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Supplemental Information | 9 Months Ended
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Sep. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Supplemental Information | Supplemental Information Risks and Uncertainties Regulation governing blockchain technologies, cryptocurrencies, digital assets, digital asset exchanges, utility tokens, security tokens and offerings of digital assets is uncertain, and new regulations or policies may materially adversely affect the development and the value of our tokens and token ecosystem. Regulation of digital assets, like PhunCoin and PhunToken, cryptocurrencies, blockchain technologies and digital asset exchanges, is evolving and likely to continue to evolve. Regulation also varies significantly among international, federal, state and local jurisdictions and is subject to significant uncertainty. Various legislative and executive bodies in the United States and in other countries may in the future adopt laws, regulations, or guidance, or take other actions, which may severely impact the permissibility of tokens generally and the technology behind them or the means of transaction or in transferring them. Any such laws, regulations, guidance or other actions could adversely affect our ability to maintain PhunCoin and PhunToken, which could have a material adverse effect on our operations and financial condition. Failure by us to comply with any such laws and regulations, some of which may not exist yet or are subject to interpretation and may be subject to change, could also result in a material adverse effect on our operations and financial condition. Concentrations of Credit Risk Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash, trade accounts receivable and our digital asset holdings. 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. There is currently no clearing house for our digital assets, including our bitcoin holdings, nor is there a central or major depository for the custody of our digital assets. There is a risk that some or all of our digital asset holdings could be lost or stolen. There can be no assurance that the custodians will maintain adequate insurance or that such coverage will cover losses with respect to our digital asset holdings. Further, transactions denominated in digital assets are irrevocable. Stolen or incorrectly transferred digital assets may be irretrievable. As a result, any incorrectly executed transactions could adversely affect our financial condition. The aggregate cost basis (prior to impairment) of our digital asset holdings was $107 and $37,737 at September 30, 2023 and December 31, 2022, respectively. 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 doubtful accounts.
| September 30, 2023 |  | December 31, 2022
Customer A | 21 | % |  | — | %
Customer B | 15 | % |  | 7 | %
Customer C | 14 | % |  | 3 | %
Customer D | 11 | % |  | 1 | %
Customer E | — | % |  | 23 | %
Inventory Our inventory balance on the dates presented consisted of the following:
| September 30, 2023 |  | December 31, 2022
Raw materials | $ | 1,498 |  |  | $ | 2,968 |
Finished goods | 74 |  |  | 50 |
Other | 6 |  |  | 30 |
Inventory reserve | (679) |  |  | (268) |
Total inventory | $ | 899 |  |  | $ | 2,780 |
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 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 typically perform our annual goodwill impairment assessment as of October 1st of each year; however, as our stock has sustained a decline, we believe this, among other qualitative factors, including, but not limited to continued losses with our Lyte reporting unit, indicates the carrying amount of our goodwill may be impaired. Our business is classified into two reporting units: Phunware and Lyte. We performed quantitative assessment on both our reporting units as of September 30, 2023, using a discounted cash flow model. Based on the analysis performed, we concluded that the carrying amount of both our reporting units exceeded their respective fair values resulting in non-cash impairment charges of $9,043 and $4,145, for our Phunware and Lyte reporting units, respectively 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. If the Company’s ongoing estimates of future cash flows are not met or if discount rates change, the Company may have to record additional impairment charges in future periods. We also used the Guideline Public Company Method (market approach). The significant assumptions used in this analysis include, but are not limited to, the derived multiples from comparable market transactions and other market data. The selection of comparable businesses is based on the markets in which the reporting unit operates giving consideration to risk profiles, size, geography, and diversity of products. We applied an overall probability-weighting to the income and market approaches to determine the concluded fair value of the reporting unit. We believe the current assumptions and estimates utilized in the income and market approaches 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, |  |
| 2023 |  | 2022 |  |  |  |
Warrants | 3,443,844 |  |  | 5,636,801 |  |  |  |  |
Options | 880,510 |  |  | 934,729 |  |  |  |  |
Restricted stock units | 7,446,264 |  |  | 3,353,776 |  |  |  |  |
Total | 11,770,618 |  |  | 9,925,306 |  |  |  |  |
Fair Value Measurements We follow the guidance in ASC 820, Fair Value Measurement, to measure certain assets and liabilities on a recurring and nonrecurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. We use a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires fair value measurements be classified and disclosed in one of the following three categories:
• | Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
• | Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
• | Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Determining which category an asset or liability falls within the hierarchy requires significant judgment. Our assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 are set forth below:
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Liabilities: |  |  |  |  |  |  |
Warrant liability | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Total | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Our financial instruments measured at fair value on a recurring basis as of December 31, 2022 are set forth below:
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Liabilities: |  |  |  |  |  |  |
Warrant liability | $ | — |  |  | $ | 256 |  |  | $ | — |  |  | $ | 256 |
Total | $ | — |  |  | $ | 256 |  |  | $ | — |  |  | $ | 256 |
The following table sets forth the assumptions used to calculate the fair values of the liability classified warrant issued in connection with our 2020 Convertible Notes as of the dates presented:
| September 30, 2023 |  | December 31, 2022
Strike price per share | N/A |  | $ | 1.42 |
Closing price per share | N/A |  | $ | 0.77 |
Term (years) | N/A |  | 0.53
Volatility | N/A |  | 102 | %
Risk-free rate | N/A |  | 4.70 | %
Dividend Yield | — |  | —
The carrying value of accounts receivable, prepaid expenses, other current assets, accounts payable and accrued expenses are considered to be representative of their respective fair values because of the short-term nature of those instruments.

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- Definition The entire disclosure for supplemental balance sheet disclosures, including descriptions and amounts for assets, liabilities, and equity. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Topic 210 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//210/tableOfContent + Details
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