The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Shift Technologies,
Inc., formerly known as Insurance Acquisition Corp. (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
On October 13, 2020
(the “Closing Date”), the Company consummated the previously announced transactions contemplated by the Agreement and
Plan of Merger (the “Merger Agreement”), dated as of June 29, 2020, by and among the Company, IAC Merger Sub, Inc.,
a 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 Sub with and into Shift (the “Merger”),
with Shift continuing as the surviving entity. The transactions contemplated by the Merger Agreement are referred to herein as
the “Business Combination.” In connection with the closing of the Merger (the “Closing”), the registrant
changed its name from Insurance Acquisition Corp. to Shift Technologies, Inc.
The aggregate consideration
paid in the Business Combination consisted of (i) 38,000,000 shares of the Company’s common stock (the “Closing Date
Merger Consideration”) 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 acquisitions
Business Prior to the Business Combination
Prior 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 in 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 with
the closing of the Initial Public Offering, the Company consummated the sale of 425,000 units (the “Placement Units”)
at a price of $10.00 per Placement Unit in a private placement to the Company’s sponsor, Insurance Acquisition Sponsor, LLC
(together with Dioptra Advisors, LLC, the “Sponsor”) and Cantor Fitzgerald & Co. (“Cantor”), generating
gross proceeds of $4,250,000, which is described in Note 4.
Following the closing
of the Initial Public Offering on March 22, 2019, an amount of $150,650,000 ($10.00 per Unit) from the net proceeds of the sale
of the Units in the Initial Public Offering and the sale of the Placement Units was placed in a trust account (“Trust Account”),
which will be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company
Act of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment
company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined
by the Company, until the earlier of: (i) the consummation of a Business Combination; (ii) the redemption of any Public Shares
in connection with a stockholder vote to amend the Company’s Amended and Restated Certificate of Incorporation to modify
the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if it does not complete an initial
Business Combination by September 22, 2020 (the “Combination Period”); or (iii) the distribution of the Trust Account.
Transaction costs
amounted to $9,661,484, consisting of $2,620,000 of underwriting fees, $6,419,000 of deferred underwriting fees and $622,484 of
other offering costs.
SHIFT TECHNOLOGIES, INC.
(successor to Insurance Acquisition
Corp.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”) for interim financial 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 normally included in financial
statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for
interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation
of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair
presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited
condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for
the year ended December 31, 2019 as filed with the 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 Consolidation
The 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 Company
The 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.
Use of Estimates
The preparation of
condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and 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 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
from those estimates.
SHIFT TECHNOLOGIES, INC.
(successor to Insurance Acquisition
Corp.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
Cash and Cash Equivalents
The 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 Redemption
The 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 Costs
Offering 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. Offering costs amounting to $9,661,484 were charged to stockholders’ equity upon the completion
of the Initial Public Offering.
Income Taxes
The Company complies
with the accounting and reporting requirements of ASC Topic 740 “Income Taxes,” which requires an asset and liability
approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts,
based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC Topic 740 prescribes
a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken
or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be
sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized
tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as
of September 30, 2020 and December 31, 2019. The Company is currently not aware of any issues under review that could result in
significant payments, accruals or material deviation from its position.
The Company may be
subject to potential examination by federal, state and city taxing authorities in the areas of income taxes. These potential examinations
may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance
with federal, state and city tax laws. The Company’s management does not expect that the total amount of unrecognized tax
benefits will materially change over the next twelve months. The Company is subject to income tax examinations by major taxing
authorities since inception.
Net Income (Loss) Per Common Share
Net income (loss)
per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the
period. The Company has not considered the effect of warrants sold in the Initial Public Offering and private placement to purchase
7,745,000 shares of Class A common stock in the calculation of diluted income (loss) per share, since the exercise of the warrants
are contingent upon 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 to Insurance Acquisition
Corp.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
Concentration of Credit Risk
Financial 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 Instruments
The 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 Standards
Management does not
believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect
on our condensed consolidated financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
On 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 one warrant (“Public Warrant”). Each whole Public
Warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 (see Note 7).
NOTE 4. PRIVATE PLACEMENT
Simultaneously with
the closing of the Initial Public Offering, Insurance Acquisition Sponsor, LLC and Cantor purchased 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 share of
Class A common stock and one-half of one warrant (the “Placement Warrant”). Each whole Placement Warrant is exercisable
for one share of Class A common stock at a price of $11.50 per share. The proceeds from the Placement Units were added to the proceeds
from the Initial Public Offering held in the Trust Account.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In March 2018, 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 into shares of Class A common stock upon consummation of a Business Combination on a one-for-one basis, subject
to certain adjustments, as described in Note 7. On December 26, 2018, the Company 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 in 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 to Insurance Acquisition
Corp.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 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 Party
An affiliate of the
Sponsor advanced the Company an aggregate of $65,535 to be used for the payment of costs related to the Initial Public Offering.
The advances were non-interest bearing, unsecured and due on demand. The Company repaid the $65,535 of outstanding advances upon
the consummation of the Initial Public Offering on March 22, 2019.
Promissory Note – Related Party
The Company issued
a $500,000 promissory note (the “Promissory Note”) to an affiliate of the Sponsor, pursuant to which the Company borrowed
an aggregate principal amount of $200,000. The Promissory Note was non-interest bearing and payable on the earlier of 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 Agreement
The Company entered
into an agreement, commencing on March 19, 2019 through the earlier of the Company’s consummation of a Business Combination
and its liquidation, to pay an affiliate of the Sponsor $10,000 per month for office space, utilities, secretarial support and
administrative services. 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 Arrangements
In 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 Loans
In 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 to Insurance Acquisition
Corp.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 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 CONTINGENCIES
Risks and Uncertainties
Management 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 Rights
Pursuant to a registration
rights agreement entered into on March 19, 2019, holders of the Founder Shares, Placement Units (including securities contained
therein) and the warrants that may be issued upon conversion of the Working Capital Loans (and any shares of Class A common stock
issuable upon the exercise of the Placement Warrants or the warrants issued upon conversion of the Working Capital Loans) are entitled
to registration rights requiring the Company to register such securities for resale (in the case of the Founder Shares, only after
conversion to Class A common stock). The holders of these securities will be entitled to make up to three demands, excluding short
form demands, that the Company register such securities for sale under the Securities Act. In addition, the holders will have “piggy-back”
registration rights to include such securities in other registration statements filed by the Company and rights to require the
Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration rights
agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective
until termination of the applicable lock-up period. Notwithstanding the foregoing, Cantor may not exercise its demand and “piggyback”
registration rights after five (5) and seven (7) years after the effective date of the registration statement 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 Agreement
The underwriters were
paid a cash underwriting discount of 2.0% of the gross proceeds of the Initial Public Offering, or $2,620,000. In addition, the
underwriters’ 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 Agreements
On 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 to Insurance Acquisition
Corp.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 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’ EQUITY
Preferred 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.
Class A Common
Stock — As of September 30, 2020, the Company was authorized to issue 50,000,000 shares of Class A common stock with
a par value of $0.0001 per share. Holders of Class A common stock are entitled to one vote for each share. At September 30, 2020
and December 31, 2019, there were 1,826,409 and 1,633,440 shares of Class A common stock issued and outstanding, excluding 13,663,591
and 13,856,560 shares of Class A common stock subject to possible redemption, respectively.
Class B Common
Stock — As of September 30, 2020, the Company is authorized to issue 10,000,000 shares of Class B common stock with
a par value of $0.0001 per share. Holders of the Company’s Class B common stock are entitled to one vote for each common
share. At 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 stock immediately prior
to the consummation of the Merger, and following the conversion, the authorized shares of Class B common stock were reduced to
zero.
Holders of Class B
common stock were entitled to vote on the election of directors prior 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 its option, require holders of Public Warrants who exercise their
warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event
the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but will be required
to use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
SHIFT TECHNOLOGIES, INC.
(successor to Insurance Acquisition
Corp.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 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
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|
●
|
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 MEASUREMENTS
At 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
|
|
September 30,
2020
|
|
Assets:
|
|
|
|
|
|
Marketable securities held in Trust Account – U.S. Treasury Securities Money Market Fund
|
|
1
|
|
$
|
152,966,309
|
|
SHIFT TECHNOLOGIES, INC.
(successor to Insurance Acquisition
Corp.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 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 EVENTS
As 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, and
following the conversion, the authorized shares of Class B common stock were reduced to zero.