Filing identity and reporting period
Important: The supplied filing is Stellar Acquisition III Inc.’s Form 10-Q, not an operating-company 10-Q for Phunware, Inc. It covers the three and six months ended May 31, 2018; the statements are unaudited. Stellar was a blank-check company pursuing a merger with Phunware, so these results do not report Phunware’s standalone revenue or operating performance.
Business context
Stellar entered into a merger agreement with Phunware on February 27, 2018. The proposed transaction contemplated an enterprise value of $301 million for Phunware, subject to customary cash and debt adjustments. Stellar said it would seek at least $40 million of cash for the post-transaction company, including trust funds and any backstop financing. Significant shareholder redemptions had reduced trust assets, and the filing stated the trust balance was below the merger agreement’s defined Minimum Cash Asset Level. A Form S-4 registration statement had been filed and amended; a shareholder vote and closing were anticipated in 2018, subject to conditions.
Financial results and position
| Metric | Three months ended May 31, 2018 | Three months ended May 31, 2017 | Six months ended May 31, 2018 | Six months ended May 31, 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Formation and operating costs | $283,355 | $310,454 | $868,828 | $395,238 |
| Trust investment income | $274,424 | $127,212 | $496,062 | $200,466 |
| Net loss | $8,931 | $183,242 | $372,766 | $194,772 |
| Basic and diluted loss per share | $0.00 | $0.07 | $0.13 | $0.07 |
As a pre-combination SPAC, Stellar had no operating revenue; its income was trust-account investment income. Profit margins are not meaningful in this context. Six-month operating costs rose substantially year over year, while higher trust income helped reduce the quarterly net loss compared with 2017.
- Cash flow: Six-month net cash used in operating activities was $22,463, versus $154,904 in 2017. Net cash decreased $33,143 to $84,062. Trust withdrawals of $34.8 million were substantially offset by payments for shareholder redemptions.
- Assets and liquidity: At May 31, 2018, total assets were $37.0 million, including $36.9 million in the trust account and $84,062 of reported cash. The MD&A separately says approximately $51,409 was available outside the trust for operations; the filing does not explain this difference clearly.
- Liabilities and equity: Total liabilities were $2.49 million, including $833,482 of sponsor-related promissory notes, $263,350 owed to Phunware, and $886,888 of deferred underwriting fees. The filing reported no long-term debt or lease obligations. Redeemable shares totaling $29.6 million were classified outside permanent equity; permanent shareholders’ equity was $5.0 million.
- Trust holdings: The trust held $36.8 million in U.S. Treasury bills and $109,961 in cash and equivalents, with Treasury yields of approximately 1.7% per year.
Material changes, outlook, and risks
- On May 22, 2018, shareholders approved an extension of the business-combination deadline to August 24, 2018. In connection with the extension, 3,353,060 public shares were redeemed for $34,787,998, materially reducing trust assets.
- The filing disclosed additional sponsor and Phunware extension notes. As of May 31, outstanding loans were $833,482 to related parties and $263,350 to Phunware. These notes were non-interest-bearing and generally repayable upon a business combination or liquidation; sponsor notes could be converted into warrants under specified terms.
- Management stated that failure to complete a business combination by August 24, 2018 would require liquidation and redemption of public shares, and concluded that this mandatory liquidation possibility raised substantial doubt about Stellar’s ability to continue as a going concern. No liquidation adjustments were recorded.
- The merger’s completion, available cash, and shareholder redemptions were uncertain. The filing warned that additional equity could dilute existing holders and debt could constrain the combined company. Stellar also noted potential loss of warrant value if no business combination occurred.
- Stellar reported no material changes to previously disclosed risk factors, no legal proceedings, and no defaults upon senior securities. Management concluded disclosure controls were effective; no material changes in internal control over financial reporting were reported.
Most important facts for investors to verify
- Confirm the merger’s final terms, approvals, closing status, and whether the stated $40 million cash objective and Minimum Cash Asset Level were satisfied.
- Reconcile the filing’s reported $84,062 cash balance with the MD&A’s approximately $51,409 of cash available outside the trust.
- Verify the deadline-extension and related-note chronology: the filing discusses an August 24 deadline as well as later monthly extensions, and some extension dates and descriptions are not fully consistent in the text.
- Assess the effect of redemptions, outstanding sponsor and Phunware notes, deferred underwriting fees, and any backstop financing on cash available to the combined company.
- Use Phunware’s own financial statements and merger disclosures to evaluate its revenue, profitability, cash flow, and operating risks; this filing does not provide those standalone results.