Phunware(PHUN) - 2023 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements The company's unaudited financials show decreased assets, an improved but still significant net loss, and substantial doubt about its going concern status Condensed Consolidated Balance Sheets Total assets declined to $40.8 million due to sharp decreases in digital assets and cash, while stockholders' equity also fell Condensed Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $4,831 | $16,863 | | Cash | $1,105 | $1,955 | | Digital assets | $71 | $10,137 | | Goodwill | $29,956 | $31,113 | | Total Assets | $40,790 | $54,835 | | Total Current Liabilities | $19,248 | $25,577 | | Total Liabilities | $22,882 | $29,954 | | Total Stockholders' Equity | $17,908 | $24,881 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net revenues decreased year-over-year, and while the net loss improved due to lower digital asset impairments, a goodwill impairment was recorded Statement of Operations Summary (in thousands) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $3,487 | $5,485 | $8,234 | $12,263 | | Gross profit | $456 | $1,520 | $817 | $3,291 | | Operating loss | $(8,197) | $(7,535) | $(15,448) | $(12,557) | | Impairment of goodwill | $1,203 | $0 | $1,203 | $0 | | Impairment of digital assets | $0 | $(12,158) | $(50) | $(21,511) | | Net loss | $(6,524) | $(17,071) | $(10,793) | $(31,988) | | Loss per share | $(0.06) | $(0.17) | $(0.10) | $(0.33) | Condensed Consolidated Statements of Cash Flows Net cash from operations remained negative, while investing activities provided cash from digital asset sales, resulting in a net cash decrease Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(12,560) | $(14,989) | | Net cash provided by (used in) investing activities | $15,381 | $(2,206) | | Net cash used in financing activities | $(3,719) | $(3,116) | | Net decrease in cash | $(850) | $(20,432) | | Cash at end of period | $1,105 | $2,705 | - Investing activities were a source of cash in H1 2023 due to $15.4 million in proceeds from the sale of digital assets, a reversal from H1 2022 when the company purchased digital assets[25] Notes to the Unaudited Condensed Consolidated Financial Statements Key disclosures include a going concern warning, a goodwill impairment, a significant drop in digital assets, and non-compliance with Nasdaq listing rules - Management has concluded there is substantial doubt about the company's ability to continue as a going concern due to a history of net losses, cash used in operations ($12.6M in H1 2023), and a working capital deficiency of $14.4M[33][35] - On April 13, 2023, the company received a notice from Nasdaq for non-compliance with the minimum $1.00 bid price requirement, with a deadline of October 10, 2023, to regain compliance[37] - A non-cash goodwill impairment charge of $1.2 million was recorded for the Lyte reporting unit as of June 30, 2023, because its carrying amount exceeded its fair value[50] - The carrying value of digital assets decreased dramatically from $10.1 million at year-end 2022 to just $71 thousand as of June 30, 2023, following sales that generated a gain of $5.3 million[66][67] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses declining revenues, rising operating expenses, and a critical liquidity position that raises going concern doubts Results of Operations Net revenues and gross profit fell significantly in the first half of 2023, while operating expenses rose due to a goodwill impairment charge Net Revenues Breakdown (in thousands) | Revenue Type | Q2 2023 | Q2 2022 | % Change | Six Months 2023 | Six Months 2022 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Platform revenue | $1,295 | $1,628 | (20.5)% | $2,640 | $4,120 | (35.9)% | | Hardware revenue | $2,192 | $3,857 | (43.2)% | $5,594 | $8,143 | (31.3)% | | Total Net revenues | $3,487 | $5,485 | (36.4)% | $8,234 | $12,263 | (32.9)% | - The decrease in platform revenue was primarily due to the absence of PhunToken sales in 2023, which amounted to $1.5 million in the first six months of 2022[144][145] - A goodwill impairment of $1.2 million related to the Lyte operating segment was recorded in Q2 2023, contributing to the increase in total operating expenses[150][156] Liquidity and Capital Resources The company's low cash balance raises substantial going concern doubts, though it has taken steps to reduce costs and raise capital post-quarter - The company's cash position was $1.1 million as of June 30, 2023, and management believes existing cash is not sufficient to meet operating needs for the next year, raising substantial doubt about its ability to continue as a going concern[161][165] - Subsequent to June 30, 2023, the company raised an additional ~$5.5 million in its at-the-market equity offering and implemented a plan to decrease cash burn by reducing headcount and other operating expenditures[164] - On August 14, 2023, the 2022 Promissory Note was amended to extend the maturity date to June 1, 2024, and reduce required monthly payments to at least $800 thousand, providing near-term financial relief[163] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as stated in the report - The company states that this item is not applicable[183] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The company's Certifying Officers concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[186] - There were no material changes to the company's internal control over financial reporting during the quarter ended June 30, 2023[187] PART II OTHER INFORMATION Legal Proceedings The company is defending a stockholder lawsuit regarding a share lock-up period, with mediation ongoing and no liability recorded - The company is defending a lawsuit from early investors regarding a 180-day share lock-up period; the court has dismissed Texas law-based claims but denied dismissal of Delaware law claims, and mediation is ongoing[78][191] Risk Factors The primary risk is potential delisting from Nasdaq for failing to meet the minimum bid price, which could trigger a debt default - The company is not in compliance with Nasdaq's minimum bid price requirement and faces potential delisting if it cannot regain compliance by October 10, 2023[193] - Delisting from Nasdaq would trigger a default under the 2022 Promissory Note, making the outstanding balance immediately due and payable[195] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 45,000 shares in Q2 2023 as part of its authorized stock repurchase program Issuer Purchases of Common Stock (Q2 2023) | Month | Total Shares Purchased | Average Price Paid per Share | Maximum Dollar Value Remaining (in thousands) | | :--- | :--- | :--- | :--- | | April 2023 | 45,000 | $0.60 | $4,498 | | May 2023 | — | — | $4,498 | | June 2023 | — | — | $4,498 | | Total | 45,000 | $0.60 | $4,498 | Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None reported[198] Exhibits This section indexes exhibits filed with the report, including a new inducement plan and a promissory note amendment - Key exhibits filed with this report include the 2023 Inducement Plan and an amendment to the company's promissory note[204]