Phunware, Inc.

Good afternoon, ladies and gentlemen. Welcome to Fundware's third 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 Onay, Chief Financial Officer. The format today will include prepared remarks by Alan, 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 risk and uncertainties disclosed in the risk factor section of our SEC filings. 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 president, CEO, and co-founder, Alan Natowski. Sir, please proceed.

Thank you very much, and welcome to our third quarter 2021 investor conference call. As a reminder, Funware is nearly a 13-year-old technology company focused on the intersection of mobile, cloud, big data, and blockchain, with business to business, business to government, and business to consumer customers worldwide. Our core mission is to create a Funware ID for every human being on Earth that has a device touching a network that is connected to their favorite brands, applications, and venues that just happen to run Funware software or intersect with our cloud-based infrastructure. On one side, we provide our B2B and B2G customers with everything they need to succeed on mobile, including the products, solutions, data, and services for their digital transformation needs on Apple iOS and Google Android devices and applications. On the other side, we provide our B2C customers with the hardware systems, software, and cryptocurrency services needed for their engagement and incentivized participation in high performance gaming, streaming, trading, cryptocurrency mining, and personal productivity computing. Centered with these efforts are our enterprise cloud platform for mobile called MASS, or Multi-Screen as a Service, which is available for licensing under a SaaS business model over one to five-year contract periods worldwide. And our FunToken and FunCoin loyalty and rewards cryptocurrency ecosystem, which is facilitated transactionally with our FunWallet mobile applications and connects to the Ethereum blockchain. The completion of Q3 constituted continued operational momentum for our business, as we further accelerated our mass platform vision and adoption across a number of key fronts, including new product introduction, indirect channel expansion, and more than a 50% sequential gain in quarter-over-quarter revenue growth with our customers. In parallel, the commencement of Q4 subsequently provided even more immediate scale and growth to our business, as we formally closed our acquisition of Light Technology dramatically improved our balance sheet with more than $65 million in additional cash, and guided Q4 revenue growth sequentially quarter over quarter to up more than 100% at $5 million or more. Importantly, and in tandem, we have also seen a material sequential increase in our total bookings and backlog quarter over quarter, which will be broken down in further detail by our CFO, Matt Bounty, in his section of the earnings broadcast. In terms of our current operating environment, our core B2B and B2G customers have still not consistently returned to their offices and facilities and remain in a hybrid transition with regards to their employees and contractors safely returning back to work. We expect that cities, states, and countries will continue opening on a broader basis throughout the balance of the year, while also understanding that this process will be an ongoing and unpredictable journey that won't happen overnight light of the shifting myriad of government mandates tied to the ongoing pandemic in parallel our b2c customers are both active and fully engaged demonstrating strong demand for hardware and cryptocurrency alike completely independent of what we see within the private and public sectors as suggested in previous past quarters and reiterated again here we are both excited and comforted by the dramatic increase in activity across all aspects of our product and solution offerings for mobile, big data, cryptocurrency, high performance computing, and the cloud. Importantly, this activity encompasses all of our core growth engines rolling forward, including our mass cloud, our data-driven loyalty marketplace, our secure blockchain-enabled token, coin, and wallet capabilities, and our high performance computing systems for gaming, streaming, trading, cryptocurrency mining, and personal productivity. The past year was a 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. In addition to continued enterprise and government interest in our mass digital front door solution for healthcare, our mass smart workplace solution for corporations, and our mass smart city solution for cities, We accelerated conversations with customers from sectors that were hit hard by the pandemic, including the hospitality and real estate verticals. These activities resulted in many new customer wins for our team, including Regent Square, Atlantis Bahamas, Phoenix Children's Hospital, City of Pasadena, Virginia Hospital Center, and Yavapai Regional Medical Center, amongst many others. In conjunction with growing our portfolio of direct customers like these, We also further expanded our global footprint by amplifying our go-to-market strategy with indirect sales and channel partners, including Carrier Global Corporation, Cox Communications, Epic, HID Global, and Cooper Lighting Solutions. In parallel, we remain extremely excited about the completion of FundWallet and the launch and scaling of our blockchain ecosystem powered by FundCoin and FundToken. We are now scaling and monetizing this 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 active. We are completely focused on the future and what a post-pandemic environment is going to look like for our business, but also recognizing and appreciating that the last year has represented a very interesting and unique challenge for all of us. We are excited to announce today more than 50% sequential revenue growth quarter over quarter from Q2 and also to guide to more than 100% sequential growth quarter over quarter for Q4. We expect to finish the year strong with more than $5 million of Q4 revenues to close 2021. As always, we will continue our core go-to-market strategy centered on direct and indirect agreements and contracts with Fortune 500 customers, especially in the Fortune 100 size range, and governments ranging from local and county to state and federal. In parallel, we will also dramatically expand our direct-to-consumer channel for B2C engagements across both our high-performance computing and cryptocurrency offerings to consumers. Importantly, and independent of the pandemic, we are extremely excited by a number of developments that have occurred over the past quarter and even more excited by what we see coming in the quarters ahead. First, we added 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 in his section of the earnings broadcast. As a reminder, and with our mass sales cycles typically representing two to four months on average, Recent and pending customer wins will start appearing in our P&L in the coming reporting periods ahead. Second, we continue to expand our install base of Funnelware IDs en masse to more than 15 billion devices worldwide, including mass platform scalability capable of supporting up to 5 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 5 terabytes per day when operating at scale, 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 engagement. And third, we commercially launched our FunWallet mobile applications on Apple iOS and Google Android in conjunction with our mass blockchain ecosystem, all powered by our FunCoin and FunToken cryptocurrencies. While fund coin security tokens will only appear on our balance sheet due to their status as a regulated security, fund token utility tokens will actually flow transactionally through our P&L as net new and virtually 100% gross margin revenue. At this time, our CFO, Matt Bounty, will go deeper into our third quarter 2021 financial performance as reported, including our recent revenue growth and the dramatic improvements made to our balance sheet year to date. 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 third 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 to non-GAAP financial results. Net revenues for the third quarter 2021 totaled $2.2 million. which represents 50% growth quarter over quarter. Our mass platform subscriptions and services customers revenue was 1.8 million or 85% of total net revenues. Gross margin was 52.5% compared to 71.3% last year. On a non-GAAP adjusted basis, gross margin was 68.8% compared to 74.8% in the previous year. As I mentioned on our last earnings call, Our margins were previously affected by a customer delay in Q2, which has since been resolved, with the project having been partially delivered in Q3. We continue to work with this customer to complete the project in Q4, and we're happy to report the initial project deliveries have been stellar. Total operating expense was $5.2 million, roughly flat from last year, excluding the charge for legal settlement we took in Q3 of 2020. Other non-cash operating expense items were stock-based compensation, and amortization of intangibles, making up $1.2 million this year compared to $1.6 million in the prior year. By excluding these one-time and non-cast charges, adjusted operating expense was $4 million compared to $3.6 million last year. We have invested in our sales and marketing teams year over year and plan to further invest in those areas to fuel our future growth. Non-GAAP adjusted EBITDA loss was $2.5 million compared to 1.3 million last year. Net income was 0.4 million or one cent per share compared to 8.6 million net loss or 19 cents per share loss last year. The main factors driving the change was the full forgiveness of our $2.85 million PPP loan recognized this quarter, minimal interest expense as we have cleared up our balance sheet, along with the absence of the legal settlement from last year. Backlog and deferred revenue at the end of the quarter totaled $6.1 million, down from $8 million at the end of the last quarter. The reduction in backlog mainly has to do with customer delivery in Q3, along with lighter than expected bookings closing in the quarter, with decisions being pushed to Q4 with a few of our customers. Moving to the balance sheet, we closed the quarter with just under $1 million in cash and $1.1 million in debt, which is a far cry from where we sit today. Subsequent to the closing of Q3, we raised approximately $62 million from our active at-the-market offering with B-Rally Securities and another $4.6 million from warrant exercises. In addition to the equity raise, the company issued a promissory note with Streeterville Capital borrowing $5.2 million in conjunction with the closing of the Light Technologies transaction. With these proceeds, we have preemptively paid down the $1.1 million of promissory and convertible notes that would have come due in 2024. We also announced last week that we purchased an additional 100 Bitcoin for approximately 6.2 million, bringing our total holdings to approximately 129 Bitcoin. We believe cryptocurrency will continue to be a large part of our business going forward and having the ability to hold and transact multiple cryptocurrencies provides flexibility with our own FundCoin and FundToken offerings. We currently accept Bitcoin and Ethereum for FundToken purchases and recently announced that we have begun to accept Bitcoin for Lite by FundWare personal computer purchases. In closing, and I've said previously, the transformation we have gone through in the past 12 months in the face of the COVID-19 pandemic has been remarkable. We have successfully improved our balance sheet to fully fund our short term and long term objectives. Not once in our history as a public company have we had the ability to say that our balance sheet is stabilized with minimal debt and ample cash for the future. We are finalizing plans for 2022 and look forward to sharing more details on our next earnings call. We will continue to be active with financial conferences and investor meetings in our efforts to tell our story, and further strengthen our corporate profile in the capital markets. The next conferences we will be attending include the Roth 10th Annual Virtual Technology and Inaugural AgTech Answers Virtual Event on November 17th and the Leidenberg-Thalmann Virtual Technology Expo 2021 on November 18th. We will look to augment the number of one-on-one conversations and meetings with high-class institutional investors at each event with opportunity to present themselves. With that, I would like to turn the call over to Randall.

Thanks, Matt. During our last earnings call, I discussed our go-to-market strategy, but the activity and attention surrounding our stock over the past few weeks means we have many new shareholders who are less familiar with the company and what we are endeavoring to do. At a high level, we are a technology company that enables enterprises to engage people contextually. But with our initiatives and data and blockchain, we can help verify and incentivize that contextual engagement. In a world where many of the products you buy are Amazon-enabled, we are well-positioned to ensure many of your experiences are Funware-enabled because our platform can get the right content to the right person on the right screen at the right time in the right place to drive profitable behavior. The reason we are so well positioned to succeed is because we've been doing this for over 12 years on behalf of some of the most recognized brands in the world, as evidenced by figure one shown here. However, just as important as who we do it for is how we do it. Enterprises value working with Funware because our platform approach makes it easier for them to manage numerous vendors and disparate workflows by seamlessly integrating them into a unified ecosystem that is mobile first. Rather than one app to replace them all, we provide one app to rule them all. Figure 2 will give you a sense of just how extensive our integration portfolio has become, which makes it more efficient and cost-effective for our customers to deploy solutions specifically tailored to their needs. For example, we announced during the quarter that we have completed a comprehensive integration with Epic and have been added to the Epic App Orchard Marketplace. which makes it easier for Epic customers to take advantage of our mass digital front door for healthcare. This will help us expand our sales reach since Epic has almost a third of the electronic health record market and more than 40% of all hospital beds. These integrations also complement our indirect channel strategy, where we work closely with much larger companies like the ones shown in Figure 3, who are interested in either integrating key features of our platform into their own solutions or white labeling our off-the-shelf solutions that have been optimized by industry. This quarter, we were thrilled to complete initial sales training and collateral preparation for Carrier, who integrated our mass location-based services software into their Blue Diamond platform. By following the link provided in our earnings call transcript here, you can see our technology in action and how it can seamlessly support corporate campuses, entertainment venues, hospitals, convention centers, and more. We also announced two notable new indirect channels during the quarter. HID Global, who is a worldwide leader in access control and has integrated our mass smart workplace solution with HID Orgo to increase employee engagement, reduce the number of employee applications their customers must maintain, and simplify each employee's daily experience, as well as Cox Communications, which is the business division of Cox Business, who is not only an industry leader in broadband, Internet of Things, and managed cloud services, but also active in delivering connected health solutions that enhance the relationship between patients and caregivers. By leveraging our mass digital front door, Cox ProSight will be able to better support excellent patient experiences and outcomes, drive cost savings, and more efficiently coordinate facility resources. We officially launched this collaboration with Cox at HIMSS 2021 on August 9th, 2021 in Las Vegas. These types of partnerships are central to our sales strategy to scale revenue in 2022 as we focus on indirect selling through our four primary channels that comprise our global reseller network. One, hardware vendors. Two, software developers. Three, system integrators. And four, carriers. In order to effectively support our channel partners and their customers, we offer comprehensive webinars, case studies, articles, e-books, and additional training opportunities. The Funware Phenom Certified Developer Program is also available to provide on-demand courses and live training sessions remotely to learn more about math and how it helps brands better execute their digital strategy and establish a true mobile presence. In parallel, we provide full math documentation and software portals via the Funware Documentation Portal and GitHub, respectively. By partnering with and supporting larger companies and their global distribution networks, we seek to scale faster without incurring the heavy expense of a direct sales force. Although we haven't had any difficulty in the past, it's worth noting that our target partners look favorably on our improved balance sheet now that we have $65 million of cash on hand to complement our years of experience. Looking ahead, it will be important for us to be good stewards of this capital, but we fully plan to leverage it for growth, both organically and inorganically. As of the end of the third quarter, we currently have 69 employees who are primarily located in Texas, Florida, and California, with an average tenure of approximately five years, exceeding the average retention benchmark set in tech by over 66%, according to PESA. We're also excited to welcome 27 new members to the team from Illinois as a result of our recent acquisition of Light Technology. During the first half of 2022, we will be working to relocate operations and key personnel to Austin, Texas. We're excited to properly resource Light, a company that has largely grown through word of mouth and excellent customer service. Although we have set an initial post-closing financial performance target of approximately $1 million a month in revenue over the first 12 months, we expect our ability to materially address supply chain and marketing constraints will allow us to significantly ramp revenue generated by light. In parallel, we plan to expand our software sales and marketing team with a focus on indirect channel experience as we've seen nearly 100% increase in sales activity from the first quarter to this quarter as we begin to rebound from the pandemic. Quarter over quarter, we saw the most activity and interest in these four verticals. First, mass digital front door for healthcare. Second, math smart workplace for corporations. Third, math smart city for local officials and chambers of commerce. And fourth, math advocacy for politicians. In closing, I'd like to turn things back over to Alan for final remarks and a brief commentary on our mass blockchain ecosystem managed by FunWallet and powered by FunCoin and FunToken. Thanks, Randall.

As highlighted throughout today's call, we're all extremely excited by the ongoing scaling of our mass blockchain ecosystem and the high-performance computing system that we can now ship directly to consumers because of our light technology acquisition. What it means to me is that our decade-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 in our backs to further accelerate our recent growth. We expect this ecosystem to complement and supplement our core mass offerings as we offer our enterprise customers additional capabilities to identify, engage, and incent their target audiences. While many corporations and individuals are newly familiar with blockchain and cryptocurrencies, both Fundware 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 to reward them for their engagement with FundToken, which can be purchased online with US dollars, Bitcoin, and Ethereum at buy.fundtoken.com. In parallel, and as we 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. Importantly, and as we recently did with Light Technology, we expect to focus our merger and acquisition activity rolling forward on targets that are operating profitably and would represent accretive deals in areas that will provide more customers, more partnerships, and more distribution for our mass platform and cryptocurrency ecosystem especially in international markets including Europe, Asia, and South America. Finally, and importantly rolling forward, we 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 while achieving cash neutrality from operations. In parallel, we also expect to leverage our newfound balance sheet strength to transition our corporate treasury activities into a strategic asset for the companies. Not only can you expect to see more purchases of Bitcoin as we go for storing value and protecting ourselves from inflation, but you can expect to see an efficient and strategic use of stable coins and decentralized finance to generate meaningful financial returns for our overall operations and results. With that, and in conjunction with a very sincere thank you for your ongoing interest and support in all that we do on behalf of the entire Fundware family worldwide, I'd like to now open the call for questions to the operator. Operator, go ahead, please.

Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your touchtone phone. Pressing star 2 will remove you from the queue should your question be answered. And lastly, while posing your question, please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question is coming from Darren Ty from Roth Capital Partners. Your line is live.

Hey, guys. Thanks for taking my questions. Nice work on the quarter. A few, if I may. First on your mass business, I'm just curious. You made a bevy of indirect partner announcements. What was kind of the mix of revenue? Is it mostly still direct? And then if it is mostly direct, how is the pipeline building with the indirect channel?

Yeah, I'd be happy to address that. When we actually announced all the results this time, we're still seeing a lot of direct business. So I'd say still kind of think 90% of that is direct, 10% is indirect. Importantly, you know, we've done a lot of communications over the last 90 days with a lot of these net new channels that we set up. The biggest ones that we're most focused on to get to scale fastest include Carrier, where they're actually, as Randall said, bundling our location-based offering within our platform into their solution as that represents a upsell of what they're offering to their customers in terms of a smart workplace solution. They have 100,000 customers and they're already purchasing all the hardware across escalators, elevators, access control, security, and other components of heating, air, and so forth. And they're offering a simple upsell and cross-sell. So we expect, through our communications with them, they said it's usually about a six- to 12-month period for them to scale up and get kind of the big cog rolling through their distribution worldwide. And we're probably about seven months through that process. So we expect finishing this quarter and into Q1 for that to start really kicking in. Secondarily, Cox Communications, another big focus with Cox Enterprise, and a lot of that training process A lot of the components that are going on with their healthcare solutions that they've OEM or white labeled from us, we're going through the same process. So the training, the certification, getting the sales teams up to speed. And while we're starting with healthcare, we'd like to be able to expand that to other verticals within Cox Communication and Cox Enterprise. But I think what you're going to see is the rest of this year, and we've seen this across many of the large distribution partners, they're really just trying to get all teed up for January of next year. trying to get COVID put behind them and get their sales teams worldwide to be out and about with their customers and start activating. So it's mostly been sales, training, prep, and then getting the trainer activities done. And then I think we're going to start seeing Q1 and beyond as they go back to live, a different composition of direct versus indirect.

that's helpful alan um i'd be remiss if i didn't ask this question but on the supply chain um through earnings we've heard a lot of different um you know sort of headwinds so two parts to this really on on the the light technology business any cause for concern in terms of supply chain and procuring what you need and then on the mass indirect side is there anything you're seeing um consternation in in the channel where the your partners are having a hard time procuring harder they would need to integrate your service into?

Sure. That's a great question and quite timely. We're very focused on that same issue and what are we seeing across verticals and just in general. So I would say in our case, we closed the light acquisition and we're in a unique position of having a lot of backlog in place. And right now, you know, it's kind of a early teaser, we've seen a 60% uptick in the amount of orders comparable year over year during the comparable period subsequent to our closing. So demand does not seem to be a problem. And even when we met Light when they were still private and pre-acquisition, their biggest problem was that they had never reached saturation of demand. They literally had to turn off the order bucket because they were getting so many orders relative to your questions about how much can you fulfill. Inside Funware, this is quite a different thing. We want to take off that and just keep turning up the volume, so to speak, on allowing as much demand to come in as possible. Now, in order to do that, there's two things that we need, and one is simple for us to address. Light has one eight-hour shift. We have the ability to add a second and even a third shift with personnel. That's not a problem. We don't see either the demand nor the organizational manpower to do that work as a challenge. The biggest challenge, you're saying, is when you're really dealing with these systems are chips and boards. And so what we found here in Q4, the second we closed the deal with Light, our executive team reached out through our own network and sourced brand new supply relationship that we have yet to announce. directly with a large manufacturer out of Asia. And we instantly set up a brand new supply to address backlog and new orders. And that's going to be, you know, amazing for here in Q4. Importantly, we're now having conversations with that net new supplier to expand dramatically throughout 2022. I think they still see and recognize the problem of chips and what you're seeing out in off the coast of California with, you know, backed up ships and ports. And so right now what we're doing is adding even more net new discussions with net new suppliers. And what we want to do is to figure out whether there's really a ceiling to the demand. We're fully comfortable and Randall does a great job of managing the team and adding the shifts and the personnel and the capacity we need to fulfill the orders. The rest of it is just going to be taking everything light already put in place that was working quite well historically, but then we wanted to take our relationships and start setting up numerous new supply chains behind these four dominant personas. The high-end performance systems for gaming, those for streaming, those for trading markets, those for cryptocurrency mining, and then candidly, folks that are just using it for advanced personal productivity and So we are not yet seeing the same residual effects other than we're very conscious of the fact that the supply crunch is real. Relationships matter. New supply sources matter. And I think depending on what type of chips and boards you're doing and what part of the hardware ecosystem you're in, you're seeing a pretty wide spectrum as to whether they see this being another three to six months or something that's going to go deeper into 2022.

Gray, just if I could squeeze one last one in, maybe for Matt. Your $5 million or better revenue died in the fourth quarter. What's the rough mix between, call it hardware, and software and services?

Yeah, thanks, Darren. So we're not giving out detail in terms of what that is. For us right now, it's a matter of getting light ramped up We've been with them in less than a month right now. So we certainly have expectations on that side of the business, but really a lot of the core fund war business is going to drive a lot of the revenue for this quarter as well in terms of just software application transaction and fund token sales. So we don't have an exact split on that, but we feel comfortable with our $5 million for the quarter.

Thanks.

Okay, the next question is coming from Scott Buck from HC Winwright. Your line is live.

Hey, good afternoon, guys. I know it was touched on a few times in your term strategy around light, but could you kind of talk about what the longer-term opportunity is and whether there are opportunities to kind of mesh it with the legacy business or the fun token, fun wallet, fun coin side of things?

Yeah, I'm going to start with this one, and then I'm going to have Randall finish it up for me. What's really important, and we talked about in the vision, is how important it is for us to get a funder ID for every human being on the planet. When I started the business, I think I was actually laughed at out loud when I said that to some institutional investors because that was a bit too ambitious, apparently. But after we fast-forward 12 years, got over 15 billion of these funder IDs, and we expect to dramatically accelerate that. Now it's a very different situation. Importantly, what we want to do is get that ID for each person who has a device touching a network through their favorite brands, applications, and everything that they are tied to venues that run our software. And what we expect to do is, when you think of companies that are pure enterprise software like Adobe, and Microsoft, and Salesforce, there is kind of a certain expectation of what that means. Conversely, pure hardware companies the way Apple started or Dell or others. And you saw most of the hardware companies drive out towards software and services. And increasingly you've seen more of the software companies like Microsoft that have very large hardware businesses. For us, because we want at a core to get these firmware IDs to facilitate a global user base that is in control of their own digital identity, that has complete personal sovereignty of everything they do. They are not going to be exploited like they are with Facebook or Google or Twitter or Snap. They are going to be KYC verified individuals who are providing voluntarily all their data information engagement on an incentivized basis to populate audiences and market segments that brands can then trust that those segments that they are going to engage with are completely real completely transparent, openly on a ledger on the blockchain, and allow those brands and those users to connect with one another in a safe way that also compensates users for their engagement and their behavior across those incentives. And so at the core of this, we see software is delivered inside applications, Apple iOS and Google Android. We see software running in the cloud. we see software that we have being bundled with the hardware that Lite represents. And as these high performance systems get shot out to market, that becomes a housing point for our software, and for many of the things that we are doing with FundWallet, FundCoin, and FundToken, as these represent a lot of the early adopters, and represent nodes in a global decentralized network that allows us to completely change the dynamics of how people are respected, in control of their digital identity and information, that safely engage with brands transparently, where both parties know what's happening. You keep a ledger of all of it. And for us, it just allows us to upsell and cross-sell. To your point specifically, before I hand this over to Randall, if you downloaded our Fun Wallet application right now on either iOS or Android, you would find an upsell or a cross-sell is one of the first cards you would see within it, separate from the engagement and survey and other interactions you could do, where it's actually promoting the high-performance system and the Black Friday sales that we have throughout the month, where you can get those high-performance sheets without any build cost and with some really interesting high-end personas that will allow people to be who they are. We not only want to reward you for being you, but we want to accelerate your personal identity, and you engaging in any way that you want. And, Randall, can you talk about a little bit of how that ties into the customer data platform and the build-out that's going on operationally? That would be really helpful. Thank you.

No, I think you hit it. If anybody wants to dive deep, we can do a one-on-one after this. We're a transparent company. We're always available. If you really want to go down the rabbit hole before that conversation, just kind of Google and research decentralized Oracle Networks. But the way I would think about it, for anybody on this call that's new to this whole ecosystem, especially from a shareholder perspective, Amazon wouldn't be Amazon if they didn't invest considerably in hardware so that you could experience the magic of software and on-demand cloud services and on-demand delivery of products. You wouldn't be infatuated with Bitcoin if somebody didn't invest in a very high-end computing system in order to deliver this new fanciful internet money. Software exists at the pleasure of hardware, and only companies with the wherewithal and the persistence to actually build something meaningful actually have the guts to build the hardware infrastructure that's required to deliver, especially on-demand anything. And we expect to deliver on-demand experiences. And having a data economy behind that that is truly decentralized will live into the promise of you know, Web 3.0. And so when you think about anything in decentralization, it's got to run on computers. Rather than running on centralized data servers, what if you had a worldwide network of high-end computing systems that were truly decentralized? So let's leave some time for some more questions.

That's helpful, guys. I appreciate the color there. And second one, just on M&A, with all the additional capital you have now, does anything change in the way you're looking at potential targets?

Well, so I'll take a stab at that one. So the way we always look at M&A is always very consistent with or without big balance sheets, right? We find things that are opportunistic, sometimes strategic. What we really want to do is get more touch points all over the world. I do think you're right that with a flush balance sheet, we are doing lots of deep dives with our board and working through our finalized operating plan, which then allows us to provide some some more detailed guidance to all of you once we get through that planning process and finalize and approve it. You know, the way we're thinking about things is that some companies just have like really strange valuation parameters or ownership structures, whether they're public or private, that really just make a lot of the M&A a bit challenging. Clearly, with a lot more money that we have and strong stock, stock price, market capitalization, it opens up more opportunities. I will say, candidly, there are some folks that Randall and I have talked to historically, both in the public and private markets, about M&A and buying businesses that respectfully said no thank you or had issues where they didn't want to move forward because of either ownership structures or management structures. Some actually contacted us recently where they, I think, have a little... regret and remorse for having said no. We'll only do deals if it's disciplined. It's going to be accretive. It's going to make financial sense to both of us. And honestly, we don't look for anything where someone's trying to sell a business to us and disappear. The real attraction of Light was not only that Light wanted to do a deal with Funware and come join us, but that the founder and CEO didn't want to go anywhere. In fact, we wouldn't have wanted to do the deal had he wanted to have a desire to go elsewhere. I think we will, now having very little debt, we can always look for revolvers for M&A. I think we have a lot more opportunities to use supplements of cash or cash in stock to consummate M&A if we find the right fit. But I think the way you should think about it is going to be three levels of capital, and those three levels of capital will feed into what happens within organic and inorganic growth. Bucket one is all the cash and stablecoin-oriented things that we do to manage what our needs are to operate and scale the business. Bucket two will be all the things that we deal with in decentralized finance to make our corporate treasury much more of a strategic weapon, if you will, to operate in the market worldwide. And then the final base bucket of that is, of course, Bitcoin, which we continue to believe in as long as the federal government is going to continue to print money the way it is We look at the cost of capital at about 25% based on the amount of dollars being generated. And so that's really the threshold that we look at on the cost of capital as to what makes sense and then what kind of asset is being used.

All right. Great, guys. I appreciate the additional call. Thanks a lot.

Okay. The next question is coming from Ed Wu from Senate Capital.

Yeah, congratulations on the quarter. I was wondering if you could talk a little bit about your strategy on Bitcoin. Do you anticipate that the amount of coins you have to fluctuate quarter to quarter? And then also, do you anticipate acquiring any other cryptocurrency?

Sure. So I'll take a first pass and then let Matt make some additional comments from the CFO seat. So first and foremost, We look at Bitcoin as a complete hedge against inflation. Inflation is out of control. If the official number as released was a little over six, you might as well double or triple that to 12 or 18. We believe that there's a lot of concern of having 40% of all US dollars in the history of our country printed in the last 12 months. We think that that's going to be very bullish for Bitcoin. And the issue is when you have a lot of financial assets and a lot of physical assets, all those are going to get denominated in U.S. dollars. So Bitcoin is the one thing that is not denominated in U.S. dollars. And in fact, over the last 12 years, the U.S. dollar has dropped 99% in value against Bitcoin. And even gold, physical gold, has dropped 95% in value over the last 12 years. So while there's volatility in the assets, you kind of have one asset that has a lot of volatility but goes up on average 200% per year for 12 straight years. And on the other aspect, you have the U.S. dollar, which is dropping between 20% and 25% per year in value with certainty. It's actually terrifying to think that you lose, at a personal level, 1% of your wealth every 30 days right now because even at 4% inflation, which is far lower than what reality is, you're going to lose 50% of your wealth in the next 20 years at 4%. And we're way, way higher than that. So Bitcoin is going to be foundational to preserve value, to preserve purchasing power. And I think you should expect that our Bitcoin balance is predominantly going to not only stay where it's at, but it's just going to continue to rise. So when you're asking about variability, don't expect us to be buying and selling and trading Bitcoin. That's not what we do. What we do is we treat it as a strategic asset to preserve protection against inflation, purchasing power, and flexibility. So that's what we're going to do. On other currencies, as Randall, I think, said, and Matt said, we obviously accept Bitcoin and Ethereum in addition to the U.S. dollars when we sell our fund tokens. So we haven't yet disclosed an Ethereum balance, but we do have Ethereum. And as we get into decentralized finance, you can expect we're going to touch different kind of assets in a very safe and manageable way with our corporate treasury. Matt, comments?

No, Alan, I think you kind of touched on it all there. So, yeah, we're, you know, obviously we've kind of made a few announcements and you can follow along in our Qs and Ks as to as to how we're acquiring and you know at what prices um you know and i'm sure you know the funny thing with accounting for this is we've got to write down you know anytime the value of bitcoin goes down um but you know obviously we don't we don't take the uh we don't take any uh gains on it until we sell it so you're not going to see anything on there anytime soon we're not selling bitcoin we're holding And, you know, as Alan said, it's part of our strategy going forward, and we'll kind of keep everybody up to date as we move forward with that.

Well, you guys have definitely done very well. So congratulations. Thank you for answering my question.

Thanks, Ed.

Once again, if there are any remaining questions or comments, please indicate so by pressing star 1. The next question is coming from Howard Halpern from Taglich Brothers. Your line is live.

Congratulations on all the work you've been doing these quarters. A couple of housekeeping questions. I don't know if you mentioned it. What is your backlog entering the fourth quarter in recurring revenue?

Yeah, I mentioned it. It's just a little over $6 million entering the fourth quarter.

Okay. And with all the... transactions post, uh, the, uh, quarter, how many shares outstanding do you have from, you know, the offering and the X warrant exercise?

Yeah. So we're have 96.2 million shares is our current. Okay. So we, we sold a, yeah, we sold a decent amount and after, uh, September 30th.

Okay. And in terms of, uh, delight acquisition what over the longer term i guess or over the next 12 months what type of uh growth margin profile does it have compared to uh you know the software business obviously it's hardware versus software so but what is that mix gonna do over the longer term to uh

Yeah, it's a great question, and it's something, as Alan mentioned, we're working through an operating plan right now and going through everything with the board. You're correct in terms of hardware. It's kind of your typical hardware business where there are going to be lower margins. That being said, there are quite a few things that we're doing now to try to improve margins, whether that's new supplier relationships, or just you know more efficient activities and getting the computers out um in different kind of low-hanging fruit so we'll uh you know we'll kind of see how that shakes out and obviously once we uh we get a quarter under our belt and you guys will be able to see kind of where that is but certainly it's going to be a mix of uh of a higher margin software and you know slightly lower margin uh hardware business and we'll you know we'll kind of update you guys as we uh as we get some numbers in and kind of figure out what that's going to look like going forward.

Yeah, Howard, and one thing just to add on to that to help, you know, we're also have a new product, right? So all of the fun token that we're selling is virtually 100% gross margin, we meant that internally as our own cryptocurrency, I think we're the first NASDAQ or NYSE listed company in history to actually issue its own cryptocurrency. You know, there's a lot that by Bitcoin, there's a lot that mine, Bitcoin, but the concept of having a fully regulated set of things that you're doing, I think we're unique and we're the first. We're excited by that. And then, you know, in parallel, by doing that, really the cost of goods when we do that and we do those sales are basically the KYC fees to make sure you're validating identity and AML and all the other controls. And then the other part of that is typically the gas fees or the transaction fees that you pay in Ethereum. So to Matt's point, you know, cryptocurrency, having Bitcoin is important, having Ethereum is important, because US dollars can't be used in the world of blockchain. And in order to facilitate transactions, all the fees are in different types of cryptocurrencies. So that should be helpful. And I think, as Matt said, we'll have both the hardware-oriented margins, the software margins you're used to, and then we're going to have you know, things that look even better than software as it relates to cryptocurrency margins.

Okay. And just one last one on, I don't know, maybe some tailwind as you go into 2022, as the money starts flowing from the projects from the newly packed infrastructure bill, how is that going to impact, especially on, you know, smart cities offerings as, infrastructure gets upgraded across the country.

Yeah, so I think we're all still getting our arms around as to exactly what in that massive pile of a bill is really going to represent, you know, actual physical infrastructure versus, you know, programs of all sorts of shapes and varieties. And I think what's interesting is I'm currently in Miami. You know, we have offices in Miami, Austin, and Southern California. And one of the things that just came out literally shortly before our call, and I'm meeting with Mayor Suarez on my next visit here in a couple weeks, they just announced a really interesting initiative. They're actually going to take Bitcoin dividends from the city of Miami, and they're going to give Bitcoin dividends to every citizen who downloads a wallet and uses a Bitcoin wallet here in the city of Miami. as a beneficiary of what they're doing. And in parallel to that, they've now accepted almost $20 million at the local city level from a separate cryptocurrency that are tied to people effectively, if you think, that are staking what they think is going to happen with the city of Miami and ways to contribute to the local community. And that's nearly $20 million of found money And with all that money, what the mayor is attempting to do is to make all their public services budget neutral. So imagine where you can operate the city budget neutral through the use of cryptocurrency and effectively start reducing the taxes from property tax, sales tax, because they no longer need to get that from the residents. And in fact, not only are they trying to do that, but they're trying to give dividends of the benefit of that accrued value to the citizens of the city. So I think it's a really important thing to watch here in the United States, much like you should watch very close attention to what El Salvador is doing as a country and how phenomenal that's changed. So I do think we're going to see a lot of investment where the Internet of Things is going to be supplemented by a trademark we own called the Software of Things, where we're going to deliver smart city solutions and a downloadable app that a constituent, a resident, a visitor can all engage with all the services offered by the local community. And I think we kicked that off with the city of Pasadena to showcase how that's possible.

Okay.

Well, keep up the great work, guys.

I'd now like to turn the call back to Alan for closing remarks.

Yeah, closing remarks. I just want to say thank you for all of you that have been supporting us. Obviously, since we've been public, we've gone through a lot of interesting things. COVID has been, you know, just a crazy thing to deal with for all of us in our business, in yours, personal life, and everything in between. We're very empathetic to the differences between cities and states. We have employees and partners and customers all over the country and around the world. And obviously, all of the protocols are amazingly different. So I do appreciate all of the help and support along the way. We've been trying to be very candid and open about what we're going to do. how we're going to do it, what's important to us and why. And we're trying to be very authentic and genuine about that. We're trying to tell you in advance what we plan to do, then we go do it. And then we report back the results. And I think the last 90 days have been exciting to really show you all the investments we made during COVID of what is possible and what can start happening. So now we're going to take this, enjoy a day and get right back to it tomorrow and start really scaling, because while COVID isn't completely over, we're hopeful that by the end of the year, come January, we'll have people ready to kick off a brand new year, and our team's going to do that at the Consumer Electronics Show out in Las Vegas right after the holidays. In final conclusion, I want to just make a special thank you and wish nothing but the best for our veterans around the world. Randall, who I have the pleasure of working with every day, both he and I were experts United States Army military officers, and we're just thrilled to have not only been able to serve our country, but to also recognize the sacrifices of those soldiers and their families around the world that are actually making our way of life possible. So on this unique day, happy Veterans Day. God bless all of you that have been serving our country, and God bless America. So we're really excited for what comes next with Father Warren. Thank you very much.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.