(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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.) | |||||
2525 | |||||
| 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 | SFT | |||||||||||||
| Nasdaq Capital Market | ||||||||||||||
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||||||
| ☒ | Smaller reporting company | ☒ | |||||||||||||
| ☒ | |||||||||||||||
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. ☐
SHIFT TECHNOLOGIES, INC.
(successor toInsurance Acquisition Corp.)
Quarterly Report on Form 10-Q
| Page | |||||||||
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FINANCIAL STATEMENTS AND SUBSIDIARIES in thousands, except share and per share amounts) AND SUBSIDIARIES in thousands, except share and per share amounts) Class A Common Stock Class B Common Stock Class A Common Stock Class B Common Stock SUBSIDIARIES ACCOUNTING POLICIES Merger COVID-19 pandemic. The Condensed Consolidated Financial Statements three months ended March 31, 2021 and 2020. The 19, 2021. 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. Class A Common Stock September 30, 2020 Merger reaching over 85% cars that meet their budget based on the financing options for which they are, statistically speaking, able to qualify. Customers can also get approved for financing before they even test drive a car, making it much more likely that the customer will purchase a car from us. public company such as increased accounting, compliance, and legal costs. cash flows for the periods indicated: PROCEEDS SECURITIES INFORMATIONPART 1 – FINANCIAL INFORMATIONItemFinancial Statementssuccessor toInsurance Acquisition Corp.)CONDENSED CONSOLIDATED BALANCE SHEETS September 30, December 31, 2020 2019 (unaudited) ASSETS Current assets Cash $ 128,961 $ 406,724 Prepaid expenses and other current assets 36,461 73,934 Prepaid income taxes 72,829 — Total Current Assets 238,251 480,658 Deferred financing cost 250,000 — Cash and marketable securities held in Trust Account 152,966,309 153,238,186 Total Assets $ 153,454,560 $ 153,718,844 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued expenses $ 2,623,570 $ 214,787 Income taxes payable — 497,388 Convertible promissory note – related party 650,000 — Total Current Liabilities 3,273.570 712,175 Deferred underwriting fee payable 6,419,000 6,419,000 Total Liabilities 9,692,570 7,131,175 Commitments Common stock subject to possible redemption, 13,663,591 and 13,856,560 shares at redemption value as of September 30, 2020 and December 31, 2019, respectively 138,761,984 141,587,667 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; 1,826,409 and 1,633,440 shares issued and outstanding (excluding 13,663,591 and 13,856,560 shares subject to possible redemption) as of September 30, 2020 and December 31, 2019, respectively 183 163 Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 5,163,333 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively 516 516 Additional paid-in capital 6,500,833 3,675,170 (Accumulated deficit)/Retained earnings (1,501,526 ) 1,324,153 Total Stockholders’ Equity 5,000,006 5,000,002 Total Liabilities and Stockholders’ Equity $ 153,454,560 $ 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 the unauditedthese condensed consolidated financial statements.successor toInsurance Acquisition Corp.)CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited) Three Months Ended
September 30, Nine Months Ended
September 30, 2020 2019 2020 2019 Operating expenses $ 1,691,465 $ 221,338 $ 3,415,269 $ 521,424 Loss from operations (1,691,465 ) (221,338 ) (3,415,269 ) (521,424 ) Other income: Interest earned on marketable securities held in Trust Account 3,859 938,940 709,373 1,896,661 (Loss) income before income taxes (1,687,606 ) 717,602 (2,705,896 ) 1,375,237 Benefit (provision) for income taxes 12,461 (187,580 ) (119,783 ) (369,668 ) Net (loss) income (1,675,145 ) 530,022 (2,825,679 ) 1,005,569 Weighted average shares outstanding of Class A redeemable common stock 15,065,000 15,065,000 15,065,000 15,065,000 Basic and diluted net income per share, Class A $ 0.00 $ 0.05 $ 0.03 $ 0.09 Weighted average shares outstanding of Class A and Class B non-redeemable common stock 5,588,333 5,588,333 5,588,333 5,462,872 Basic and diluted net loss per share, Class A and Class B $ (0.30 ) $ (0.03 ) $ (0.59 ) $ (0.07 ) 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.(successor toInsurance Acquisition Corp.)CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(Unaudited)THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 Additional
Paid-in Retained Total
Stockholders’ Shares Amount Shares Amount Capital Earnings 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 Change in value of common stock subject to possible redemption 125,277 12 — — 1,341,542 — 1,341,554 Net loss — — — — — (1,341,552 ) (1,341,552 ) Balance – June 30, 2020 1,781,753 178 5,163,333 516 4,825,693 173,619 5,000,006 Change in value of common stock subject to possible redemption 44,656 5 — — 1,675,140 — 1,675,145 Net loss — — — — — (1,675,145 ) (1,675,145 ) Balance – September 30, 2020 1,826,409 $ 183 5,163,333 $ 516 $ 6,500,833 $ (1,501,526 ) $ 5,000,006 THREESUBSIDIARIESConvertible
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 NINE MONTHS ENDED SEPTEMBER 30, 2019 Additional
Paid in (Accumulated
Deficit)
Retained Total
Stockholders’ Shares Amount Shares Amount Capital Earnings 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 Change in value of common stock subject to possible redemption 56,139 6 — — (478,784 ) — (478,778 ) Net income — — — — — 478,780 478,780 Balance – June 30, 2019 1,530,238 153 5,163,333 516 4,525,457 473,878 5,000,004 Change in value of common stock subject to possible redemption 54,093 5 — — (530,024 ) — (530,019 ) Net income — — — — — 530,022 530,022 Balance – September 30, 2019 1,584,331 $ 158 5,163,333 $ 516 $ 3,995,433 $ 1,003,900 $ 5,000,007 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.(successor AND SUBSIDIARIESInsurance Acquisition Corp.)CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited) Nine Months Ended
September 30, 2020 2019 Cash Flows from Operating Activities: Net (loss) income $ (2,825,679 ) $ 1,005,569 Adjustments to reconcile net (loss) income to net cash used in operating activities: Interest earned on marketable securities held in Trust Account (709,373 ) (1,896,661 ) Changes in operating assets and liabilities: Prepaid expenses and other current assets (35,356 ) (118,157 ) Accounts payable and accrued expenses 2,158,783 170,148 Income taxes payable (497,388 ) 366,068 Net cash used in operating activities (1,909,013 ) (473,033 ) Cash Flows from Investing Activities: Investment of cash in Trust Account — (150,650,000 ) Cash withdrawn from Trust Account to pay franchise and income taxes 981,250 3,600 Net cash provided by (used in) investing activities 981,250 (150,646,400 ) 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 convertible promissory note – related party 650,000 — Proceeds from promissory note – related party — 200,000 Repayment of promissory note – related party — (200,000 ) Payment of offering costs — (622,484 ) Net cash provided by financing activities 650,000 151,656,212 Net Change in Cash (277,763 ) 536,779 Cash – Beginning of period 406,724 25,000 Cash – End of period $ 128,961 $ 561,779 Supplemental cash flow information Cash paid for income taxes $ 690,000 $ 3,600 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 $ (2,825,683 ) $ 1,006,849 Deferred underwriting fee payable $ — $ 6,419,000 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.4(successor toInsurance Acquisition Corp.)NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSEPTEMBER 30, 2020(Unaudited)NOTE ORGANIZATIONTHE BUSINESS AND BUSINESS OPERATIONSTechnologies,Platform, Inc., formerly known as Shift Technologies, Inc. (“Legacy Shift”) was incorporated in the State of Delaware on December 9, 2013. The Company conducts its business through Legacy Shift and its wholly owned subsidiaries Shift Operations, LLC, and Shift Finance, LLC.(the “Company”), is a former blank check company incorporated in Delaware on March 13, 2018. The Company was formed for 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.Business Combination(the “Closing Date”Insurance Acquisition Corp. (“IAC”), an entity listed on the Company consummatedNasdaq Capital Market under the previously announced transactions contemplatedtrade symbol “INSU”, acquired Legacy Shift by the Agreement and Planmerger of Merger (the “Merger Agreement”), dated as of June 29, 2020, by and among the Company, IAC Merger Sub, Inc., a wholly-owneddirect wholly owned subsidiary of the Company (“Merger Sub”), and Shift Technologies, Inc., a Delaware corporation (“Shift”), as amended by that certain First Amendment to Agreement and Plan of Merger, dated as of August 19, 2020. The Merger Agreement provided for the acquisition of Shift by the Company pursuant to the merger of Merger SubIAC, with and into Legacy Shift, (the “Merger”), with Legacy Shift continuing as the surviving entity.entity and a wholly owned subsidiary of IAC (the “Merger”). The transactions contemplated bypublic company resulting from the Merger Agreement are referredmerger was renamed Shift Technologies, Inc., which we refer to herein as Shift, we, us, our, SFT, or the “Business Combination.” In connection withCompany. Upon the closingconsummation of the Merger, Shift received approximately $300.9 million, net of fees and expenses. See Note 2 - Merger for additional details regarding this transaction.“Closing”“CARES Act”), was signed into law in response to the registrant changed its name from Insurance Acquisition Corp. to Shift Technologies, Inc.aggregate consideration paidCARES Act includes several significant income tax relief provisions as well as the deferral of the employer portion of the social security payroll tax. The income tax benefits include a favorable increase in the Business Combination consisted of (i) 38,000,000 shares of the Company’s common stock (the “Closing Date Merger Consideration”interest expense limitation under section 163(j), allowing a five-year net operating loss (“NOL”) carryback provision for certain NOLs, and (ii) 6,000,000 shares of the Company’s common stock, which were deposited into an escrow account at Closing and will be released or returned pursuant to certain conditions (the “Additional Shares”),Immediately following the Business Combination, there were 82,106,969 shares of the Company’s common stock outstanding, warrants to purchase 7,745,000 shares of the Company’s common stock and 2,370,206 options to purchase shares of the Company’s common stock.In connection with the Business Combination, pursuant to subscription agreements dated June 29, 2020 (the “PIPE Subscription Agreements”) by and between the Company and the investors party thereto (the “PIPE Investors”), with respect to a private placement of Class A common stock, the Company issued and sold to the PIPE Investors 18,900,000 shares of Class A common stock at a price per share of $10.00 (the “PIPE Investment”). The PIPE Investment was conditioned on the substantially concurrent closing of the Business Combination and other customary closing conditions. The proceeds from the PIPE Investment will be used, among other things, for general corporate purposes, which may include, but not be limited to, working capital for operations, repayment of indebtedness, capital expenditures and future acquisitionsBusiness Prior to the Business CombinationPrior to the Business Combination, the Company’s only subsidiary was IAC Merger Sub, Inc.All activity through September 30, 2020 relates to the Company’s formation, its initial public offering (the “Initial Public Offering”), which is described below, identifying a target company for a Business Combination and consummating the acquisition of Shift.The registration statement 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” 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, consummatedsince it has had taxable losses since inception. In addition, the sale of 425,000 units (the “Placement Units”) at a price of $10.00 per Placement Unit in a private placement toCompany has adopted 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.Following the closingdeferral of the Initial Public Offering on March 22, 2019, an amountemployer portion of $150,650,000 ($10.00 per Unit)the social security payroll tax. The deferral is effective from the net proceedsenactment date through December 31, 2020. As of March 31, 2021, the Company had deferred $1.3 million. The deferred amount will be paid in two installments and the amount will be considered timely paid if 50% of the sale of the Units in the Initial Public Offeringdeferred amount is paid by December 31, 2021 and the saleremainder by December 31, 2022.Insurance Acquisition Corp.)NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSEPTEMBER 30, 2020(Unaudited)NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe accompanyingfinancial information 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 normallyperiods included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuantthe accompanying notes 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 the opinion of management, the accompanying unaudited condensed consolidated financial statements includeare unaudited. The unaudited interim financial statements 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 management’s opinion, includes 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 condensed consolidatedresults 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 and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any future interim periods.Principles of ConsolidationThe accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.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. condensed consolidated 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.6SHIFT TECHNOLOGIES, INC.(successor toInsurance Acquisition Corp.)NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSEPTEMBER 30, 2020(Unaudited)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 September 30, 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 consolidated 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.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 amount expectedfair value measurement. The Company’s assessment of the significance of a particular input to be realized.ASC Topic 740 prescribes a recognition thresholdthe fair value measurement in its entirety requires management to make judgments and a measurement attribute forconsider factors specific to the financial statement recognition and measurementasset or liability. As 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 penalties as of September 30, 2020March 31, 2021 and December 31, 2019.2020, 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.(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) Per Common ShareNet income (loss)amendment to July 31, 2020), with a maximum principal amount of $12.5 million 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.SHIFT TECHNOLOGIES, INC.(successor toInsurance Acquisition Corp.)NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSEPTEMBER 30, 2020(Unaudited)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 September 30, 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 consolidated 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 consolidated financial statements.NOTE 3. INITIAL PUBLIC OFFERINGOn March 22, 2019, pursuant 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 fromterms of the Initial Public Offering held in the Trust Account.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 a Business Combination on a one-for-one basis, subject212,500 privately placed warrants, at the same exchange ratio offered to certain adjustments, as describedthe Public Warrant holders in Note 7. On December 26, 2018,the Offer (the "Private Exchange").effectuated a 3,697.5-for-1 forward stock split of its common stock. On January 30, 2019, the Company effected a stock dividend of 1.3860717 share per share of Class B common stock for each share of Class B common stock outstanding prior to the dividend and on March 19, 2019, 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 outstanding prior to the dividend, resulting inissued an aggregate of 5,163,333 shares of Class B common stock held by Insurance Acquisition Sponsor, LLC and the directors of the Company. All share and per-share amounts have been retroactively restated to reflect the stock dividend on the Founder Shares. The 5,163,333 Founder Shares included an aggregate of up 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% of the Company’s aggregate Founder Shares, Placement Shares and issued and outstanding Public Shares after the Initial Public Offering. As a result of the underwriters’ election to fully exercise their over-allotment option, 655,000 Founder Shares are no longer subject to forfeiture.SHIFT TECHNOLOGIES, INC.(successor toInsurance Acquisition Corp.)NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSEPTEMBER 30, 2020(Unaudited)The Founder Shares automatically converted into common stock upon the consummation of the Business Combination on a one-for-one basis.The 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, when the closing price of the Class A common stock exceeds $12.00 for any 20 trading days within a 30-trading day period following the consummation of a Business Combination, (iii) with respect to 20% of such shares, when the closing price of the Class A 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.Advance from Related PartyAn 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 PartyThe 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 September 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 AgreementThe 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. For the three months ended September 30, 2020 and 2019, the Company incurred and paid $30,000 in fees for these services. For the nine months ended September 30, 2020 and 2019, the Company incurred and paid $90,000 and 65,000 in fees for these services, respectively. The Company ceased paying these monthly fees upon the Closing.Consulting ArrangementsIn January 2019, the Company entered into consulting arrangements with three individuals affiliated with Cohen & Company, LLC for advisory services to be provided to the Company. These arrangements provide for aggregate monthly fees of approximately $23,000. For the three and nine months ended September 30, 2020, the Company incurred $54,167 and $191,667, respectively, in such fees. For the three and nine months ended September 30, 2019, the Company incurred $61,875 and $185,625, respectively, in such fees. At September 30, 2020 and December 31, 2019, $12,917 and $5,208 are included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets, respectively.Related Party LoansIn order to finance transaction costs in connection with a Business Combination, the Sponsor or one of its affiliates has committed to loan the Company funds as may be required up to a maximum of $750,000 (“Working Capital Loans”), which will be repaid only upon the consummation of a Business Combination. The Sponsor or one of its affiliates may also elect, in its discretion, to make Working Capital Loans in excess of $750,000. If the Company does not consummate a Business Combination, the Company may use a portion of any funds held outside the Trust Account to repay the Working Capital Loans; however, no proceeds from the Trust Account may be used for such repayment. If such funds are insufficient to repay the Working Capital Loans, the unpaid amounts would be forgiven. Up to $1,500,000 of the Working Capital Loans may be converted into warrants at a price of $1.00 per warrant at the option of the holder. The warrants would be identical to the Placement Warrants.SHIFT TECHNOLOGIES, INC.(successor toInsurance Acquisition Corp.)NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSEPTEMBER 30, 2020(Unaudited)On May 21, 2020, the Company issued a $750,000 unsecured promissory note (the “Note”) to Cohen & Company, LLC. The Note is non-interest bearing and payable upon the consummation of a Business Combination. Up to $750,000 of such loans may be convertible into warrants at a price of $1.00 per warrant. The warrants would be identical to the Placement Warrants. As of September 30, 2020, there was $650,000 outstanding under the Note.NOTE 6. COMMITMENTS AND CONTINGENCIESRisks and UncertaintiesManagement continues to evaluate the impact of the COVID-19 pandemic 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 as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.Registration RightsPursuant 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 any1,798,203 shares of Class A common stock, issuable upon the exerciserepresenting approximately 2.1% 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 related 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 AgreementThe 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’ were entitled to a deferred fee of $6,419,000. The deferred fee was paid in cash upon the closing of the Merger from the amounts held in the Trust Account, subject to the terms of the underwriting agreement.Advisory and Consulting AgreementsOn June 10, 2020, the Company entered into an agreement with a service provider, pursuant to which the service provider will serve as the placement agent for the Company in connection with a proposed private placement (the “Transaction”) of the Company’s equity or equity-linked securities (the “Securities”). The Company agreed to pay the service provider a cash fee equal to 4% of the gross proceeds of the total Securities sold in the Transaction less than or equal to $100 million and 5% of the gross proceeds of the total Securities sold in the Transaction greater than $100 million. The fee will not be payable in the event the Company does not consummate the Transaction. As of September 30, 2020, no amounts were incurred under this agreement.On June 10, 2020, the Company entered into an agreement with the same service provider, pursuant to which the service provider will provide the Company with capital markets advisory services for a potential Business Combination. The Company agreed to pay the service provider (i) all reasonable travel and other expense incurred in performing its services and (ii) any expenses relating to due diligence. As of September 30, 2020, no amounts were incurred under this agreement.On June 11, 2020, the Company entered into a transactional support agreement with a service provider, pursuant to which the service provider agreed to render certain financial advisory and investment banking services in connection with the Company’s potential Business Combination. The Company agreed to pay the service provider a fee of $1,600,000 if the Company consummates a Business Combination. In the event a Business Combination is consummated, the Company, at its sole discretion, may pay a discretionary fee of up to $400,000 to the service provider. The fee will not be payable in the event the Company does not consummate a Business Combination. As of September 30, 2020, no amounts were incurred under this agreement.SHIFT TECHNOLOGIES, INC.(successor toInsurance Acquisition Corp.)NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSEPTEMBER 30, 2020(Unaudited)On June 22, 2020, the Company entered into a consulting agreement with a service provider, pursuant to which the service provider will provide the Company with financial advisory support for a potential Business Combination. The Company agreed to pay the service provider a fee of $25,000 per month, for total fees of $75,000. In addition, the Company agreed to pay the service provider a minimum fee of $600,000 and up to a maximum fee of $1,200,000, if the Company consummates a Business Combination. The fee will not be payable in the event the Company does not consummate a Business Combination. As of September 30, 2020, there were $75,000 incurred under this agreement.NOTE 7. STOCKHOLDERS’ EQUITYPreferred Stock — The Company is authorized to issue 1,000,000 shares 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 September 30, 2020 and December 31, 2019, there were no shares of preferred stock issued or outstanding. — As of September 30, 2020, the outstanding after such issuances. The Company was authorized to issue 50,000,000subsequently issued 125,160 additional shares of Class A common stock and distributed $0.5 million in cash on January 14, 2021 in exchange for all remaining Public Warrants that were outstanding at December 31, 2020. There were 0 warrants outstanding at March 31, 2021.par valuemaximum contractual term of $0.0001 per share. Holdersten years. Outstanding awards under the 2014 Plan continue to be subject to the terms and conditions of Class Athe 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.are entitled(each such option, a "Converted Option") equal to one vote for each share. At September 30, 2020 and December 31, 2019, there were 1,826,409 and 1,633,440the product (rounded down to the nearest whole number) of (i) the number of shares of Class A common stock issued and outstanding, excluding 13,663,591 and 13,856,560 shares of Class ALegacy Shift common stock subject to possible redemption, respectively.Class B Common Stock — Assuch Legacy Shift option immediately prior to the Merger and (ii) the equity award exchange ratio. The per share exercise price for each share of September 30, 2020, the Company is authorized to issue 10,000,000 shares of Class Bpost-Merger common stock issuable 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 a parcertain adjustments necessary to preserve ISO classification of awards for income tax purposes. The mechanism of conversion resulted in the fair value of $0.0001 per share. Holderseach Converted Option award equaling the fair value of the Company’s Class B common stock are entitled to one vote for each common share. At September 30, 2020 and December 31, 2019, there were 5,163,333 shares of Class B common stock issued and outstanding. Each outstanding share of Class B common stock was automatically converted into one share of Class A common stockcorresponding Legacy Shift option award immediately prior to the consummation of the Merger. Except as specifically provided in the Merger andAgreement, following the conversion,Merger, each Converted Option continues to be governed by the authorized shares of Class B common stocksame terms and conditions (including vesting and exercisability terms) as were reduced to zero.Holders of Class B common stock were entitled to vote on the election of directors priorapplicable to the consummation of a Business Combination.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 exercisable on November 12, 2020. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise for cash of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the shares of Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt from the registration or qualifications requirements of the securities laws of the state of residence of the registered holder of the warrants. Notwithstanding the foregoing, if a registration statement covering the shares of Class A common stock issuable upon exercise of the Public Warrants has not been declared effective by the end of 60 business days following the closing of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act.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 itscorresponding former Legacy Shift 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.SHIFT TECHNOLOGIES, INC.(successor toInsurance Acquisition Corp.)NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSEPTEMBER 30, 2020(Unaudited)Once the warrants become exercisable, the Company may redeem the Public Warrants:●in whole and not in part;●at a price of $0.01 per warrant;●upon not less than 30 days’ prior written notice of redemption to each warrant holder;●if, and only if, the reported last sale price of the Company’s Class A common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending three trading days before the Company sends the notice of redemption to each warrant holder; and●If, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day thereafter until the date of redemption.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.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 MEASUREMENTSAt September 30, 2020 assets held in the Trust Account were comprised of $152,966,309 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 September 30, 2020 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:Description Level Assets: Marketable securities held in Trust Account – U.S. Treasury Securities Money Market Fund 1 $ 152,966,309 SHIFT TECHNOLOGIES, INC.(successor toInsurance Acquisition Corp.)NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSEPTEMBER 30, 2020(Unaudited)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 (Matured on 3/26/2020) $ 153,049,302 $ 109,674 $ 153,158,976 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:Level 1:Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.Level 2:Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.Level 3:Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.On October 13, 2020, in connection with the Business Combination, the Company liquidated the Trust Account to fund the Business Combination and related expenses.NOTE 9. SUBSEQUENT EVENTSAs described in Note 1, the Company completed the Business Combination on October 13, 2020. Upon consummation of the Business Combination, the Company’s authorized shares of stock increased to 511,000,000 shares, consisting of (a) 510,000,000 shares of common stock including (i) 500,000,000 shares of Class A common stock and (ii) 10,000,000 shares of Class B common stock, and (b) 1,000,000 shares of preferred stock. In addition, each outstanding share of Class B common stock was automatically converted into one share of Class A common stock immediately prior to the consummation of the Merger,Merger. All stock option activity was retroactively restated to reflect the Converted Options.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 conversion,second anniversary of the authorizedclosing of the Merger. 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.Class BLegacy Shift common stock at an exercise price of $0.01 per share (the “Warrant Shares”). The Warrant Shares were reducedscheduled to zero.vest and become exercisable in 6 separate tranches of 14,443,598 shares each. Vesting and exercisability was dependent upon the achievement of the Milestones, as defined below. While the Warrant Agreement establishes general vesting terms for each of the six Milestones, each of the six Milestones contains substantive service or performance requirements, and were non-binding as neither the Company nor Lithia were obligated to perform until the commercial agreement associated with each Milestone was executed.
Two tranches of 14,443,598 Warrant Shares were scheduled to vest and become immediately exercisable upon the achievement of each of Milestone 1 and Milestone 2. The remaining four tranches of 14,443,598 Warrant Shares were scheduled to vest and become exercisable on January 12, 2020 (the “Vesting Cliff Date”), provided that Milestone 3, Milestone 4, Milestone 5 and Milestone 6 were achieved prior to such date. If such Milestone had not been achieved by the Vesting Cliff Date, such 14,443,598 Warrant Shares would vest and become immediately exercisable upon the achievement of such Milestone. With respect to any unvested Warrant Shares that had not vested by June 12, 2020 (the “Vesting Termination Date”), the Warrant would automatically terminate. All Warrant Shares became vested prior to the Vesting Termination Date and were exercised prior to the Merger.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 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 Theof the Company’s financial condition and results of operations should be read in conjunctiontogether with the unauditedour condensed consolidated financial statements and therelated notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.Cautionary Note Regarding Forward-looking StatementsAll statements other than statementsincluded under Part I, Item 1 of historical fact included in this Quarterly Report on Form 10-Q including, without limitation,10-Q. This discussion contains forward-looking statements under this “Management’s Discussionabout Shift’s business, operations and Analysis of Financial Conditionindustry that involve risks 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. When used in this Quarterly Report on Form 10-Q, wordsuncertainties, such as “anticipate,” “believe,” “estimate,” “expect,” “intend”statements regarding Shift’s plans, objectives, expectations and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by,intentions. Shift’s future results and information currently available to, the Company’s management. Actual results couldfinancial condition may differ materially from those contemplatedcurrently anticipated by the forward-looking statementsShift as a result of certainthe factors detaileddescribed in our filings with the SEC. All subsequent written or oral forward-looking statements attributablesections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Throughout this section, unless otherwise noted “we”, “us”, “our” and the “Company” refer to us or persons acting on the Company’s behalf are qualified in their entirety by this paragraph.OverviewWe are a former blank check company incorporated on March 13, 2018 under the name Shift and its consolidated subsidiaries.as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We completed our Initial Public Offering on March 22, 2019 and completed the Business Combination (as defined below) on October 13, 2020.Recent Developments(the “Closing Date”Insurance Acquisition Corp. (“IAC”), an entity listed on the Company consummatedNasdaq Capital Market under the Merger Agreement,trade symbol “INSU”, acquired Shift Platform, Inc., formerly known as Shift Technologies, Inc. (“Legacy Shift”), by and among the Company, Merger Sub and Shift, as amended. The Merger Agreement provided for the acquisition of Shift by the Company pursuant to the merger of IAC Merger Sub, Inc., a direct wholly owned subsidiary of IAC, with and into Legacy Shift, (the “Merger”), with Legacy Shift continuing as the surviving entity. In connection withentity and a wholly owned subsidiary of IAC (the “Merger”). The public company resulting from the closingmerger was renamed Shift Technologies, Inc., which we refer to as Shift, we, us, our, SFT, or the Company. Upon the consummation of the Merger, (the “Closing”),Shift received approximately $300.9 million, net of fees and expenses. See Note 2 - Merger, in the registrant changed its nameaccompanying condensed consolidated financial statements for additional details regarding this transaction. For financial reporting purposes IAC was treated as the “acquired” company and Legacy Shift was treated as the accounting acquirer.Insurance Acquisition Corp. to Shift:Technologies, Inc.Results of OperationsOur entire activity from inception up to March 22, 2019 was in preparation for our Initial Public Offering. From the consummation of our Initial Public Offering through September 30, 2020, our activity was been limitedconveniently brings any car to the evaluationcustomer’s desired location for a no-obligation, contactless test drive, usually at their home or work. If the customer chooses to purchase the vehicle, a Shift concierge staff can process the transaction on-the-spot via a mobile app.business combination candidatesShift’s hub locations to see and consummatingtest drive multiple cars. When they arrive, customers can scan a QR code on each car to immediately view all relevant details, including ownership & service history, inspection reports, vehicle history reports, and most importantly, dynamic pricing and market price comparisons. This immediate access to all relevant information — without having to rely on a salesman — puts customers in control.acquisitionWest Coast capable of Shift.September 30, 2020, weMarch 31, 2021, the Company had a net loss$106.0 million in revenue, an increase of $1,675,145, which consisted254% compared to $30.0 million of operating costs of $1,691,465, offset by interest income on marketable securities held inrevenue for the Trust Account of $3,859 and an income tax benefit of $12,461.For the ninethree months ended September 30, 2020, we had a net loss of $2,825,679, which consisted of operating costs of $3,415,269March 31, 2020. By targeting urban, densely populated markets, Shift has used direct-to-consumer digital marketing and a provisionresponsive ecommerce sales approach to grow its market penetration. With current operations out of six West Coast hubs and the launch of new Texas locations, Shift has significant runway for income taxescontinued expansion.$119,783, offsetvehicles across the entire spectrum of model, price, age, and mileage to ensure that Shift has the right car for buyers regardless of interest, need, budget, or credit. Shift is the only online dealer to offer a fully omni-channel fulfillment model, led by interest incomeShift’s patented system for managing on-demand test drives brought to customers at their preferred location, such as their home.marketable securities held in the Trust Accountmarket. Through our platform, we connect customers to various lending partners for a completely digital end-to-end process for financing and service products. A customer can also complete a short online prequalification form and immediately see a filtered view of $709,373.September 30, 2019,March 31, 2021, Shift sourced 87% of its inventory from consumer-sellers and partners driving industry-leading margins and customer acquisition cost. Our data-driven vehicle evaluations help ensure acquisition of the right inventory at the right price to reduce days to sale. We believe that a differentiated ability to purchase vehicles directly from consumer-sellers as compared to our competitors, who purchase a higher percentage through the wholesale market, provides Shift access to a deeper pool of scarce, highly desirable inventory.had net incomecan digitally initiate e-contracting and an ACH transfer and conveniently take the car on the seller’s behalf so the seller doesn’t even have to leave his or her home to sell their car.$530,022, which consistedmagnitude higher score than traditional auto retailers. These positive experiences allow Shift to serve customers over the entire lifecycle of interest income on marketable securities heldvehicle ownership and retain customers for repeat sales and purchases. By continuing to invest in services that benefit the customer throughout the ownership phase of the lifecycle (for example, vehicle maintenance plans), we will continue to establish a long-term customer base that will return for future transactions.Trust Accountprice at which the car is acquired and sold, as well as through fees on the sale of $938,940,ancillary products such as financing, vehicle protection, and services. If a car that we purchase does not meet our standards for retail sale, we generate revenue by selling through wholesale channels. These vehicles are primarily acquired from customers who trade-in their existing vehicles in connection with a purchase from us. Our revenue for the three months ended March 31, 2021 and 2020, was $106.0 million and $30.0 million, respectively. For the three months ended March 31, 2021 and 2020, our revenue was impacted by contra-revenue charges of $0.2 million and $0.2 million, respectively related to certain milestones under our agreement with Lithia (see Note 9 - Related Party Transactions in the accompanying condensed consolidated financial statements). We expect significant growth going forward as we expand geographically, increase market penetration, and increase ancillary product sales. Our adjusted gross profit is equal to the revenue from vehicle sales and services, exclusive of the impact of the warrants issued related to milestone achievement under our Lithia agreement, less the costs associated with acquiring and reconditioning the vehicle prior to sale. Adjusted gross profit is a non-GAAP financial measure used by our management team to assess our business and consists of gross profit adjusted for non-cash items as set forth below under “Non-GAAP Financial Measures.”Three Months Ended March 31, 2021 2020 Change ($ 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) % 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 % Three Months Ended March 31, 2021 2020 Change ($ in thousands) $ 22,257 $ 6,577 238.4 % Marketing expenses 15,393 1,786 761.9 % 12,584 5,083 147.6 % Total selling, general and administrative expenses $ 50,234 $ 13,446 273.6 % of $221,338vehicle shipping costs for internal purposes, corporate occupancy, professional services, registration and a provision for income taxes of $187,580.Forlicensing, and IT expenses.ninethree months ended September 30, 2019, we had net income of $1,005,569, which consisted of interest income on marketable securities heldMarch 31, 2021, from $13.4 million in the Trust Account of $1,896,661, offset by operatingcomparable period in 2020. The increase was partly due to an increase in compensation costs of $521,424$15.7 million, driven by the increase in headcount from 305 to 854. The increase was also partly due to the increase in marketing expense of $13.6 million, which resulted from continued investment in brand marketing and opportunistic discretionary spending to leverage unusually favorable conditions in the used auto market. Lastly, other costs increased by $7.5 million due primarily to increased selling costs and costs associated with being a provision for income taxes of $369,668.AsSeptember 30,liquidityhad marketable securities heldrefer to as the FLOC. Refer to Note 6 - Borrowings and Note 9 - Related Party Transactions in our “Notes to Condensed Consolidated Financial Statements” for additional information.Trust Account“Notes to Condensed Consolidated Financial Statements” for additional details regarding this transaction.interest income) consisting$317.2 million as of U.S. Treasury securities with a maturity of 180 days or less. Interest income on the balance in the Trust Account may be used by us to pay taxes. Through September 30, 2020, we withdrew $986,350 of interest income from the Trust Account, of which $981,250 was withdrawnMarch 31, 2021. Further, during the ninethree months ended September 30,March 31, 2021, the Company had negative operating cash flows of $71.5 million. In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by incurring indebtedness, we will be subject to increased fixed payment obligations and could also be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors. to paytax obligations. Three Months Ended March 31, 2021 2020 ($ 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) ninethree months ended September 30, 2020,March 31, 2021, net cash used in operating activities was $1,909,013, which was comprised$71.5 million, an increase of our net loss of $2,825,679, interest earned on marketable securities held in the Trust Account of $709,373 and changes in operating assets and liabilities, which provided $1,626,039 of cash for operating activities. For the nine months ended September 30, 2019,$60.5 million from cash used in operating activities of $10.9 million for the three months ended March 31, 2020. The increase is primarily due to an increase in net loss of $30.4 million. The increase was $473,033, whichalso partly due to an increase in accounts receivable of $12.2 million and an increase in net inventory purchases of $21.6 million.comprisedprimarily driven by the capitalization of ourwebsite and internal-use software costs and purchases of capital equipment.incomecash used in investing activities of $1,005,569, interest earned on marketable securities held in$1.3 million was primarily driven by the Trust Accountcapitalization of $1,896,661website and changes in operating assets and liabilities, whichinternal-use software costs.$418,059 of cash for operating activities. We used substantially allby financing activities was $17.1 million, primarily due to increased utilization of the funds heldFLOC to finance inventory purchases.the Trust Account, including any amounts representing interest earnedfinancing activities was$2.2 million, primarily due to sales of vehicles financed vehicles (i.e., repayments on the Trust Account (less amounts releasedFLOC balance) exceeding financed purchases of inventory.us to pay taxes and deferred underwriting commissions) to consummate our Business Combination in October 2020. To the extent that our capital stock or debt is used, in whole or in part, as consideration to consummate our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operationsamount of the target business, make other acquisitions and pursue our growth strategies. Following the Business Combination, the Company believes it has sufficient liquidity to meet funding requirements for the next twelve months.Off-Balance Sheet Financing ArrangementsWe have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 30, 2020. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.Contractual ObligationsAs of September 30, 2020, we did 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 supportliability due to the Company. We began incurring these fees on March 19, 2019 and continuedOEM to incur these fees monthly until the completion of the Business Combination.In addition, we agreed to pay the underwriters a deferred fee of $6,419,000.acquire such vehicles. The deferred fee was paid in cash upon the closing of the Business Combination from the amounts held in the Trust Account, subjectliability due to the terms of the underwriting agreement.On June 10, 2020, we entered into an agreement with a serviceOEM provider pursuant to which the service provider will serve as the placement agent for us in connection with a proposed private placement (the “Transaction”) of our equity or equity-linked securities (the “Securities”). We agreed to pay the service provider a cash feesuch acquired vehicles is equal to 4%the OEM’s original acquisition price.the gross proceeds of the total Securities sold in the Transaction less than or equal to $100 millionreal estate and 5% of the gross proceeds of the total Securities sold in the Transaction greater than $100 million.On Juneequipment. See Note 10 2020, we entered into an agreement with the same service provider, pursuant to which the service provider agreed to provide us with capital markets advisory services for a potential Business Combination. We agreed to pay the service provider (i) all reasonable travel- Commitments and other expense incurred in performing its services and (ii) any expenses relating to due diligence.On June 11, 2020, we entered into a transactional support agreement with a service provider, pursuant to which the service provider agreed to render certain financial advisory and investment banking services in connection with our potential Business Combination. We agreed to pay the service provider a fee of $1,600,000 if we consummate a Business Combination. In the event a Business Combination is consummated, we, at our sole discretion, may pay a discretionary fee of up to $400,000Contingencies to the service provider.On June 22, 2020, we entered into a consulting agreement with a service provider, pursuant to which the service provider will provide us with financial advisory support for a potential Business Combination. We agreed to pay the service provider a fee of $25,000 per month, for total fees of $75,000. In addition, we agreed to pay the service provider a minimum fee of $600,000 and up to a maximum fee of $1,200,000, if we consummate a Business Combination.Critical Accounting PoliciesThe preparation ofaccompanying condensed consolidated 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 datefor further discussion of the condensed consolidated financial statements,nature and incometiming of cash obligations due under these leases.expenses during the periods reported. Actual results could materially differ from those estimates. Wevariable interest entities that either have, identified the following critical accounting policies:Common Stock Subjector are reasonably likely to Possible RedemptionWe account for our common stock that was subject to possible redemption prior to the Business Combination in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified ashave, 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 holdercurrent 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 consolidated balance sheets.Net Loss Per Common ShareWe 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 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 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.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 September 30, 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 September 30, 2020,March 31, 2021, our disclosure controls and proceduresDisclosure Controls were not effective atdue to 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 specifiedmaterial weakness in the SEC’s rulesCompany's internal control over financial reporting as disclosed below.forms..Changes in Internal Control Over Financial ReportingThere has been no changefor the year ended December 31, 2020, management identified certain deficiencies in our internal control over financial reporting that hasmanagement 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.fiscal quarter of 2020 covered by this Quarterly Report on Form 10-Qended March 31, 2021, that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.PARTOTHER INFORMATIONOther InformationPROCEEDINGS.None.FACTORS.Factors that could cause our actual resultsFACTORSdiffer materially from thosethe risk factors included in this report are any of the risks described in (i) our Annual Report on Form 10-K filed withfor the SEC on March 25, 2020, (ii) our Definitive Proxy Statement on Schedule 14A relating to the Business Combination, initially filed with the SEC on July 17, 2019 and as amended through October 8, 2020, or (iii) our Quarterly Report on Form 10-Q filed with the SEC on August 13,fiscal year ended December 31, 2020. 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.PROCEEDS.SECURITIES.DISCLOSURES.Not applicable.INFORMATION.No.Description of Exhibit2.1Exhibit No.Description 10.1 10.2 31.1*10.310.4 10.5 10.6 31.1 31.2*31.231.3*31.332.1**32.1101.INS 101.INS*Inline 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.
____________SIGNATURESSHIFT TECHNOLOGIES, INC. /s/ Oded Shein Date: November 16, 2020/s/ Cindy HanfordOded SheinName: Cindy HanfordTitle:Chief Financial Officer and Duly Authorized Officer(Principal Financial Officer)May 14, 202119