be removed from our board of directors for cause; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of stockholders and could delay the ability of stockholders to force consideration of a stockholder proposal or to take action, including the removal of directors; • the requirement that a special meeting of stockholders may be called only by our board of directors, the chairperson of our board of directors, chief executive officer or president (in the absence of a chief executive officer), which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors; • controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; • the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend, alter, change or repeal any provision of our certificate of incorporation or bylaws, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our board of directors and also may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt; • the ability of our board of directors to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and • advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our board of directors and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
In addition, any debt financings that we may enter into in the future may impose restrictive covenants or otherwise adversely affect the holdings or the rights of our stockholders, and any additional equity financings will be dilutive to our stockholders. The perception that such sales or issuances may occur could also negatively impact the market price of our common stock.
In addition, any financings that we may enter into in the future may impose restrictive covenants or otherwise adversely affect the holdings or the rights of our stockholders, and any additional equity financings will be dilutive to our stockholders. The perception that such sales or issuances may occur could also negatively impact the market price of our common stock.
Such legal proceedings involve substantial costs, including the costs associated with investigation, litigation and possible settlement, judgment, penalty, or fine. As a smaller company, the collective costs of litigation proceedings represent a drain on our cash resources, and require an inordinate amount of our management’s time and attention.
Such legal proceedings involve substantial costs, including the costs associated with investigation, litigation, arbitration and possible settlement, judgment, penalty, or fine. As a smaller company, the collective costs of litigation and arbitration proceedings represent a drain on our cash resources, and require an inordinate amount of our management’s time and attention.
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.
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. 28 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.
Factors that may adversely affect our ability to deliver successful mobile advertising campaigns include: • Inability to accurately process data and extract meaningful insights and trends, such as the failure to accurately process data to place ads effectively at digital media properties; • Faulty or out-of-date algorithms that fail to properly process data or result in inability to capture brand-receptive audiences at scale; • Technical or infrastructure problems causing digital video not to function, digital video or impressions to not display properly or be placed next to inappropriate context; • Inability to control video completion rates, maintain user attention or prevent end users from skipping advertisements; • Inability to detect and prevent advertising fraud and other malicious activity; • Inability to fulfill audience guarantee or viewability requirements of advertiser customers; • Inability to integrate with third parties that measure campaigns against audience guarantee or viewability requirements; • Unavailability of campaign data for advertisers to effectively measure the success of their campaigns; and • Access to quality inventory at sufficient volumes to meet the needs of advertisers’ campaigns.
Factors that may adversely affect our ability to deliver successful mobile advertising campaigns include: 22 Table of Contents • Inability to accurately process data and extract meaningful insights and trends, such as the failure to accurately process data to place ads effectively at digital media properties; • Faulty or out-of-date algorithms that fail to properly process data or result in inability to capture brand-receptive audiences at scale; • Technical or infrastructure problems causing digital video not to function, digital video or impressions to not display properly or be placed next to inappropriate context; • Inability to control video completion rates, maintain user attention or prevent end users from skipping advertisements; • Inability to detect and prevent advertising fraud and other malicious activity; • Inability to fulfill audience guarantee or viewability requirements of advertiser customers; • Inability to integrate with third parties that measure campaigns against audience guarantee or viewability requirements; • Unavailability of campaign data for advertisers to effectively measure the success of their campaigns; and • Access to quality inventory at sufficient volumes to meet the needs of advertisers’ campaigns.
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.
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 advertising 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; 17 Table of Contents • 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.
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee or agent to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the DGCL or our certificate of incorporation or bylaws, (iv) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws, or (v) any action asserting a claim against us governed by the internal affairs doctrine, in each such case subject to said Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein.
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee or agent to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the DGCL or our certificate of incorporation or bylaws, (iv) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or 32 Table of Contents bylaws, or (v) any action asserting a claim against us governed by the internal affairs doctrine, in each such case subject to said Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein.
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.
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. 16 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 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.
The Sarbanes-Oxley Act requires, among other things, that we maintain 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 27 Table of Contents making some activities more time consuming.
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.
As of December 31, 2024, 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.
Our results of operations and ability to grow could be negatively affected if we cannot adapt and expand our technology and product and service offerings in response to ongoing market changes. The collaboration and technology solutions business and markets are characterized by rapid technological change, evolving industry standards, changing customer preferences and new product and service introductions.
Our results of operations and ability to grow could be negatively affected if we cannot adapt and expand our technology and product and service offerings in response to ongoing market changes. The software and technology solutions business and markets are characterized by rapid technological change, evolving industry standards, changing customer preferences and new product and service introductions.
Item 1A. Risk Factors. Risk Factors An investment in our securities involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information contained in this Annual Report, including our consolidated financial statements and related notes, before deciding to invest in our securities.
Item 1A. R isk Factors. Risk Factors An investment in our securities involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information contained in this Annual Report, including our consolidated financial statements and related notes, before deciding to invest in our securities.
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.
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 deny banking services to businesses that hold 34 Table of Contents digital assets, provide digital asset-related services or accept digital assets as payment, which could also decrease the price of our digital asset holdings.
Activities of our application transaction customers with which we do business could damage our reputation or give rise to legal claims against us. We do not monitor or have the ability to control whether our advertising customers’ advertising of their products and solutions complies with federal, state, local and foreign laws.
Activities of our advertising customers with which we do business could damage our reputation or give rise to legal claims against us. We do not monitor or have the ability to control whether our advertising customers’ advertising of their products and solutions complies with federal, state, local and foreign laws.
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.
In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance 30 Table of Contents 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.
As a result, we are subject to numerous U.S. and non-U.S. laws and regulations designed to protect this information, such as the European Union’s GDPR and various U.S. federal and state laws governing the protection of personal data.
As a result, we are subject to numerous U.S. and non-U.S. laws and regulations designed to protect this information, such as the European Union’s General Data Protection Regulation (GDPR) and various U.S. federal and state laws governing the protection of personal data.
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.
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, 2024.
Any such faults or attacks on PhunCoin or PhunToken may materially and adversely affect our business. Because our tokens will be digital assets built and transacted initially on top of existing third-party blockchain technology, Phunware is reliant on another blockchain network, and users could be subject to the risk of wallet incompatibility and blockchain protocol risks.
Any such faults or attacks on PhunCoin or PhunToken may materially and adversely affect our business. 37 Table of Contents Because our tokens will be digital assets built and transacted initially on top of existing third-party blockchain technology, Phunware is reliant on another blockchain network, and users could be subject to the risk of wallet incompatibility and blockchain protocol risks.
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.
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: 29 Table of Contents • 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 seek divestitures of existing businesses or assets. There can be no assurance that we will be successful with our efforts to evolve our business strategy and we could suffer significant losses as a result, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, we may seek divestitures 14 Table of Contents of existing businesses or assets. There can be no assurance that we will be successful with our efforts to evolve our business strategy and we could suffer significant losses as a result, which could have a material adverse effect on our business, financial condition and results of operations.
Any such faults or attacks on PhunCoin, PhunToken or users’ data may materially and adversely affect PhunCoin, PhunToken and the Token Ecosystem. There are a number of data protection, security, privacy and other government- and industry-specific requirements, including those that require companies to notify individuals of data security incidents involving certain types of personal data.
Any such faults or 38 Table of Contents attacks on PhunCoin, PhunToken or users’ data may materially and adversely affect PhunCoin, PhunToken and the Token Ecosystem. There are a number of data protection, security, privacy and other government- and industry-specific requirements, including those that require companies to notify individuals of data security incidents involving certain types of personal data.
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.
If we fail to detect fraud or other 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.
Moreover, the risks of engaging in a bitcoin-focused treasury strategy are relatively novel and have created, and may create further, complications due to the lack of experience that third parties have with companies engaging in such a business, such as the unavailability of director and officer liability insurance on acceptable terms.
In addition, the risks of engaging in a bitcoin-focused treasury strategy are relatively novel and have created, and may create further, complications due to the lack of experience that third parties have with companies engaging in such a business, such as the unavailability of director and officer liability insurance on reasonably acceptable terms.
In the event that PhunCoin remains untradeable for a significant period of time or indefinitely, their value could be materially adversely affected. The delay, or perceived delay, in the full development of our Token Ecosystem may result in declines in PhunToken revenue. PhunToken is intended to be used or consumed within our Token Ecosystem.
In the event that PhunCoin remains untradeable for a significant period of time or indefinitely, their value could be materially adversely affected. 39 Table of Contents The delay, or perceived delay, in the full development of our Token Ecosystem may result in declines in PhunToken revenue. PhunToken is intended to be used or consumed within our Token Ecosystem.
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.
Our failure to meet all the obligations, or otherwise meet a customer’s 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.
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.
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.
Should we be subjected to any or all of the foregoing, our business would be materially and adversely affected. The prices of digital assets are extremely volatile. Fluctuations in the prices of digital assets and/or waning interest of investors in the digital asset markets could materially and adversely affect our business.
Should we be subjected to any or all of the foregoing, our business would be materially and adversely affected. The prices of digital assets are volatile. Fluctuations in the prices of digital assets and/or waning interest of investors in the digital asset markets could materially and adversely affect the Token Ecosystem.
Moreover, such an action could result in an injunction being ordered against our customer or our own services or operations, causing further damages. If we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties, our business could be adversely affected.
Moreover, such an action could result in an injunction being ordered against our customer or our own services or operations, causing further damages. 19 Table of Contents If we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties, our business could be adversely affected.
If our customers do not renew their subscriptions for our solutions or decrease the amount they spend with us, our revenue will decline and our business will suffer. If we are unable to attract new customers or sell additional products or services to our existing customers, our revenue growth will be adversely affected.
If our customers do not renew their subscriptions for our solutions or decrease the amount they spend with us, our revenue will decline and our business will suffer. 20 Table of Contents If we are unable to attract new customers or sell additional products or services to our existing customers, our revenue growth will be adversely affected.
We continue to invest in new services and technologies, including adding additional vertical solutions to our product offerings and blockchain. 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.
We continue to invest in new services and technologies, including adding additional solutions to our existing product offerings, blockchain and artificial intelligence. 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.
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.
As of December 31, 2024, we sold an aggregate of $2.6 million of PhunToken. Upon sale of PhunToken to customers, we deliver PhunToken to the respective customer's Ethereum-based wallet. We plan to use commercially reasonable efforts to develop the Token Ecosystem and deliver PhunCoin and PhunToken, respectively, but there is no assurance that such efforts will be successful.
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.
We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible profits.
Failure of our advertising customers to comply with federal, state, local or foreign laws or our policies could damage our reputation and expose us to liability under such laws.
Failure of our advertising customers to comply with federal, state, local 23 Table of Contents or foreign laws or our policies could damage our reputation and expose us to liability under such laws.
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.
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 could decline for reasons unrelated to our business, results of operations or financial condition.
The prices of digital currencies, including bitcoin and ethereum, may be influenced by regulatory, commercial, and technical factors that are highly uncertain, and fluctuations in the price of bitcoin are likely to influence our financial results and the market price of our common stock.
The prices of digital assets we may acquire, including bitcoin and ethereum, may be influenced by regulatory, commercial, and technical factors that are highly uncertain, and fluctuations in the prices of digital assets are likely to influence our financial results and the market price of our common stock.
We, along with our officers and directors, may also become subject to other legal proceedings in our ordinary course of business. We cannot predict with certainty the outcome of this legal proceeding. The outcome of this or future legal proceeding could require us to take, or refrain from taking, actions which could negatively affect our operations.
We and our officers and directors, may become subject to other legal proceedings in our ordinary course of business. We cannot predict with certainty the outcome of these legal proceedings. The outcome of these or future legal proceedings could require us to take, or refrain from taking, actions which could negatively affect our operations.
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.
If 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.
We experienced a consolidated net loss for the years ended December 31, 2023 and December 31, 2022.
We experienced a consolidated net loss for the years ended December 31, 2024 and December 31, 2023.
It is possible that the SEC could take a contrary position to the one taken by its senior officials or a federal court could conclude that bitcoin or any other digital assets we hold are securities.
It is possible that the SEC could take a contrary position to the one taken by its senior officials or a federal court could conclude that certain digital assets we hold are securities.
Fluctuations in the trading prices of digital assets are likely to influence our financial results and the market price of our common stock.
Fluctuations in the trading prices of digital assets we may acquire are likely to influence our financial results and the market price of our common stock.
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.
In addition, if a digital asset we hold is determined to be a security for purposes of the federal securities laws, the additional regulatory restrictions imposed by such a determination could adversely affect the market price of such digital assets and in turn adversely affect the market price of our common stock. 36 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.
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.
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.
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.
At December 31, 2024, we had state and local net operating loss carryforwards of approximately $236.7 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.
Any such violations could adversely affect our ability to maintain PhunCoin and PhunToken, which could have a material adverse effect on our operations and financial condition.
Any such violations could adversely affect our ability to issue, sell, maintain or utilize PhunCoin or PhunToken, which could have a material adverse effect on our operations and financial condition.
The application of securities, commodities and other laws and other regulations to such assets is unclear in certain respects, and it is possible that new laws and regulations, or interpretations of existing laws and regulations, in the United States or foreign countries may adversely affect the price of our bitcoin, ethereum and other digital assets.
The application of securities, commodities and other laws and other regulations to bitcoin, etherium and other digital assets is unclear in certain respects, and it is possible that new laws and regulations, or interpretations of existing laws and regulations, in the United States or foreign countries may adversely affect the price of bitcoin, ethereum and other digital assets we hold and may acquire.
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.
We have at least one data center located in California, a region known for earthquakes and mudslides. A significant amount of our development and advertising operations employees are also located in California. We also have a corporate office in Texas, which is susceptible to floods, extreme temperatures, heavy winds, ice, snow and tornadoes.
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.
Technology stocks have historically experienced high levels of volatility. 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.
A determination that bitcoin or any other digital asset is a "security" could lead to our classification as an “investment company” under the Investment Company Act of 1940 and could adversely affect the market price of our digital asset holdings and the market price of our common stock.
A determination that a digital asset we hold is a "security" could lead to our classification as an “investment company” under the Investment Company Act of 1940 and could adversely affect the market price of our digital asset holdings and the market price of our common stock.
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.
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.
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.
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. Substantial competition could reduce our market share and significantly harm our financial performance.
We may be compelled to disclose personal information about a user or users of the Token Ecosystem to federal or state government regulators or taxation authorities.
We may be compelled to disclose personal information about a user or users of the Token Ecosystem to federal or state government regulators or taxation authorities. Accordingly, certain information concerning users may be shared outside Phunware.
If we are unable to execute a timely and orderly transition and successfully integrate our new CEO into our leadership team, revenue, operating results and our financial condition may be adversely impacted.
If we are unable to execute a timely and orderly transition and successfully integrate the Interim Chief Executive Officer into our leadership team, revenue, operating results and our financial condition may be adversely impacted.
In addition, any violations of laws and regulations relating to the safeguarding of private information in connection with PhunCoin and PhunToken could subject us to fines, penalties or other regulatory actions, as well as to civil actions by affected parties.
In addition, any violations of laws and regulations relating to privacy and protection of information in connection with the Token Ecosystem could subject us to fines, penalties or other regulatory actions, as well as to civil actions by affected parties.
We recognize revenue related to application development services upon the transfer of control to the customer of those services. We recognize software subscription revenue over the term of each of our contracts, which, generally ranges from one to three years. As a result, much of the revenue we report each quarter results from contracts entered into during previous quarters.
We recognize software subscription revenue over the term of each of our contracts, which, generally ranges from one to three years. As a result, much of the revenue we report each quarter results from contracts entered into during previous quarters.
Both governmental and industry self-regulatory bodies have increased their scrutiny and awareness of and have taken recent actions to address advertising-related fraud and other malicious activity. While we routinely review the campaign performance, such reviews may not detect or prevent advertising-related fraud or malicious activity.
These risks become more pronounced as the digital video industry shifts to programmatic buying. Both governmental and industry self-regulatory bodies have increased their scrutiny and awareness of and have taken recent actions to address advertising-related fraud and other malicious activity. While we routinely review the campaign performance, such reviews may not detect or prevent advertising-related fraud or malicious activity.
To the extent we determine that all or a portion of our valuation allowance is no longer necessary, we will recognize an income tax benefit in the period this determination is made for the reversal of the valuation allowance. Once the valuation allowance is eliminated or reduced, its reversal will no longer be available to offset our current tax provision.
To the extent we determine that all or a portion of our valuation allowance is no longer necessary, we will recognize an income tax benefit in the period this determination is made for the reversal of the valuation allowance.
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.
These losses were due to both a decline in platform revenue in 2023 and 2024, as compared to previous years, goodwill impairment in 2023, investments we made to build our products and services, grow and maintain our business, acquire customers and service our various debt obligations.
Our ability to develop and operate the Token Ecosystem may depend on technology and intellectual property rights that we may license from unaffiliated third parties.
The development and operation of the Token Ecosystem will likely require additional technology and intellectual property rights. Our ability to develop and operate the Token Ecosystem may depend on technology and intellectual property rights that we may license from unaffiliated third parties.
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.
We also issued shares of common stock to settle outstanding debt obligations and upon exercise of warrants. 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.
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.
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.
These events could have a material impact on our reported results of operations. Our large customers have substantial negotiating leverage, which may require that we agree to terms and conditions that may have an adverse effect on our business. Our large customers have substantial purchasing power and leverage in negotiating contractual arrangements with us.
Our large customers have substantial negotiating leverage, which may require that we agree to terms and conditions that may have an adverse effect on our business. Our large customers have substantial purchasing power and leverage in negotiating contractual arrangements with us.
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.
As of December 31, 2024, we had federal net operating loss carryforwards of approximately $248.2 million, of which $162.5 million will never expire and $85.7 million will expire at various dates beginning in 2030.
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 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.
Future results will depend on the success of these efforts. If we are unable to control costs, our operating margins could decrease and we may incur additional losses. Our future profitability will depend on our ability to manage costs or increase productivity. An inability to effectively manage costs could adversely impact our business, results of operations or financial condition.
Future results will depend on the success of these efforts. 13 Table of Contents If we are unable to control costs, our operating margins could decrease and we may incur additional losses. Our future profitability will depend on our ability to manage costs or increase productivity.
Access to our cash and cash equivalents in amounts adequate to finance our operations could be significantly impaired by the financial institutions with which we have arrangements directly facing liquidity constraints or failures.
We regularly maintain cash balances with financial institutions in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit. Access to our cash and cash equivalents in amounts adequate to finance our operations could be significantly impaired by the financial institutions with which we have arrangements directly facing liquidity constraints or failures.
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).
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). On October 22, 2024, the Company and Michael Snavely entered into a separation agreement which provided that Mr.
If our stock price is volatile, we may become the target of securities litigation. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business.
If our stock price is volatile, we may become the target of securities litigation. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business. This could have an adverse effect on our business, results of operations and financial condition.
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.
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 $17,000 and above $44,000 per bitcoin during 2023.
Bitcoin is a highly volatile asset that has traded below $41,000 and above $104,000 per bitcoin during 2024.
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.
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.
Furthermore, the GDPR makes clear that online identifiers (such as IP addresses and other device identifiers) will be treated as “personal data” going forward and therefore subject to stricter data protection rules.
As such, the use of geolocation gathering in California should be approached with care to ensure compliance. Furthermore, the GDPR makes clear that online identifiers (such as IP addresses and other device identifiers) will be treated as “personal data” going forward and therefore subject to stricter data protection rules.
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.
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.
Some of those campaigns may experience fraudulent and other invalid impressions, clicks or conversions that advertisers may perceive as undesirable, such as non-human traffic generated by machines that are designed to simulate human users and artificially inflate user traffic on websites. These activities could overstate the performance of any given advertising campaign and could harm our reputation.
Our advertising business relies on our ability to deliver successful and effective advertising campaigns. Some of those campaigns may experience fraudulent and other invalid impressions, clicks or conversions that advertisers may perceive as undesirable, such as non-human traffic generated by machines that are designed to simulate human users and artificially inflate user traffic on websites.
If we fail to abide by, or are perceived as not operating in accordance with, industry best practices or any industry guidelines or codes with regard to privacy, our reputation may suffer and we could lose relationships with advertisers and digital media partners.
If we fail to abide by, or are perceived as not operating in accordance with, industry best practices or any industry guidelines or codes with regard to privacy, our reputation may suffer and we could lose relationships with advertisers and digital media partners. 25 Table of Contents Our agreements with partners, employees and others may not adequately prevent disclosure of trade secrets and other proprietary technology and information.

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Item 2. Properties

Properties — owned and leased real estate

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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.
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.
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.
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, through September 2027.
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We believe that our existing facilities are suitable and adequate for our present purposes.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWilson 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”).
Biggest changeOn July 30, 2021, Phunware filed a second action against WSGR in the Superior Court of the State of California for the County of Santa Clara, which is styled Phunware, Inc., v. Wilson Sonsini Goodrich & Rosati, Professional Corporation, Does 1-25, Case No. 21CV386411. The two actions were then removed to arbitration.
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 also incorporated herein by reference. Item 4. Mine Safety Disclosures. Not applicable. 46 Table of Contents PART II
We intend to vigorously defend against the remaining claims in this lawsuit and any appeals. 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 also incorporated herein by reference.
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.
Item 3. L egal Proceedings. On March 30, 2021, Phunware filed an action against its former counsel Wilson Sonsini Goodrich & Rosati, PC (“WSGR”), which is styled Phunware, Inc., v. Wilson Sonsini Goodrich & Rosati, Professional Corporation, Does 1-25, Case No. 21CV381517, in the Superior Court of the State of California for the County of Santa Clara.
Removed
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.
Added
Phunware sought affirmative relief in these actions, as stated in the complaints, for damages according to proof, interest 43 Table of Contents and costs of suit. WSGR filed crossclaims against Phunware in these actions related to services provided by WSGR to Phunware and sought to recover fees related to the services at issue in these actions and interest.
Removed
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 March 2024, WSGR and Phunware settled their claims in the arbitration proceeding relating to Case No. 21CV381517 and Phunware paid approximately $2.2 million of the outstanding amount alleged to be owed by Phunware to WSGR in that proceeding.
Removed
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.
Added
The Phunware and WSGR claims related to Case No. 21CV386411 remain pending in arbitration and the remaining balance of the payables amount alleged to be owed by Phunware will continue to be arbitrated.
Added
On August 16, 2024, the Company and WSGR entered into an agreed stay of that arbitration proceeding, which provides for a mutually agreed upon stay of that proceeding until the earlier to occur of (a) August 30, 2025 (subject to either party's right to move to lift the stay earlier than that date for good cause) and (b) the settlement or issuance of a judgment in the Wild Basin litigation, as more fully described below.
Added
The outcome of this proceeding and the related Phunware and WSGR claims is uncertain. On February 18, 2022, certain stockholders filed a lawsuit against Phunware and certain of its prior and then existing individual officers and directors. The case, captioned Wild Basin Investments, LLC, et al. v.
Added
Phunware, Inc., et al., was filed in the Court of Chancery of the State of Delaware (Cause No. 2022-0168-LWW).
Added
Plaintiffs allege that they invested in Phunware through various early rounds of financing while the Company was private and that following completion of the business combination transactions resulting in Phunware becoming a public company these stockholders received new shares of Phunware common stock and Phunware warrants that were but should not have been subjected to a 180-day “lock up” period.
Added
Plaintiffs also allege that Phunware’s stock price dropped significantly during the lock up period and seek damages, costs and professional fees.
Added
On or about October 24, 2024, Plaintiffs, Phunware and individual director and officer defendants entered into a Confidential Settlement Agreement, and on or about October 28, 2024, Phunware, the individual director and officer defendants and the applicable Phunware insurers entered into a Settlement Agreement and Mutual Release (collectively, the “Settlement Agreements”).
Added
The Settlement Agreements collectively provide for, among other things, the settlement and release of the Plaintiffs' claims against the individual director and officer defendants, certain agreements between the Plaintiffs and Phunware, including the Plaintiffs' agreement to stay collection of any judgment obtained by the Plaintiffs against Phunware until the settlement or conclusion of the pending WSGR arbitration proceeding.
Added
Further, the Settlement Agreements provide for a payment of $2.8 million from the Company’s insurers to the Plaintiffs, the payment of $0.2 million from the insurers to Phunware and the release of the insurers’ subrogation claims against Phunware recoveries from WSGR or its insurers in the WSGR arbitration proceeding.
Added
Phunware's insurers made the $2.8 million and the $0.2 million payments on or about December 4, 2024. The Plaintiffs claims against Phunware in this lawsuit remain in effect. A bench trial occurred in March 2025, and we expect the court to render an order or ruling in the case sometime during the third quarter of 2025.
Added
Item 4. Min e Safety Disclosures. Not applicable. 44 Table of Contents PA RT II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+0 added−6 removed3 unchanged
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.
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.
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.
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, is listed on the Nasdaq Capital Market under the symbol “PHUN”. Holders On March 21, 2025, there were approximately 169 holders of record of our common stock.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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

56 edited+30 added−26 removed48 unchanged
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.
Biggest changeResults of Operations Comparison of Fiscal Years Ended December 31, 2024 and 2023 Net Revenues Year Ended December 31, Change (in thousands, expect percentages) 2024 2023 Amount % Revenue Software subscriptions and services $ 1,907 $ 3,157 $ (1,250 ) (39.6 %) Advertising 1,282 1,675 (393 ) (23.5 %) Total revenue $ 3,189 $ 4,832 $ (1,643 ) (34.0 %) Software subscriptions and services as a percentage of total revenue 59.8 % 65.3 % Advertising as a percentage of total revenue 40.2 % 34.7 % Platform revenue as a percentage of total revenue 100.0 % 100.0 % Software and subscriptions revenue decreased $1.3 million, or (39.6%), for the year ended December 31, 2024 compared to the corresponding period in 2023 , as a result of development fees and additional customer reimbursable costs in 2023. 51 Table of Contents Advertising revenue decreased by $0.4 million, or (23.5%), due to decreased level of advertising campaigns.
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.
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. revenue and lease liability payments.
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.
Software subscriptions and services gross profit is equal to software 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.
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.
Some of these limitations include: • Non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period; • Our non-GAAP financial measures do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of ongoing operations; and • Other companies in our industry may calculate our non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.
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.
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 50 Table of Contents SEC and listing standards of Nasdaq, additional insurance expenses, investor relations activities and other administrative and professional 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, sales and marketing expenses, general operating expenses and employee and material costs for Lyte in discontinued operations.
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 Technology, Inc. ("Lyte") in discontinued operations.
On August 22, 2023, we entered into a common stock purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, we have the right, but not the obligation, to sell to Lincoln Park up to $30 million in value of shares of our common stock from time to time over the 24-month term of the purchase agreement.
On August 22, 2023, we entered into a common stock purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), which provided that, upon the terms and subject to the conditions and limitations set forth therein, we had the right, but not the obligation, to sell to Lincoln Park up to $30.0 million in value of shares of our common stock from time to time over the 24-month term of the purchase agreement.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. References in this section to “we,” “us,” "our" or “the Company” refer to Phunware, Inc. References to “management” or “management team” refer to our officers and directors.
Item 7. Management ’s Discussion and Analysis of Financial Condition and Results of Operations. References in this section to “we,” “us,” "our" or “the Company” refer to Phunware, Inc. References to “management” or “management team” refer to our officers and directors.
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 currently do not expect to be profitable in the near future. Key Business Metrics Our management regularly monitors certain financial measures to track the progress of our business against internal goals and targets. We believe that the most important of these measures include backlog and deferred revenue. Bookings, Backlog and Deferred Revenue.
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.
The following table sets forth our contractual obligations as of December 31, 2024 (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 $ 1,014 $ 360 $ 654 $ - $ - Off-Balance Sheet Arrangements During the years ended December 31, 2024 and 2023, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.
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.
On February 1, 2022, we filed a Form S-3, which was subsequently declared effective by the SEC on February 9, 2022, pursuant to which we could issue up to $200 million in common stock, preferred stock, warrants and units.
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.
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.
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.
Contained therein, was a prospectus supplement pursuant to which we could 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 (“Wainwright”) on January 31, 2022. We terminated our agreement with Wainwright effective June 3, 2024.
Non-GAAP Financial Measures Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA We report our financial results in accordance with GAAP. We also use certain non-GAAP financial measures that fall within the meaning ascribed in SEC Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior period results.
We also use certain non-GAAP financial measures that fall within the meaning ascribed in SEC Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior period results.
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 summarizes our cash flows for the periods presented: Year Ended December 31, (in thousands, except percentages) 2024 2023 Consolidated statement of cash flows Net cash used in operating activities $ (13,302 ) $ (18,435 ) Net cash provided by investing activities $ - $ 15,382 Net cash provided by financing activities $ 122,342 $ 4,975 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.
Each of the normal recurring adjustments and other adjustments described in this paragraph help management with a measure of our operating performance over time by removing items that are not related to day-to-day operations or are non-cash expenses. The following table sets forth the non-GAAP financial measures we monitor.
Each of the normal recurring adjustments and other adjustments described in this paragraph help management with a measure of our operating performance over time by removing items that are not related to day-to-day operations or are non-cash expenses.
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.
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.
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.
Costs directly attributable to the development or support of applications relating to platform subscription customers are included in cost of sales, whereas costs related to the ongoing development and maintenance of our software platform are expensed in research and development. As a result, platform subscriptions and services gross profit may fluctuate from period to period.
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.
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.
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.
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.
We believe that it is likely we will in the future enter into arrangements to acquire or invest in complementary businesses, technologies and intellectual property rights. We may be required to seek additional equity or debt financings, or issue securities under our effective registration statement described above.
We believe that it is likely we will in the future enter into arrangements to acquire or invest in additional companies and assets, technologies, intellectual property rights and digital assets. We may be required to seek additional equity or debt financings.
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.
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.
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.
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.
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.
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 issued to Lincoln Park under the purchase agreement. We did not sell any shares to Lincoln Park during 2024.
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.
We reasonably expect approximately 42% of our backlog as of December 31, 2024 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. • Deferred revenue consists of amounts that have been invoiced but have not yet been recognized as revenues as of the end of a reporting period.
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 56 Table of Contents customers in an amount that reflects the consideration we expect to be entitled to in exchange for those services. Our revenue recognition policy follows guidance from Accounting Standards Codification ("ASC") No. 606, Revenue from Contracts with Customers (Topic 606) .
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 16 “ Subsequent Events ” of the notes to the consolidated financial statements included Part II, Item 8 of this Annual Report on Form 10-K for additional information.
In addition, our deferred revenue consists of amounts that have been invoiced but have not yet been recognized as revenues as of the end of a reporting period. Together, the sum of deferred revenue and backlog represents the total billed and unbilled contract value yet to be recognized in revenue, and provides visibility into future revenue streams.
Together, the sum of deferred revenue and backlog represents the total billed and unbilled contract value yet to be recognized in revenues and provides visibility into future revenue streams.
Gross profit decreased $1.8 million, or (52.0)%, as a result of decreased PhunToken revenue mentioned above.
Advertising gross profit decreased $0.2 million, or (18.1%), as a result of decreased revenue noted above.
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.
Liquidity and Capital Resources As of December 31, 2024, we held total cash of $113 million, all of which was held in the United States. We have a history of operating losses and negative operating cash flows. As we continue to focus on growing our revenues, we expect these trends to continue into the foreseeable future.
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.
In 2024, we raised net proceeds of approximately $122.4 million from various sales of our common stock. 55 Table of Contents 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.
Judgment is required to determine whether a software license is considered distinct and accounted for separately, or not distinct and accounted for together with the software support and services and recognized over time. Digital Assets We account for our digital assets as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other .
Judgment is required to determine whether a software license is considered distinct and accounted for separately, or not distinct and accounted for together with the software support and services and recognized over time.
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.
The following table sets forth our software subscription and services bookings: Year Ended December 31, (in thousands) 2024 2023 Bookings $ 3,078 $ 928 The following table sets forth our backlog and deferred revenue: (in thousands) December 31, 2024 December 31, 2023 Backlog $ 3,635 $ 2,750 Deferred revenue 1,562 1,909 Total backlog and deferred revenue $ 5,197 $ 4,659 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. 47 Table of Contents Non-GAAP Financial Measures Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA We report our financial results in accordance with GAAP.
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.
Rent expense under operating leases for our continued operations totaled $0.6 million and $0.8 million for the years ended December 31, 2024 and 2023, respectfully.
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.
Research and Development Research and development expense decreased $2.2 million, or (49.1%) for the year ended December 31, 2024, compared to the corresponding period of 2023, primarily due to a decrease in payroll and related expenses as a result of lower headcount. 52 Table of Contents Impairment of Goodwill We recorded an impairment of goodwill of $25.8 million for the year ended December 31, 2023.
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.
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 the first quarter of 2024, we issued 336,550 shares of our common stock to the holder of the 2022 Promissory Note.
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.
Operating Expenses Year Ended December 31, Change (in thousands, except percentages) 2024 2023 Amount % Operating expenses Sales and marketing $ 2,605 $ 3,329 $ (724 ) (21.7 %) General and administrative 10,473 13,780 (3,307 ) (24.0 %) Research and development 2,265 4,449 (2,184 ) (49.1 %) Impairment of goodwill - 25,819 (25,819 ) (100.0 %) Total operating expenses $ 15,343 $ 47,377 $ (32,034 ) (67.6 %) Sales and Marketing Sales and marketing expense decreased $0.7 million, or (21.7%), for the year ended December 31, 2024 compared to the corresponding period of 2023, primarily due to a decrease in payroll and related expenses as a result of lower headcount.
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.
We believe that bookings reflects the current demand for our products and services and provides us insight into how well our sales and marketing efforts are performing. • Backlog represents future amounts to be invoiced under our active contracts. At any point in the contract term, there can be amounts that we have not yet been contractually able to invoice.
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.
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. Operating Expenses Our operating expenses include sales and marketing expenses, general and administrative expenses and research and development expenses.
Furthermore, gross profit related to application transactions is equal to application transaction revenue less cost of revenue associated with application transactions, which is impacted by the cost of advertising traffic we pay to our suppliers, the amount of traffic which we can purchase from those suppliers and ethereum blockchain fees paid to deliver PhunToken.
Advertising gross profit is equal to advertising revenue less cost of revenue associated with advertising traffic we pay to our suppliers and amount of traffic which we can purchase from those suppliers. As a result, our advertising gross profit may fluctuate from period to period due to variable costs of advertising traffic.
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.
Contractual Obligations We lease various office facilities, including our corporate headquarters in Austin, Texas under a non-cancellable operating lease agreement that expires September 2027. The terms of the lease agreement provide for rental payments on a graduated basis. We recognize rent expense on a straight-line basis over the lease periods.
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.
Refer 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. These items were partially offset by a $0.4 million loss on disposal of subsidiary.
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.
Year Ended December 31, (in thousands, except percentages) 2024 2023 Gross profit $ 1,454 $ 1,686 Add back: Stock-based compensation 179 447 Adjusted gross profit $ 1,633 $ 2,133 Adjusted gross margin 51.2 % 44.1 % Year Ended December 31, (in thousands) 2024 2023 Net loss from continuing operations $ (10,316 ) $ (41,944 ) Add back: Depreciation 16 84 Add back: Interest expense 135 1,733 Less: Interest income (1,732 ) - Add back: Income tax expense 41 29 EBITDA (11,856 ) (40,098 ) Add back: Stock-based compensation 1,656 4,071 Add back: Impairment of digital assets - 50 Add back/less: (Gain) loss on extinguishment of debt (535 ) 237 Add back: Loss on disposal of subsidiary 418 - Add back: Impairment of goodwill - 25,819 Less: Fair value adjustment for warrant liabilities - (256 ) Less: Gain on sale of digital assets, net of impairment - (5,310 ) Adjusted EBITDA $ (10,317 ) $ (15,487 ) 49 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 services and technology offerings we provide, including, but not limited to, solution and technology complexity, technical expertise requiring the combination of products and types of services provided, as well as other elements that may be specific to a particular client solution.
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.
Software Subscriptions and Services Software subscription revenue is derived from software license fees, which are comprised of subscription fees from customers licensing our vertical solution application framework and SDKs, that include access to our platform. Services revenue is derived from development services around designing and building new applications or enhancing existing applications.
The holders of the pre-funded warrants exercised their rights to purchase 974,000 shares of common stock. 56 Table of Contents Although we expect to generate operating losses and negative operating cash flows in the future, based on the financing events described above, management believes it has sufficient cash on hand for at least one year following the filing date of this Annual Report on Form 10-K.
Although we expect to generate operating losses and negative operating cash flows in the future, based on the financing events described above, management believes it has sufficient cash on hand for at least one year following the filing date of this Annual Report on Form 10-K. 54 Table of Contents 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, additional investments in AI technology and infrastructure, the expansion of sales and marketing activities and the market acceptance of our products and services.
Investing Activities Our investing activities during 2023 consisted primarily of cash proceeds received for the sales of our digital asset holdings. Our investing activities during 2022 consisted of the purchase of digital assets and cash payments for the acquisition of Lyte Technologies, Inc., which has been since discontinued.
Investing Activities Our investing activities during 2023 consisted primarily of cash proceeds received for the sales of our digital asset holdings. Financing Activities Our financing activities during 2024 consisted of proceeds from sales of our common stock.
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.
We define adjusted EBITDA as net loss plus (or minus) (i) interest expense (income), (ii) income tax expense, (iii) depreciation, and further adjusted for (iv) non-cash impairment, (v) valuation adjustments and (vi) stock-based compensation expense.
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.
GAAP Financial Measures Year ended December 31, (in thousands, except percentages) 2024 2023 Gross profit $ 1,454 $ 1,686 Gross margin 45.6 % 34.9 % Net loss from continuing operations $ (10,316 ) $ (41,944 ) 48 Table of Contents Year Ended December 31, (in thousands, except percentages) 2024 2023 Adjusted gross profit (1) $ 1,633 $ 2,133 Adjusted gross margin (1) 51.2 % 44.1 % Adjusted EBITDA (2) $ (10,317 ) $ (15,487 ) (1) Adjusted gross profit and adjusted gross margin are non-GAAP financial measures.
Our offerings include: • Enterprise mobile software development kits (SDKs) including content management, location-based services, marketing automation, business intelligence and analytics, alerts, notifications and messaging, audience engagement and audience monetization; • Integration of our SDK licenses into existing applications maintained by our customers, as well as custom application development and support services; • Cloud-based vertical solutions, which are off-the-shelf, iOS- and Android-based mobile application portfolios, solutions and services that address: the patient experience for healthcare, the shopper experience for retail, the fan experience for sports, the traveler experience for aviation, the luxury resident experience for real estate, the luxury guest experience for hospitality, the student experience for education and the generic user experience for all other verticals and applications; and • Application transactions for mobile audience building, user acquisition, application discovery, audience engagement and monetization, including our engagement-driven digital asset PhunToken.
However, our product capabilities also serve the employee experience in the workplace, the shopper experience for retail, the fan experience for sports, the traveler experience for aviation, the luxury resident experience for real estate and the student experience for education. • Enterprise mobile software development kits (SDKs) including business intelligence and analytics, content management, alerts, notifications and messaging, and location-based services; • Development services for customers who wish to have to have a customized application experience; and • In-app advertising services for mobile audience building, user acquisition, application discovery, audience engagement and monetization.
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.
Other income (expense) Year Ended December 31, (in thousands, except percentages) 2024 2023 Other income (expense) Interest expense $ (135 ) $ (1,733 ) Interest income 1,732 - Gain (loss) on extinguishment of debt 535 (237 ) Gain on sale of digital currencies - 5,310 Other income, net 1,482 436 Total other income $ 3,614 $ 3,776 During 2024, we recorded other income of $3.6 million, primary as a result of a $1.7 million of interest income from earned from our cash and equivalents, $1.4 million as a result of writeoffs of aged accounts payable and $0.5 million of a gain on the extinguishments related to our 2022 Promissory Note (defined elsewhere herein).
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.
In addition, changes in our operating assets and liabilities amounted to cash decreases resulting in approximately $3.8 million, mainly attributable to a decrease in accounts payable related to a partial legal settlement as further detailed in the subsection " 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 and lease liability payments.
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.
Overview We offer a mobile-application cloud-based platform that equips companies with the products, solutions and services necessary to engage, manage and monetize their mobile application portfolios. Our offerings include: • A cloud-based application framework vertical solution license for iOS and Android-based mobile applications (apps).
We utilized $26.8 million of cash from operating activities during 2022 resulting from a net loss of $50.9 million.
We utilized $13.3 million of cash from operating activities during 2024 resulting from a net loss of $10.3 million. The net loss included non-cash charges of $0.9 million, primarily consisting from stock-based compensation offset by a non-cash writeoffs of accounts payable.
From time to time, we may also provide professional services by outsourcing employees’ time and materials to customers. We generate application transaction revenue by charging advertisers to deliver advertisements (ads) to users of mobile connected devices. Depending on the specific terms of each advertising contract, we generally recognize revenue based on the activity of mobile users viewing these ads.
Advertising We also generate revenue by charging advertisers to deliver advertisements (ads) to users of mobile connected devices. We generally sell our ads by cost per thousand impressions and recognize revenue when the ad loads onto the device of a user.
This gain was offset by interest expense recorded related to our 2022 Promissory Note (defined elsewhere herein).
During 2023, we recorded other income of $3.8 million primarily as a result of a $5.3 million gain on sale of our digital asset holdings, primarily bitcoin and ethereum. This gain was offset by interest expense recorded related to our 2022 Promissory Note.
Our effective tax rate will vary depending on permanent non-deductible expenses and other factors.
Our effective tax rate will vary depending on permanent non-deductible expenses and other factors. Refer 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.
Removed
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.
Added
We have focused a majority of our recent sales efforts on addressing the patient experience for healthcare and the luxury guest experience for hospitality.
Removed
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.
Added
In October 2024, we announced the commencement of the development of a new generative AI-driven software development platform to enable businesses of any size to design, create, build, and deploy high-quality custom mobile applications in shorter periods of time.
Removed
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.
Added
The platform will be designed to utilize generative AI in a manner that will enable businesses to develop and monetize custom mobile app solutions more quickly and at a lower cost, making them more accessible to small and medium-sized businesses. The “artificial intelligence” (AI) in the context of the Company’s platform will initially be generative pre-trained transformer (GPT) technology.
Removed
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.
Added
We plan to use such AI in various contexts within our internal systems, product offerings and new software development platform, including the following: • Creator.phunware.com . We have created, deployed and are testing creator.phunware.com, an online platform which is the first step in the Company’s new software development platform initiative.
Removed
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.
Added
This platform will in the future utilize generative AI (initially GPT technology) to simplify the mobile app request, submission, creation, development, customization and completion processes for customers.
Removed
We also recorded interest expense related to our various debt instruments and accretion of debt discounts thereunder.
Added
The platform is designed to include a Sales Companion GPT, a generative AI assistant that will guide customers step-by-step through the onboarding and sales processes, helping guide customer decisions in creating, developing, customizing and completing their mobile apps, making them even more intuitive, efficient and less expensive. • Generative AI Tools for Internal Systems .
Removed
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.
Added
We actively utilize generative AI tools to streamline internal processes and workflows for mobile app creation and development. We also plan to use predictive AI tools in the future to further enhance these processes.
Removed
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.
Added
By applying these technologies, we expect to improve the quality and personalization of our 46 Table of Contents mobile apps for customers and drastically reduce the time required to adapt our mobile app development framework to meet specific customer needs.
Removed
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.
Added
We anticipate that these efficiencies will enable the Company to reduce mobile app development costs significantly and make high-quality customized mobile apps more accessible and affordable for small to medium sized businesses ("SMBs") and enterprises. • AI Features and Functionalities for Engagement and Monetization .
Removed
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.
Added
We are also developing AI Personal Concierge features and functionalities to serve as a human-like interface in our mobile apps for customers and users thereof to enhance engagement and provide our customers with innovative opportunities to further monetize their products and services with users. • Automation Technology .
Removed
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.
Added
In the future, we plan to further integrate generative AI into our App Creator process to facilitate collection and evaluation of inputs - such as customer-provided content, branding materials, and other relevant information - and automatically generate necessary configuration files. We intend to continue investing for long-term growth.
Removed
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.
Added
We define these measures and purpose as follows: • Bookings represents actual contracted value for a period, whether invoiced or not, to be invoiced and recognized as revenue over time.

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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. 61
Biggest changeItem 7A. Quantitative a nd 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. 57 Table of Contents

Other PHUN 10-K year-over-year comparisons