Phunware(PHUN) - 2018 Q4 - Annual Report

Form 10-K Filing Information Registrant Information This section provides basic registrant information for Phunware, Inc., including its jurisdiction of incorporation, IRS identification number, principal executive offices, telephone number, and securities registered on the Nasdaq Capital Market - Phunware, Inc. is incorporated in Delaware, with IRS Employer Identification Number 26-4413774, and its principal executive offices are located at 7800 Shoal Creek Blvd, Suite 230-S, Austin, Texas[2] Registered Securities Information | Security Class | Registered Exchange | | :--- | :--- | | Common Stock, par value $0.0001 per share | Nasdaq Capital Market | | Warrants, exercisable for one share of Common Stock | Nasdaq Capital Market | | Units, each consisting of one share of Common Stock and one Warrant | Nasdaq Capital Market | Filing Status Phunware, Inc. is designated as a non-accelerated filer, a smaller reporting company, and an emerging growth company, having filed all required reports - The company is not a large accelerated filer, nor an accelerated filer, but is a smaller reporting company and an emerging growth company[4][5] - The company has filed all required reports in the past 12 months and has complied with filing requirements in the past 90 days, having electronically submitted all Interactive Data Files[4] EXPLANATORY NOTE Business Combination and Corporate Changes This section details the business combination between Stellar Acquisition III, Inc. and Phunware, Inc., resulting in Stellar's renaming to Phunware, Inc., a Delaware corporation, with its securities trading on Nasdaq since December 28, 2018, and a fiscal year-end change to December 31 - On December 26, 2018, Stellar Acquisition III, Inc. completed its reincorporation and merged, with Stellar renamed "Phunware, Inc." and Phunware becoming its wholly-owned subsidiary[7] - Post-merger, the registrant's common stock and warrants began trading on the Nasdaq Capital Market on December 28, 2018, under ticker symbols "PHUN" and "PHUNW"[7] - The company's Board of Directors approved changing the fiscal year-end from November 30 to December 31, effective immediately[8] - As of March 13, 2019, the company had 35,201,259 shares of common stock issued and outstanding[8] TABLE OF CONTENTS SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Nature of Forward-Looking Statements This report contains forward-looking statements regarding the company's future operating performance, financial condition, business strategy, and objectives, identified by specific terminology, which are based on current expectations but involve risks and uncertainties that may cause actual results to differ materially - Forward-looking statements cover the company's future operating performance, financial condition, business strategy, and operating objectives, identified by words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "possible," "potential," "predict," "project," "should," "will," "would"[12] - These statements are based on current expectations and beliefs but involve multiple risks, uncertainties (some beyond the company's control), and other assumptions that could cause actual results or performance to differ materially from forward-looking statements[13] - The company undertakes no obligation to update or revise any forward-looking statements, except as required by applicable securities laws[13] PART I Business Phunware, Inc. is a mobile application development platform company offering a Multiscreen-as-a-Service (MaaS) platform to help enterprises manage and monetize their mobile app portfolios, operating across mobile cloud software, media, big data, and crypto network markets, with a focus on growth through product expansion, customer engagement, market reach, and strategic acquisitions Business Combination Phunware, Inc. completed a business combination with Stellar Acquisition III, Inc. on December 26, 2018, with Stellar renamed Phunware, Inc. and becoming the accounting acquirer, resulting in the redemption of Stellar's public shares and the issuance of Series A convertible preferred stock, with approximately 27.3 million common shares and 18.2 million warrants outstanding post-merger - Phunware, Inc. completed a business combination with Stellar Acquisition III, Inc. on December 26, 2018, with Stellar renamed "Phunware, Inc." and Phunware becoming its wholly-owned subsidiary[17] - The merger resulted in the redemption of 1,813,487 shares of Stellar common stock, totaling approximately $19.3 million[18] - Issued 6,000 shares of Series A 8% convertible preferred stock, raising $6 million in cash[19] - Post-merger, approximately 27.3 million common shares and approximately 18.2 million warrants were outstanding[20] - This business combination was accounted for as a reverse merger and recapitalization, with Phunware as the accounting acquirer and predecessor[26] Business Overview Phunware Inc. is a pioneer in the Multiscreen-as-a-Service (MaaS) platform, offering a fully integrated enterprise cloud platform to manage, engage, and monetize mobile app portfolios and audiences at scale, serving enterprise clients undergoing digital transformation through SaaS, DaaS, and app transaction media services - Phunware Inc. is a pioneer in the Multiscreen-as-a-Service (MaaS) platform, providing a fully integrated enterprise cloud platform for engaging, managing, and monetizing mobile app portfolios and audiences[27] - The company creates a proprietary Phunware ID database through its platform for data subscription services and app transaction revenue streams, aiming to enhance marketing campaign performance, target high-value users, and optimize spending[28] - The company offers Software-as-a-Service (SaaS), Data-as-a-Service (DaaS), and app transaction media services, with a business model encompassing recurring revenue from subscriptions, transactions, and services[29] - Target customers are enterprise companies with large digital, mobile, marketing, and information technology budgets undergoing digital transformation[29] Our Industry Phunware operates in four rapidly evolving markets: mobile cloud software, media, big data, and crypto networks, driven by advancements in cloud computing, software-defined infrastructure, mobility, data analytics, IoT, and decentralization, demonstrating significant growth potential and market size - The company participates in four rapidly growing markets: mobile cloud software, media, big data, and crypto networks[30] Market Size and Growth | Market | 2017 Data | 2018 Forecast/2021 Forecast | | :--- | :--- | :--- | | Mobile Cloud Software | Global smartphone users downloaded over 175 billion apps, consuming over $86 billion | App economy to exceed $110 billion in 2018 | | Media Market | US mobile ad revenue $21.7 billion in H1 2017 | Digital media spending (incl. mobile) to exceed $225 billion by 2021, accounting for 49.6% of total media investment | | Big Data Market | $130 billion in 2016 | To exceed $203 billion by 2020 | | Crypto Networks | Exponential growth in 2017-2018 | Expected to continue growing, with cryptocurrency market size larger than many national currencies and major payment networks | PhunCoin™ Phunware is developing the PhunCoin crypto ecosystem, a reward market and data exchange platform where users earn PhunCoin for providing information, redeemable for goods and services, built on Stellar blockchain technology and funded via Rule 506(c) rights issuance, enhancing core business and protecting user data with self-sovereign identity technology - PhunCoin will be used in the PhunCoin Ecosystem, a reward market and data exchange platform where users earn PhunCoin for providing information, and can redeem it for goods and services[37] - Development funding for the PhunCoin Ecosystem is raised through a Rule 506(c) private placement offering of future PhunCoin Rights to accredited investors[39] Rule 506(c) Offering Proceeds Expected Use | Use | Percentage | | :--- | :--- | | Sales & Marketing | 35% | | Research & Development | 35% | | Ecosystem Development | 20% | | General & Administrative | 10% | - PhunCoin will be built on Stellar blockchain technology and is planned for future listing on compliant trading platforms[43][48] - PhunCoin user accounts will be created using self-sovereign identity technology, giving users full control over their identity and data, protected by biometric technology[52][63] Our Solution Phunware's business model combines subscriptions, transactions, and services, leveraging its MaaS platform to assist clients across the four phases of the mobile app lifecycle (strategy, creation, launch, engagement/monetization/optimization) by offering MaaS software components, app frameworks, vertical solutions, app transactions, and data services, with plans to integrate crypto network functionalities - The company's business model includes subscriptions, transactions, and services, aimed at helping clients manage their mobile app portfolios across the four phases of the mobile app lifecycle (strategy, creation, launch, engagement, monetization, and optimization)[56] - MaaS platform products and solutions include: software (e.g., SDKs, APIs, scripts, portals, integrations, covering business intelligence and analytics,