10-Q 1 phun-20240930.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2024

or

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

For the transition period from _____________ to _______________

Commission file number: 001-37862

PHUNWARE, INC.

(Exact name of registrant as specified in its charter)

Delaware

30-1205798

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

1002 West Avenue, Austin, Texas

78701

(Address of principal executive offices)

(Zip Code)

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

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

Title of each class:

Trading Symbol(s)

Name of each exchange on which registered:

Common Stock, par value $0.0001 per share

PHUN

The NASDAQ Capital Market

 

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

 

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

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

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

 

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

 

As of November 6, 2024, 19,888,185 shares of common stock, par value $0.0001 per share, were outstanding.

 

 


 

TABLE OF CONTENTS

PAGE

PART I

FINANCIAL INFORMATION

1

Item 1.

Financial Statements

1

Condensed Consolidated Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023

1

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2024 and 2023 (unaudited)

2

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2024 and 2023 (unaudited)

3

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (unaudited)

5

Notes to the Unaudited Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

PART II

OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 3.

Defaults Upon Senior Securities

29

Item 4.

Mine Safety Disclosures

29

Item 5.

Other Information

29

Item 6.

Exhibits

30

Signatures

31

i


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report (the “Report”) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Report, including statements regarding our future results of operations and financial position, business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

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

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

ii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Phunware, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share information)

 

 

 

September 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets:

 

(Unaudited)

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,537

 

 

$

3,934

 

Accounts receivable, net of allowance for credit losses of $118 and $86 as of September 30, 2024 and December 31, 2023, respectively

 

 

1,078

 

 

 

550

 

Digital currencies

 

 

19

 

 

 

75

 

Prepaid expenses and other current assets

 

 

3,133

 

 

 

374

 

Current assets of discontinued operation

 

 

-

 

 

 

28

 

Total current assets

 

 

39,767

 

 

 

4,961

 

Property and equipment, net

 

 

27

 

 

 

40

 

Right-of-use asset

 

 

943

 

 

 

1,451

 

Other assets

 

 

276

 

 

 

276

 

Total assets

 

$

41,013

 

 

$

6,728

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

4,776

 

 

$

7,836

 

Accrued expenses

 

 

3,005

 

 

 

437

 

Lease liability

 

 

339

 

 

 

629

 

Deferred revenue

 

 

1,153

 

 

 

1,258

 

PhunCoin subscription payable

 

 

1,202

 

 

 

1,202

 

Debt

 

 

-

 

 

 

4,936

 

Current liabilities of discontinued operation

 

 

-

 

 

 

205

 

Total current liabilities

 

 

10,475

 

 

 

16,503

 

 

 

 

 

 

 

Deferred revenue

 

 

713

 

 

 

651

 

Lease liability

 

 

700

 

 

 

1,031

 

Total liabilities

 

 

11,888

 

 

 

18,185

 

 

 

 

 

 

 

Commitments and contingencies (see Note 7)

 

 

 

 

 

 

Stockholders' equity (deficit)

 

 

 

 

 

 

Common stock, $0.0001 par value; 1,000,000,000 shares authorized; 11,748,780 shares issued and 11,738,650 shares outstanding as of September 30, 2024; and 3,861,578 shares issued and 3,851,448 shares outstanding as of December 31, 2023

 

 

1

 

 

 

-

 

Treasury stock at cost; 10,130 shares as of September 30, 2024 and December 31, 2023

 

 

(502

)

 

 

(502

)

Additional paid-in capital

 

 

340,731

 

 

 

292,467

 

Accumulated other comprehensive loss

 

 

(418

)

 

 

(418

)

Accumulated deficit

 

 

(310,687

)

 

 

(303,004

)

Total stockholders' equity (deficit)

 

 

29,125

 

 

 

(11,457

)

Total liabilities and stockholders' equity (deficit)

 

$

41,013

 

 

$

6,728

 

 

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

1


 

Phunware, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share information)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

September 30,

 

 

September 30,

 

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

Net revenues

 

$

665

 

 

$

1,252

 

 

$

2,597

 

 

$

3,892

 

 

Cost of revenues

 

 

343

 

 

 

621

 

 

 

1,281

 

 

 

2,651

 

 

Gross profit

 

 

322

 

 

 

631

 

 

 

1,316

 

 

 

1,241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

619

 

 

 

839

 

 

 

1,671

 

 

 

2,837

 

 

General and administrative

 

 

2,281

 

 

 

2,985

 

 

 

7,051

 

 

 

11,397

 

 

Research and development

 

 

612

 

 

 

1,042

 

 

 

1,592

 

 

 

4,023

 

 

Impairment of goodwill

 

 

-

 

 

 

9,043

 

 

 

-

 

 

 

9,043

 

 

Total operating expenses

 

 

3,512

 

 

 

13,909

 

 

 

10,314

 

 

 

27,300

 

 

Operating loss

 

 

(3,190

)

 

 

(13,278

)

 

 

(8,998

)

 

 

(26,059

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(10

)

 

 

(264

)

 

 

(126

)

 

 

(1,354

)

 

Interest income

 

 

381

 

 

 

-

 

 

 

760

 

 

 

-

 

 

Gain (loss) on extinguishment of debt

 

 

-

 

 

 

(237

)

 

 

535

 

 

 

(237

)

 

Gain on sale of digital currencies

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,310

 

 

Other income, net

 

 

59

 

 

 

62

 

 

 

146

 

 

 

497

 

 

Total other income (expense)

 

 

430

 

 

 

(439

)

 

 

1,315

 

 

 

4,216

 

 

Loss before taxes

 

 

(2,760

)

 

 

(13,717

)

 

 

(7,683

)

 

 

(21,843

)

 

Income tax expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

Net loss from continuing operations

 

 

(2,760

)

 

 

(13,717

)

 

 

(7,683

)

 

 

(21,843

)

 

Net loss from discontinued operation

 

 

-

 

 

 

(5,262

)

 

 

-

 

 

 

(7,929

)

 

Net loss

 

 

(2,760

)

 

 

(18,979

)

 

 

(7,683

)

 

 

(29,772

)

 

Other comprehensive loss (income)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

-

 

 

 

(37

)

 

 

-

 

 

 

9

 

 

Comprehensive loss

 

$

(2,760

)

 

$

(19,016

)

 

$

(7,683

)

 

$

(29,763

)

 

Net loss from continuing operations per share, basic and diluted

 

$

(0.25

)

 

$

(5.72

)

 

$

(0.88

)

 

$

(9.98

)

 

Net loss from discontinued operations per share, basic and diluted

 

$

-

 

 

$

(2.19

)

 

$

-

 

 

$

(3.62

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares used to compute net loss per share, basic and diluted

 

 

11,104,174

 

 

 

2,398,873

 

 

 

8,755,908

 

 

 

2,188,101

 

 

 

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

2


 

Phunware, Inc.

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

(In thousands, except share information)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

Total

 

 

Common Stock

 

Treasury stock

 

Paid-in

 

Accumulated

 

Comprehensive

 

Stockholders’

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit

 

Loss

 

Equity (Deficit)

 

Balances as of June 30, 2024

 

8,620,380

 

$

1

 

 

(10,130

)

$

(502

)

$

322,936

 

$

(307,927

)

$

(418

)

$

14,090

 

Release of restricted stock

 

17,264

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Sale of common stock, net of issuance costs

 

3,111,136

 

 

-

 

 

-

 

 

-

 

 

17,553

 

 

-

 

 

-

 

 

17,553

 

Stock-based compensation expense

 

-

 

 

-

 

 

-

 

 

-

 

 

242

 

 

-

 

 

-

 

 

242

 

Net loss

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(2,760

)

 

-

 

 

(2,760

)

Balances as of September 30, 2024

 

11,748,780

 

$

1

 

 

(10,130

)

$

(502

)

$

340,731

 

$

(310,687

)

$

(418

)

$

29,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2023

 

3,861,578

 

$

-

 

 

(10,130

)

$

(502

)

$

292,467

 

$

(303,004

)

$

(418

)

$

(11,457

)

Release of restricted stock

 

116,381

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Issuance of common stock in lieu of cash bonus and consulting fees

 

11,453

 

 

-

 

 

-

 

 

-

 

 

35

 

 

-

 

 

-

 

 

35

 

Common stock issued upon conversion of 2022 Promissory Note

 

336,550

 

 

-

 

 

-

 

 

-

 

 

4,505

 

 

-

 

 

-

 

 

4,505

 

Sale of common stock & exercise of prefunded warrants, net of issuance costs

 

7,281,187

 

 

1

 

 

-

 

 

-

 

 

42,192

 

 

-

 

 

-

 

 

42,193

 

Fractional share issuances as a result of reverse stock split

 

141,631

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Stock-based compensation expense

 

-

 

 

-

 

 

-

 

 

-

 

 

1,532

 

 

-

 

 

-

 

 

1,532

 

Net loss

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(7,683

)

 

-

 

 

(7,683

)

Balances as of September 30, 2024

 

11,748,780

 

$

1

 

 

(10,130

)

$

(502

)

$

340,731

 

$

(310,687

)

$

(418

)

$

29,125

 

 

3


 

Phunware, Inc.

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

(In thousands, except share information)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

Total

 

 

Common Stock

 

Treasury stock

 

Paid-in

 

Accumulated

 

Comprehensive

 

Stockholders’

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit

 

Loss

 

Equity (Deficit)

 

Balances as of June 30, 2023

 

2,151,309

 

$

-

 

 

(10,130

)

$

(502

)

$

279,848

 

$

(261,012

)

$

(426

)

$

17,908

 

Release of restricted stock

 

11,142

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Issuance of common stock in lieu of consulting fees

 

2,982

 

 

-

 

 

-

 

 

-

 

 

33

 

 

-

 

 

-

 

 

33

 

Common stock issued upon conversion of 2022 Promissory Note

 

67,975

 

 

-

 

 

-

 

 

-

 

 

800

 

 

-

 

 

-

 

 

800

 

Sale of common stock, net of issuance costs

 

347,842

 

 

-

 

 

-

 

 

-

 

 

6,001

 

 

-

 

 

-

 

 

6,001

 

Stock-based compensation expense

 

-

 

 

-

 

 

-

 

 

-

 

 

829

 

 

-

 

 

-

 

 

829

 

Cumulative translation adjustment

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(37

)

 

(37

)

Net loss

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(18,979

)

 

-

 

 

(18,979

)

Balances as of September 30, 2023

 

2,581,250

 

$

-

 

 

(10,130

)

$

(502

)

$

287,511

 

$

(279,991

)

$

(463

)

$

6,555

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2022

 

2,063,074

 

$

-

 

 

-

 

$

-

 

$

275,572

 

$

(250,219

)

$

(472

)

$

24,881

 

Exercise of stock options, net of vesting of restricted shares

 

1,895

 

 

-

 

 

-

 

 

-

 

 

58

 

 

-

 

 

-

 

 

58

 

Release of restricted stock

 

53,866

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Issuance of common stock under the 2018 employee stock purchase plan

 

1,859

 

 

-

 

 

-

 

 

-

 

 

48

 

 

-

 

 

-

 

 

48

 

Issuance of common stock in lieu of consulting fees

 

10,436

 

 

-

 

 

-

 

 

-

 

 

380

 

 

-

 

 

-

 

 

380

 

Common stock issued upon conversion of 2022 Promissory Note

 

67,975

 

 

-

 

 

-

 

 

-

 

 

800

 

 

-

 

 

-

 

 

800

 

Sales of common stock, net of issuance costs

 

382,145

 

 

-

 

 

-

 

 

-

 

 

6,996

 

 

-

 

 

-

 

 

6,996

 

Stock-based compensation expense

 

-

 

 

-

 

 

-

 

 

-

 

 

3,657

 

 

-

 

 

-

 

 

3,657

 

Cumulative translation adjustment

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

9

 

 

9

 

Treasury stock repurchase

 

-

 

 

-

 

 

(10,130

)

 

(502

)

 

-

 

 

-

 

 

-

 

 

(502

)

Net loss

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(29,772

)

 

-

 

 

(29,772

)

Balances as of September 30, 2023

 

2,581,250

 

$

-

 

 

(10,130

)

$

(502

)

$

287,511

 

$

(279,991

)

$

(463

)

$

6,555

 

 

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

4


 

Phunware, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2024

 

 

2023

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(7,683

)

 

$

(29,772

)

Net loss from discontinued operation

 

 

-

 

 

 

(7,929

)

Net loss from continuing operations

 

 

(7,683

)

 

 

(21,843

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Gain on sale of digital assets

 

 

-

 

 

 

(5,310

)

Gain (loss) on extinguishment of debt

 

 

(535

)

 

 

237

 

Impairment of goodwill

 

 

-

 

 

 

9,043

 

Stock based compensation

 

 

1,532

 

 

 

3,662

 

Other adjustments

 

 

653

 

 

 

1,383

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(561

)

 

 

(189

)

Prepaid expenses and other assets

 

 

(2,759

)

 

 

198

 

Accounts payable and accrued expenses

 

 

(457

)

 

 

(349

)

Lease liability payments

 

 

(560

)

 

 

(761

)

Deferred revenue

 

 

(43

)

 

 

(625

)

Net cash used in operating activities from continued operations

 

 

(10,413

)

 

 

(14,554

)

Net cash used in operating activities from discontinued operations

 

 

(177

)

 

 

(1,315

)

Net cash used in operating activities

 

 

(10,590

)

 

 

(15,869

)

Investing activities

 

 

 

 

 

 

Proceeds received from sale of digital currencies

 

 

-

 

 

 

15,390

 

Net cash provided by investing activities - continuing operations

 

 

-

 

 

 

15,390

 

Net cash used in investing activities - discontinued operation

 

 

-

 

 

 

(7

)

Net cash provided by investing activities

 

 

-

 

 

 

15,383

 

Financing activities

 

 

 

 

 

 

Payments on borrowings

 

 

-

 

 

 

(5,056

)

Proceeds from sales of common stock, net of issuance costs

 

 

42,193

 

 

 

6,879

 

Proceeds from exercise of options to purchase common stock

 

 

-

 

 

 

58

 

Payments on stock repurchases

 

 

-

 

 

 

(502

)

Net cash provided by financing activities

 

 

42,193

 

 

 

1,379

 

 

 

 

 

 

 

Effect of exchange rate on cash

 

 

-

 

 

 

9

 

Net increase in cash and cash equivalents

 

 

31,603

 

 

 

902

 

Cash and cash equivalents at the beginning of the period

 

 

3,934

 

 

 

1,955

 

Cash and cash equivalents at the end of the period

 

$

35,537

 

 

$

2,857

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Interest paid

 

$

22

 

 

$

1,140

 

Income taxes paid

 

$

40

 

 

$

-

 

Supplemental disclosures of non-cash financing activities:

 

 

 

 

 

 

Issuance of common stock upon conversion of the 2022 Promissory Note

 

$

4,505

 

 

$

800

 

Issuance of common stock for payment of bonuses and consulting fees

 

$

35

 

 

$

379

 

Non-cash exchange of digital assets

 

$

-

 

 

$

557

 

Issuance of common stock under the 2018 Employee Stock Purchase Plan, previously accrued

 

$

-

 

 

$

47

 

 

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

5


 

Phunware, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share information)

(Unaudited)

1. The Company and Basis of Presentation

The Company

Phunware, Inc. and its subsidiaries (the “Company”, “we”, “us”, or “our”) offers a fully integrated software platform that enables brands to engage, manage and monetize their anytime, anywhere users worldwide. Our mobile experience platform guides users through the entire customer journey. Our location-based technology offers brands mobile engagement, content management and analytics to best interact with their customers. Through our integrated mobile advertising platform of publishers and advertisers, we provide in-app application transactions for mobile audience building, user acquisition, application discovery, audience engagement and audience monetization. Founded in 2009, we are a Delaware corporation headquartered in Austin, Texas.

Basis of Presentation

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

The balance sheet as of December 31, 2023 was derived from our audited consolidated financial statements, but these interim condensed consolidated financial statements do not include all the annual disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, 2023, which are referenced herein. The accompanying interim condensed consolidated financial statements as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023, are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the audited financial statements, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to fairly state our financial position as of September 30, 2024 and the results of operations for the three and nine months ended September 30, 2024 and 2023, and cash flows for the nine months ended September 30, 2024 and 2023. The results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any future interim period.

Certain reclassifications to prior year presentation have been made to our condensed consolidated statements of operations and comprehensive loss and condensed consolidated statements of cash flows. We have displayed individual line items that we previously considered to be immaterial and combined individual line items that we considered to be immaterial to conform to current year presentation. The reclassifications had no impact on previously reported net loss, and operating, investing or financing activities.

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

Discontinued Operations

On November 1, 2023, we committed to a plan to discontinue and wind down the operations of Lyte Technology, Inc. (“Lyte”), which the Company determined met the criteria for classification as a discontinued operation in accordance with Accounting Standards Codification (“ASC”) Topic 205-20, Discontinued Operations. Prior periods were recast such that the basis of presentation is consistent with current year presentation. For additional information, see Note 3.

Reverse Stock Split

On February 26, 2024, the Company effected a reverse stock split of its common stock at a ratio of one-for-fifty (the “Reverse Stock Split”). The number of authorized shares and par value of our common stock were not adjusted as a result of the Reverse Stock Split. The accompanying financial statements and notes thereto give retrospective effect to the reverse stock split for all periods presented. All issued and outstanding common stock, options, restricted stock units and warrants exercisable for common stock and per share amounts have been retrospectively adjusted.

6


 

Nasdaq listing

On April 13, 2023, we received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”) because the bid price of the Company’s common stock on the Nasdaq Capital Market had closed below $1.00 per share for the previous 30 consecutive business days. The notice from Nasdaq stated that, under Nasdaq Listing Rule 5810(c)(3)(A), we had been provided a period of 180 calendar days, or until October 10, 2023, to regain compliance with the Bid Price Requirement. On October 10, 2023, we submitted a request to Nasdaq for an additional 180-day extension to regain compliance with the Bid Price Requirement. On October 12, 2023, the Company received a letter from Nasdaq advising that the Company had been granted a 180-day extension to April 8, 2024, to regain compliance with the Bid Price Requirement, in accordance with Nasdaq Listing Rule 5810(c)(3)(A).

On December 21, 2023, the Company received a letter from Nasdaq notifying the Company that, as of December 20, 2023, the Company’s common stock had a closing bid price of $0.10 or less for ten consecutive trading days and that, consistent with Nasdaq Listing Rule 5810(c)(3)(A)(iii), the Nasdaq had determined to delist the Company’s common stock from the Nasdaq Capital Market. The notice provided the Company an opportunity to appeal the Nasdaq’s decision to delist the Company’s common stock. On December 22, 2023, we submitted a request for a hearing before the Nasdaq Hearings Panel (the “Panel”) to appeal the Nasdaq’s delisting determination.

As noted above, we effected a reverse stock split in order to regain compliance with the Bid Price Requirement, and on March 12, 2024, we received a letter from Nasdaq notifying us that we demonstrated compliance with the requirements to remain listed on the Nasdaq Capital Market, as required by the Panel. The letter also informed the Company that pursuant to Listing Rule 5815(d)(4)(B), the Company will be subject to a mandatory Panel monitor for a period of one year from the date of the letter. If, within that one-year monitoring period, the staff finds the Company again out of compliance with the requirement that was the subject of the exception, notwithstanding Rule 5810(c)(2), the Company will not be permitted to provide the staff with a plan of compliance with respect to that deficiency and the staff will not be permitted to grant additional time for the Company to regain compliance with respect to that deficiency, nor will the Company be afforded an applicable cure or compliance period pursuant to Rule 5810(c)(3). Instead, the Nasdaq will issue a delist determination letter and the Company will have an opportunity to request a new hearing with the initial Panel or a newly convened hearings panel if the initial Panel is unavailable. The Company will have the opportunity to respond/present to the hearings panel as provided by Listing Rule 5815(d)(4)(C).

On November 7, 2024, the Company received a letter from Nasdaq notifying the Company that, as a result of the resignation of Stephen Chen from the Company's audit committee effective October 22, 2024, the Company is not in compliance with Nasdaq's audit committee compositions requirements set forth in Nasdaq Listing Rule 5605. Pursuant to Nasdaq Listing Rule 5605(c)(2)(A), the Company must have an audit committee of at least three members, each of whom must be an independent director as defined under Nasdaq Listing Rule 5605(a)(2) and meet the criteria for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (subject to the exemptions provided in Rule 100A-3(c) under the Exchange Act). With Mr. Chen's resignation, the Company's audit committee is currently comprised of only two members, Elliot Han and Rahul Mewawalla, each of whom meet the independence requirements set forth in Nasdaq Listing Rule 5605(a)(2) and Rule 10-A3(b)(1) of the Exchange Act. The letter further provides that, pursuant to Nasdaq Listing Rule 5605(c)(4), the Company is entitled to a cure period to regain compliance with Nasdaq Listing Rule 5605, which cure period will expire the earlier of the Company’s next annual stockholders’ meeting or October 22, 2025; or if the annual stockholders’ meeting is held before April 21, 2025, then the cure period will expire on April 21, 2025. If the Company does not regain compliance within the cure period, Nasdaq will provide written notification to the Company that its securities will be delisted. At that time, the Company may appeal the delisting determination to a hearings panel. The Company is in the process of reviewing and evaluating potential options to regain compliance with Nasdaq audit committee requirements as set forth in Nasdaq Listing Rule 5605 within the cure period provided by Nasdaq.

There can be no assurance the Company will regain compliance with the audit committee composition requirements or maintain compliance with any other Nasdaq Listing Rules.

2. Summary of Significant Accounting Policies

There have been no changes in significant accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2023, except as set forth below.

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts

7


 

on an entity’s own equity. We adopted ASU 2020-06 on January 1, 2024. The adoption of ASU 2020-06 did not have a material impact on our condensed consolidated financial statements and disclosures.

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, (“ASU 2023-09”). ASU 2023-09 requires entities to disclose specific tax rate reconciliation categories, as well as income taxes paid disaggregated by jurisdiction, amongst other disclosure enhancements. For public entities, ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the disclosure requirements related to the new standard.

Use of Estimates

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

3. Supplemental Information

Concentrations of Credit Risk

Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and trade accounts receivable. Although we limit our exposure to credit loss by depositing our cash with established financial institutions that management believes have good credit ratings and represent minimal risk of loss of principal, our deposits, at times, may exceed federally insured limits. Collateral is not required for accounts receivable, and we believe the carrying value approximates fair value. The following table sets forth our concentration of accounts receivable, net of specific allowances for credit losses.

 

 

 

September 30, 2024

 

December 31, 2023

Customer A

 

-%

 

43%

Customer B

 

10%

 

16%

Customer C

 

2%

 

12%

Customer D

 

21%

 

-%

Customer E

 

14%

 

-%

Customer F

 

11%

 

-%

 

Discontinued Operation

On November 1, 2023, the Company made the strategic decision to wind down and discontinue the operations of its Lyte reporting segment. We generally completed the wind down of the Lyte operations as of December 31, 2023.

A summary of the Lyte discontinued operation in the condensed consolidated statement of operations and comprehensive loss for the three and nine months ended September 30, 2023 is set forth below:

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30, 2023

 

Net revenues

 

$

1,539

 

 

$

7,133

 

Cost of revenues

 

 

1,975

 

 

 

7,361

 

Gross profit

 

 

(436

)

 

 

(228

)

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Sales and marketing

 

 

188

 

 

 

791

 

General and administrative

 

 

493

 

 

 

1,562

 

Impairment of goodwill

 

 

4,145

 

 

 

5,348

 

Total operating expenses

 

 

4,826

 

 

 

7,701

 

Operating loss

 

$

(5,262

)

 

$

(7,929

)

 

Goodwill Impairment

 

Goodwill arises from purchase business combinations and is measured as the excess of the cost of the business acquired over the sum of the acquisition-date fair values of tangible and identifiable intangible assets acquired, less any liabilities assumed. In

8


 

accordance with ASC 350, Intangibles — Goodwill and Other, we do not amortize goodwill but rather assess its carrying value for indications of impairment annually, or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired.

We performed a quantitative assessment as of September 30, 2023, using a discounted cash flow model. Based on the analysis performed, we concluded that the carrying amount of our reporting unit exceeded its respective fair value resulting in non-cash impairment charge of $9,043 for the three months ended September 30, 2023.

The goodwill impairment analysis referenced above used the discounted cash flow model (income approach) utilizing Level 3 unobservable inputs. Significant assumptions in this analysis included, but were not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate and the tax rate. Estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategies. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from estimates. We believe the assumptions and estimates utilized are both reasonable and appropriate.

 

Loss per Common Share

 

Basic loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per common share is computed by giving effect to all potential shares of common stock, including those related to our outstanding warrants and stock equity plans, to the extent dilutive. For all periods presented, these shares were excluded from the calculation of diluted loss per share of common stock because their inclusion would have been anti-dilutive. As a result, diluted loss per common share is the same as basic loss per common share for all periods presented.

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

 

 

 

September 30,

 

 

 

2024

 

 

2023

 

Warrants

 

 

-

 

 

 

68,877

 

Options

 

 

3,705

 

 

 

17,610

 

Restricted stock units

 

 

50,525