Filing summary
Entity mismatch: The supplied filing is for Stellar Acquisition III Inc., not Phunware, Inc. It is a Form 10-Q for the quarter ended August 31, 2016, filed October 14, 2016. The filing describes Stellar as a blank-check company formed to pursue a business combination; it had not begun operating activities. It reports the three months ended August 31, 2016 and the period from inception on December 8, 2015 through August 31, 2016. No prior-year comparable results are provided.
Financial results and liquidity
| Metric | Reported amount |
|---|---|
| Revenue | $0 for the quarter and inception-to-date |
| Operating costs and net loss | Quarter: $477; inception-to-date: $1,714. Net loss was the same as expenses. |
| Cash and trust assets at August 31 | $674,491 outside the trust; $66.3 million in the trust; total assets $66,974,491 |
| Cash flow, inception-to-date | Operating: $31,593 provided; investing: $66.3 million used to fund the trust; financing: $66,942,898 provided |
| Liabilities and equity | Total liabilities $1,658,307, including $1,625,000 deferred underwriting fees; shareholders’ equity $5,000,001. A further $60,316,183 of redeemable shares was classified outside permanent equity. |
| Debt and margins | No long-term debt was reported. Margins are not meaningful because the company had no revenue. |
The company raised $65 million through its August public offering and $3.825 million through a private placement of warrants. It reported approximately $674,000 of cash outside the trust for expenses. Management expected available resources to fund operations for at least 12 months.
Changes, outlook, and risks
- Because Stellar was newly formed and had no operating business, there is no meaningful prior comparable operating period. Management said activity consisted primarily of formation, the public offering, and searching for a business combination.
- On September 28, 2016, after quarter-end, Stellar partially exercised the underwriters’ overallotment option, selling 400,610 additional units for $4,006,100 and placing an additional $4,086,222 in trust. The trust balance rose to $70,386,222. The filing also reports additional private-placement warrants and offering costs related to this transaction.
- Management initially intended to focus on the international energy logistics industry, but stated there was no assurance that a business combination would be completed. The company had 12 months from the offering closing to complete one, with up to three three-month extensions subject to sponsor funding.
- If no transaction is completed within the permitted period, the company must stop operations, redeem public shares from the trust, and liquidate. Redemptions are subject to a $5,000,001 minimum net tangible asset requirement. A business combination may also involve dilution or debt-related risks described in the filing.
- The trust was restricted to specified U.S. government investments. Subsequent to quarter-end, proceeds were invested in Treasury bills yielding approximately 0.4% annually. The company reported no legal proceedings and no material changes to previously disclosed risk factors; management concluded disclosure controls were effective.
Important facts for investors to verify
- Confirm the issuer: this filing is for Stellar Acquisition III Inc., not Phunware, Inc.
- Verify the post-quarter overallotment, related warrant issuance, and resulting trust balance against subsequent filings.
- Review the business-combination deadline, extension terms, sponsor funding obligations, redemption rights, and deferred underwriting fees.
- Assess the company’s limited operating cash outside the trust and the costs of seeking a transaction.
- Review potential dilution from public and private warrants, founder shares, and the underwriters’ unit purchase option.