Phunware(PHUN) - 2020 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements Financials reveal declining revenue, a widening net loss, increased liabilities, and a going concern warning Condensed Consolidated Balance Sheets The balance sheet shows a significant increase in liabilities, leading to a stockholders' deficit of $4.8 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $2,758 | $2,315 | | Total Assets | $29,351 | $29,052 | | Total Current Liabilities | $26,913 | $19,833 | | Accrued legal settlement | $4,500 | $0 | | Total Liabilities | $34,162 | $25,026 | | Total Stockholders' Equity (Deficit) | $(4,811) | $4,026 | Condensed Consolidated Statements of Operations and Comprehensive Loss Q3 2020 revenue declined 44.5% year-over-year, with a legal settlement driving a significant increase in net loss Q3 and Nine Months Performance Comparison (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $3,130 | $5,637 | $7,983 | $16,462 | | Gross Profit | $2,232 | $3,219 | $5,226 | $8,705 | | Operating Loss | $(7,499) | $(2,292) | $(14,331) | $(8,526) | | Legal Settlement | $4,500 | $0 | $4,500 | $0 | | Net Loss | $(8,567) | $(2,426) | $(16,041) | $(8,987) | | Net Loss per Share | $(0.19) | $(0.06) | $(0.38) | $(0.25) | Condensed Consolidated Statements of Cash Flows Negative operating cash flow was offset by financing activities, resulting in a net cash increase for the period Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,515) | $(5,899) | | Net cash provided by investing activities | $0 | $70 | | Net cash provided by (used in) financing activities | $7,417 | $(409) | | Net increase (decrease) in cash | $872 | $(6,276) | | Cash and restricted cash at end of period | $1,234 | $68 | Notes to Condensed Consolidated Financial Statements Notes disclose a going concern warning, high revenue concentration, increased debt, and a major legal settlement - Management has concluded there is substantial doubt about the Company's ability to continue as a going concern for one year from the issuance of the financial statements, due to a history of operating losses and negative cash flows[36][38] - In Q3 2020, Customer A and Customer C accounted for 26% and 21% of net revenues, respectively, a shift from Q3 2019 when Fox Networks Group accounted for 55% of revenue[32] - The company settled litigation with Uber Technologies, Inc, agreeing to pay a total of $4.5 million in installments through September 2021[103] Debt Summary (in thousands) | Debt Instrument | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Series A & B Notes | $4,214 | $0 | | Paycheck Protection Program Loan | $2,850 | $0 | | Convertible notes | $250 | $250 | | Promissory notes | $905 | $855 | | Total Debt | $8,646 | $1,105 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes revenue decline to a completed contract and discusses COVID-19 impacts and liquidity challenges - The COVID-19 pandemic led the company to furlough 37 people, approximately 42% of its workforce, effective March 27, 2020[144] - The company received a $2.85 million loan under the Paycheck Protection Program (PPP) on April 10, 2020[145] - A significant driver of the 44.5% revenue decrease in Q3 2020 was the completion of work with Fox Networks Group, which contributed approximately $3.1 million in revenue in Q3 2019[178] - The company's total backlog and deferred revenue decreased from $12.6 million to $8.6 million as of September 30, 2020[152] - The company raised net cash proceeds of approximately $2.4 million in March 2020 and $1.75 million in July 2020 through Senior Convertible Notes[198][200] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the current reporting period - The company states that this item is not applicable[215] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - The Certifying Officers concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[216] - There were no changes in internal control over financial reporting during the third quarter of 2020 that have materially affected, or are reasonably likely to materially affect, internal controls[218] PART II OTHER INFORMATION Legal Proceedings The company details its legal proceedings, highlighting a significant $4.5 million settlement with Uber - The company refers to Note 7 for details on legal proceedings, which includes the settlement with Uber and other ongoing lawsuits[103][221] Risk Factors Key risks include the COVID-19 pandemic's impact, PPP loan forgiveness, shareholder dilution, and debt covenants - The COVID-19 pandemic could materially and adversely affect business, results of operations, cash flow, and financial condition[223][225] - The company's PPP loan of approximately $2.85 million may not be forgiven and its eligibility could be challenged, potentially leading to penalties[227][230] - The 2020 Convertible Notes and a related warrant could cause significant dilution and a decline in stock price[231] - The 2020 Convertible Notes contain restrictive covenants, including maintaining a minimum cash balance of $500,000, which could limit operational flexibility[236] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported during the period - None reported for the period[238] Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None reported for the period[239] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[240] Other Information This section refers to the 'Key Events and Recent Developments' in the MD&A - Refers to the 'Key Events and Recent Developments' section in Item 2 for other information[241] Exhibits This section lists all exhibits filed with the report, including key agreements and officer certifications - Lists exhibits filed with the report, including debt agreements, the Uber settlement agreement, and required officer certifications[244]