Phunware, Inc.

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Good afternoon, ladies and gentlemen. Welcome to Fundware's first quarter 2021 investor conference call. Currently, all participants are in a listen-only mode. Joining me today are Alan S. Natowski. President, Chief Executive Officer, and Co-Founder, Randall Crowder, Chief Operating Officer, and Matt Ong, Chief Financial Officer. The format today will include prepared by Allen, Matt, and Randall, followed by a question and answer session. As a reminder, today's discussion will include forward-looking statements. These forward-looking statements, including any such statements referring to the potential effects or impact of the COVID-19 pandemic, reflect current views as of today and are based on various assumptions that are subject to risks and uncertainties disclosed in the risk factor section of our SEC filing. Actual results may differ materially and undue reliance should not be placed on them. Additionally, the matters being discussed today may include non-GAAP financial measures. Reconciliation of GAAP to non-GAAP financial information is set forth in the earnings press release, which is available on the investor relations section of Fundware's website at investors.fundware.com. I further encourage you to visit investors.fundware.com to access not only the earnings press release, but also the current investor presentation, SEC filings, and additional collateral on Funware. At this time, I would like to turn things over to Funware CEO, Alan Natowski. Sir, please proceed.

Thank you very much, and welcome to our first quarter 2021 investor conference call. As a reminder, Funware is a 12-year-old enterprise software company focused on the intersection of mobile, cloud, and big data. with business-to-business and business-to-government customers worldwide. Our mission is to provide everything you need to succeed on mobile by providing our customers with the products, solutions, data, and services for their digital transformation needs on Apple iOS and Google Android devices and applications. Central to this effort is our enterprise cloud platform for mobile called MAPS, or Multi-Screen as a Service. which is available for licensing under a SaaS business model over one to five-year contract periods worldwide. The completion of Q1 constitutes a positive operational inflection point for our business as we have quickly made our mass platform vision become reality across a number of key fronts. Not only have we commenced the full rollout of our blockchain-enabled mobile loyalty ecosystem specific to FundToken, FundCoin, and FundWallet as promised, but we have also executed a global distribution agreement with an anchor distribution partner that will be formally announced in the next several weeks. While we continue to work through what appears to be the final stages of the COVID pandemic operationally, we are both excited and comforted by the dramatic increase in business activity across all aspects of our software product and solution offerings for mobile, big data, and the cloud. Importantly, These encompass all three of our core growth engines rolling forward, including our mass cloud, our data-driven loyalty marketplace, and our secure blockchain-enabled token, coin, and wallet capabilities. As we suggested on our last earnings call, this past year was the genesis of a transition in our company's history as we shifted from a non-recurring, low-margin transaction business to a far stickier, more scalable, recurring, and high-margin SaaS licensing business for our mass platform. While we remain in the midst of that transition, we are now at the latter end of that process and expect to thrive rolling forward as a pure SaaS company. In addition to continued enterprise interest in our mass digital front door solution for healthcare and our mass smart workplace solution for corporations, we have resumed conversation with customers from sectors that were hit hard by the pandemic. including the hospitality and real estate verticals. In conjunction with growing our portfolio of direct customers, we intend to expand our footprint globally by amplifying our go-to-market strategy with indirect sales and channel partners, including the recently signed Anchor Distribution Partner that will be formally announced later this quarter. In parallel, we are excited about the completion of FundWallet and the launch of our blockchain ecosystem powered by FundCoin and FundTokens. We are now live and excited to scale and monetize as part of our business and look forward to the accelerated global adoption of the blockchain-enabled mass customer data platform and mass mobile loyalty ecosystem commercially deployed. As with most businesses worldwide, our team continues to see the lingering effects of the pandemic despite more widely available vaccines and more recent or pending openings from previously imposed stay-at-home orders and lockdowns both domestically and abroad. Many of our customers and partners are still operating remotely and are still in the process of reopening their venues, facilities, and offices. As such, and in our case, we saw many pending deals that would normally have closed in Q1 now starting to close here in Q2 instead. Importantly, we are completely focused on the future and what a post-pandemic environment is going to look like for our business, while also recognizing and appreciating that the last year has represented a very interesting and unique challenge for all of us. While we saw multiple months without strong bookings during the heart of the pandemic, as many of our customers and partners simply shut down their in-person operations and shifted to either remote-centric or remote-only environments, we are also now seeing the benefits and importance of our backlog and deferred revenues specific to our SAS model and the positive effects that we expect to see during the second half of the year. Going forward, and especially in light of the scale of vaccinations being delivered right now globally, we are assuming that each month and each quarter for the balance of 2021 will have the world beginning to accelerate to a more normal and predictable operating environment. Fundamentally, we do not expect to have to face such a problem again for the foreseeable future, and are extremely comforted by our operating performance during this difficult period. We not only made the most of the opportunity by streamlining our cost structure, but we also enhanced our mass products and solution offerings, capitalized on the needs of the healthcare sector, and facilitated enterprise customers getting more safely back to work. While we saw a decline in quarterly revenue recognition associated with these initiatives when compared to the first quarter of 2020 pre-pandemic, We expect to see a rebound here in the balance of 2021 as the operational downtime provided by COVID-19 allowed us more time to foster and improve our existing relationships while also establishing and bolstering brand new indirect sales channels and partnerships in parallel. As always, we will continue our core go-to-market strategy centered on direct and indirect agreements and contracts with Fortune 5000 customers, especially in the Fortune 100 size range, and governments ranging from local and county to state and federal. Importantly, and independent of the pandemic, we are extremely excited by a number of developments that have occurred over the past quarter during lockdown and even more excited by what we see coming in the quarters ahead. First, we were able to launch three core customer and partner portals for scaling our business through indirect channels. These included a mass software repository on GitHub at www.github.com slash funware, a mass documentation repository at docs.funware.com, and a mass training and funware phenom certification repository at training.funware.com. Second, we were able to add to our mass bookings, backlog, and deferred revenues for future revenue recognition over one- to five-year contract periods that will ultimately provide SAS revenue recognition over the coming 12 to 60 months rolling forward. While these efforts do not provide instant or near-term gratification on revenue recognition for our P&L, they importantly demonstrate the ongoing health and expansion of our business and will be broken down in further detail by our CFO, Matt Alney, in his section of the earnings broadcast. As a reminder, and with our mass sales cycle typically representing two to four months on average, recent and pending customer wins will start appearing on our P&L in the coming reporting periods ahead. Third, we have expanded our install base of funder IDs on mass to more than 15 billion devices worldwide, including mass platform scalability capable of supporting up to five billion transactions per day 500,000 transactions per second and 1 billion unique devices per month with more than one petabyte of data, typically growing at more than five terabytes per day. Our mass platform now provides a robust customer data platform inclusive of both a detailed data ontology and a comprehensive knowledge graph for one to one interactions and engagements. And fourth, we are commercially launching our FundWallet mobile applications on Apple iOS and Google Android in the next few weeks in conjunction with our recently launched mass blockchain ecosystem, all powered by our FundCoin and FundToken cryptocurrencies. While FundCoin security tokens will not necessarily appear in our financials when live, FundToken utility tokens will actually flow transactionally through our P&L as net new and virtually 100% gross margin revenue. As an analogy rolling forward, please consider our core mass licensing activities akin to Amazon, which is what we are reporting today, while considering our new mass blockchain activities akin to Amazon AWS, which is what we will begin reporting incrementally rolling forward, beginning with our next 10Q for Q2 2021 in mid-August. At this time, our CFO, Matt Bowney, We'll go deeper into our first quarter 2021 financial performance as reported, and also highlight the dramatic improvements made to our balance sheet throughout the first four months of 2021, including a record quarterly closing cash balance of $23.5 million, the largest since our inception in February 2009.

Matt, please go ahead. Thanks, Alan, and good afternoon, everyone. I'd like to thank you all for joining us today for a review of our first quarter 2021 financial performance and our progress on key strategic initiatives. For clarity, I'll be discussing GAAP financial measures unless otherwise specifically noted. Our press release, 8K, and website provide a reconciliation of all GAAP and non-GAAP financial results. Net revenues for the first quarter 2021 totaled $1.6 million. of which platform subscriptions and services revenue was $1.5 million. Our focus continues to be on higher margin, longer-term software customers, and we are pleased to have continued following this strategy in early 2021, with 92% of our net revenues derived from our mass platform subscriptions and services customers. Gross margin was 58% compared to 58.7% last year. On a non-GAAP-adjusted basis, gross margin was 71% compared to 60.9% in the previous year. That is more than a 1,000 basis point improvement year over year on a non-GAAP-adjusted basis. Total operating expense was $4.4 million, down from $5.4 million last year. Other non-cash operating expense items were stock-based compensation and amortization of intangibles, making up $0.9 million this year compared to $0.6 million in the prior year. By excluding these one-time and non-cast charges, adjusted operating expense was $3.5 million, down from $4.8 million last year, or a 27% improvement year over year. Non-GAAP adjusted EBITDA loss was $2.4 million, compared to $3.2 million last year. Net loss was $12.4 million, or $0.19 per share, compared to $4 million, or $0.10 per share, last year. Backlog and deferred revenue at the end of the quarter totaled $7.7 million, As one might expect, companies have cited the pandemic as a reason to delay the timing of booking business with us. As companies begin to reinvest in their mobile application infrastructure, we expect our backlog and deferred revenue to increase going forward and believe Q1 will be a low point with respect to this metric. I'd like to take a minute to review with everyone our prior financing activities. As we mentioned in our year-end earnings call, in February we raised approximately $25 million in an underwritten public offering. With the proceeds from this offering, I'm pleased to announce that we have completely paid off the balances of the 2020 convertible notes, which occurred over multiple payments in March and April. We recorded various charges relating to interest, loss on extinguishment of debt, and warrant liability revaluation of $8.8 million for the quarter, and we expect to record approximately $3.8 million in Q2 relating to the April payoff. For further details, please see the Desk section of our subsequent events in our 10Q which we plan to file Friday after market close. We closed the quarter with $23.5 million in cash on the balance sheet, subsequently using $13.9 million to pay off the 2020 convertible notes in full in the beginning of April. We began Q2 with approximately $9.6 million in cash, along with 25.8 Bitcoin we were holding to support our blockchain initiatives. Looking at our current capital structure, needs, and strategy going forward, I believe that we are very well positioned operationally. First, we have reduced our debt significantly and dramatically reshaped our capital structure. Second, we have engaged B. Reilly Securities and have a $25 million at-the-market offering available for future fundraising use, giving us flexibility to access cash from the capital markets if we choose to do so. And third, we have available approximately $50 million of open shelf space on our $100 million registration statement. providing simplicity and optionality during future capital needs to support both organic or inorganic growth opportunities. In closing, I think it's important to take a moment to emphasize the transformation the company has gone through and how far we've come in the last 12 months. For the first time as a public company, we have a strong balance sheet and the cash to execute against our short-term and long-term objectives. Our mass enterprise cloud platform is fully functional, and we are starting to see more scalable, recurring and high margin SaaS licensing business. The COVID-19 pandemic will likely continue to impact the time to close new deals and the revenue recognition of these deals through the end of the year. But we believe that we are past the worst of it, and we'll start to see more consistent growth as we head into the second half of 2021. We will continue to be active with financial conferences and investor meetings throughout 2021 in our efforts to tell our story and further strengthen our corporate profile in the capital markets. With that, I would like to turn the call over to Randall.

Thanks, Matt. I think it's important for our shareholders to understand we are still dealing with the impact COVID-19 has had on our target customers. While executives are now racing to embrace new digital transformation initiatives, implementation timelines and sales cycles are still delayed as the economy opens back up and businesses adapt to what will become a new normal. However, we learned a lot about our business and value proposition to both customers and partners in 2020, and we expect to capitalize on that momentum heading into the second half of 2021. Like customer relationship management or cloud storage, our target customers increasingly want an out-of-the-box solution that not only takes the guesswork out of deployment, but also offers a platform approach they can license. As illustrated in this graphic, Funware's closest competitors are often digital agencies or consultancies or large software developers or cloud providers. However, in either instance, businesses are required to make significant investments in their own development teams to design, build, and maintain a mobile application portfolio, which becomes a significant barrier to adoption. With Funware's proven mass platform, they are able to seamlessly outsource their mobile strategy and take advantage of pre-integrated mass features and capabilities, which allows them to focus on their core business, launch rapidly, and save on engineering and IT costs. Today, we see three key competitive advantages across our product offerings, which are designed to drive digital transformation and deliver contextual engagement in a mobile-first world that is quickly becoming mobile-only. First, our modular application framework. Without access to a platform like MAPS, mobile development is an error-prone task that often results in applications that are both difficult and expensive to maintain. Just like Amazon Web Services, enables companies to standardize their cloud infrastructure on a proven platform with various modules to support key features, this framework ensures our Fortune 500 customers and partners can standardize their mobile and digital transformation strategies en masse by seamlessly integrating modules that serve as the core building blocks for a new generation of mobile applications, solutions, and engagements. This friction-free modular approach will also make it far easier for our indirect channel partners to sell, deploy, and manage mass offerings and packages to their customers and organizations worldwide through Funware's global reseller network and Phenom certification program. Second, our location-based services. Funware's patented mass LBS software and beacon maintenance solution delivers proximity sub-one-second real-time Blue Dot indoor positioning, navigation, and wayfinding functionality across campuses and facilities while simplifying and streamlining the underlying beacon deployment and management for both facility staff and administrators. The software is not only ADA compliant, addressing the needs of anyone who is visually impaired, hearing impaired, or wheelchair bound, but it also transitions seamlessly between indoor and outdoor environments. Blockchain-enabled data exchange and mobile loyalty ecosystem. While FundCoin is a regulated security token designed to help brands empower consumers to take control of and be compensated for their data, FundToken was developed as a utility token to encourage, measure, and track brand interest within our mobile loyalty ecosystem and ultimately drive profitable behavior. However, as components of MASS, these features can be seamlessly integrated via our MASS Fund Coin Data SDK for Apple iOS and Google Android or our MASS Fund Token Loyalty SDK for Apple iOS and Google Android. We are also excited to launch FundWallet in the coming weeks once we receive the requisite approvals from Apple and Google. This native mobile application will allow consumers to manage both FunCoin and FunToken while enabling Funware to deliver contextual engagement opportunities through its own branded mobile application portfolio. Although Funware was a pioneer in the adoption of mobile applications, especially in what we call the passion verticals, such as sports, media, and entertainment, we are most excited about verticals that have just begun to implement a mobile strategy as a part of a larger digital transformation. Over the past few months, we have seen a lot of interest in our platform from corporations looking to deploy a smart workplace solution and tech enable their return to work, as well as health systems looking to deploy a digital front door to tech enable the patient experience. We have also seen increased activity from government officials interested in better engaging their constituency, as well as hospitality and retail who are looking for new ways of engaging with consumers while they are on site and driving profitable behavior. As our pipeline continues to grow, shareholders should look for us to close on similar deals to the ones we announced most recently. First, our modular application framework. Our smart workplace solution for Norfolk Southern is a great example of an innovative company whose leadership has embraced the digital transformation and taken full advantage of our mass platform. Virginia Hospital Center and Greater Baltimore Medical Center are also great examples of health systems that are looking to not only deploy a fully integrated digital front door, but also transition from Epic's MyChart mobile application with limited functionality to their own native mobile application portfolio that is their brand, their content, and ultimately their experience that is unique to their specific continuum of care. Second are location-based services. Our recent deployments at Baptist Health South Florida, where we cover over 6 million square feet, and Common Spirit Health, previously known as Dignity Health, where we cover over 22 million square feet, are great examples of leading health systems integrating our mass LBS SDK. This high-margin recurring revenue is usage-based on square footage, and we anticipate announcing details about a major distribution agreement we've executed with a key indirect channel partner later in the second quarter. Lastly, we were thrilled to announce the launch of our Fun Token purchase portal this week, which not only enables consumers, developers, and brands to begin purchasing Fun Token, but also provides funware with an additional revenue stream. Now I'd like to turn things back over to Alan for closing remarks.

Thanks, Randall. As highlighted throughout today's call, we are extremely excited by the recent commercial launch of our mass blockchain ecosystem. What it means to me is that our decades-plus of mass platform building across mobile, cloud, and big data, accompanied by our years of community engagement in blockchain and cryptocurrencies, have resulted in the culmination and convergence of massive global addressable markets and trends that can now act as strong wind at our backs to reaccelerate our growth. We expect this ecosystem to complement and supplement our mass offerings as we offer our enterprise customers additional capabilities to identify and engage their target audiences. While many corporations and individuals are newly familiar with blockchain and cryptocurrencies, both Funware and our executives have a long and distinguished history within the global digital asset community. As such, we expect to be a trusted bridge for Fortune 500 corporations and governments looking to leverage blockchain. Please look for additional announcements in the coming weeks and months ahead as we enable consumers to not only regain control of their data with FundCoin, but also reward them for their engagement with FundToken, which can now be purchased with US dollars, Bitcoin, and Ethereum online at buy.fundtoken.com. In parallel, and as we have suggested previously and would again reiterate here, we intend to complement and supplement our core organic growth activities through direct and indirect channels worldwide with opportunistic inorganic mergers and acquisitions. While we still have nothing yet to formally announce on this front, we expect to focus our merger and acquisition activity on accretive deals in areas that will provide more customers, more partnerships, and more distribution for our mass platform, especially in international markets including Europe, Asia, and South America. Finally, and importantly rolling forward, We fully expect to maintain a laser focus on our core operating and financial model, which includes top line growth of 30% or more year over year, and blended gross margins of 75% or greater. With that, and in conjunction with a sincere thank you for your ongoing interest and support in all of our activities on behalf of the entire FundWare family worldwide, I would like to now open up the call for questions to the operator. Operator, go ahead, please.

Thank you. The floor is now open for questions. If you do have a question, please press star 1 on your telephone keypad at this time. Questions will be taken in the order they were received. If at any time your question has been answered, you can remove yourself from the queue by pressing 1. Again, ladies and gentlemen, if you do have a question, please press star 1 on your telephone keypad at this time. Please hold while we poll for questions. Okay, our first question comes from Darren of Taihe with Ross Capital Partners. Please state your question.

Hi, guys. How are you? Thanks for taking my question. A few, if I may. On the guidance, the soft guidance you guys kind of gave, the 30%, I'm kind of curious, contextually, how this unnamed indirect distribution partner kind of fits into that. Is that something that would be marginal? It's dependent. And then as a second derivative of that question, how many more of those kind of indirect type partners are kind of in the pipeline and do you expect to announce more of those later this year?

Yeah, thanks. Great question, and thanks for joining. So, yeah, here, I think in our last earnings call, we announced that in Q2 we'd do this announcement. Obviously, we're here doing this earnings call, and it's just a matter of a few weeks. So the good news is we've already signed our deal, inked the deal. Everything's in full kind of rollout mode at this point. We expect the first initial sales will start at the end of Q2 here in this last piece now that we are live. And then scale throughout Q3, Q4, and be full steam ahead throughout all of next year and beyond. So what we expect that you're going to see is, as you're alluding to, the growth rates and the other pieces. Yeah, absolutely. We've made a lot of investments in a partner portal. We've been doing a lot of training remotely during the downtime. And we're very excited to do a joint announcement. Our partners actually started already doing the individual announcements. But we need to kind of button up some things before we do the full joint announcement and go to market. We do expect that the relationship will be quite material. We do believe that all of our software is fundamentally just included inside the products they're selling. It's not an upsell. It's not a cross-sell. It's core to the offering that's going to market. So think of that like a white label OEM where we're fun wearing inside. And to your point about additional channels, now that we've done all the work to activate the partner portal, we've used this as a means to really dive deeply through how the training and certification works, how the documentation works, how the software repository works, then how the order mechanisms against the stock keeping units goes for scaling. So, not only do we get that work done, this deal signed, we're using this deal as fine-tuning all the process and workflow that'll go for the other deals that we do. We haven't made anything public just yet this quarter, but we would expect that each quarter rolling forward, we should start having more information available to four key channel partners. One would be where they bundle our software with their hardware through hardware channels. Another will be where voice video and data bundles from service providers and carriers will bundle our software for venues and facilities. A third will be where we see traditional software channels that take their software, bundle it with ours, and go to market. And then finally, the system integrator and consulting channels that are brought on to stitch together hardware software solutions for corporations. And we expect that will be the fourth area. And this will be the blueprint for where scale really comes from because other than activating through our portal each sale, We obviously don't have to go through any of that traditional sales process as they're selling and bundling together.

Great. That's helpful. If I could just squeeze in two more. On FundToken, just curious on initial uptake from developers and customers, and I'm curious if FundToken ends up being kind of an upsell for mass for maybe customers that weren't looking at it initially. And then maybe last for Matt, if you'd give us kind of a current share count, that'd be helpful. Thanks.

All right. I'll take the first piece and then I'll hand over to Matt for the share count. So when you think about fun token in terms of upkeep, the first uptake that we see is when we go live on the purchase portal, we've actually already been processing Bitcoin, Ethereum, U.S. dollar purchases of the tokens. And we will have that open perpetually going forward. And there's two ways to get these tokens. One is to buy them, and that's where the purchase portal comes through. People have to go through a registration process. a KYC process, an AML piece. And once all their profile and certification is all done, then it's just a matter of processing the purchases. And as I said, it can be Bitcoin, Ether, or US dollar wire transfers. And so as those occur, that will be one basket of token holders that can then put them into their wallet. And then separate from that, obviously, as we go live with the applications that are pending approval at Apple and Google, then we can allow people that can also earn through the mass data SDK, which is associated with Fund Coin, and then the mass loyalty SDK, which is associated with Fund Token. And the best way to think of those is the more information you provide about yourself, your identity, your interests, they will earn fund coin and that will bolster our data offering and exchange. And then in parallel, for any of the profitable behaviors that folks do, like filling out a survey for a brand, going to a physical location, sharing content, these are activities that will be rewarded with fund token. And so when you see the uptake, you're going to see folks that purchase it focus secondarily on those that are going to participate in the ecosystem and earn the tokens. And then what you'll see across our customer base is that all of those that are already using MAS and other software development kits They simply need to drop in the mass data SDK and or the mass loyalty SDK, and then the functionality of our ecosystem will come native into their iOS and Android applications that they sell. So I expect that that's kind of the sequencing of a one, two, three. Purchasers are the token, those that are earning the token, and there are partners and customers that just do that, to your point, up-sell or cross-sell of adding the SDKs in. And then they get the full benefit of all the blockchain, the loyalty and the data inside their applications without having to build anything, just dropping in those SDKs. And then let me turn it over to Matt for your question about share count.

Yeah, hey, Darren. So as of this week, we're at 71.7 million. And then at the end of March, we are at 71.2 million.

Great. Thanks, guys. Appreciate it.

Okay, our next question comes from Howard Halpern with Tag League Brothers. Please state your question.

Good afternoon, guys. I just want to talk a little bit about, you know, your forecast. That 30% and 75%, you know, gross margin, is that basically you're looking at starting that in the second half of this year and for the 2022 fiscal year as, you know, you're still transitioning through the pandemic in the first half of this year?

Yeah, that's probably fair. The reality is that right now I kind of look at it where by the end of this quarter, I think everyone in the United States for sure is going to have the option to have either already taken their vaccine or decide they don't want to take the vaccine. Obviously, the CDC came out today and said, you know, if you take the vaccine, masks off indoors, outdoors. I think there's some exceptions like airlines, buses, homeless shelters, prisons. There's a handful, I think, in hospitals. But the reality is that now that everything's starting to reopen and a lot of the things that we originally were thinking were going to be closing in Q1 after the new year, I think before the vaccines were really made available and scaled, a lot of the big companies and even some of the government customers we have, I think Q1 they basically just took a wait and see and they paused a lot of their spending waiting to see what was going to happen with the vaccines. I think what we saw is those deals that were kind of pending in Q1 started signing here in Q2, and we're seeing an acceleration of that. I think that's going to maintain its course. The other reason when we talk about the 30%, obviously we're only going to have about half of this quarter specific to the recent launch of Fund Token and some of these other elements. So, and even with the deal we alluded to with the partner that we've signed the deal but we haven't formally announced it but will in the next couple of weeks, all of that activity means that that revenue recognition and anything that's going to hit is going to be in the tail half of this current quarter, and then I think as we're getting into Q3, Q4, we're going to start getting back to a more normal scenario where that 30% you're going to be comparing against Q3, Q4, and we expect normalcy. I think internally we're forecasting that it's probably going to be January of next year before we see a similar situation around the world like we're seeing here in the United States. I think Israel led the way. U.S. was probably second. Clearly, there's challenges in Europe, in India, especially South America, especially Brazil, and pockets in Asia. So we believe that the vaccine rollouts internationally are going to be a lot more of what Q3 and Q4 will look like. And the rest of this is honestly just how quickly do people want to get back to their facilities. But that's kind of how we're planning, and we expect, to your point, that all of the benefits of both this indirect channel deal, the launch of our ecosystem, we're going to get, call it about a little over, you know, just under half of the current quarter we're in, and then we'll start having the first full quarters of those in Q3.

And you talked about deals closing in the second quarter. What kind of verticals are you seeing the activity in?

Yeah, so I would say in sequence, the most active vertical is healthcare first, and that's coast to coast. So this is during the period of the pandemic, we saw it was sort of how do they provide COVID versus non-COVID services, especially elective procedures. So I think that what we've seen is just an immense amount of activity from coast to coast, We recently launched, as Randall suggested, both Baltimore and Virginia health systems. We've been expanding with Baptist Health South Florida. We've done add-ons up in New York when you're dealing with kind of where NYU Langone and the Mayo Clinic is at. Out west, it's more about Dignity Healthcare, which is now called Common Spirit post-M&A. And so we're seeing a very vibrant healthcare market, and we expect that to continue. The second biggest market we're seeing has definitely been around corporations in terms of corporate campuses, smart campuses. And this is about getting people safely back to work. in the event something goes wrong, having auditability, contact tracing, and a bunch of other provisions inside. We did talk about Norfolk Southern. In instances like that, we're seeing full speed ahead. They keep expanding the kind of things they're doing with us, and they're opening up to more and more facilities faster. Any of the corporate engagements we were doing that look at or feel like New York, California, and a few of the other, I'll just say kind of blue states, Those are still in a slow open mode, and some of those customers and partners we've seen believe that they'll start trying to get people back in Q3, try to finish that up in Q4, and they'll be full speed ahead in January. I think in some of the red states, Florida, Texas, they've been much more open, much quicker, And that's been consistent across probably the third group that we see that's most active, which is in the property management, real estate, hospitality side, whether it's been Atlantis, Bahamas, that reopened only in May. or whether it's the win when you're dealing with casinos. Obviously, they're more open fully in Las Vegas. Up in Boston, a little bit different. Macau, a little bit different. But if you go in sequence, think healthcare is one, corporate is two, three is kind of the real estate, hospitality, And then fourth is really government. Interestingly, we're seeing a lot more of an uptick of conversations and activity amongst local cities. We launched Pasadena, Texas, which is a large suburb outside Houston, but we're having a lot more activity where city councils and mayors are realizing they need to have a much better means to interface with both visitors of the city residents and constituents that are local they're investing in a lot of the what I call smart city activity in terms of network hardware sensors and other kind of standard access security and control features and what we're finding is that our software is the interface through mobile that you would then access all of those existing services So that's kind of where I would put it for now. I do think Q3, Q4, the next big wave of customers that are going to be coming back in earnest are where you're going to see things like sports, especially live events, stadiums, arenas, and others that just flat out kind of shut down during the window of what's been happening pre-vaccine. Okay.

And just one last one since you brought up government. If the government, especially the local government, starts implementing, could they actually be a source to grow your blockchain ecosystem as a means to get the local people in the town to use their mass technologies?

Well, we believe the answer to that should be yes, and we think anyone progressively, if you look across the country, again, throw politics out, even though there's lots of politics involved with local government, you're seeing the state of California, the state of New York has had a lot more challenges than the state of Texas or the state of Florida, as an example. You're seeing examples where the mayor of Miami at a local level is leading a boom in recruitment and activity and how can I help in getting not just blockchain, crypto, financial companies to move down into South Florida, but a massive recruitment out of Silicon Valley and the West Coast to get big tech to move as well. So we think that there's a big difference. There's two things. groups that are engaging in big ways. We do think that residents, visitors, constituents need to have a means to interface with their local government in a much more productive way. And we do think people need to be able to understand how to take advantage of the services that are offered in a much more productive way. So we were excited to get some of these solutions live. And we're definitely seeing a big uptick because I think what we've found through the pandemic is with people working remote, they now have options to work not just for the companies they want to choose, but the geography they want to use, where they want to spend their time, how they want to live their life. And what that has done is it's really opened up a competition for talent and resources nationwide. And everything's on the table and governors and even county commissioners and mayors are starting to realize they can fundamentally change the landscape of what their local economy looks like. And so we see our solutions as a means to help facilitate that dialogue, let people work through and explore options. And obviously, for lots of visitors, whether it's for fun or on business conferences, we think that it's important for people to be able to access those services when you're in unfamiliar cities.

Okay. Thanks for answering my questions, guys. Thanks.

Again, ladies and gentlemen, if you have a question, please press star 1 on your telephone keypad at this time. Our next question comes from Ed Wu with Ascendant Capital.

Please state your question. My question is you mentioned that you guys are looking for, you know, M&A opportunities, acquisitions on an opportunistic basis. What are you seeing out there in terms of valuations and opportunity?

Yeah, so we'll say it's a wildly competitive market. Importantly, from our standpoint, we've put probably $150 million over our existence into the development of our enterprise cloud platform for mobile. So when we're thinking about M&A, we're not trying to find products or solutions or technology or anything that we need to bolt onto our platform, we feel quite comfortable with that. What we're actually most focused on for any activity, one, as Matt would reinforce, accretive deals that are going to be financially beneficial to the company with a focus on expansion in new geographies inclusive of Europe, South America, and Asia. And the biggest thing that we're interested in when we're thinking about acquisitions are customer oriented and channel oriented so that we can amplify not only our core customer base, but we can access channels to market. So that's really where the focus is at. In terms of the second part of your question on valuation, Matt and I, you probably smile at me and we laugh a little bit. There still is a lot of competition and a lot of unrealistic expectations on what valuations look like. I think when you're private, you're seeing a lot of angel-backed and venture-backed companies at elevated valuations where they probably haven't grown into the financials just yet. And therefore, you see a bit of a disconnect often between those who might want to buy and where they're valued at relative to where the financials really are. When you get into the larger private companies, you start having a lot more of the competition between the corporate strategic buyer You're getting a lot of private equity firms that might be trying to find deals without people going public. And then, of course, the special purpose acquisition companies. You know, when we used the SPAC to go public years ago, it wasn't quite as fashionable as it is now. Now everyone's using SPAC as an alternative to a traditional IPO or a direct listing company. And you're seeing lots of competition because all those SPACs are on timeline where they either have to find a deal, consummate a deal, and get it public, or they have to return all the trust money and shut the SPAC down and the listing is done. So I think you're seeing a lot more competition across the whole spectrum. When you actually get internationally, I think there is a little bit more rationality, so to speak, But so far, I think that we're really not trying to do anything unless it's a good fit, first and foremost. It's operationally efficient. It's financially accretive. And if it's not going to add to our customers or distribution for our platform or get us entry into new markets, for us, you know, we're going to be diligent and take our time and just focus on organic growth out of the pandemic.

Great, that's a great answer and thank you for answering my questions and good luck.

Thank you.

Okay, I'll turn the call back over to Alan for closing remarks.

Yeah, I'll have a few closing remarks and also allow then Matt to kind of give a few final comments. I think what's really important for everybody to understand is, you know, everyone knows the pandemic has been a pain. We can look backwards and see all the interesting decisions governments have made, corporations have made, you know, what we've all lived through. It is what it is. You know, the good news is we're here. We've looked and put the past behind us. We now know that everything is starting to reopen. We think that the reopening is going to start accelerating as we finish off Q2. I think it's going to be better in Q3, even better in Q4. And then 2022 right now, barring any other kind of big shocking surprise event, we're going to be in a position where we'll be able to have a fully funded company executing normally in the markets that are provided. While we clearly were not as beneficially focused as some companies were when they were getting into meal kit delivery or Zoom services or all sorts of other things that worked very well when everyone was in shutdown, lockdown or remote. We also weren't as hurt as some of the folks in hospitality or areas where things just flat out shut down. I think what's important to realize is where we were at a year ago, where we're at now. We finished the last quarter with a record cash balance. Anyone out there betting that we're going away is wrong. They will continue to be wrong. That's off the table. We worked through the pandemic to do what we said we would do, which was eliminate debt, eliminate liability, bolster the balance sheet, add flexibility. And we've done all of those things as we promised. As well, we said that we were going to continue our full transition to SAS. We're getting dangerously close to the end of that process. And then we'll be focusing on one to five year licensing deals. And our gross margins continue to expand from the licensing of data and software. The final thing I would probably say as part of that is, We were working in the world of blockchain and cryptocurrency going back long before we were public, long before the last kind of Bitcoin cycle in early 17, and it's not anything new to us. As we were working through the process of getting to this point, all the activity behind data and loyalty, candidly, we were too early when we were still private to be diving in. The institutional acceptance wasn't yet there. Corporations didn't you know, use things like Bitcoin as a treasury asset before. Big Wall Street money, funds, pension funds, endowments, nobody was involved in this space. And now we've seen both people diving in to a trillion dollar market. We see more people that want a safe path to get into this world. We equate ourselves a lot like a way to get into blockchain and crypto for corporations and governments. the way people used to go through Red Hat to get to open source and Linux. And so we're super excited that we now sit where we have the money we need We actually have a balance sheet that is strong, and now we have the ability with a cost-efficient infrastructure to start scaling out and anchor that with a great global distribution partner that we'll be announcing shortly. Let me give Matt an opportunity to highlight a couple of those key elements financially, and then we'll wrap it up.

Yeah, thanks, Alan. I know we're running out of time here, so I think Alan obviously said it best. I think a lot of the things I was going to say, I mean, just the position we're at right now compared to where we were last year, we feel great where we are. And we appreciate, you know, everyone's support. And, you know, there's lots of bigger and better things to come. You know, we'll continue to fund the company and execute operationally and build shareholder value. And that's our extreme focus right now. And, you know, all I can say again is thanks for your time and please look out for us in the next couple months as, again, we'll be active at conferences and, Happy to take calls as needed and trying to get as many people to learn more about Funware and join the journey with us. Great.

So in closing, I'd just like to say as a reminder for any of you that are net new to blockchain, cryptocurrency, we have lots of information that go along with how our loyalty data system operates. And we encourage you to get part of the Fundware ecosystem by going to buy.fundtoken.com. And you can start diving in and be a part of this brand new ecosystem. I'm very proud that I believe you can fact check me on this all you want. We're the first NASDAQ or New York Stock Exchange listed company in the history of the world that has launched its own captive crypto ecosystem with both a security token and a utility token. I've seen people that are buying Bitcoin for corporate treasury. We've seen people that are doing mining. We have yet to see anyone anywhere worldwide, especially trading on NASDAQ or the NYSE, that can get the full regulatory compliance. with a public-listed audited company and the activation of all of these assets. So we'll look forward to sharing that with you. We appreciate you being on the journey with us. And from our FundWare family to all of you, thank you very much.

Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time, and have a great day.