(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 001-38744
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
| For the quarterly period ended March 31, 2021 | |||||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
| For the transition period from _______ to _______ | |||||
| Delaware | 82-5325852 | |||||
| (State or other jurisdiction of incorporation or organization) | ( Identification No.) | |||||
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2525 16th Street, Suite
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| 316 San Francisco, California 94103-4234 (Address of | |||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Class A common stock, par value $0.0001 per share | ||||||||||||||
| Nasdaq Capital Market | ||||||||||||||
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||||||
| ☒ | Smaller reporting company | ☒ | |||||||||||||
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ | |||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Class A Common Stock Class B Common Stock Class A Common Stock Class B Common Stock ACCOUNTING POLICIES three months ended March 31, 2021 and 2020. The Use of Estimates impacts remain unclear. The inspection and reconditioning center where Shift inspects the vehicle and makes a final purchasing decision regarding the vehicle. Any rejected vehicles are sent to wholesale auction facilities at Shift’s expense, at which point Shift has no further obligations to the automaker for the rejected vehicle. The Company records inventory received under the arrangement with the OEM equal to the amount of the liability due to the OEM to acquire such vehicles. The liability due to the OEM provider for such acquired vehicles is equal to the OEM’s original acquisition price. The final price paid to the OEM upon sale of the vehicle includes an additional amount equal to 50% of the excess of the sales price over the original acquisition price. employee and non-employee stock options issued under the 2014 Plan is set forth below:INSURANCE ACQUISITION CORP.CONDENSED BALANCE SHEETS March 31, December 31, 2020 2019 (unaudited) ASSETS Current assets Cash $ 104,229 $ 406,724 Prepaid expenses and other current assets 90,708 73,934 Total Current Assets 194,937 480,658 Cash and marketable securities held in Trust Account 153,723,340 153,238,186 Total Assets $ 153,918,277 $ 153,718,844 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued expenses $ 89,448 $ 214,787 Income taxes payable 631,142 497,388 Total Current Liabilities 720,590 712,175 Deferred underwriting fee payable 6,419,000 6,419,000 Total Liabilities 7,139,590 7,131,175 Commitments Common stock subject to possible redemption, 13,833,524 and 13,856,560 shares at redemption value as of March 31, 2020 and December 31, 2019, respectively 141,778,683 141,587,667 Stockholders’ Equity Preferred stock, $0.0001 par value; 1,000,000 shares authorized, none issued and outstanding — — Class A common stock, $0.0001 par value; 50,000,000 shares authorized; 1,656,476 and 1,633,440 shares issued and outstanding (excluding 13,833,524 and 13,856,560 shares subject to possible redemption) as of March 31, 2020 and December 31, 2019, respectively 166 163 Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 5,163,333 shares issued and outstanding as of March 31, 2020 and December 31, 2019 516 516 Additional paid-in capital 3,484,151 3,675,170 Retained earnings 1,515,171 1,324,153 Total Stockholders’ Equity 5,000,004 5,000,002 Total Liabilities and Stockholders’ Equity $ 153,918,277 $ 153,718,844 As of March 31, 2021 As of December 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 176,985 $ 233,936 Accounts receivable, net 21,208 8,426 Inventory 74,253 49,086 Prepaid expenses and other current assets 9,607 5,478 Total current assets 282,053 296,926 Property and equipment, net 3,440 2,123 Capitalized website and internal use software costs, net 7,207 6,542 Restricted cash, non-current 1,730 1,605 Deferred borrowing costs 1,391 2,149 Other non-current assets 2,331 2,748 Total assets $ 298,152 $ 312,093 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 12,906 $ 10,675 Accrued expenses and other current liabilities 25,170 22,286 Flooring line of credit 31,343 13,870 Total current liabilities 69,419 46,831 Financial instruments liability 23,077 25,230 Other non-current liabilities 3,018 2,850 Total liabilities 95,514 74,911 Commitment and contingencies (Note 10) 0 0 Stockholders’ equity: Preferred stock – par value $0.0001 per share; 1,000,000 shares authorized at March 31, 2021 and December 31, 2020, respectively 0 0 Common stock – par value $0.0001 per share; 500,000,000 shares authorized at March 31, 2021 and December 31, 2020, respectively; 84,136,987 and 83,904,182 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively 8 8 Additional paid-in capital 519,828 511,617 Accumulated deficit (317,198) (274,443) Total stockholders’ equity 202,638 237,182 Total liabilities and stockholders’ equity $ 298,152 $ 312,093 thethese condensed consolidated financial statements.INSURANCE ACQUISITION CORP.CONDENSED STATEMENTS OF OPERATIONS(Unaudited) Three Months Ended
March 31, 2020 2019 Operating expenses $ 342,432 $ 59,556 Loss from operations (342,432 ) (59,556 ) Other income: Interest earned on marketable securities held in Trust Account 667,204 59,240 Income (loss) before provision for income taxes 324,772 (316 ) Provision for income taxes (133,754 ) (2,917 ) Net income (loss) 191,018 (3,233 ) Weighted average shares outstanding of Class A redeemable common stock 15,065,000 15,065,000 Basic and diluted net income (loss) per share, Class A 0.03 (0.00 ) Weighted average shares outstanding of Class A and Class B non-redeemable common stock 5,588,333 5,205,833 Basic and diluted net loss per share, Class A and Class B (0.06 ) (0.00 ) Three Months Ended
March 31, 2021 2020 Revenue Ecommerce revenue, net $ 88,954 $ 21,916 Other revenue 4,019 683 Wholesale vehicle revenue 13,031 7,354 Total revenue 106,004 29,953 Cost of sales 98,638 26,610 Gross profit 7,366 3,343 Operating expenses: Selling, general and administrative expenses 50,234 13,446 Depreciation and amortization 1,101 982 Total operating expenses 51,335 14,428 Loss from operations (43,969) (11,085) Change in fair value of financial instruments 2,153 0 Interest and other expense, net (939) (1,246) Net loss and comprehensive loss attributable to common stockholders $ (42,755) $ (12,331) Net loss and comprehensive loss per share attributable to common stockholders, basic and diluted $ (0.55) $ (3.84) Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted 77,909,110 3,214,113 the unauditedthese condensed consolidated financial statements.INSURANCE ACQUISITION CORP.CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(Unaudited)THREE MONTHS ENDED MARCH 31, 2020 Additional Paid-in Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Deficit Equity Balance – January 1, 2020 1,633,440 $ 163 5,163,333 $ 516 $ 3,675,170 $ 1,324,153 $ 5,000,002 Change in value of common stock subject to possible redemption 23,036 3 — — (191,019 ) — (191,016 ) Net income — — — — — 191,018 191,018 Balance – March 31, 2020 1,656,476 $ 166 5,163,333 $ 516 $ 3,484,151 $ 1,515,171 $ 5,000,004 THREE MONTHS ENDED MARCH 31, 2019 Additional Paid-in Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Deficit Equity Balance – January 1, 2019 — $ — 5,163,333 $ 516 $ 24,484 $ (1,669 ) $ 23,331 Sale of 15,065,000 Units, net of underwriting discount and offering expenses 15,065,000 1,507 — — 140,987,009 — 140,988,516 Sale of 425,000 Placement Units 425,000 42 — — 4,249,958 — 4,250,000 Common stock subject to possible redemption (14,015,901 ) (1,402 ) — — (140,257,210 ) — (140,258,612 ) Net loss — — — — — (3,233 ) (3,233 ) Balance – March 31, 2019 1,474,099 $ 147 5,163,333 $ 516 $ 5,004,241 $ (4,902 ) $ 5,000,002 Convertible
Preferred StockCommon Stock Additional
Paid in
CapitalAccumulated
DeficitTotal Stockholders’ Shares Amount Shares Amount Balance at December 31, 2020 0 $ 0 83,904,182 $ 8 $ 511,617 $ (274,443) $ 237,182 Warrant exchange — — 125,160 — (497) — (497) Issuance of common stock upon exercise of vested options — — 107,645 — 200 — 200 Repurchase of shares related to early exercised options — — — — 132 — 132 Vesting of early exercised options — — — — 1 — 1 Stock-based compensation — — — — 8,375 — 8,375 Net loss and comprehensive loss — — — — — (42,755) (42,755) Balance at March 31, 2021 0 $ 0 84,136,987 $ 8 $ 519,828 $ (317,198) $ 202,638 Convertible
Preferred StockCommon Stock Additional
Paid in
CapitalAccumulated
DeficitTotal Stockholders’ Equity Shares Amount Shares Amount Balance at December 31, 2019 255,237,101 $ 223,631 37,432,555 $ 3 $ 34,997 $ (215,297) $ (180,297) Retroactive application of recapitalization (255,237,101) (223,631) (6,037,592) — 223,631 — 223,631 Adjusted balance, beginning of period 0 0 31,394,963 3 258,628 (215,297) 43,334 Issuance of common stock upon exercise of vested options — — 38,860 — 59 — 59 Repurchase of shares related to early exercised options — — — — 41 — 41 Stock-based compensation — — — — 327 — 327 Net loss and comprehensive loss — — — — — (12,331) (12,331) Balance at March 31, 2020 0 0 31,433,823 3 259,055 (227,628) 31,430 Three Months Ended
March 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (42,755) $ (12,331) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,173 982 Stock-based compensation expense 8,203 267 Change in fair value of financial instruments (2,153) $ 0 Contra-revenue associated with milestones 159 159 Amortization of debt discount 0 1,092 Changes in operating assets and liabilities: Accounts receivable (12,782) (618) Inventory (25,167) (3,537) Prepaid expenses and other current assets (4,129) (534) Other non-current assets 296 130 Accounts payable 1,760 1,309 Accrued expenses and other current liabilities 3,005 2,160 Other non-current liabilities 915 (17) Net cash, cash equivalents, and restricted cash used in operating activities (71,475) (10,938) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (1,135) (168) Capitalized website internal-use software costs (1,353) (1,103) Net cash, cash equivalents, and restricted cash used in investing activities (2,488) (1,271) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from flooring line of credit facility 57,096 8,103 Repayment of flooring line of credit facility (39,661) (10,380) Exchange of warrants for cash (497) 0 Proceeds from stock option exercises, including from early exercised options 200 59 Repurchase of shares related to early exercised options (1) 0 Net cash, cash equivalents, and restricted cash provided by (used in) financing activities 17,137 (2,218) Net decrease in cash, cash equivalents and restricted cash (56,826) (14,427) Cash, cash equivalents and restricted cash, beginning of period 235,541 44,576 Cash, cash equivalents and restricted cash, end of period $ 178,715 $ 30,149 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 176 $ 287 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Vesting of exercised options $ 132 $ 41 Stock-based compensation capitalized to internal-use software $ 172 $ 60 the unauditedthese condensed consolidated financial statements.INSURANCE ACQUISITION CORP.CONDENSED STATEMENTS OF CASH FLOWS(Unaudited) Three Months Ended
March 31, 2020 2019 Cash Flows from Operating Activities: Net income (loss) $ 191,018 $ (3,233 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Interest earned on marketable securities held in Trust Account (667,204 ) (59,240 ) Changes in operating assets and liabilities: Prepaid expenses and other current assets (16,774 ) (155,350 ) Accounts payable and accrued expenses (125,339 ) 56,290 Income taxes payable 133,754 2,917 Net cash used in operating activities (484,545 ) (158,616 ) Cash Flows from Investing Activities: Investment of cash in Trust Account — (150,650,000 ) Cash withdrawn from Trust Account to pay franchise taxes 182,050 — Net cash provided by (used in) investing activities 182,050 (150,650,000 ) Cash Flows from Financing Activities: Proceeds from sale of Units, net of underwriting discounts paid — 148,030,000 Proceeds from sale of Placement Units — 4,250,000 Advance from related party — 64,231 Repayment of advances from related party — (65,535 ) Proceeds from promissory note – related party — 200,000 Repayment of promissory note – related party — (200,000 ) Payment of offering costs — (576,749 ) Net cash provided by financing activities — 151,701,947 Net Change in Cash (302,495 ) 893,331 Cash – Beginning of period 406,724 25,000 Cash – End of period $ 104,229 $ 918,331 Non-Cash investing and financing activities: Initial classification of common stock subject to possible redemption $ — $ 140,260,560 Change in value of common stock subject to possible redemption $ 191,016 $ (1,948 ) Deferred underwriting fee payable $ — $ 6,419,000 Offering costs included in accrued offering costs $ — $ 46,032 The accompanying notes are an integral partTable of the unaudited condensed financial statements.
SHIFT TECHNOLOGIES, INC. AND SUBSIDIARIESNOTES TO CONDENSED FINANCIAL STATEMENTSMARCH 31, 2020(Unaudited)NOTE ORGANIZATIONTHE BUSINESS AND BUSINESS OPERATIONS(the “Company”Mergerisan entity listed on the Nasdaq Capital Market under the trade symbol “INSU”, acquired Legacy Shift by the merger of IAC Merger Sub, Inc., a blank checkdirect wholly owned subsidiary of IAC, with and into Legacy Shift, with Legacy Shift continuing as the surviving entity and a wholly owned subsidiary of IAC (the “Merger”). The public company incorporatedresulting from the merger was renamed Shift Technologies, Inc., which we refer to as Shift, we, us, our, SFT, or the Company. Upon the consummation of the Merger, Shift received approximately $300.9 million, net of fees and expenses. See Note 2 - Merger for additional details regarding this transaction.Delaware on March 13, 2018.all locations to be affected as the virus continues to proliferate. The Company was formed forsaw a slowing of vehicle sales immediately following the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business transaction with one or more operating businesses or assets (a “Business Combination”).Although the Company is not limitedshelter in place ordinances in March; however, within five weeks, weekly sales volume rebounded nearly to a particular industry or sector for purposes of consummating a Business Combination, the Company intends to focus its search on businesses providing insurance or insurance related services, with particular emphasis on regulated insurance or reinsurance companies.pre-COVID-19 volumes. The Company is an early stagehas adjusted certain aspects of its operations to protect its employees and emerging growth companycustomers while still meeting customers’ needs for vital technology, including implementing contactless purchase and delivery processes and applying long-term antimicrobial surface and air protection systems for its entire inventory.such,well as the Company is subject to alldeferral of the risks associated with early stage and emerging growth companies.All activity through March 31, 2020 relates toemployer portion of the Company’s formation, its initial public offering (the “Initial Public Offering”), which is described below, and identifyingsocial security payroll tax. The income tax benefits include a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates non-operating incomefavorable increase in the form of interest income from the proceeds derived from the Initial Public Offering.The registration statementexpense limitation under section 163(j), allowing a five-year net operating loss (“NOL”) carryback provision for the Company’s Initial Public Offering was declared effective on March 19, 2019. On March 22, 2019, the Company consummated the Initial Public Offering of 15,065,000 units (the “Units”certain NOLs, and with respect to the shares of Class A common stock included in the Units sold, the “Public Shares”), which includes the full exercise by the underwriters of their over-allotment option inincreasing the amount of 1,965,000 Units, at $10.00 per Unit, generating gross proceeds of $150,650,000, which is described in Note 3.Simultaneously withNOLs corporations may use to offset income for taxable years beginning before 2021. The Company has evaluated the closingincome tax impacts of the Initial Public Offering,CARES Act and does not expect that the income tax relief provisions of the CARES Act would not significantly impact the Company, consummated the sale of 425,000 units (the “Placement Units”) at a price of $10.00 per Placement Unit in a private placement to the Company’s sponsor, Insurance Acquisition Sponsor, LLC (together with Dioptra Advisors, LLC, the “Sponsor”) and Cantor Fitzgerald & Co. (“Cantor”), generating gross proceeds of $4,250,000, which is described in Note 4.Transaction costs amounted to $9,661,484, consisting of $2,620,000 of underwriting fees, $6,419,000 of deferred underwriting fees and $622,484 of other offering costs.since it has had taxable losses since inception. In addition, $1,048,801 of cash was held outsidethe Company has adopted the deferral of the Trust Account (as defined below) and is available for working capital purposes.Following the closing of the Initial Public Offering on March 22, 2019, an amount of $150,650,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Placement Units was placed in a trust account (“Trust Account”), which will be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the consummation of a Business Combination; (ii) the redemption of any Public Shares in connection with a stockholder vote to amend the Company’s Amended and Restated Certificate of Incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if it does not complete an initial Business Combination by September 22, 2020 (the “Combination Period”); or (iii) the distribution of the Trust Account, as described below, except that interest earned on the Trust Account can be released to pay the Company’s tax obligations, if the Company is unable to complete an initial Business Combination within the Combination Period or upon any earlier liquidation of the Company.The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Placement Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. Nasdaq rules provide that the Company must complete a Business Combination with one or more target businesses that together have an aggregate fair market value of at least 80% of the assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on interest earned on the Trust Account) at the time of signing a definitive agreement in connection with a Business Combination. The Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. There is no assurance that the Company will be able to successfully effect a Business Combination.INSURANCE ACQUISITION CORP.NOTES TO CONDENSED FINANCIAL STATEMENTSMARCH 31, 2020(Unaudited)The Company will provide its stockholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The stockholders will be entitled to redeem their Public Shares for a pro rataemployer portion of the amount then on deposit insocial security payroll tax. The deferral is effective from the Trust Account ($10.00 per Public Share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released toenactment date through December 31, 2020. As of March 31, 2021, the Company to pay its tax obligations).had deferred $1.3 million. The per-sharedeferred amount towill be distributed to stockholders who redeem their sharespaid in two installments and the amount will not be reduced byconsidered timely paid if 50% of the deferred underwriting commissions the Company will pay to the representative (as discussed in Note 6). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.The Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination. If a stockholder voteamount is not requiredpaid by lawDecember 31, 2021 and the Company does not decideremainder by December 31, 2022.hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (the “SEC”), and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or other legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Sponsor and the Company’s officers and directors (the “Insiders”) have agreed to vote their Founder Shares (as defined in Note 5), the shares of Class A common stock included in the Placement Units (the “Placement Shares”) and any Public Shares held by them in favor of approving a Business Combination. Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction.The Company will also provide its stockholders with the opportunity to redeem all or a portion of their Public Shares in connection with any stockholder vote to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation that would affect the substance or timing of the Company’s obligation to redeem 100% of the Public Shares if it does not complete an initial Business Combination within the Combination Period. The stockholders will be entitled to redeem their shares for a pro rata portion of the amount then on deposit in the Trust Account ($10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account, net of taxes payable). The per-share amount to be distributed to stockholders who redeem their shares will not be reduced by the deferred underwriting commissions the Company will pay to the representative (as discussed in Note 6). There will be no redemption rights with respect to the Company’s warrants in connection with such a stockholder vote to approve such an amendment to the Company’s Amended and Restated Certificate of Incorporation. Notwithstanding the foregoing, the Company may not redeem shares in an amount that would cause its net tangible assets to be less than $5,000,001. The Insiders have agreed to vote any Founder Shares, Placement Shares and any Public Shares held by them in favor of any such amendment.The Company will have until the expiration of the Combination Period to consummate its initial Business Combination. If the Company is unable to consummate a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including any interest earned on the Trust Account not previously released to the Company to pay its tax obligations and up to $100,000 of interest to pay dissolution expenses, divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and; (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.
(unaudited)INSURANCE ACQUISITION CORP.NOTES TO CONDENSED FINANCIAL STATEMENTSMARCH 31, 2020(Unaudited)The Insiders and Cantor have agreed to waive their redemption rights with respect to any Founder Shares and Placement Shares, as applicable, (i) in connection with the consummation of a Business Combination, (ii) in connection with a stockholder vote to amend the Company’s Amended and Restated Certificate of Incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if it does not complete its initial Business Combination within the Combination Period, and (iii) if the Company fails to consummate a Business Combination within the Combination Period. The Insiders have also agreed to waive their redemption rights with respect to any Public Shares held by them in connection with the consummation of a Business Combination and in connection with a stockholder vote to amend the Company’s Amended and Restated Certificate of Incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if it does not complete its initial Business Combination within the Combination Period. However, the Insiders will be entitled to redemption rights with respect to Public Shares if the Company fails to consummate a Business Combination or liquidates within the Combination Period. Cantor will have the same redemption rights as public stockholders with respect to any Public Shares it acquires. The representative has agreed to waive its rights to deferred underwriting commissions held in the Trust Account in the event the Company does not consummate a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the Initial Public Offering price per Unit ($10.00). Placing funds in the Trust Account may not protect those funds from third party claims against the Company. Although the Company will seek to have all vendors, service providers (except the Company’s independent registered accounting firm), prospective target businesses or other entities it engages, execute agreements with the Company waiving any claim of any kind in or to any monies held in the Trust Account, there is no guarantee that such persons will execute such agreements. Cohen & Company, LLC, the manager of the Sponsor, has agreed that it will be liable under certain circumstances to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or vendors or other entities that are owed money by the Company for service rendered, contracted for or products sold to the Company. However, it may not be able to satisfy those obligations should they arise. Notwithstanding the foregoing redemption rights, if the Company seeks stockholder approval of its Business Combination and it does not conduct redemptions in connection with its Business Combination pursuant to the tender offer rules, the Amended and Restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to an aggregate of 20.0% or more of the shares sold in the Initial Public Offering. However, there is no restriction on the Company’s stockholders’ ability to vote all of their shares for or against a Business Combination.NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESpresentationThe accompanyingPresentationinformationstatements have been prepared on the same basis as the audited consolidated financial statements contained in the Company's most recent Annual Report on Form 10-K , and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X promulgated by the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In themanagement’s opinion, of management, the accompanying unaudited condensed financial statements includeincludes all adjustments, consisting of aonly normal recurring nature, which areadjustments, necessary for athe fair presentation of the financial position, operatingCompany’s condensed consolidated balance sheet as of March 31, 2021, and its results of operations for the three months ended March 31, 2021 and 2020, and cash flows for the periods presented.accompanying unaudited condensedresults for the three months ended March 31, 2021, are not necessarily indicative of the results expected for the fiscal year or any other periods. These interim financial statements should be read in conjunction with the Company’s consolidated financial statements and related notes for the fiscal year ended December 31, 2020 included in our Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the SECUnited States Securities and Exchange Commission ("SEC") on March 25, 2020, which contains the audited financial statements and notes thereto. The financial information as of December 31, 2019 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The interim results for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any future interim periods.7INSURANCE ACQUISITION CORP.NOTES TO CONDENSED FINANCIAL STATEMENTSMARCH 31, 2020(Unaudited)Emerging growth companyThe Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.estimates condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.Making On an ongoing basis, the Company evaluates its estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future events. Accordingly, the actual results could differ significantly fromand assumptions, including those estimates.Cash and cash equivalentsThe Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of March 31, 2020 and December 31, 2019.Common stock subject to possible redemptionThe Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of the Company’s condensed balance sheets.Offering costsOffering costs consist of legal, accounting, underwriting fees and other costs incurred through the balance sheet date that are directly related to the Initial Public Offering. Offeringvaluation of vehicle inventory, capitalized website and internal-use software development costs, amounting to $9,661,484 were charged to stockholders’ equity uponfair value of common stock, financial instruments, stock-based compensation and income taxes.completionglobal economy, as well as the Company’s operations, and the extent and duration of the Initial Public Offering.INSURANCE ACQUISITION CORP.NOTES TO CONDENSED FINANCIAL STATEMENTSMARCH 31, 2020(Unaudited)Income taxesCompany complies withCompany’s future estimates, including, but not limited to, the accountinginventory valuations, and reporting requirementsfair value measurements, may be impacted and continue to evolve as conditions change as a result of ASC Topic 740 “Income Taxes,”the COVID-19 pandemic.requires an asset and liability approach to financial accounting and reportingform the basis for income taxes. Deferred income tax assets and liabilities are computed for differences betweenmaking judgments about the financial statement and tax basescarrying values of assets and liabilities that will resultare not readily apparent from other sources. Actual results may differ materially from those estimates.future taxable or deductible amounts,an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on enacted tax lawsassumptions that market participants would use in pricing an asset or liability.rates applicablethat are significant to the periodsfair value of the assets or liabilities.whichtheir entirety based on the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assetslowest level of input that is significant to the amountfair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. As of March 31, 2021 and December 31, 2020, all liability-classified financial instruments that are remeasured on a recurring basis have been valued using Level 3 inputs. The determination of the fair value of the Lithia warrants subject to remeasurement is based on the Black-Scholes valuation model, which requires significant estimates including the expected volatility of our common stock, expected dividend yield, option term and risk-free rate.realized.ASC Topic 740 prescribes a recognition threshold67.60% and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties63.93% as of March 31, 20202021 and December 31, 2019.2020, respectively, based on the historical volatility of comparable publicly traded companies.(in thousands) 2021 2020 Balance as of January 1, $ 25,230 $ 4,810 Remeasurement of Escrow Shares liability (2,153) 0 Balance as of March 31, $ 23,077 $ 4,810 not awareassessing the impact, if any, the guidance will have on the Company’s condensed consolidated financial statements.issues under reviewtime during the 12 months following the closing, the closing share price of the Company’s common stock is greater than $12.00 over any 20 trading days within any 30 trading day period, 50% of the Escrow Shares will be released; andcouldwill result in significant payments, accrualsthe holders of the Company’s common stock receiving a per share price equal to or material deviationin excess of $10 per share (as equitably adjusted for stock splits, stock dividends, special cash dividends, reorganizations, combinations, recapitalizations and similar transactions affecting the common stock after the date of the Merger), then all Escrow Shares shall be released to the Legacy Shift stockholders effective as of immediately prior to the consummation of such change of control.As of March 31, 2021 As of December 31, 2020 Equipment $ 3,420 $ 2,132 Furniture and fixtures 191 158 Leasehold improvements 1,695 1,408 Total property and equipment 5,306 3,698 Less: accumulated depreciation (1,866) (1,575) Property and equipment, net $ 3,440 $ 2,123 As of March 31, 2021 As of December 31, 2020 Capitalized website domain costs – nonamortizable $ 385 $ 385 Capitalized website and internal-use software development costs – amortizable 18,857 17,308 Less: accumulated amortization (12,035) (11,151) Capitalized website and internal-use software development costs, net $ 7,207 $ 6,542 As of March 31, 2021 As of December 31, 2020 Liability for vehicles acquired under OEM program $ 10,940 $ 11,461 Accrued payroll related costs 5,462 4,155 Provision for DMV refunds 1,049 1,093 Accrued sales taxes 3,056 1,503 Common stock subject to repurchase liability, current 379 524 Other accrued expenses 4,284 3,550 Total accrued expenses and other current liabilities $ 25,170 $ 22,286 position.be subject to potential examination by federal, state and city taxing authoritiesrequest a one-time increase in the areascommitment by an amount equal to $20.0 million, provided that certain conditions in the facility agreement are met. The expiration date of income taxes. These potential examinations may include questioning the timingfacility was initially September 30, 2019. Advances under the facility accrue interest at LIBOR plus 2.00% and as of March 31, 2021, LIBOR was 0.11%. The obligations under the facility are secured by substantially all of the Company’s inventory, both currently owned or acquired thereafter. Repayment of obligations under the facility are guaranteed by Lithia. Upon expiration of the facility, Lithia has guaranteed the provision of the flooring line of credit through October 11, 2021 if the Company is unable to secure an extension of the flooring line of credit facility with US Bank. With the signing of the flooring line of credit with US Bank, the Company entered into the commercial agreement for Milestone 1 and the related warrants were issued. Refer to Note 9 - Related Party Transactions for further details regarding the guarantee of the flooring line of credit, the commercial agreement and the warrants.deductions,principal available to be drawn (together, the nexus“Borrower’s Liquidity”) equal to or exceeding 4 times the decrease, if any, of the cash and cash equivalents balance on the determination date compared with the balance three months prior (together calculated with the Borrower’s Liquidity, the “Liquidity Covenant”). The loan and security agreement also sets forth negative covenants that restrict indebtedness, liens, investments, sales of assets, fundamental changes, distributions and other matters.among various tax jurisdictionsis earned from the commercial sweep account.compliance with federal, state and city tax laws.security agreement expiration date was amended from December 31, 2019 to September 30, 2020. The Company’s management does not expect thatadvance for loan amount was reduced from 100% to 80% of the total amountwholesale value of unrecognized tax benefits will materially change over the next twelve months.used vehicles acquired. The Company is required to pay the remaining related principal portion for any used vehicle not sold at least six months after the advance/funding date. The Liquidity Covenant was further reduced to 2 times the Company’s three-month cash burn amount of January, February and March 2020, one-half times the three-month cash burn amount of April, May and June 2020, and 1 times the three-month cash burn amount of succeeding months.income tax examinationscustomary subjective acceleration clauses, effective upon a material adverse change in the Company’s business or financial condition, or a material impairment in the Company’s ability to repay the borrowing. As of March 31, 2021, the Company was not in breach of any debt covenants or subjective acceleration clauses.major taxing authorities since inception. Net income (loss)amendment to July 31, 2020), with a maximum principal amount of $12.5 million per common shareNet income (loss) per common shareterm loan. Interest accrues on the outstanding principal amount of each Term Loan at a rate equal to LIBOR plus 0.50% The terms of the DDTL include various restrictive covenants, events of default, and security interests in the Company's assets.computed by dividing net income (loss) by the weighted average number of common shares outstandingdeferred for the period. Thefirst nine months of the term of the PPP Loans.has not consideredrepaid the effectoutstanding balance and accrued interest on the PPP Loans in full.Initial Public Offering and private placementCompany announced the preliminary results of its offer to purchase 7,745,000exchange (“Offer”) 0.25 shares of Class A common stock and $1.00 in the calculation of diluted income (loss) per share, since the exercisecash, without interest, for each of the 7,532,500 outstanding publicly traded warrants are contingent uponto purchase the occurrence of future events and the inclusion of such warrants would be anti-dilutive.The Company’s statement of operations includes a presentation of income (loss) per share for common shares subject to possible redemption in a manner similar to the two-class method of income per share. Net income (loss) per common share, basic and diluted for Class A redeemable common stock is calculated by dividing the interest income earned on the Trust Account, net of applicable franchise and income taxes, by the weighted average number of Class A redeemable common stock outstanding since original issuance. Net income (loss) per common share, basic and diluted for Class A and Class B non-redeemable common stock is calculated by dividing the net income (loss), less income attributable to Class A redeemable common stock, by the weighted average number of Class A and Class B non-redeemable common stock outstanding for the period. Class A and Class B non-redeemable common stock includes the Founder Shares and the Placement Units as these shares do not have any redemption features and do not participate in the income earned on the Trust Account.Concentration of credit riskFinancial instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which, at times may exceed the Federal depository insurance coverage of $250,000. At March 31, 2020 and December 31, 2019, the Company had not experienced losses on this account.Fair value of financial instrumentsThe fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature.Recently issued accounting standardsManagement does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.9INSURANCE ACQUISITION CORP.NOTES TO CONDENSED FINANCIAL STATEMENTSMARCH 31, 2020(Unaudited)NOTE 3. INITIAL PUBLIC OFFERINGPursuant to the Initial Public Offering, the Company sold 15,065,000 Units at a purchase price of $10.00 per Unit, which includes the full exercise by the underwriters of their over-allotment option in the amount of 1,965,000 Units at $10.00 per Unit. Each Unit consists of one share of Class A common stock and one-half of onethe Company, formerly known as Insurance Acquisition Corp. (“IAC”), in connection with the initial public offering of IAC’s securities on March 22, 2019, which entitle such warrant (“Public Warrant”). Each whole Public Warrant entitles the holderholders to purchase one1 share of Class A common stock at an exercise price of $11.50, (see Note 7).NOTE 4. PRIVATE PLACEMENTSimultaneouslysubject to adjustments (the “Public Warrants”), upon the terms and subject to the conditions set forth in the Company’s Tender Offer Statement on Schedule TO originally filed by the Company with the closing ofSecurities and Exchange Commission (the “SEC”) on November 5, 2020, as amended. The Offer to exchange expired on December 23, 2020. On December 28, 2020, the Initial Public Offering, Insurance Acquisition Sponsor, LLC and Cantor purchasedCompany issued an aggregate of 425,000 Placement Units at a price of $10.00 per Placement Unit, for an aggregate purchase price of $4,250,000. Insurance Acquisition Sponsor, LLC purchased 375,000 Placement Units and Cantor purchased 50,000 Placement Units. Each Placement Unit consists of one share1,744,088 shares of Class A common stock and one-half of one warrant (the “Placement Warrant”). Each whole Placement Warrant is exercisable$7.0 million in cash in exchange for one share of Class A common stock at a price of $11.50 per share. The proceeds from the Placement Units were addedPublic Warrants validly tendered and accepted for exchange in accordance with the Offer.proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the saleterms of the Placement Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Placement Warrants will expire worthless. There will be no redemption rights or liquidating distributions from the Trust Account with respect to the Placement Warrants.NOTE 5. RELATED PARTY TRANSACTIONSFounder SharesIn March 2018,Offer, on December 28, 2020, the Company issued an aggregate of 1,000 shares of common stock to Insurance Acquisition Sponsor, LLC (the “Founder Shares”) for an aggregate purchase price of $25,000.On December 26, 2018, the Company filed an amendment to its Certificate of Incorporation to, among other things, create two classes of common stock, Class A and Class B, and to convert the outstanding Founder Shares into shares of Class B common stock. The Founder Shares will automatically convert into53,125 shares of Class A common stock upon consummationand $0.2 million in cash to the holders of 212,500 privately placed warrants, at the same exchange ratio offered to the Public Warrant holders in the Offer (the "Private Exchange").Business Combination on a one-for-one basis,maximum contractual term of ten years. Outstanding awards under the 2014 Plan continue to be subject to certain adjustments, as described in Note 7. On December 26, 2018, the Company effectuatedterms and conditions of the 2014 Plan. Following the Merger, no further awards will be made under the 2014 Plan. The number of shares authorized for issuance under the 2014 Plan was reduced to the number of shares subject to awards outstanding under the 2014 Plan immediately after the Merger. Shares reserved for awards that are subsequently expired or forfeited will no longer be returned to the pool of shares authorized for issuance under the 2014 Plan.3,697.5-for-1 forwardnumber of shares of post-Merger common stock split(each such option, a "Converted Option") equal to the product (rounded down to the nearest whole number) of its(i) the number of shares of Legacy Shift common stock. On January 30, 2019,stock subject to such Legacy Shift option immediately prior to the Company effected a stock dividend of 1.3860717 shareMerger and (ii) the equity award exchange ratio. The per share of Class B common stockexercise price for each share of Class Bpost-Merger common stock outstandingissuable upon exercise of the Converted Option is equal to the exercise price per Legacy Shift share of each Legacy Shift option immediately before the Merger, with certain adjustments necessary to preserve ISO classification of awards for income tax purposes. The mechanism of conversion resulted in the fair value of each Converted Option award equaling the fair value of the corresponding Legacy Shift option award immediately prior to the dividendconsummation of the Merger. Except as specifically provided in the Merger Agreement, following the Merger, each Converted Option continues to be governed by the same terms and on March 19, 2019,conditions (including vesting and exercisability terms) as were applicable to the Company effected a stock dividend of 1.00747961 share per share of Class B common stock for each share of Class B common stock outstandingcorresponding former Legacy Shift option immediately prior to the dividend, resulting in an aggregate of 5,163,333 shares of Class B common stock held by Insurance Acquisition Sponsor, LLC and the directorsconsummation of the Company.Merger. All share and per-share amounts have beenstock option activity was retroactively restated to reflect the Converted Options.dividend on the Founder Shares. The 5,163,333 Founder Shares included an aggregate of upoption, restricted stock units ("RSUs"), restricted share awards, stock appreciation awards, and cash-based awards to 655,000 shares of Class B common stock which were subject to forfeiture by the Sponsor to the extent that the underwriters’ overallotment option was not exercised in full or in part, so that the Founder Shares would represent 25%employees, directors, and consultants of the Company’s aggregate Founder Shares, Placement Shares and issued and outstanding Public Shares afterCompany. Awards under the Initial Public Offering. As a result2020 Plan expire no more than ten years from the date of grant. The 2020 Plan became effective immediately upon the closing of the underwriters’ electionMerger.fully exercise their over-allotment option, 655,000 Founder Shares are no longer subjectCondensed Consolidated Financial Statementsforfeiture.Number of
SharesWeighted
Average
Exercise PriceWeighted Average
Remaining
Contractual Life
(Years)Aggregate Intrinsic Value (000’s) As of December 31, 2020 2,356,623 $ 1.80 8.40 $ 15,230 Granted 0 0 Exercised (107,645) 1.86 Forfeited (178,441) 2.47 Cancelled (expired) (24,847) 3.30 As of March 31, 2021 2,045,690 $ 1.74 7.83 $ 13,455 Exercisable as of March 31, 2021 2,045,690 $ 1.74 7.83 $ 13,455 Number of
SharesWeighted
Average
Grant Date Fair ValueWeighted Average
Remaining
Contractual Life
(Years)Aggregate Intrinsic Value (000’s) As of December 31, 2020 0 $ 0 — $ 0 Granted 7,345,862 7.04 Vested 0 0 Forfeited (7,058) 8.26 As of March 31, 2021 7,338,804 $ 7.04 1.79 $ 61,059 Insiders have agreed not to transfer, assign or sell any of their Founder Shares (except to permitted transferees) until (i) with respect to 20% of such shares, upon consummation of the Company’s initial Business Combination, (ii) with respect to 20% of such shares, whenRSUs granted during three months ended March 31, 2021 include 1,702,892 RSUs that vest if the closing price of the Class ACompany's common stock exceeds $12.00 for any 20 trading days within a 30-trading daythresholds ranging from $23 to $28 during the two year period following the consummationsecond anniversary of a Business Combination, (iii) with respect to 20% of such shares, when the closing price of the Class AMerger. The grant date fair values of awards with market-based vesting conditions were determined using a Monte Carlo valuation model, which requires significant estimates including the expected volatility of our common stock exceeds $13.50 for any 20 trading days within a 30-trading day period following the consummation of a Business Combination, (iv) with respect to 20% of such shares, when the closing price of the Class A common stock exceeds $15.00 for any 20 trading days within a 30-trading day period following the consummation of a Business Combination and (v) with respect to 20% of such shares, when the closing price of the Class A common stock exceeds $17.00 for any 20 trading days within a 30-trading day period following the consummation of a Business Combination or earlier, in any case, if, following a Business Combination, (vi) the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the public stockholders having the right to exchange their shares of common stock for cash, securities or other property.stock.
Stock-Based Compensation Expense
INSURANCE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
Advance from Related Party
An affiliate of the Sponsor advanced the Company an aggregate of $65,535 to be used for the payment of costs related to the Initial Public Offering. The advances were non-interest bearing, unsecured and due on demand. The Company repaid the $65,535 of outstanding advances upon the consummation of the Initial Public Offering on March 22, 2019.
Promissory Note – Related Party
The Company issued a $500,000 promissory note (the “Promissory Note”) to an affiliate of the Sponsor, pursuant to which the Company borrowed an aggregate principal amount of $200,000. The Promissory Note was non-interest bearing and payable on the earlier of June 30, 2019 or the completion of the Initial Public Offering. The Promissory Note was repaid upon the consummation of the Initial Public Offering on March 22, 2019.
Administrative Services Agreement
The Company entered into an agreement, commencing on March 19, 2019 through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay an affiliate of the Sponsor $10,000 per month for office space, utilities, secretarial support and administrative services.
Consulting Arrangements
agreements were approximately $50 thousand and $22 thousand, respectively, and were expensed to selling, general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss.
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor or one of its affiliates has committed to loan2020, the Company funds as may be required uprecorded 0 and $0.1 million, respectively of interest and 0 and $0.3 million, respectively of deferred borrowing cost amortization to a maximuminterest and other expense, net on the condensed consolidated statements of $750,000 (“Working Capital Loans”), which will be repaid only uponoperations and comprehensive loss. See Note 6 - Borrowings for further discussion regarding the consummation of a Business Combination. The Sponsor or one of its affiliates may also elect, in its discretion,DDTL.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Risksto an employee. The notes bear interest of 2.87% and Uncertainties
Management is currently evaluating2.59%, respectively, per year, compounded annually. The principal balance together with all accrued but unpaid interest shall be due and payable in full upon the impactearliest of the COVID-19 pandemic onday before the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable asninth anniversary of the date of these financial statements. The financial statements do not include any adjustments that might result frompromissory note or earlier if the outcome of this uncertainty.
11
INSURANCE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
Registration Rights
Pursuantemployee ceases to a registration rights agreement entered into on March 19, 2019, holders of the Founder Shares, Placement Units (including securities contained therein) and the warrants that may be issued upon conversion of the Working Capital Loans (and any shares of Class A common stock issuable upon the exercise of the Placement Warrants or the warrants issued upon conversion of the Working Capital Loans) are entitled to registration rights requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to Class A common stock). The holders of these securities will be entitled to make up to three demands, excluding short form demands, that the Company register such securities for sale under the Securities Act. In addition, the holders will have “piggy-back” registration rights to include such securities in other registration statements filed by the Company and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period. Notwithstanding the foregoing, Cantor may not exercise its demand and “piggyback” registration rights after five (5) and seven (7) years after the effective date of the registration statement relatedprovide services to the Initial Public Offering and may not exercise its demand rights on more than one occasion. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriters were paid a cash underwriting discount of 2.0% of the gross proceeds of the Initial Public Offering, or $2,620,000. In addition, the underwriters’ representative will be entitled to a deferred fee of $6,419,000. The deferred fee will become payable to the underwriters’ representative from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
NOTE 7. STOCKHOLDERS’ EQUITY
Preferred Stock —promissory note. Concurrently, the Company entered into a stock pledge agreement whereby the employee granted security interest to the Company for all existing and new shares earned by the employee from the Company. The proceeds from loan the of $0.2 million were used to exercise the employee’s options and no cash was paid to the employee. The Company is authorized to issue 1,000,000 sharestreated the loan as an off-balance sheet transaction. The proceeds from the loan of preferred stock with a par value of $0.0001 per share with such designation, rights and preferences as may be determined from time to time by the Company’s Board of Directors. At March 31, 2020 and December 31, 2019, there were no shares of preferred stock issued or outstanding.
Class A Common Stock — The Company is authorized to issue 50,000,000 shares of Class A common stock with a par value of $0.0001 per share. Holders of Class A common stock are entitled to one vote for each share. At March 31, 2020 and December 31, 2019, there were 1,656,476 and 1,633,440 shares of Class A common stock issued and outstanding, excluding 13,833,524 and 13,856,560 shares of Class A common stock subject to possible redemption, respectively.
Class B Common Stock — The Company is authorized to issue 10,000,000 shares of Class B common stock with a par value of $0.0001 per share. Holders of the Company’s Class B common stock are entitled to one vote for each common share. At March 31, 2020 and December 31, 2019, there were 5,163,333 shares of Class B common stock issued and outstanding.
Holders of Class B common stock will vote on the election of directors prior$0.1 million was partially paid to the consummationemployee and partially used to pay off taxes resulting from exercise of options in 2018.
The shares of Class B common stock will automatically convert into shares of Class A common stock at the time of a Business Combination on a one-for-one basis, subject to adjustment. In the case that additional shares of Class A common stock or equity-linked securities are issued or deemed issued in excess of the amounts offered in the Initial Public Offering and relatedthese promissory notes was satisfied prior to the closing of the Merger via the issuance of bonuses to the employees.
| Year ended December 31, | Minimum Lease Commitments | ||||
| 2021 | $ | 5,308 | |||
| 2022 | 6,090 | ||||
| 2023 | 5,695 | ||||
| 2024 | 4,467 | ||||
| 2025 | 3,625 | ||||
| 2026 | 1,444 | ||||
| Thereafter | 1,726 | ||||
| Total minimum lease payments | $ | 28,355 | |||
12
INSURANCE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
Warrants — Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisablebenefits allegedly conferred on the later of (a) 30 days after the completion of a Business Combination or (b) March 22, 2020. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
Shift by Stifel. The Company will not be obligated to deliver any shares of Class A common stock pursuantbelieves it has meritorious defenses against the claim, and the probable incurred losses related to the exercise for cashclaim are immaterial as of a warrant and will have no obligationMarch 31, 2021. Based on such information as is available to settle such warrant exercise unless a registration statement underus, the Securities Act with respectrange of additional reasonably possible losses related to the shares of Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject toclaim does not exceed $4.0 million, excluding any punitive damages which the Company satisfying its obligations with respectcannot currently estimate. The Company believes the claim is without merit and intends to registration. No warrant willdefend itself vigorously; however, there can be exercisable andno assurances that the Company will not be obligatedsuccessful in its defense.
The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of a Business Combination, the Company will use its reasonable best efforts to file with the SEC, and within 60 business days following a Business Combination to have declared effective, a registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in the warrant agreement. The Company will use its reasonable best efforts to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the warrant agreement. Notwithstanding the above, if the Class A common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but will be required to use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Once the warrants become exercisable, the Company may redeem the Public Warrants:
If the Company calls the Public Warrants for redemption for cash, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. Additionally, in no event will the Company be required to net cash settle the warrants.
If the Company issues additional shares of common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $9.20 per share of common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors, and in the case of any such issuance to its initial stockholders or their respective affiliates, without taking into account any Founder Shares held by them, as applicable, prior to such issuance), the exercise price of the Public Warrants will be adjusted (to the nearest cent) to be equal to 115% of the newly issued price.
INSURANCE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such warrants. Accordingly, the warrants may expire worthless.
The Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Placement Warrants and the Class A common stock issuable upon the exercise of the Placement Warrants will not be transferable, assignable or saleable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Placement Warrants will be non-redeemable so long as they are held by the Sponsor or its permitted transferees. If the Placement Warrants are held by someone other than the Sponsor, Cantor or their permitted transferees, the Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
NOTE 8. FAIR VALUE MEASUREMENTS
Atthree months ended March 31, 2020 assets held in the Trust Account were comprised of $153,723,340 in money market funds which are invested in U.S. Treasury securities.
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at March 31, 20202021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Description | Level | March 31, 2020 | |||||
| Assets: | |||||||
| Marketable securities held in Trust Account – U.S. Treasury Securities Money Market Fund | 1 | $ | 153,723,340 | ||||
The Company classifies its U. S. Treasury and equivalent securities as held-to-maturity in accordance with ASC 320 “Investments - Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying balance sheets and adjusted for the amortization or accretion of premiums or discounts.
At December 31, 2019, assets held in the Trust Account were comprised of $188,884 in cash and $153,049,302 in U.S. Treasury securities.
The gross holding losses and fair value of held-to-maturity securities at December 31, 2019 were as follows:
| Held-To-Maturity | Amortized Cost | Gross Holding Gains | Fair Value | |||||||||||
| December 31, 2019 | U.S. Treasury Securities (Mature on 3/26/2020) | $ | 153,049,302 | $ | 109,674 | $ | 153,158,976 | |||||||
INSURANCE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020,
(Unaudited)
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
NOTE 9. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued. Based upon this review, the Company did not identifyhave sales to customers outside the United States. As of March 31, 2021 and December 31, 2020, the Company did not have any subsequent events thatassets located outside of the United States.
| Three Months Ended March 31, 2021 | |||||||||||||||||
| Retail | Wholesale | Consolidated | |||||||||||||||
| Revenue from external customers | $ | 92,973 | $ | 13,031 | $ | 106,004 | |||||||||||
| Segment gross profit | 7,236 | 130 | 7,366 | ||||||||||||||
| Three Months Ended March 31, 2020 | |||||||||||||||||
| Retail | Wholesale | Consolidated | |||||||||||||||
| Revenue from external customers | $ | 22,599 | $ | 7,354 | $ | 29,953 | |||||||||||
| Segment gross profit | 1,887 | 1,456 | 3,343 | ||||||||||||||
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Segment gross profit | $ | 7,366 | $ | 3,343 | |||||||
| Selling, general and administrative expenses | (50,234) | (13,446) | |||||||||
| Depreciation and amortization | (1,101) | (982) | |||||||||
| Change in fair value of financial instruments | 2,153 | 0 | |||||||||
| Interest and other expense, net | (939) | (1,246) | |||||||||
| Net loss and comprehensive loss attributable to common stockholders | $ | (42,755) | $ | (12,331) | |||||||
| Three Months Ended March 31, | ||||||||||||||
| (in thousands, except share and per share amounts) | 2021 | 2020 | ||||||||||||
| Net loss and comprehensive loss attributable to common stockholders | $ | (42,755) | $ | (12,331) | ||||||||||
| Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted | 77,909,110 | 3,214,113 | ||||||||||||
| Net loss and comprehensive loss per share attributable to common stockholders, basic and diluted | $ | (0.55) | $ | (3.84) | ||||||||||
| As of March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Escrow Shares | 6,000,218 | 0 | |||||||||
| Stock options | 2,045,690 | 3,269,218 | |||||||||
| Restricted stock units | 7,338,804 | 0 | |||||||||
| Restricted stock awards | 0 | 117,209 | |||||||||
| Contingently repurchasable early exercise shares | 147,659 | 250,013 | |||||||||
| Total | 15,532,371 | 3,636,440 | |||||||||
Referencesreport (this “Quarterly Report”) to “we,”section, unless otherwise noted “we”, “us” or, “our” and the “Company” refer to Shift and its consolidated subsidiaries.ReferencesMerger“management”competitors, who purchase a higher percentage through the wholesale market, provides Shift access to a deeper pool of scarce, highly desirable inventory.“management team” refermachine learning-enabled recommendation engine to our officers and directors, referenceshelp customers find the cars best suited to them. Customer response to the “Sponsor” referShift experience is extremely positive, resulting in a 70 Net Promoter Score (“NPS”), an order of magnitude higher score than traditional auto retailers. These positive experiences allow Shift to Insurance Acquisition Sponsor, LLCserve customers over the entire lifecycle of vehicle ownership and Dioptra Advisors, LLC. The following discussionretain customers for repeat sales and analysispurchases. By continuing to invest in services that benefit the customer throughout the ownership phase of the Company’slifecycle (for example, vehicle maintenance plans), we will continue to establish a long-term customer base that will return for future transactions.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act thata given period. While wholesale units are not historical facts and involve risks and uncertainties that could cause actual resultsthe primary driver of revenue or gross profit, wholesale is a valuable channel as it allows us to differ materially from those expected and projected. All statements, other than statementsbe able to purchase vehicles regardless of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifyingcondition, which is important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of this Quarterly Report and the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company formed under the laws of the State of Delaware on March 13, 2018 for the purpose of effectingaccepting a merger, capital stock exchange, asset acquisition, stocktrade-in from a customer making a vehicle purchase reorganization or similar Business Combinationfrom us, and as an online destination for consumers to sell their cars even if not selling us a car that meetings our retail standards.
| Three Months Ended March 31, | |||||||||||||||||
| 2021 | 2020 | Change | |||||||||||||||
| ($ in thousands, except per unit metrics) | |||||||||||||||||
| Revenue: | |||||||||||||||||
| Ecommerce vehicle revenue, net | $ | 88,954 | $ | 21,916 | 305.9 | % | |||||||||||
| Other revenue | 4,019 | 683 | 488.4 | % | |||||||||||||
| Wholesale vehicle revenue | 13,031 | 7,354 | 77.2 | % | |||||||||||||
| Total revenue | $ | 106,004 | $ | 29,953 | 253.9 | % | |||||||||||
| Cost of sales: | |||||||||||||||||
| Ecommerce vehicle cost of sales | $ | 85,737 | $ | 20,712 | 313.9 | % | |||||||||||
| Wholesale vehicle cost of sales | 12,901 | 5,898 | 118.7 | % | |||||||||||||
| Total cost of sales | $ | 98,638 | $ | 26,610 | 270.7 | % | |||||||||||
| Gross profit: | |||||||||||||||||
| Ecommerce vehicle gross profit | $ | 3,217 | $ | 1,204 | 167.2 | % | |||||||||||
| Other gross profit | 4,019 | 683 | 488.4 | % | |||||||||||||
| Wholesale vehicle gross profit | 130 | 1,456 | (91.1) | % | |||||||||||||
| Total gross profit | $ | 7,366 | $ | 3,343 | 120.3 | % | |||||||||||
| Unit sales information: | |||||||||||||||||
| Ecommerce vehicle unit sales | 4,452 | 1,421 | 213.3 | % | |||||||||||||
| Wholesale vehicle unit sales | 1,527 | 706 | 116.3 | % | |||||||||||||
| Average selling prices per unit (“ASP”): | |||||||||||||||||
| Ecommerce vehicles | $ | 19,981 | $ | 15,423 | 29.6 | % | |||||||||||
| Wholesale vehicles | $ | 8,534 | $ | 10,417 | (18.1) | % | |||||||||||
Gross profit per unit(1): | |||||||||||||||||
| Ecommerce gross profit per unit | $ | 723 | $ | 847 | (14.6) | % | |||||||||||
| Other gross profit per unit | $ | 903 | $ | 481 | 87.7 | % | |||||||||||
| Wholesale gross profit per unit | $ | 29 | $ | 1,025 | (97.2) | % | |||||||||||
| Total gross profit per unit | $ | 1,655 | $ | 2,353 | (29.7) | % | |||||||||||
| Non-financial metrics | |||||||||||||||||
| Average monthly unique visitors | 709,409 | 219,691 | 222.9 | % | |||||||||||||
| Average days to sale | 47 | 70 | (32.9) | % | |||||||||||||
| Ecommerce vehicles available for sale | 3,736 | 1,401 | 166.7 | % | |||||||||||||
| # of regional hubs | 6 | 5 | 20.0 | % | |||||||||||||
The issuance of additional sharesluxury vehicles were a greater share of our stock in a Business Combination:
Similarly, if we issue debt securities, it could result in:
We expect to continue to incur significant costssales than in the pursuit ofcomparable period.
In$13.0 million during the three months ended March 2020,31, 2021, from $7.4 million in the COVID-19 outbreakcomparable period in 2020. The increase was declared a National Public Health Emergency that continuesprimarily due to spread throughoutan increase in wholesale unit sales as we sold 1,527 wholesale vehicles in the world and has adversely impacted global activity and contributed to significant declines and volatility in financial markets. The outbreak could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate material adverse impact of the coronavirus outbreak. Nevertheless, the outbreak presents uncertainty and risk with respect to the Company and its ability to successfully complete a Business Combination.
Results of Operations
We have not generated any revenues to date. Our only activities from inception tothree months ended March 31, 2020, were organizational activities, those necessarycompared to prepare706 wholesale vehicles in the three months ended March 31, 2020. This increase in wholesale vehicle revenue was also partially offset by a 29.6% decrease in ASP. During the three months ended March 31, 2020, we sold several hundred newer vehicles that had been purchased from a defunct rental car business, which resulted in abnormally high wholesale average selling prices in the comparable period.
| Three Months Ended March 31, | |||||||||||||||||
| 2021 | 2020 | Change | |||||||||||||||
| ($ in thousands) | |||||||||||||||||
Compensation and benefits(1) | $ | 22,257 | $ | 6,577 | 238.4 | % | |||||||||||
| Marketing expenses | 15,393 | 1,786 | 761.9 | % | |||||||||||||
Other costs(2) | 12,584 | 5,083 | 147.6 | % | |||||||||||||
| Total selling, general and administrative expenses | $ | 50,234 | $ | 13,446 | 273.6 | % | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| ($ in thousands) | |||||||||||
| Cash Flow Data: | |||||||||||
| Net cash, cash equivalents, and restricted cash used in operating activities | $ | (71,475) | $ | (10,938) | |||||||
| Net cash, cash equivalents, and restricted cash used in investing activities | (2,488) | (1,271) | |||||||||
| Net cash, cash equivalents, and restricted cash provided by (used in) financing activities | 17,137 | (2,218) | |||||||||
net loss of $30.4 million. The increase was also partly due to an increase in accounts receivable of $12.2 million and an increase in net inventory purchases of $21.6 million.
internal-use software costs.
Liquidity and Capital Resources
On March 22, 2019, we consummated the Initial Public Offering of 15,065,000 Units, which included the full exercise by the underwriters of their over-allotment option in the amount of 1,965,000 Units, at $10.00 per Unit, generating gross proceeds of $150,650,000. Simultaneously with the closingfinancing activities was $17.1 million, primarily due to increased utilization of the Initial Public Offering, we consummated the sale of 425,000 Placement UnitsFLOC to the Sponsor and Cantor at a price of $10.00 per Unit, generating gross proceeds of $4,250,000.
Following the Initial Public Offering and the sale of the Placement Units, a total of $150,650,000 was placed in the Trust Account and we had $1,048,801 of cash held outside of the Trust Account, after payment of costs related to the Initial Public Offering, and available for working capital purposes. We incurred $9,661,484 in transaction costs, related to the Initial Public Offering, including $2,620,000 of underwriting fees, $6,419,000 of deferred underwriting fees and $622,484 of other costs.
finance inventory purchases.
For the three months ended March 31, 2019, cash used in operating activities was $158,616, which was comprised of our net loss of $3,233, interest earned on marketable securities held in the Trust Account of $59,240 and changes in operating assets and liabilities, which used $96,143 of cash for operating activities.
We intend to use substantially allamount of the funds held inliability due to the Trust Account, including any amounts representing interest earned onOEM to acquire such vehicles. The liability due to the Trust Account (less amounts releasedOEM provider for such acquired vehicles is equal to usthe OEM’s original acquisition price.
At March 31, 2020, we hadtiming of cash obligations due under these leases.
In order to fund working capital requirements or finance transaction costs in connection with a Business Combination, our Sponsor or one of its affiliates has committed to loan us funds as may be required up to a maximum of $750,000, and may, but is not obligated to, loan us additional funds to fund our additional working capital requirements and transaction costs. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants identical to the placement warrants, at a price of $1.00 per warrant at the option of the lender.
We do not believe we will need to raise additional funds in order to meet the expenditures required to identify and acquire a target business. However, if our estimate of the costs of undertaking due diligence investigations and negotiating a Business Combination is less than the actual amount necessary to do so, we may have insufficient funds available to pursue and consummate our Business Combination. Moreover, we may need to obtain additional financing if we become obligated to redeem a significant number of our Public Shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt. Subject to compliance with applicable securities laws, we would only obtain such financing simultaneously with the consummation of our Business Combination.
Off-balance sheet financing arrangements
We have no obligations, assets or liabilities, which would be consideredany off-balance sheet arrangements, as of March 31, 2020. We do not participate in transactions that create relationships with unconsolidated entitiesincluding guarantee contracts, retained or financial partnerships, often referred to ascontingent interests, certain derivative instruments and variable interest entities which wouldthat either have, been established for the purpose of facilitating off-balance sheet arrangements. Weor are reasonably likely to have, not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debta current or commitments of other entities, or purchased any non-financial assets.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of the Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support to the Company. We began incurring these fees on March 19, 2019 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.
In addition, we have an agreement to pay the underwriters a deferred fee of $6,419,000. The deferred fee will become payable to the underwriters’ representative from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement.
18
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Common stock subject to possible redemption
We account for our common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of our condensed balance sheets.
Net loss per common share
We apply the two-class method in calculating earnings per share. Net income per common share, basic and diluted for Class A redeemable common stock is calculated by dividing the interest income earned on the Trust Account, net of applicable franchise and income taxes, by the weighted average number of Class A redeemable common stock outstanding for the period. Net loss per common share, basic and diluted for Class A and Class B non-redeemable common stock is calculated by dividing net income, less income attributable to Class A redeemable common stock, by the weighted average number of Class A and Class B non-redeemable common stock outstanding for the period presented.
Recent accounting pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed consolidated financial statements.
Following the consummation of our Initial Public Offering, the net proceeds of our Initial Public Offering, including amounts in the Trust Account, have been invested in U.S. government treasury bills, notes or bonds with a maturity of 180 days or less or in certain money market funds that invest solely in U.S. treasuries. Duethe short-term nature of these investments, we believe there is no associated material exposure to interest rate risk.Smaller Reporting Companies.
will make any further changes management determines appropriate.areand procedures that(Disclosure Controls) within the meaning of Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our Disclosure Controls are designed with the objective of ensuringto ensure that information required to be disclosed by us in ourthe reports filedwe file or submit under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC’sSecurities and Exchange Commission's rules and forms. Our Disclosure controlsControls are also designed with the objective of ensuringto ensure that such information is accumulated and communicated to our management, including our ChiefCo-Chief Executive OfficerOfficers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.Evaluation of In designing and evaluating our Disclosure Controls, management recognized that any controls and ProceduresOurprocedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily applied its judgment in evaluating and implementing possible controls and procedures.OfficerOfficers and Chief Financial Officer the effectiveness of our disclosure controls and procedures as of March 31, 2020, pursuant to Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officerhave concluded that, as of March 31, 2021, our Disclosure Controls were not effective due to a material weakness in the Company's internal control over financial reporting as disclosed below.disclosureinternal control over financial reporting that management believes to be a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. Specifically, a material weakness exists in the control environment as the Company does not have a process that demonstrates a commitment to attracting, developing, and retaining competent individuals in alignment with objectives. This material weakness impacted the effectiveness of our control environment, and our entity level controls. It resulted in the Company not maintaining a complement of personnel with an appropriate level of accounting knowledge, experience and training in the application of US GAAP commensurate with its financial reporting requirements and the complexity of the Company’s operations and transactions.procedures were effective at a reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms..Overover Financial ReportingThere(as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)that occurred during the most recent quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PARTOTHER INFORMATIONOther Information
PROCEEDINGS.None.
FACTORS.Factors that could cause our actual resultsFACTORSdiffer materially from those in this Quarterly Report are any of the risks describedrisk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the SEC, other than the risks described below:The recent global coronavirus outbreak could harm the business prospects of the Company.In December 2019, a coronavirus (COVID-19) outbreak was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. Since that time, the coronavirus has spread throughout the United States. In response, many state and local governments, including the Commonwealth of Pennsylvania, have instituted emergency restrictions that have substantially limited the operation of non-essential businesses and the activities of individuals. The ultimate effect of COVID-19 on the local or broader economy is not known nor is the ultimate length of the restrictions described and any accompanying effects. Moreover, the Federal Reserve has taken action to lower the Federal Funds rate, which may negatively affect interest income and, therefore, earnings, of the Company with respect to the Trust Account.The effect of COVID-19 and related events, including those described above and those not yet known or knowable, could have a negative effect on the stock price and business prospects of the Company, including as a result of quarantines, market volatility, market downturns, changes in consumer behavior, business closures and disruptions of the credit and equity markets, which could have a material adverse effect on the Company’s ability to complete a Business Combination.The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as quarantines and shelter in place orders. These measures may remain in place for a significant period of time and may adversely affect the business, operations and financial condition of the companies we target for a Business Combination, which may cause such companies to delay or terminate acquisition discussions in order to focus on their business operations. The spread of the virus has also caused us to modify our due diligence practices with respect to target companies (including cancellation of physical participation in meetings) in ways that may be detrimental to our business prospects (including working remotely and its attendant cybersecurity risks). We may take further actions as may be required by government authorities or that we determine are in the best interests of the Company and its stockholders. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.Given the ongoing and dynamic nature of the circumstances, it is not possible to predict the ultimate impact of the coronavirus outbreak on the stock price or business prospects of the Company. Notwithstanding any actions by national, state and local governments to mitigate the impact of COVID-19 or by the Company to address the adverse impacts of COVID-19, there can be no assurance that any of the foregoing activities will be successful in mitigating or preventing significant adverse effects on the Company and its ability to successfully complete a Business Combination.
PROCEEDS.Unregistered Sales of Equity SecuritiesOn March 22, 2019, we sold 425,000 Placement Units in a private placement for an aggregate purchase price of $4,250,000, or $10.00 per Unit, to the Sponsor (375,000 Placement Units) and Cantor (50,000 Placement Units), pursuant to an exemption from registration contained in Section 4(a)(2) of the Securities Act. Each Placement Unit consists of one share of Class A common stock and one-half of one placement warrant. The Placement Warrants are identical to the warrants included in the Units issued in the Initial Public Offering, except that, if held by Cantor, the Sponsor or their permitted transferees, (a) they are not redeemable by the Company, (b) they (including the underlying Class A common stock) may not be transferred, assigned or sold until 30 days after the consummation of the Company’s initial Business Combination, subject to certain limited exceptions, and (c) they may be exercised on a cashless basis. In addition, for so long as the placement warrants are held by Cantor or its designees, they may not be exercised after March 19, 2024. No underwriting discounts or commissions were paid with respect to the private placement.
None.
Use of Proceeds
On March 22, 2019, we consummated our Initial Public Offering of 15,065,000 Units, which included the full exercise by the underwriters of their over-allotment option in the amount of 1,965,000 Units, at $10.00 per Unit, generating gross proceeds of $150,650,000. Each Unit consists of one share of our Class A common stock and one-half of one warrant, where each whole warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share, subject to adjustment.
Cantor (as representative of the underwriters) and BTIG served as the underwriters for the Initial Public Offering. The Units sold in the Initial Public Offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-229741), which was declared effective by the SEC on March 19, 2019.
We incurred a total of $9,661,484 in transaction costs related to the Initial Public Offering. We paid a total of $2,620,000 in underwriting discounts and commissions and approximately $622,484 in other costs and expenses related to the Initial Public Offering. In addition, the underwriters agreed to defer $6,419,000 in underwriting discounts and commissions (which is currently held in the Trust Account), which will be payable only upon consummation of an initial Business Combination.
After deducting the underwriting discounts and commissions (excluding the deferred portion of up to $6,419,000 in underwriting discounts and commissions, which will be payable only upon consummation of an initial Business Combination) and the total offering expenses, the total net proceeds from our Initial Public Offering and the Private Placement were $151,698,801 of which $150,650,000 (or approximately $10.00 per Unit sold in the Initial Public Offering) was placed in the Trust Account.
For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Quarterly Report.
SECURITIESSECURITIES.
DISCLOSURES.Not applicable.
INFORMATIONINFORMATION.No.Description of Exhibit31.1*Exhibit No.Description 10.1 10.2 10.3 10.4 10.5 10.6 31.1 31.2*31.231.3 32.1**32.132.2**Certification of PrincipalOfficers and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)101.INS*101.INSInline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.CAL*101.SCHInline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.SCH*101.DEFXBRL Taxonomy Extension Schema Document101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB*101.LABInline XBRL Taxonomy Extension Labels Linkbase Document 101.PRE*101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) *Filed herewith.**Furnished.
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SIGNATURESINSURANCE ACQUISITION CORP.SHIFT TECHNOLOGIES, INC. Date: May 14, 2020/s/ John M. ButlerOded SheinName:John M. ButlerOded SheinTitle:Chief Executive Officer(Principal Executive Officer)Date: May 14, 2020/s/ Paul VernhesName: Paul VernhesTitle:Chief Financial Officer (Principal Financial Officer)May 14, 202122