SEC Company Response from Phunware, Inc. (PHUN) (CIK 0001665300) (PHUN) — Oct 2, 2018
Phunware, Inc. (PHUN) (CIK 0001665300)
Date: Oct. 2, 2018 · CIK: 0001665300 · Accession: 0001213900-18-013354
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-224227
Letter
VIA EDGAR Office of Information Technologies and Services Attention: Folake Ayoola, Special Counsel Re: Stellar Acquisition III Inc. Amendment No. 2 to Registration Statement on Form S-4 Filed August 15, 2018 File No. 333-224227
Dear Ms. Ayoola:
Stellar Acquisition III Inc. (the “Company”, “we”, “us” or “our”) hereby transmits its response to the letter from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”), dated September 18, 2018 (the “Comment Letter”) regarding Amendment No. 2 to our Registration Statement on Form S-4 (the “Registration Statement”). For ease of reference, the numbered paragraphs below correspond to the numbered comments in the Comment Letter, with the Staff’s comments presented in bold font type. Capitalized terms used but not otherwise defined herein have the meanings ascribed to such terms in the Registration Statement. We have today filed with the Commission Amendment No. 3 to the Registration Statement (“Amendment No. 3”), reflecting a number of updating changes and, to the extent indicated below, our responses to the Staff’s comments. A marked version of the Registration Statement, in the form filed with the Commission today, is being transmitted to the Staff identifying all changes between Amendment No. 2 and Amendment No. 3 to the Registration Statement.
General
1. We note your response to prior comment 11. Please revise your registration statement to disclose the material terms of both the warrants and rights issued as part of your Series F Preferred Stock financing and the 506(c) offering that you provided in your response letter. Additionally, on page F-75, you indicate that only the investors in the 5th and 6th round of your Series F Preferred Stock financing received these warrants and rights. Please provide a description of the material terms of these transactions and describe the investors of Series F Preferred Stock that received these warrants and rights. Finally, please file your PhunCoin, Inc. TRA and Warrant to Purchase Shares of Series F Preferred Stock and PhunCoins as exhibits, or tell us why they are not material.
Response: Phunware has included additional disclosure on page F-73 regarding the material terms of the Warrants for Series F Preferred Stock, page F-74 to include additional disclosure related to the PhunCoin Warrant issued as part of the Series F Preferred Stock financing, and has further updated pages F-71 and F-72 to include additional disclosure related to the 506(c) offering that was provided in the last response letter.
Securities and Exchange Commission
October 2, 2018
Page 2
With respect to the Staff’s comment on description of the material terms of the transactions, Phunware has previously disclosed the aggregate shares issued, the per share cost, and the aggregate proceeds received in cash and digital currencies. Phunware respectfully submits that the foregoing disclosures, taken together with the additional disclosure noted above, now includes all the material terms of the Series F Preferred Stock financing.
With respect to the Staff’s comment regarding the investors of Series F Preferred Stock financing, all of such investors, including those in the 5th and 6th rounds, are accredited investors within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission under the Securities Act.
Lastly, Phunware has authorized the Company to file the PhunCoin, Inc. TRA and the Warrant to Purchase Shares of Series F Preferred Stock and PhunCoin, as Exhibit 10.22 and Exhibit 10.23, respectively.
Frequently Used Terms, page 1
2. We note your response to prior comment 3 that neither the assets resulting from the sale of rights or pursuant to the Token Generation Event nor related liabilities will be included in the determination of the merger consideration. Please revise the definition of “merger consideration” to so clarify.
Response: As previously noted, the parties have discussed the effect of the rights offering and the token generation event on the determination of the merger consideration and expect that, if an amendment to the Merger Agreement is executed, the amendment will provide that, for computation purposes, neither the assets resulting from the sale of rights or pursuant to the token generation event, nor the liabilities associated therewith, will be included in the determination of the merger consideration. In response to the Staff’s comment, Stellar has updated the definition of merger consideration based on the parties’ preliminary agreement thereupon. The parties have not as yet, however, executed an amendment to the Merger Agreement, or agreed to the final terms thereof. We anticipate that, upon such amendment, the definition of “merger consideration” will be revised to make the foregoing clarification. In addition, the prospectus/proxy statement will be revised to refer to other material changes effected by the amendment, and the amendment will be included in the Annexes to the proxy statement/prospectus.
Securities and Exchange Commission
October 2, 2018
Page 3
Risk Factors
The Successor’s certificate of incorporation will designate a state or federal court located within .... page 63
3. Please reconcile your disclosure that claims shall be brought in the Court of Chancery of the State of Delaware “or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware” (emphasis added) with Article VI, Section G of the Form of Certificate of Incorporation annexed as Exhibit A, or advise.
Response: The Company has updated its disclosure on pages 65 and 66 of Amendment No. 3 to reflect the Staff’s comment.
Stellar and Phunware Unaudited Pro Forma Condensed Combined Financial Statements
Pro forma Adjustments to the Unaudited Condensed Combined Financial Statements, page 159
4. Revise you disclosure in note (C)(7) to state that Stellar is the legal acquirer, not the accounting acquirer.
Response: The Company has updated its disclosure on page 164 of the Registration Statement to address the Staff’s comment.
Information About Phunware
Overview, page 190
5. Please clarify your revised disclosures where you refer to 2 billion Phunware IDs “each month across [y]our network” and explain how this compares to the 1 billion of “monthly” active unique devices.
Response: Phunware has revised page 196 of Amendment No. 3 to address the Staff’s comment
PhunCoin
6. We are still reviewing your responses to prior comments 13 and 14 regarding your PhunCoin rights offering and prospective PhunCoin offerings.
Response: The Company acknowledges the Staff’s comment and will await further comments, if any, to Phunware’s earlier responses.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview, page 207
7. We note your revised disclosures in response to prior comment 18. Please revise further to state as of which period the 1 million MAUDs was calculated and provide a comparable measure for each period in which financial statements are presented. Also, your reference to database events and petabytes of information appears to be a cumulative measure. Therefore, please revise to disclose such information for each period in which the financial statements are presented or tell us why you believe this information is not necessary. Lastly, clarify why this information is valuable to data subscribers such that it drives your data subscription services.
Response: Phunware has revised page 213 of Amendment No. 3 to update its disclosure to remove specific figures around MAUD’s and Phunware ID’s. Phunware has further updated its disclosure to clarify why this information is valuable to data subscribers.
Securities and Exchange Commission
October 2, 2018
Page 4
Results of Operations
Comparison of Three and Six Months Ended June 30, 2018 and 2017
8. Please explain further to us the facts and circumstances that resulted in the release of $6.3 million from a revenue share liability, which appears to be the main contributor to the increase in application transaction revenue to date in fiscal 2018.
Response: The Company has been advised by Phunware that it had a revenue share agreement in place with its customer Fetch Media Group, Ltd. (“Fetch”), whereby a revenue share based on revenue targets was to be paid to Fetch based on the amount of application transaction revenue business they conducted with Phunware. This revenue share arrangement was recorded as a reduction of revenue (and an increase in accrued liabilities) each period under the agreement. Phunware had a partner liability accrual of $6.3 million as of March 31, 2018 and December 31, 2017 related to its revenue share agreement with Fetch. In April 2018, Fetch signed an unconditional release agreement with Phunware with respect to their accrued revenue share liability of approximately $6.3 million releasing Phunware from any further obligations. Phunware evaluated ASC 405-20 in determining the timing and extinguishment of the accrued revenue share liability, and thus recorded the extinguishment of the liability (and increase in revenue) in the second quarter of 2018.
Stellar Acquisition III Inc. and Subsidiary
Notes to Condensed Interim Consolidated Financial Statements
Note 4 — Related Party Transactions
Related Party Loans, page F-27
9. Revise your disclosures with regards to the “Fifth Extension Notes” to indicate that the promissory note was issued to Phunware on June 23, 2018 and not May 22, 2018. Also expand your disclosures, either here or in a subsequent events footnote, to include a discussion of the notes issued on July 23, 2018.
Response: The Company has updated its disclosure on page F-28 of Amendment No. 3 to reflect the Staff’s comment.
Securities and Exchange Commission
October 2, 2018
Page 5
Phunware, Inc.
Notes to Unaudited Condensed Financial Statements
Note 2. Summary of Significant Account Policies
Digital Currencies, page F-66
10. We note your response to prior comment 19. As previously requested, please analyze for us whether your digital assets meet the definition of an intangible asset and the consideration you gave to the application of that accounting to your current portfolio of digital currencies. Also, cite the specific guidance you relied upon to measure such assets at fair value and explain why you believe such guidance applies.
Response: Phunware has advised us that it reassessed the classification of its cryptocurrency holdings and revised its financial statements to characterize such holdings as indefinite lived intangible assets in accordance with ASC 350-30. Phunware will state the carrying amounts of any cryptocurrencies it holds, or hereafter acquires, at historical cost less any impairment charges that may be needed to reduce the cryptocurrencies to their estimated recoverable values. Phunware believes that a decline below cost in the quoted price on an active exchange is currently the best indicator as to when it is more likely than not that a cryptocurrency is impaired.
Phunware acquired its digital currency holdings during the six months ended June 30, 2018 at a historical cost basis of $1,268 (all amounts in thousands). During the six months ended June 30, 2018, Phunware sold digital currency holdings with a historical cost of $165 for cash proceeds of $175, which resulted in a realized gain of $10. Phunware reduced the carrying amount of these assets by $334 to a fair value of $769 at June 30, 2018, then fully liquidated them for $738 by September 7, 2018. Accordingly, Phunware does not believe it is necessary to revise, nor has it revised, any of the cryptocurrency amounts presented in its condensed consolidated financial statements for the six months ended June 30, 2018. Nonetheless, Phunware has made the following revisions to certain financial statement line item descriptions and footnote disclosures:
● The unrealized loss of $21 and $334 reported in Phunware’s condensed consolidated statements of operations for the three and six months ended June 30, 2018 which was originally described as unrealized losses on digital currencies, has been revised as an impairment charge of cryptocurrency holdings.
● The unrealized loss of $334 reported as an adjustment to reconcile Phunware’s net loss to net cash used in operating activities in Phunware’s condensed consolidated statement of cash flows for the six months ended June 30, 2018, which was originally described as a change in fair value of digital currencies, has also been revised to an impairment charge in cryptocurrency holdings.
● Previous accounting policy footnote disclosure with respect to Phunware’s digital currencies relating to fair value of financial instruments has been removed and replaced by an updated accounting policy disclosure on page F-66 of Amendment No. 3 stating that digital currencies are being accounted for as intangible assets in accordance with ASC 350-30 and will be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired
Securities and Exchange Commission
October 2, 2018
Page 6
For further background, Phunware considered other possible classifications of its cryptocurrencies within the existing GAAP framework. In evaluating whether Phunware’s digital currency holdings meet the definition of cash, Phunware reviewed ASC 305 and the ASC Master Glossary, which states, “cash includes not only currency on hand but demand deposits with bank or other financial institutions.” Although the Master Glossary contains the term “currency,” it does not define the term “currency.” Phunware submits “currency” would be accepted legal tender backed by a government. Accordingly, Phunware believes its digital currency holdings are not cash. Phunware further evaluated whether its digital currency holdings meet the definition of cash equivalents. Again, referencing ASC 305 and the ASC Master Glossary, cash equivalents “are short-term, highly liquid investments that have both of the following characteristics: (a) readily convertible to known amounts of cash, and (b) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.” Phunware submits that neither of these characteristics is met; therefore, its digital currency holdings are not cash equivalents. Further, Phunware reviewed the definition of financial instruments per the ASC Master Glossary and also considered ASC 825. Phunware determined that its digital currency holdings do not meet the definition of a financial instrument or financial asset per current GAAP, as cryptocurrencies do not represent a contractual right to receive or exchange cash with another entity or a financial instrument on potentially favorable terms with another entity. Lastly, Phunware reviewed the definition of inventory, noting that cryptocurrencies are not tangible by nature. Furthermore, in evaluating the form and substance of Phunware’s digital currency holdings, Phunware is not a securities broker, and believes its digital currency holdings should not be classified as inventory, as with commodity inventories for brokers. In the absence of any accounting definition specifically for digital assets, Phunware initially believed that its intention to hold cryptocurrencies as short-term investments that could be liquidated in an active market at quoted prices justified the use of fair value accounting based principally on economic substance. Notwithstanding, Phunware acknowledges that cryptocurrencies lack physical substance, have an indeterminate life and
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CORRESP 1 filename1.htm Stellar Acquisition III Inc. c/o Ellenoff Grossman & Schole LLP 1345 Avenue of the Americas New York, NY 10105 October 2, 2018 VIA EDGAR U.S. Securities and Exchange Commission Office of Information Technologies and Services 100 F Street, N.E. Washington, D.C. 20549 Attention: Folake Ayoola, Special Counsel Re: Stellar Acquisition III Inc. Amendment No. 2 to Registration Statement on Form S-4 Filed August 15, 2018 File No. 333-224227 Dear Ms. Ayoola: Stellar Acquisition III Inc. (the “Company”, “we”, “us” or “our”) hereby transmits its response to the letter from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”), dated September 18, 2018 (the “Comment Letter”) regarding Amendment No. 2 to our Registration Statement on Form S-4 (the “Registration Statement”). For ease of reference, the numbered paragraphs below correspond to the numbered comments in the Comment Letter, with the Staff’s comments presented in bold font type. Capitalized terms used but not otherwise defined herein have the meanings ascribed to such terms in the Registration Statement. We have today filed with the Commission Amendment No. 3 to the Registration Statement (“Amendment No. 3”), reflecting a number of updating changes and, to the extent indicated below, our responses to the Staff’s comments. A marked version of the Registration Statement, in the form filed with the Commission today, is being transmitted to the Staff identifying all changes between Amendment No. 2 and Amendment No. 3 to the Registration Statement. General 1. We note your response to prior comment 11. Please revise your registration statement to disclose the material terms of both the warrants and rights issued as part of your Series F Preferred Stock financing and the 506(c) offering that you provided in your response letter. Additionally, on page F-75, you indicate that only the investors in the 5th and 6th round of your Series F Preferred Stock financing received these warrants and rights. Please provide a description of the material terms of these transactions and describe the investors of Series F Preferred Stock that received these warrants and rights. Finally, please file your PhunCoin, Inc. TRA and Warrant to Purchase Shares of Series F Preferred Stock and PhunCoins as exhibits, or tell us why they are not material. Response: Phunware has included additional disclosure on page F-73 regarding the material terms of the Warrants for Series F Preferred Stock, page F-74 to include additional disclosure related to the PhunCoin Warrant issued as part of the Series F Preferred Stock financing, and has further updated pages F-71 and F-72 to include additional disclosure related to the 506(c) offering that was provided in the last response letter. Securities and Exchange Commission October 2, 2018 Page 2 With respect to the Staff’s comment on description of the material terms of the transactions, Phunware has previously disclosed the aggregate shares issued, the per share cost, and the aggregate proceeds received in cash and digital currencies. Phunware respectfully submits that the foregoing disclosures, taken together with the additional disclosure noted above, now includes all the material terms of the Series F Preferred Stock financing. With respect to the Staff’s comment regarding the investors of Series F Preferred Stock financing, all of such investors, including those in the 5th and 6th rounds, are accredited investors within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission under the Securities Act. Lastly, Phunware has authorized the Company to file the PhunCoin, Inc. TRA and the Warrant to Purchase Shares of Series F Preferred Stock and PhunCoin, as Exhibit 10.22 and Exhibit 10.23, respectively. Frequently Used Terms, page 1 2. We note your response to prior comment 3 that neither the assets resulting from the sale of rights or pursuant to the Token Generation Event nor related liabilities will be included in the determination of the merger consideration. Please revise the definition of “merger consideration” to so clarify. Response: As previously noted, the parties have discussed the effect of the rights offering and the token generation event on the determination of the merger consideration and expect that, if an amendment to the Merger Agreement is executed, the amendment will provide that, for computation purposes, neither the assets resulting from the sale of rights or pursuant to the token generation event, nor the liabilities associated therewith, will be included in the determination of the merger consideration. In response to the Staff’s comment, Stellar has updated the definition of merger consideration based on the parties’ preliminary agreement thereupon. The parties have not as yet, however, executed an amendment to the Merger Agreement, or agreed to the final terms thereof. We anticipate that, upon such amendment, the definition of “merger consideration” will be revised to make the foregoing clarification. In addition, the prospectus/proxy statement will be revised to refer to other material changes effected by the amendment, and the amendment will be included in the Annexes to the proxy statement/prospectus. Securities and Exchange Commission October 2, 2018 Page 3 Risk Factors The Successor’s certificate of incorporation will designate a state or federal court located within .... page 63 3. Please reconcile your disclosure that claims shall be brought in the Court of Chancery of the State of Delaware “or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware” (emphasis added) with Article VI, Section G of the Form of Certificate of Incorporation annexed as Exhibit A, or advise. Response: The Company has updated its disclosure on pages 65 and 66 of Amendment No. 3 to reflect the Staff’s comment. Stellar and Phunware Unaudited Pro Forma Condensed Combined Financial Statements Pro forma Adjustments to the Unaudited Condensed Combined Financial Statements, page 159 4. Revise you disclosure in note (C)(7) to state that Stellar is the legal acquirer, not the accounting acquirer. Response: The Company has updated its disclosure on page 164 of the Registration Statement to address the Staff’s comment. Information About Phunware Overview, page 190 5. Please clarify your revised disclosures where you refer to 2 billion Phunware IDs “each month across [y]our network” and explain how this compares to the 1 billion of “monthly” active unique devices. Response: Phunware has revised page 196 of Amendment No. 3 to address the Staff’s comment PhunCoin 6. We are still reviewing your responses to prior comments 13 and 14 regarding your PhunCoin rights offering and prospective PhunCoin offerings. Response: The Company acknowledges the Staff’s comment and will await further comments, if any, to Phunware’s earlier responses. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview, page 207 7. We note your revised disclosures in response to prior comment 18. Please revise further to state as of which period the 1 million MAUDs was calculated and provide a comparable measure for each period in which financial statements are presented. Also, your reference to database events and petabytes of information appears to be a cumulative measure. Therefore, please revise to disclose such information for each period in which the financial statements are presented or tell us why you believe this information is not necessary. Lastly, clarify why this information is valuable to data subscribers such that it drives your data subscription services. Response: Phunware has revised page 213 of Amendment No. 3 to update its disclosure to remove specific figures around MAUD’s and Phunware ID’s. Phunware has further updated its disclosure to clarify why this information is valuable to data subscribers. Securities and Exchange Commission October 2, 2018 Page 4 Results of Operations Comparison of Three and Six Months Ended June 30, 2018 and 2017 8. Please explain further to us the facts and circumstances that resulted in the release of $6.3 million from a revenue share liability, which appears to be the main contributor to the increase in application transaction revenue to date in fiscal 2018. Response: The Company has been advised by Phunware that it had a revenue share agreement in place with its customer Fetch Media Group, Ltd. (“Fetch”), whereby a revenue share based on revenue targets was to be paid to Fetch based on the amount of application transaction revenue business they conducted with Phunware. This revenue share arrangement was recorded as a reduction of revenue (and an increase in accrued liabilities) each period under the agreement. Phunware had a partner liability accrual of $6.3 million as of March 31, 2018 and December 31, 2017 related to its revenue share agreement with Fetch. In April 2018, Fetch signed an unconditional release agreement with Phunware with respect to their accrued revenue share liability of approximately $6.3 million releasing Phunware from any further obligations. Phunware evaluated ASC 405-20 in determining the timing and extinguishment of the accrued revenue share liability, and thus recorded the extinguishment of the liability (and increase in revenue) in the second quarter of 2018. Stellar Acquisition III Inc. and Subsidiary Notes to Condensed Interim Consolidated Financial Statements Note 4 — Related Party Transactions Related Party Loans, page F-27 9. Revise your disclosures with regards to the “Fifth Extension Notes” to indicate that the promissory note was issued to Phunware on June 23, 2018 and not May 22, 2018. Also expand your disclosures, either here or in a subsequent events footnote, to include a discussion of the notes issued on July 23, 2018. Response: The Company has updated its disclosure on page F-28 of Amendment No. 3 to reflect the Staff’s comment. Securities and Exchange Commission October 2, 2018 Page 5 Phunware, Inc. Notes to Unaudited Condensed Financial Statements Note 2. Summary of Significant Account Policies Digital Currencies, page F-66 10. We note your response to prior comment 19. As previously requested, please analyze for us whether your digital assets meet the definition of an intangible asset and the consideration you gave to the application of that accounting to your current portfolio of digital currencies. Also, cite the specific guidance you relied upon to measure such assets at fair value and explain why you believe such guidance applies. Response: Phunware has advised us that it reassessed the classification of its cryptocurrency holdings and revised its financial statements to characterize such holdings as indefinite lived intangible assets in accordance with ASC 350-30. Phunware will state the carrying amounts of any cryptocurrencies it holds, or hereafter acquires, at historical cost less any impairment charges that may be needed to reduce the cryptocurrencies to their estimated recoverable values. Phunware believes that a decline below cost in the quoted price on an active exchange is currently the best indicator as to when it is more likely than not that a cryptocurrency is impaired. Phunware acquired its digital currency holdings during the six months ended June 30, 2018 at a historical cost basis of $1,268 (all amounts in thousands). During the six months ended June 30, 2018, Phunware sold digital currency holdings with a historical cost of $165 for cash proceeds of $175, which resulted in a realized gain of $10. Phunware reduced the carrying amount of these assets by $334 to a fair value of $769 at June 30, 2018, then fully liquidated them for $738 by September 7, 2018. Accordingly, Phunware does not believe it is necessary to revise, nor has it revised, any of the cryptocurrency amounts presented in its condensed consolidated financial statements for the six months ended June 30, 2018. Nonetheless, Phunware has made the following revisions to certain financial statement line item descriptions and footnote disclosures: ● The unrealized loss of $21 and $334 reported in Phunware’s condensed consolidated statements of operations for the three and six months ended June 30, 2018 which was originally described as unrealized losses on digital currencies, has been revised as an impairment charge of cryptocurrency holdings. ● The unrealized loss of $334 reported as an adjustment to reconcile Phunware’s net loss to net cash used in operating activities in Phunware’s condensed consolidated statement of cash flows for the six months ended June 30, 2018, which was originally described as a change in fair value of digital currencies, has also been revised to an impairment charge in cryptocurrency holdings. ● Previous accounting policy footnote disclosure with respect to Phunware’s digital currencies relating to fair value of financial instruments has been removed and replaced by an updated accounting policy disclosure on page F-66 of Amendment No. 3 stating that digital currencies are being accounted for as intangible assets in accordance with ASC 350-30 and will be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired Securities and Exchange Commission October 2, 2018 Page 6 For further background, Phunware considered other possible classifications of its cryptocurrencies within the existing GAAP framework. In evaluating whether Phunware’s digital currency holdings meet the definition of cash, Phunware reviewed ASC 305 and the ASC Master Glossary, which states, “cash includes not only currency on hand but demand deposits with bank or other financial institutions.” Although the Master Glossary contains the term “currency,” it does not define the term “currency.” Phunware submits “currency” would be accepted legal tender backed by a government. Accordingly, Phunware believes its digital currency holdings are not cash. Phunware further evaluated whether its digital currency holdings meet the definition of cash equivalents. Again, referencing ASC 305 and the ASC Master Glossary, cash equivalents “are short-term, highly liquid investments that have both of the following characteristics: (a) readily convertible to known amounts of cash, and (b) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.” Phunware submits that neither of these characteristics is met; therefore, its digital currency holdings are not cash equivalents. Further, Phunware reviewed the definition of financial instruments per the ASC Master Glossary and also considered ASC 825. Phunware determined that its digital currency holdings do not meet the definition of a financial instrument or financial asset per current GAAP, as cryptocurrencies do not represent a contractual right to receive or exchange cash with another entity or a financial instrument on potentially favorable terms with another entity. Lastly, Phunware reviewed the definition of inventory, noting that cryptocurrencies are not tangible by nature. Furthermore, in evaluating the form and substance of Phunware’s digital currency holdings, Phunware is not a securities broker, and believes its digital currency holdings should not be classified as inventory, as with commodity inventories for brokers. In the absence of any accounting definition specifically for digital assets, Phunware initially believed that its intention to hold cryptocurrencies as short-term investments that could be liquidated in an active market at quoted prices justified the use of fair value accounting based principally on economic substance. Notwithstanding, Phunware acknowledges that cryptocurrencies lack physical substance, have an indeterminate life and