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XBRL

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One) 

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

☐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. 001-38839


INSURANCE ACQUISITION CORP.
(Exact name of registrant as specified in its charter)

Delaware82-5325852(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______

Commission file number: 001-38839

Shift Technologies, Inc.
(Exact name of registrant as specified in its charter)

Delaware82-5325852
(State or other jurisdiction of

incorporation or organization)

(I.R.S.IRS Employer

Identification No.)

2929 Arch

290 Division Street, Suite 1703

Philadelphia, PA 19104

400, San Francisco, California 94103-4893
(Address of Principal Executive Offices, including zip code)principal executive offices)



Registrant's telephone number, including area code: (855) 575-6739
Securities registered pursuant to Section 12(b) of the Exchange Act:

(215) 701-9555
(Registrant’s telephone number, including area code)Title of each class

N/A
Trading
Symbol(s)
Name of each exchange on which registered
(Former name, former address and former fiscal year, if changed since last report)Class A common stock, par value $0.0001 per shareSFTNasdaq Capital Market


Securities registered pursuant to Section 12(g) of the Exchange Act: None


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐☒ No ☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”filer”, “accelerated filer,”filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


☐   
Large accelerated filer☐Accelerated filer☒
☒   Non-accelerated filer☒   ☐Smaller reporting company☒
☒   Emerging growth 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. ☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):. Yes ☒☐ No ☐

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, par value $0.0001 per shareINSUNasdaq Capital Market
Warrants to purchase one-half of one share of Class A common stockINSUWNasdaq Capital Market
Units, each consisting of one share of Class A common stock, $.0001 par value, and one-half of one WarrantINSUUNasdaq Capital Market

☒


As of May 14, 2019, there were 15,490,000August 8, 2022 the registrant had 84,824,518 shares of Class A common stock $0.0001 par value, and 5,163,333 sharesoutstanding.

Table of Class B common stock, $0.0001 par value, issued and outstanding.

Contents

INSURANCE ACQUISTION CORP.

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

Page
Page
PART 1 – FINANCIAL INFORMATION
1
1
Item 1.
Condensed Consolidated Balance Sheets
Financial Statements
2
Condensed Consolidated Statements of Operations and Comprehensive Loss
3
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
Condensed Balance Sheets as of March 31, 2019 (unaudited) and December 31, 20181
4
Condensed Statement of Operations for the Three Months Ended March 31, 2019 (unaudited)
2
Condensed Statement of Changes in Stockholders’ Equity (unaudited)3
Condensed StatementConsolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 (unaudited)4
6
Notes to Condensed Consolidated Financial Statements (unaudited)
5
8
Management’s15
31
17
48
48
Item 4.Control and Procedures17
50
50
PART II – OTHER INFORMATION
50
Item 1.Legal Proceedings18
Item 1A.Risk Factors18
18
50
18
50
18
50
51
Other Information18
52
Item 6.Exhibits19
SIGNATURES20
53

i


INSURANCE ACQUISITION CORP.

CONDENSED BALANCE SHEETS

  March 31,  December 31, 
  2019  2018 
  (unaudited)  (audited) 
ASSETS      
Current assets      
Cash $918,331  $25,000 
Prepaid expenses and other current assets  

155,350

   — 
Total Current Assets  1,073,681   25,000 
         
Deferred offering costs  —   100,621 
Cash and marketable securities held in Trust Account  150,709,240   — 
Total Assets $151,782,921  $125,621 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities        
Accounts payable and accrued expenses $56,655  $365 
Accrued offering costs  45,735   100,621 
Income taxes payable  2,917   — 
Advance from related party  —   1,304 
Total Current Liabilities  105,307   102,290 
         
Deferred underwriting fee payable  6,419,000   — 
Total Liabilities  6,524,307   102,290 
         
Commitments        
         
Common stock subject to possible redemption, 14,015,901 shares at redemption value as of March 31, 2019  140,258,612   — 
         
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; 1,474,099 and -0- shares issued and outstanding (excluding 14,015,901 and -0- shares subject to possible redemption) as of March 31, 2019 and December 31, 2018, respectively  147   — 
Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 5,163,333 shares issued and outstanding as of March 31, 2019 and December 31, 2018�� 516   516 
Additional paid-in capital  5,004,241   24,484 
Accumulated deficit  (4,902)  (1,669)
Total Stockholders’ Equity  5,000,002   23,331 
Total Liabilities and Stockholders’ Equity $151,782,921  $125,621 


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements contained in this Quarterly Report on Form 10-Q that reflect our current views with respect to future events and financial performance, business strategies, and expectations for our business constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would,” “will,” “approximately,” “shall,” the negative of any of these and any similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

Some factors that could cause actual results to differ include, but are not limited to:

•general business and economic conditions and risks related to the larger automotive ecosystem;

•competition, and the ability of the Company to grow and manage growth profitably;

•our history of losses and ability to achieve or maintain profitability in the future;

•our ability to sustain our current rate of growth;

•our ability to establish our software as a platform to be used by automotive dealers;

•risks relating to our inspection, reconditioning and storage hubs;

•impacts of COVID-19 and other pandemics;

•our reliance on third-party carriers for transportation:

•our current geographic concentration where we provide reconditioning services and store inventory;

•cyber-attacks or other privacy or data security incidents;

•the impact of copycat websites;

•failure to adequately protect our intellectual property, technology and confidential information;

•our reliance on third-party service providers to provide financing;

•the impact of federal and state laws related to financial services on our third-party service providers;

•the impact of federal, state and local laws on our ability to obtain and maintain necessary dealer and financing licenses in the states in which we do business;

•risks that impact the quality of our customer experience, our reputation, or our brand;

•changes and ambiguity in the prices of new and used vehicles;

•our ability to correctly appraise and price vehicles;

•access to desirable vehicle inventory;

•our ability to expeditiously sell inventory;

•our ability to expand product offerings;

•changes in applicable laws and regulations and our ability to comply with applicable laws and regulations;
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•access to additional debt and equity capital;

•changes in technology and consumer acceptance of such changes;

•our reliance on internet search engines, vehicle listing sites and social networking sites to help drive traffic to our website;

•any restrictions on the sending of emails or messages or an inability to timely deliver such communications;

•seasonal and other fluctuations in our quarterly results of operations;

•competition in the markets in which we operate;

•changes in the auto industry and conditions affecting automotive manufacturers;

•natural disasters, adverse weather events and other catastrophic events;

•our dependence on key personnel;

•our ability to rapidly hire and retain qualified personnel necessary to grow our business as anticipated;

•increases in labor costs;

•our reliance on third-party technology and information systems;

•our use of open-source software;

•claims asserting that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers;

•significant disruptions in service on our platform;

•impairment charges;

•changes in interest rates;

•volatility in the price of our Class A common stock;

•issuances of our Class A common stock and future sales of our Class A common stock;

•our ability to establish and maintain effective internal control over financial reporting

•the effect of the announcement of the restructuring on our ability to retain and hire key personnel and maintain relationships with its customers, suppliers and others with whom we do business;

•our ability to successfully integrate Fair Dealer Services, LLC’s operations, technologies and employees;

•the ability to realize anticipated benefits and synergies of the Fair acquisition, including the expectation of enhancements to our products and services, greater revenue or growth opportunities, operating efficiencies and cost savings;

•the ability to ensure continued performance and market growth of the combined company’s business; and

•other economic, business and/or competitive factors, risks and uncertainties, including those described in “Item 1A. Risk Factors.”

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We do not undertake, and expressly disclaim, any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this filing.
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Part I - Financial Information
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
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SHIFT TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)
As of June 30, 2022As of December 31, 2021
ASSETS  
Current assets:  
Cash and cash equivalents$88,482 $182,616 
Accounts receivable, net of allowance for doubtful accounts of $293 and $3048,899 20,084 
Inventory136,566 122,743 
Prepaid expenses and other current assets5,140 7,392 
Total current assets239,087 332,835 
Property and equipment, net10,131 7,940 
Operating lease right-of-use assets38,110 — 
Capitalized website and internal use software costs, net24,047 9,262 
Restricted cash, non-current11,800 11,725 
Goodwill2,524 — 
Deferred borrowing costs414 564 
Other non-current assets3,132 3,414 
Total assets$329,245 $365,740 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable$24,049 $15,175 
Accrued expenses and other current liabilities30,010 43,944 
Current maturities of operating lease liabilities6,663 — 
Flooring line of credit93,830 83,252 
Total current liabilities154,552 142,371 
Long-term debt, net162,341 144,335 
Non-current operating lease liabilities34,814 —
Other non-current liabilities1,645 3,762 
Total liabilities353,352 290,468 
Commitments and contingencies (Note 12)00
Stockholders’ equity (deficit):
Preferred stock – par value $0.0001 per share; 1,000,000 shares authorized at June 30, 2022 and December 31, 2021, respectively— — 
Common stock – par value $0.0001 per share; 500,000,000 shares authorized at June 30, 2022 and December 31, 2021, respectively; 85,124,455 and 81,369,311 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively9 8 
Additional paid-in capital525,841 515,975 
Accumulated deficit(549,957)(440,711)
Total stockholders’ equity (deficit)(24,107)75,272 
Total liabilities and stockholders’ equity (deficit)$329,245 $365,740 
The accompanying notes are an integral part of thethese condensed consolidated financial statements.


2

INSURANCE ACQUISITION CORP.

CONDENSED STATEMENT OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2019

(Unaudited)

Operating expenses $59,556 
Loss from operations  (59,556)
     
Other income:    
Interest earned on marketable securities held in Trust Account  59,240 
     
Loss before provision for income taxes  (316)
Provision for income taxes  (2,917)
Net loss $(3,233)
     
Weighted average shares outstanding of Class A redeemable common stock  15,065,000 
Basic and diluted loss per share, Class A $(0.00)
     
Weighted average shares outstanding of Class A and Class B non-redeemable common stock  5,205,833 
Basic and diluted net loss per share, Class A and Class B $(0.00)

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SHIFT TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
(unaudited)
Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
Revenue  
Ecommerce revenue, net$194,981 $129,688 $378,062 $218,642 
Other revenue, net9,220 5,075 17,931 9,094 
Wholesale vehicle revenue19,532 20,087 47,319 33,118 
Total revenue223,733 154,850 443,312 260,854 
Cost of sales211,855 138,519 420,647 237,158 
Gross profit11,878 16,331 22,665 23,696 
Operating expenses:
Selling, general and administrative expenses58,744 48,143 122,281 98,378 
Depreciation and amortization2,459 1,561 4,139 2,662 
Total operating expenses61,203 49,704 126,420 101,040 
Loss from operations(49,325)(33,373)(103,755)(77,344)
Change in fair value of financial instruments— 3,470 — 5,624 
Interest and other expense, net(2,846)(1,758)(5,424)(2,696)
Net loss before income taxes(52,171)(31,661)(109,179)(74,416)
Provision for income taxes27 — 68 — 
Net loss and comprehensive loss attributable to common stockholders$(52,198)$(31,661)$(109,247)$(74,416)
Net loss and comprehensive loss per share attributable to common stockholders, basic and diluted$(0.64)$(0.41)$(1.37)$(0.95)
Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted80,952,782 78,046,020 79,902,644 78,000,870 
The accompanying notes are an integral part of the unauditedthese condensed consolidated financial statements.


3

INSURANCE ACQUISITION CORP.

CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED MARCH 31, 2019

              Additional     Total 
  Class A Common Stock  Class B Common Stock  Paid in  Accumulated  Stockholders’ 
  Shares  Amount  Shares  Amount  Capital  Deficit  Equity 
Balance – January 1, 2019  —  $—   5,163,333  $516  $24,484  $(1,669) $23,331 
                             
Sale of 15,065,000 Units, net of underwriting discount and offering expenses  15,065,000   1,507   —   —   140,987,009   —   140,988,516 
                             
Sale of 425,000 Placement Units  425,000   42   —   —   4,249,958   —   4,250,000 
                             
Common stock subject to possible redemption  (14,015,901)  (1,402)  —   —   (140,257,210)  —   (140,258,612)
                             
Net loss  —   —   —   —   —   (3,233)  (3,233)
Balance – March 31, 2019 (unaudited)  1,474,099  $1,47   5,163,333  $516  $5,004,241  $(4,902) $5,000,002 

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SHIFT TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
(in thousands, except share and per share amounts)
(unaudited)
Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Total Stockholders’ Equity (Deficit)
 SharesAmount
Balance at December 31, 202181,369,311 $8 $515,975 $(440,711)$75,272 
Issuance of common stock under stock-based compensation plans, net of shares exchanged for withholding tax1,300,295 — (2,162)— (2,162)
Issuance of common stock upon exercise of vested options12,309 — 3 — 3 
Repurchase of shares related to early exercised options(2,784)— — — — 
Vesting of early exercised options— — 35 — 35 
Stock-based compensation— — 4,517 — 4,517 
Net loss and comprehensive loss— — — (57,048)(57,048)
Balance at March 31, 202282,679,131 $8 $518,368 $(497,759)$20,617 
Issuance of common stock under stock-based compensation plans, net of shares exchanged for withholding tax387,567 — (291)— (291)
Issuance of shares as consideration in business combinations2,066,978 1 2,480 — 2,481 
Repurchase of shares related to early exercised options(9,221)— — — — 
Vesting of early exercised options— — 24 — 24 
Stock-based compensation— — 5,260 — 5,260 
Net loss and comprehensive loss— — — (52,198)(52,198)
Balance at June 30, 202285,124,455 $9 $525,841 $(549,957)$(24,107)
The accompanying notes are an integral part of the unauditedthese condensed consolidated financial statements.

3

4

INSURANCE ACQUISITION CORP.

CONDENSED STATEMENT OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2019

(Unaudited)

Cash Flows from Operating Activities:   
Net loss $(3,233)
Adjustments to reconcile net loss to net cash used in operating activities:    
Interest earned on marketable securities held in Trust Account  (59,240)
Changes in operating assets and liabilities:    
Prepaid expenses and other current assets  (155,350)
Accounts payable and accrued expenses  56,290 
Income taxes payable  2,917 
Net cash used in operating activities  (158,616)
     
Cash Flows from Investing Activities:    
Investment of cash in Trust Account  (150,650,000)
Net cash used in investing activities  (150,650,000)
     
Cash Flows from Financing Activities:    
Proceeds from sale of Units, net of underwriting discounts paid  148,030,000 
Proceeds from sale of Placement Units  4,250,000 
Advance from related party  64,231 
Repayment of advances from related party  (65,535)
Proceeds from promissory note – related party  200,000 
Repayment of promissory note – related party  (200,000)
Payment of offering costs  (576,749)
Net cash provided by financing activities  151,701,947 
     
Net Change in Cash  893,331 
Cash – Beginning of period  25,000 
Cash – End of period $918,331 
     
Non-Cash investing and financing activities:    
Offering costs included in accrued offering costs $46,032 
Initial classification of common stock subject to possible redemption $140,260,560 
Change in value of common stock subject to possible redemption $(1,948)
Deferred underwriting fee payable $6,419,000 

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SHIFT TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
(in thousands, except share and per share amounts)
(unaudited)
Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Total Stockholders’ Equity
 SharesAmount
Balance at December 31, 202083,904,182 $8 $511,617 $(274,443)$237,182 
Warrant exchange125,160 — (497)— (497)
Issuance of common stock upon exercise of vested options107,645 — 200 — 200 
Vesting of early exercised options— — 132 — 132 
Repurchase of shares related to 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, 202184,136,987 $8 $519,828 $(317,198)$202,638 
Purchase of capped calls— — (28,391)— (28,391)
Issuance of common stock upon exercise of vested options31,679 — 101 — 101 
Repurchase of shares related to early exercised options(5,849)— — — — 
Vesting of early exercised options— — 114 — 114 
Stock-based compensation— — 5,651 — 5,651 
Net loss and comprehensive loss— — — (31,661)(31,661)
Balance at June 30, 202184,162,817 $8 $497,303 $(348,859)$148,452 
The accompanying notes are an integral part of the unauditedthese condensed consolidated financial statements.



INSURANCE ACQUISTION CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(Unaudited)

NOTE



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SHIFT TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended
June 30,
 20222021
CASH FLOWS FROM OPERATING ACTIVITIES  
Net loss$(109,247)$(74,416)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization4,957 2,883 
Stock-based compensation expense9,115 13,608 
Change in fair value of financial instruments— (5,624)
Amortization of operating lease right-of-use assets5,751 — 
Contra-revenue associated with milestones318 318 
Amortization of debt discounts843 — 
Changes in operating assets and liabilities:
Accounts receivable11,185 (9,906)
Inventory(14,001)(73,365)
Prepaid expenses and other current assets784 (1,019)
Other non-current assets71 75 
Accounts payable8,712 1,373 
Accrued expenses and other current liabilities(11,802)3,389 
Operating lease liabilities(3,160)— 
Other non-current liabilities(1,659)1,805 
Net cash, cash equivalents, and restricted cash used in operating activities(98,133)(140,879)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment(3,358)(2,921)
Capitalized website internal-use software costs(5,072)(2,934)
Business acquisition(15,000)— 
Net cash, cash equivalents, and restricted cash used in investing activities(23,430)(5,855)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from flooring line of credit facility270,083 162,241 
Repayment of flooring line of credit facility(259,505)(126,504)
Exchange of warrants for cash— (497)
Proceeds from Senior Unsecured Notes, net of discounts19,591 — 
Payment of debt issuance costs(175)— 
Proceeds from issuance of convertible notes— 143,768 
Premiums paid for Capped Call Transactions— (28,391)
Proceeds from stock option exercises, including from early exercised options3 301 
Payment of tax withheld for common stock issued under stock-based compensation plans(2,453)— 
Repurchase of shares related to early exercised options(40)(15)
Net cash, cash equivalents, and restricted cash provided by financing activities27,504 150,903 
Net increase (decrease) in cash, cash equivalents and restricted cash(94,059)4,169 
Cash, cash equivalents and restricted cash, beginning of period194,341 235,541 
Cash, cash equivalents and restricted cash, end of period$100,282 $239,710 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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SHIFT TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

Six Months Ended
June 30,
20222021
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest$5,221 $427 
Cash paid for income taxes125 — 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Capital expenditures in accounts payable$163 $525 
Vesting of exercised options59 246 
Stock-based compensation capitalized to internal-use software662 418 
Issuance of shares as consideration in business acquisitions2,481 — 
Imputation of debt discounts reducing consideration transferred in business acquisitions2,103 — 
Establishment of operating lease right of use assets and lease liabilities
Operating lease right of use assets42,602 — 
Operating lease liabilities43,378 — 
Other Assets1,716 — 
Other Liabilities2,492 — 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SHIFT TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

1. DESCRIPTION OF ORGANIZATIONTHE BUSINESS AND BUSINESS OPERATIONS

ACCOUNTING POLICIES

Shift Technologies, Inc., which, together with its subsidiaries we refer to as Shift, we, us, our, SFT, or the Company, conducts its business through its wholly owned subsidiaries Shift Platform, Inc., Shift Operations, LLC, and their subsidiaries. Shift Platform, Inc., formerly known as Shift Technologies, Inc. (“Legacy Shift”) was incorporated in the State of Delaware on December 9, 2013.
On October 13, 2020, Insurance Acquisition Corp. (the “Company”(“IAC”), isan entity listed on the Nasdaq Capital Market under the trade symbol “INSU”, acquired Shift Platform, Inc., formerly known as Shift Technologies, Inc. (“Legacy Shift”), by the merger of IAC Merger Sub, Inc., a blank checkdirect wholly owned subsidiary of IAC, with and into Legacy Shift, with Legacy Shift continuing as the surviving entity and a wholly owned subsidiary of IAC (the “Merger”). The public company incorporated in Delaware on March 13, 2018. The Companyresulting from the merger 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 (a “Business Combination”).

Although the Company is not limited to a particular industry or sector for purposes of consummating a Business Combination, the Company intends to focus its search on businesses providing insurance or insurance related services, with particular emphasis on regulated insurance or reinsurance companies. renamed Shift Technologies, Inc.

The Company is headquartered in San Francisco, California and operates hubs to purchase, recondition and/or sell vehicles in major cities in California, Oregon, Washington, and Texas. Shift operates an early stageinnovative platform to make car purchases, car sales and emerging growth companyownership simple. Shift’s innovative platform, which includes proprietary pricing technology, provides consumers with a digital purchase and selling experience, and includes offerings throughout the sales cycle, including vehicle pickup and delivery at a customer’s location.
The Company currently is organized into 2 reportable segments: Retail and Wholesale. The Retail segment represents retail sales of used vehicles through the Company’s ecommerce platform and fees earned on sales of value-added products associated with those vehicles sales such as such,vehicle service contracts, guaranteed asset protection waiver coverage, prepaid maintenance plans, and appearance protection plans. The Wholesale segment represents sales of used vehicles through wholesale auctions or directly to a wholesaler (“DTW”).
COVID-19
In March 2020, the Company is subject to allWorld Health Organization declared the outbreak of the risks associated with early stagenovel coronavirus disease (“COVID-19”) as a pandemic. The Company saw a slowing of vehicle sales immediately following the shelter in place ordinances in March; however, within five weeks, weekly sales volume rebounded nearly to pre-COVID-19 volumes. The Company has adjusted certain aspects of its operations to protect its employees and emerging growth companies.

All activity throughcustomers while still meeting customers’ needs for vital technology, including implementing contactless purchase and delivery processes and applying long-term antimicrobial surface and air protection systems for its entire inventory.

On March 31, 2019 relates27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), was signed into law in response to the Company’s formation, its initial public offering (the “Initial Public Offering”), which is described below, and identifying a target company for a Business Combination.COVID-19 pandemic. The Company will not generate any operating revenues until afterCARES Act includes several significant income tax relief provisions as well as the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering.

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 closingdeferral 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.

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. In addition, $1,048,801 of cash was held outside of the Trust Account (as defined below) and is available for working capital purposes.

Following the closing of the Initial Public Offering on March 22, 2019, an amount of $150,650,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Placement Units was placed in a trust account (“Trust Account”), which will be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the consummation of a Business Combination; (ii) the redemption of any Public Shares in connection with a stockholder vote to amend the Company’s Amended and Restated Certificate of Incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if it does not complete an initial Business Combination by September 22, 2020 (the “Combination Period”); or (iii) the distribution of the Trust Account, as described below, except that interest earned on the Trust Account can be released to pay the Company’s tax obligations, if the Company is unable to complete an initial Business Combination within the Combination Period or upon any earlier liquidation of the Company.

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Placement Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. Nasdaq rules provide that the Company must complete a Business Combination with one or more target businesses that together have an aggregate fair market value of at least 80% of the assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on interest earned on the Trust Account) at the time of signing a definitive agreement in connection with a Business Combination. The Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. There is no assurance that the Company will be able to successfully effect a Business Combination.


INSURANCE ACQUISTION CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(Unaudited)

The Company will provide its stockholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The stockholders will be entitled to redeem their Public Shares for a pro rataemployer portion of the amount then on deposit insocial security payroll tax. The Company has evaluated the Trust Account ($10.00 per Public Share, plus any pro rata interest earned onincome tax impacts of the funds held inCARES Act and does not expect that the Trust Account and not previously released toincome tax relief provisions of the CARES Act will significantly impact the Company, to pay its tax obligations). The per-share amount to be distributed to stockholders who redeem their shares will not be reduced by the deferred underwriting commissions the Company will pay to the representative (as discussed in Note 6). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.

The Company will proceed with a Business Combination ifsince it has had taxable losses since inception. In addition, the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, ifadopted the Company seeks stockholder approval, a majoritydeferral of the outstanding shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (the “SEC”), and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or other legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Sponsor and the Company’s officers and directors (the “Insiders”) have agreed to vote their Founder Shares (as defined in Note 5), the shares of Class A common stock included in the Placement Units (the “Placement Shares”) and any Public Shares held by them in favor of approving a Business Combination. Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction.

The Company will also provide its stockholders with the opportunity to redeem all or a portion of their Public Shares in connection with any stockholder vote to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation that would affect the substance or timing of the Company’s obligation to redeem 100% of the Public Shares if it does not complete an initial Business Combination within the Combination Period. The stockholders will be entitled to redeem their shares for a pro rataemployer portion of the amount then on deposit insocial security payroll tax. The deferral was effective from the Trust Account ($10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account, netenactment date through December 31, 2020. As of taxes payable). The per-share amount to be distributed to stockholders who redeem their shares will not be reduced by the deferred underwriting commissionsJune 30, 2022, the Company will pay tohad repaid $0.6 million of the representative (as discussed in Note 6). There$1.3 million originally deferred. As required, the remaining deferred amount will be no redemption rights with respect to the Company’s warrants in connection with such a stockholder vote to approve such an amendment to the Company’s Amended and Restated Certificate of Incorporation. Notwithstanding the foregoing, the Company may not redeem shares in an amount that would cause its net tangible assets to be less than $5,000,001. The Insiders have agreed to vote any Founder Shares, Placement Shares and any Public Shares heldpaid by them in favor of any such amendment.

The Company will have until the expiration of the Combination Period to consummate its initial Business Combination. If the Company is unable to consummate a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including any interest earned on the Trust Account not previously released to the Company to pay its tax obligations and up to $100,000 of interest to pay dissolution expenses, divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and; (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.


INSURANCE ACQUISTION CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCHDecember 31, 2019

(Unaudited)

The Insiders and Cantor have agreed to waive their redemption rights with respect to any Founder Shares and Placement Shares, as applicable, (i) in connection with the consummation of a Business Combination, (ii) in connection with a stockholder vote to amend the Company’s Amended and Restated Certificate of Incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if it does not complete its initial Business Combination within the Combination Period, and (iii) if the Company fails to consummate a Business Combination within the Combination Period. The Insiders have also agreed to waive their redemption rights with respect to any Public Shares held by them in connection with the consummation of a Business Combination and in connection with a stockholder vote to amend the Company’s Amended and Restated Certificate of Incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if it does not complete its initial Business Combination within the Combination Period. However, the Insiders will be entitled to redemption rights with respect to Public Shares if the Company fails to consummate a Business Combination or liquidates within the Combination Period. Cantor will have the same redemption rights as public stockholders with respect to any Public Shares it acquires. The representative has agreed to waive its rights to deferred underwriting commissions held in the Trust Account in the event the Company does not consummate a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the Initial Public Offering price per Unit ($10.00). Placing funds in the Trust Account may not protect those funds from third party claims against the Company. Although the Company will seek to have all vendors, service providers (except the Company's independent registered accounting firm), prospective target businesses or other entities it engages, execute agreements with the Company waiving any claim of any kind in or to any monies held in the Trust Account, there is no guarantee that such persons will execute such agreements. Cohen & Company, LLC, the manager of the Sponsor, has agreed that it will be liable under certain circumstances to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or vendors or other entities that are owed money by the Company for service rendered, contracted for or products sold to the Company. However, it may not be able to satisfy those obligations should they arise.

Notwithstanding the foregoing redemption rights, if the Company seeks stockholder approval of its Business Combination and it does not conduct redemptions in connection with its Business Combination pursuant to the tender offer rules, the Amended and Restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended), will be restricted from redeeming its shares with respect to an aggregate of 20.0% or more of the shares sold in the Initial Public Offering. However, there is no restriction on the Company’s stockholders’ ability to vote all of their shares for or against a Business Combination.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2022.

Basis of presentation

The accompanyingPresentation

Our unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Intercompany accounts 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 GAAPtransactions 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.eliminated. In the opinion of management, the accompanying unauditedinterim condensed consolidated financial statements includereflect all adjustments, consisting of a normal recurring nature, which are normal and recurring in nature, necessary for a fair financial statement presentation.
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SHIFT TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The interim condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021, the interim condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2022 and 2021, condensed consolidated statements of stockholders' equity (deficit) for the three and six months ended June 30, 2022 and 2021, and condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021, and amounts relating to the interim periods included in the accompanying notes to the interim condensed consolidated financial statements are 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, reflect all adjustments, which are normal and recurring in nature, necessary for the fair financial statement presentation of the financial position, operatingCompany’s condensed consolidated balance sheet as of June 30, 2022, and its results of operations for the three and six months ended June 30, 2022 and 2021 and cash flows for the periods presented.

six months ended June 30, 2022 and 2021. The accompanying unaudited condensedresults for the three and six months ended June 30, 2022 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 prospectus asconsolidated financial statements and related notes for the fiscal year ended December 31, 2021 included in our Annual Report on Form 10-K filed with the SECUnited States Securities and Exchange Commission ("SEC") on March 21, 2019, as well as16, 2022.

Liquidity and Management's Plan
For the Company’s Current Report on Form 8-K, as filed with the SEC on March 28, 2019. The interim results for the threesix months ended March 31, 2019 are not necessarily indicativeJune 30, 2022 and 2021, the Company generated negative cash flows from operations of approximately $98.1 million and $140.9 million, respectively, and generated net losses of approximately $109.2 million and $74.4 million, respectively. As of June 30, 2022, the results to be expected for the year ending December 31, 2019 or for any future interim periods.

The Company had minimal activity forunrestricted cash and cash equivalents of $88.5 million and total working capital of $84.5 million. Since inception, the periodCompany has had negative cash flows and losses from March 13, 2018 (inception)operations which it has funded primarily through March 31, 2018. Accordingly, the condensed statementissuances of operationscommon and condensed statement of cash flow for the comparative period from March 13, 2018 (inception)preferred stock and through March 31, 2018 are not presented.

Emerging growth company

The Company is an “emerging growth company,” as defineda reverse recapitalization via its merger with Insurance Acquisition Corp. in Section 2(a) of 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.


INSURANCE ACQUISTION CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(Unaudited)

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.October 2020. The Company has elected nothistorically funded vehicle inventory purchases through its vehicle floorplan facilities (see Note 7 - Borrowings). As further discussed in Note 8 - Stockholders' Equity (Deficit), the Company has entered into an "At the Market" (ATM) facility that allows it to opt outraise capital via the sale of such extended transition periodits Class A Common Stock. The Company also continually assesses other opportunities to raise debt or equity capital.

The Company's plan is to raise capital, whether through the ATM or other capital-raising efforts to provide net proceeds which meansthe Company believes will be sufficient to provide the liquidity necessary to satisfy its obligations over the next twelve months. The Company's ability to raise capital from the ATM facility may be constrained by the price of and demand for the Company's Class A Common Stock. There can be no assurance that whennet proceeds from the ATM will be sufficient, or that the Company will be able to complete its other planned capital raising efforts and raise sufficient additional capital that will provide it with sufficient liquidity to satisfy its obligations over the next twelve months.
The Company has also begun to implement the Project Focus Restructuring Plan (“Project Focus”, the “Plan”), which is designed to improve the Company’s liquidity by improving unit economics and reducing selling, general, and administrative expenses. The Plan seeks to achieve these goals by eliminating less profitable fulfillment channels, consolidating operations into fewer physical locations, and reducing headcount accordingly. Please see Note 16 - Subsequent Events for additional information.
In August 2022, the Company announced the Agreement and Plan of Merger between the Company and CarLotz, Inc. (the “CarLotz Merger”). The Merger is expected to close in the near the end of 2022, contingent upon the resolution of certain conditions to closing. The CarLotz Merger is expected to increase the liquidity available to the combined entity by adding the cash resources of legacy CarLotz to the combined entity and obviating the need for legacy Carlotz to invest in technologies already developed by Shift. There can be no guarantee that the conditions to closing will be met, or that once closed the acquisition will provide any of the expected benefits.
In accordance with Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a standard isGoing Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued or revisedavailable to be issued. Management determined as a result of this evaluation the Company’s losses and it has different application dates for public or private companies,negative cash flows from operations since inception, combined with its current cash and working capital position, raise substantial doubt about the Company’s ability to continue as a going concern.
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SHIFT TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as an emerging growth company, can adopta going concern which contemplates the new or revised standard atrealization of assets and satisfaction of liabilities and commitments in the time private companies adoptordinary course of business. Accordingly, the new or revised standard. This may make comparison of the Company’saccompanying condensed consolidated financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted outdo not include any adjustments that might result from the outcome of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

this uncertainty.

Use of estimates

Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Making On an ongoing basis, the Company evaluates its estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future events. Accordingly, the actual results could differ significantly fromand assumptions, including those estimates.

Cash and cash 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 March 31, 2019 and December 31, 2018.

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 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. 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, convertible debt, stock-based compensation and income taxes.

The COVID-19 pandemic has adversely impacted the completionglobal economy, as well as the Company’s operations, and the extent and duration of the Initial Public Offering.

Income taxes

impacts remain unclear. The Company 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.

Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which 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.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in 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.
The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and rates applicablethat are significant to the periodsfair value of the assets or liabilities.
Assets and liabilities measured at fair value are classified in 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 March 31, 2019June 30, 2022 and December 31, 2018. The2021, the Company is currently not awarehad no assets or liabilities measured at fair value.

In connection with the closing 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.


INSURANCE ACQUISTION CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(Unaudited)

Net loss per common share

Net loss per common share is computed by dividing net 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 7,745,000Merger, 6,000,218 shares of the Company’s Class A common stock (the “Escrow Shares”) were deposited into an escrow account, with each former Legacy Shift stockholder listed as beneficiary in proportion to their percentage ownership of Legacy Shift common shares immediately prior to the Merger. The Escrow Shares will be released to the beneficiaries if the following conditions are achieved following October 13, 2020, the date of the closing of the Merger:

i.if at any time during the 12 months following the closing, the closing share price of the Company’s Class A 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; and
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SHIFT TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
ii. if at any time during the 30 months following the closing, the closing share price of the Company’s Class A common stock is greater than $15.00 over any 20 trading days within any 30 trading day period, 50% of the Escrow Shares will be released.
iii.If, during the 30 months following the closing, there is a change of control (as defined in the Merger Agreement) that will result in the holders of the Company’s Class A common stock receiving a per share price equal to or in excess of $10 per share (as equitably adjusted for stock splits, stock dividends, special cash dividends, reorganizations, combinations, recapitalizations and similar transactions affecting the Class A common stock after the date of the Merger), then all remaining Escrow Shares shall be released to the Legacy Shift stockholders effective as of immediately prior to the consummation of such change of control.
The Escrow Shares are legally outstanding and the beneficiaries retain all voting, dividend and distribution rights applicable to the Company’s Class A common stock while the shares are in escrow. If the conditions for the release of the Escrow Shares are not met, the shares and any dividends or distributions arising therefrom shall be returned to the Company. The Escrow Shares are not considered outstanding for accounting purposes, and as such are excluded from the calculation of dilutedbasic net loss per share since(see Note 14).
The Escrow Shares meet the exerciseaccounting definition of a derivative financial instrument. Prior to the cancellation of the warrants are contingent uponfirst tranche on October 13, 2021, the number of Escrow Shares that would have ultimately been released was partially dependent on variables (namely, the occurrence of future eventsa change in control) that are not valuation inputs to a “fixed for fixed” option or forward contract, and therefore the inclusion of such warrants wouldEscrow Shares were not considered to be anti-dilutive.

indexed to the Company’s Class A common stock and were therefore classified as a liability. The Company’s statementobligation to release the Escrow Shares upon achievement of operations includes a presentation of loss per share for common shares subjectthe milestones was initially recorded to possible redemption in a manner similar to the two-class method of income per share. Net loss per common share, basic and diluted for Class A redeemable common stock is calculated by dividing the interest income earned financial instruments liabilityon the Trust Account, netcondensed consolidated balance sheets at fair value as of applicable franchise and income taxes, by the weighted average numberdate of Class A redeemable common stock outstanding since original issuance. Net loss per common share, basic and diluted for Class A and Class B non-redeemable common stock is calculated by dividing the net 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 participateMerger. Subsequent changes in the income earned onfair value of the Trust Account.

Concentration of credit risk

Financial instruments that potentially subject the Companyliability were recorded to concentration of credit risk consist of a cash accountchange in a financial institution which, at times may exceed the Federal depository insurance coverage of $250,000. At March 31, 2019 and December 31, 2018, the Company had not experienced losses on this account.

Fairfair value of financial instruments

on the condensed consolidated statements of operations and comprehensive loss.

The Escrow Shares were remeasured on a recurring basis using Level 3 inputs. The fair value of the Escrow Shares was determined using a Monte Carlo valuation model, which requires significant estimates including the expected volatility of our Class A common stock. The expected annual volatility of our Class A common stock was estimated to be 69.69% as of June 30, 2021, based on the historical volatility of comparable publicly traded companies.
The table below illustrates the changes in the fair value of the Company’s Level 3 financial instruments liability:
(in thousands)2021
Balance as of January 1,$25,230 
Remeasurement of Escrow Shares liability(5,624)
Balance as of June 30,$19,606 
As of the first anniversary of the Merger on October 13, 2021, the first tranche of 3,000,109 Escrow Shares had failed to satisfy the $12.00 stock performance hurdle. As a result, the shares were returned to the Company for cancellation.
Following the return of the first tranche of the Escrow Shares to the Company on October 13, 2021, the Escrow Shares met the "fixed for fixed" option or forward contract criteria for equity classification. As such, changes in fair value of the Escrow Shares through October 13, 2021 were recorded in change in fair value of financial instruments on the condensed consolidated statements of operations and comprehensive loss. The fair value of the shares on October 13, 2021 of $6.3 million, measured using the Monte Carlo valuation model, was reclassified to additional paid-in capital on the condensed consolidated balance sheets.
During the six months ended June 30, 2021, the Company recognized a gain related to the change in fair value of the Escrow Shares of $5.6 million, which is included in change in fair value of financial instruments on the condensed consolidated statements of operations and comprehensive loss.
Business Combinations
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SHIFT TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company uses the acquisition method of accounting under ASC 805, Business Combinations. Each acquired company’s operating results are included in the Company’s Consolidated Financial Statements starting on the acquisition date. The purchase price is equivalent to the fair value of consideration transferred. Tangible and identifiable intangible assets acquired and liabilities assumed as of the acquisition date are recorded at the acquisition date fair value. Goodwill is recognized for the excess of purchase price over the net fair value of assets acquired and liabilities assumed.

Amounts allocated to assets and liabilities which qualifyare based upon fair values. Such valuations require management to make significant estimates and assumptions, especially with respect to the identifiable intangible assets. Management makes estimates of fair value based upon assumptions believed to be reasonable and that of a market participant. These estimates are based on available historical information as financial instruments under ASC Topic 820, “Fair Value Measurementswell as future expectations, and Disclosures,” approximatesthe estimates are inherently uncertain. The separately identifiable intangible assets generally include customer relationships, acquired technology, backlog, trade names, and non-compete agreements.
Goodwill
Goodwill and indefinite-lived intangible assets are not amortized but rather tested for impairment annually in the fourth fiscal quarter, or more frequently if events or changes in circumstances indicate that impairment may exist. Goodwill impairment is recognized when the quantitative assessment results in the carrying amounts representedvalue of the reporting unit exceeding its fair value, in which case an impairment charge is recorded to goodwill to the accompanyingextent the carrying value exceeds the fair value, limited to the amount of goodwill. The Company did not recognize any impairment of goodwill for all periods presented.
Correction of an Immaterial Error
For the three months ended June 30, 2022, the Company recognized $0.3 million of rent expense in selling, general and administrative expenses, $10.6 million of right-of-use assets, $10.7 million of operating lease liabilities, and a reduction of $0.2 million to prepaid expenses and other current assets as an out-of-period adjustment. The adjustment is not material to the condensed balance sheets, primarily dueconsolidated financial statements for the quarter ended March 31, 2022 or to their short-term nature.

any previously filed interim or annual periods.

Recently issued accounting standards

Issued Accounting Standards

In July 2017,June 2016, the FASB issued Accounting Standards Update (“ASU”) 2017-11, Earnings per ShareASU 2016-13, Financial instruments — Credit Losses (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815)326): Part I. Accounting for CertainMeasurement of Credit Losses on Financial Instruments with Down Round Features; Part II. Replacement, and subsequent related ASUs, which amends the guidance on the impairment of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are featuresby requiring measurement and recognition of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Also, entities must adjust their basic Earnings per Share (“EPS”) calculationexpected credit losses for the effect of the down round provision when triggered (that is, when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature). That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. An entity will also recognize the effect of the trigger within equity. The guidanceassets held. This ASU is effective for public and private companies’ fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018.2019, and December 15, 2022, respectively. The Company adopted thisexpects to adopt ASU 2016-13 under the private company transition guidance during the quarter ended March 31, 2019. The adoption of this guidance enabled the Company to record the warrants as equity instrumentsbeginning January 1, 2023, and is not expected to have a materialcurrently evaluating the impact on the Company’s condensed consolidated financial position, resultsstatements.
Recently Adopted Accounting Standards
In February 2016, the FASB issued, ASU 2016-02, Leases (Topic 842), which amends the accounting guidance on leases. The new standard requires a lessee to recognize right-of-use assets and lease obligations on the balance sheet for most lease agreements. Leases are classified as either operating or finance, with classification affecting the pattern of expense recognition in the statement of operations. The FASB also subsequently issued amendments to the standard to provide additional practical expedients and an additional transition method option.
The Company adopted Topic 842 as of January 1, 2022 using the modified retrospective approach with a cumulative-effect adjustment to opening retained earnings (accumulated deficit) with no restatement of comparative periods. Upon adoption, the Company recognized $28.6 million of operating lease liabilities and $27.9 million of operating lease right-of-use assets. The adoption of Topic 842 did not result in a cumulative effect adjustment to accumulated deficit.
Topic 842 provides various optional practical expedients for transition. The Company elected to utilize the package of practical expedients for transition which permitted the Company to not reassess its prior conclusions regarding whether a contract is or contains a lease, lease classification and initial direct costs.
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Notes to Condensed Consolidated Financial Statements
(unaudited)
Topic 842 also provides optional practical expedients for an entity’s ongoing lease accounting. The Company elected the short-term lease recognition exemption for all leases that qualify and the practical expedient to not separate lease and non-lease components of leases.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 on January 1, 2022. There was no impact to the Company's condensed consolidated financial statements.
In October 2021, the Financial Accounting Standards Board issued guidance codified in Accounting Standards Update 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. Under new guidance, an acquirer is required to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. This guidance is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company early adopted the guidance during the second quarter of 2022 with no material impact to the Company’s condensed consolidated financial statements.

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SHIFT TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
2. BUSINESS COMBINATIONS
Fair Dealer Services, LLC
On May 11, 2022, the Company completed the acquisition of certain automotive dealer marketplace assets and all of the issued and outstanding limited liability company interests of Fair Dealer Services, LLC (“Fair”), a Delaware limited liability company (collectively, the “Marketplace Assets”), from Fair Financial Corp., a Delaware corporation and Fair IP, LLC (“Fair IP”), a Delaware limited liability company, and (for limited purposes) Cayman Project 2 Limited, a company incorporated under the laws of Cayman Islands (“SB LL Holdco”), pursuant to the terms of the Amended and Restated Purchase Agreement dated May 11, 2022. The Company purchased the Marketplace Assets in order to acquire software and other assets to enable the listing of inventory owned by third-party dealerships for sale on the Company’s ecommerce platform. The Company determined that the Marketplace Assets meet the definition of a business and the purchase is properly accounted for as a business combination.
During the three and six months ended June 30, 2022, the Company incurred $1.6 million and $3.2 million of transaction related costs, respectively, which are included in selling, general and administrative expenses on the condensed consolidated statements of operations cash flows or disclosures moving forward until a trigger event occurs. Part IIand comprehensive loss.
The consideration for the Marketplace Assets consisted of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update are not expected to have an impact on the Company.


INSURANCE ACQUISTION CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(Unaudited)

NOTE 3. INITIAL PUBLIC OFFERING

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 optioncash in the amount of 1,965,000 Units at $10.00 per Unit. Each Unit consists$15.0 million (the “Cash Consideration”) and 2,066,978 shares of one share ofthe Company’s Class A common stock (such shares being equal to 2.5% of the issued and one-halfoutstanding shares of one warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase one share ofCompany’s Class A common stock at an exercise priceas of $11.50 (see Note 7).

NOTE 4. PRIVATE PLACEMENT

Simultaneously withimmediately prior to the closing of the Initial Public Offering, Insurance Acquisition Sponsor, LLCtransactions contemplated by the Amended and Cantor purchased an aggregateRestated Purchase Agreement) (the “Stock Consideration”). The shares were issued and valued as of 425,000 Placement UnitsMay 11, 2022 at a per share market closing price of $10.00 per Placement Unit, for an aggregate$1.20.

The Company financed the acquisition of the Marketplace Assets through the issuance of the Senior Unsecured Notes to SB LL Holdco (See Note 7 - Borrowings). The stated interest rate on the Senior Unsecured Notes was determined to be below the market rate of interest, effectively providing a discount on the purchase price of $4,250,000. Insurance Acquisition Sponsor, LLC purchased 375,000 Placement Unitsthe Marketplace Assets. Therefore, the Company recognized an imputed discount of $2.1 million on the Senior Unsecured Notes based on an estimated market rate of interest of 10.5%, 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 addedcorresponding reduction to the proceeds fromconsideration transferred for the Initial Public Offering heldpurchase of the Marketplace Assets.
The intangible assets acquired were recorded at their fair values as of the acquisition date. Management estimated the fair value of intangible assets in accordance with the Trust Account. Ifapplicable accounting guidance for business combinations and utilized the services of third-party valuation consultants. The initial allocation of the consideration transferred is based on a preliminary valuation and is subject to adjustments. Balances subject to adjustment primarily include the valuations of acquired assets and tax-related matters. During the measurement period, the Company doesmay record adjustments to the provisional amounts recognized.
Estimated Fair Value
Capitalized website and internal use software costs, net$12,500 
Other intangible assets - Trade name100 
Other intangible assets - Dealer network100 
Prepaid expenses and other current assets154 
Goodwill2,524 
Total fair value of purchase price$15,378 

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SHIFT TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Identifiable Intangible Assets
The Company acquired intangible assets that consisted primarily of developed software, which had an estimated fair value of $12.5 million, and which is included in capitalized website and internal use software costs, net on the condensed consolidated balance sheets. The Company also acquired other intangible assets with a total estimated fair value of $0.2 million. The Cost to Recreate Method was used to value the acquired developed software asset. Management applied judgment in estimating the fair value of this intangible asset, which involved the use of significant assumptions such as the cost and time to build the acquired technology, developer’s profit and rate of return. The other intangible assets are included in other non-current assets on the condensed consolidated balance sheets. The Company will amortize the intangible assets on a straight-line basis over their estimated useful lives of three years for the capitalized internal use software and trade name, and one year for the dealer network.
Goodwill
The goodwill represents the excess of consideration transferred over the fair value of assets acquired and liabilities assumed and is attributable to the benefits expected from combining the Company’s expertise with Fair’s technology, resource base, and ability to effectively integrate the Marketplace Assets with the Company's existing ecommerce platform. This goodwill is not complete a Business Combination withindeductible for income tax purposes.
Pro forma information
The unaudited pro forma results presented below include the Combination Period, the proceeds from the saleeffects of the Placement Units will be usedFair acquisition as if it had been consummated as of January 1, 2021, with adjustments to fund the redemption of the Public Shares (subjectgive effect to pro forma events that are directly attributable to the requirements of applicable law) and the Placement Warrants will expire worthless. There will be no redemption rights or liquidating distributions from the Trust Account with respect to the Placement Warrants.

NOTE 5. RELATED PARTY 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 certainacquisition which includes 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.

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.amortization of acquired intangible assets. The advances were non-interest bearing, unsecuredunaudited pro forma results do not reflect any operating efficiency or potential cost savings which may result from the integration of Fair. Accordingly, these unaudited pro forma results are presented for informational purposes only and due on demand. The Company repaidare not necessarily indicative of what the $65,535actual results of outstanding advances upon the consummationoperation of the Initial Public Offering on March 22, 2019.

combined company would have been if the acquisition had occurred as of January 1, 2021.

INSURANCE ACQUISTION CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(Unaudited)

Promissory Note – Related Party

The Company issued a $500,000 promissory note (the “Promissory Note”)

Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
Revenue$223,733 $154,850 $443,312 $260,854 
Loss from operations(51,666)(38,385)(110,906)(87,240)
Net loss and comprehensive loss attributable to common stockholders$(54,651)$(37,102)$(116,849)$(85,171)
Net loss and comprehensive loss per share attributable to common stockholders, basic and diluted$(0.67)$(0.46)$(1.46)$(1.05)
Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted81,884,057 80,112,998 79,902,644 81,398,634 

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SHIFT TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to an affiliateCondensed Consolidated Financial Statements
(unaudited)
3. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the Sponsor, pursuantfollowing (in thousands):
As of June 30, 2022As of December 31, 2021
Equipment$10,224 $8,753 
Furniture and fixtures339 252 
Leasehold improvements3,358 1,258 
Total property and equipment13,921 10,263 
Less: accumulated depreciation(3,790)(2,323)
Property and equipment, net$10,131 $7,940 
Depreciation expense related to which the Company borrowed an aggregate principal amount of $200,000. The Promissory Noteproperty and equipment was non-interest bearing$0.9 million and payable on the earlier of June 30, 2019 or the completion of the Initial Public Offering. The Promissory Note was repaid upon the consummation of the Initial Public Offering on March 22, 2019.

Administrative Services Agreement

The Company entered into an agreement, commencing on March 19, 2019 through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay an affiliate of the Sponsor $10,000 per month$0.7 million for office space, utilities, secretarial support and administrative services. For the three months ended March 31, 2019,June 30, 2022 and 2021, respectively. Depreciation expense related to property and equipment was $1.5 million and $1.0 million for the Company incurred $5,000 in feessix months ended June 30, 2022 and 2021, respectively. Depreciation expense related to reconditioning facilities for these services, of which such amountthe three months ended June 30, 2022 and 2021 was $0.5 million and $0.1 million, respectively. Depreciation expense related to reconditioning facilities for the six months ended June 30, 2022 and 2021 was $0.8 million and $0.2 million, respectively. Depreciation expense related to reconditioning facilities is included in accounts payablecost of sales with the remainder included in depreciation and accrued expensesamortization in the accompanying condensed balance sheets.

Consulting Arrangements

consolidated statements of operations and comprehensive loss.

4. CAPITALIZED WEBSITE AND INTERNAL-USE SOFTWARE COSTS, NET
Capitalized website and internal use software costs, net consists of the following (in thousands):
 As of June 30, 2022As of December 31, 2021
Capitalized website domain costs – nonamortizable$385 $385 
Capitalized website and internal-use software development costs – amortizable42,571 24,433 
Less: accumulated amortization(18,909)(15,556)
Capitalized website and internal-use software development costs, net$24,047 $9,262 
Amortization of capitalized software development costs is included in depreciation and amortization in the condensed consolidated statements of operations and comprehensive loss. Amortization of capitalized software development costs amounted to $2.1 million and $1.0 million for the three months ended June 30, 2022 and 2021, respectively. Amortization of capitalized software development costs amounted to $3.5 million and $1.9 million for the six months ended June 30, 2022 and 2021, respectively.
As of June 30, 2022, the remaining weighted-average amortization period for internal-use capitalized software intangible assets was approximately 2.5 years. The expected annual amortization expense to be recognized in future years as of June 30, 2022 consists of the following (in thousands):
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SHIFT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
As of June 30, 2022
Remainder of 2022$5,102 
20239,093 
20247,213 
20252,254 
Thereafter— 
Total amortizable costs$23,662 
Nonamortizable costs385 
Total capitalized website and internal-use software development costs$24,047 
5. GOODWILL
On May 11, 2022 the Company acquired the Marketplace Assets for consideration totaling $15.4 million (See Note 2 - Business Combinations). The purchase price was allocated to tangible assets of $0.2 million and intangible assets of $12.7 million based on their fair values on the acquisition date. Goodwill represents the excess purchase price over the fair value of the net assets acquired. The excess of the purchase price over the amounts allocated to assets acquired was recorded to Goodwill, in the amount of $2.5 million, which is included in the retail segment.
Goodwill is not amortized but is tested at least annually or more frequently when events or circumstances change that would, more likely than not, reduce the fair value of a reporting unit below its carrying amount. The Company first assesses qualitative factors to determine if it is not more likely than not that the fair value of its reporting unit is less than its carrying amount. No impairment charges related to goodwill were recognized during the three and six months ended June 30, 2022.
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SHIFT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (in thousands):
 As of June 30, 2022As of December 31, 2021
Liability for vehicles acquired under OEM program$4,385 $3,550 
Accrued payroll related costs6,515 15,890 
Provision for DMV refunds1,219 1,170 
Accrued sales taxes7,976 13,787 
Common stock subject to repurchase liability, current94 142 
Interest payable961 910 
Provision for sales returns and cancellations4,400 3,302 
Other accrued expenses4,460 5,193 
Total accrued expenses and other current liabilities$30,010 $43,944 
In JanuaryNovember 2019, the Company entered into consulting arrangementsan arrangement with two individuals affiliatedan original equipment manufacturer (“OEM”) to sell vehicles sourced locally through the trade-in program of the OEM on the Company’s platform. Under the terms of the arrangement, the Company has the option to provisionally accept any trade-ins based on information provided by the OEM. The Company transports any accepted vehicles to one of its inspection, reconditioning and storage centers 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 Cohen & Company, LLCthe OEM equal to the amount of the liability due to the OEM to acquire such vehicles. The liability due to the OEM provider for advisory servicessuch 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.
Provision for sales returns and cancellations in the table above as of December 31, 2021 has been disaggregated to be providedshown separately from other accrued expenses to conform to the Company. These arrangements provide for aggregate monthly feespresentation as of $20,625. AsJune 30, 2022.
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Table of March 31, 2019, the Company incurred $61,875 in such fees, of which $20,625 is included in accrued offering costs in the accompanying condensed balance sheets.

Related Party Loans

In orderContents

SHIFT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to finance transaction costsCondensed Consolidated Financial Statements
(unaudited)
7. BORROWINGS
Senior Unsecured Notes
On May 11, 2022, in connection with a the Fair acquisition (See Note 2 - Business Combination, the Sponsor or one of its affiliates has committed to loanCombinations), the Company funds as may be required up toentered into a maximum of $750,000 (“Working Capital Loans”Note Purchase Agreement (the “Note Purchase Agreement”), which will be repaid only upon the consummation of a Business Combination. If by and between the Company, does not consummateeach of the Company’s subsidiaries party thereto as guarantors (each, a Business Combination,“Guarantor” and, collectively, the “Guarantors”), and SB LL Holdco, Inc., a Delaware corporation (“SB LL Holdco”). Pursuant to the Note Purchase Agreement and the terms and conditions set forth therein, the Company may useagreed to issue and sell, and SB LL Holdco agreed to purchase, 6.00% Senior Unsecured Notes due May 11, 2025 with a portionprincipal amount of any funds held outside the Trust Account to repay the Working Capital Loans; however, no proceeds$20.0 million (the “Senior Unsecured Notes”) in a private placement in reliance on an exemption 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. To date, there are no working capital loans outstanding.

NOTE 6. COMMITMENTS AND CONTINGENCIES

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 of 1933, as amended (the “Securities Act”).

The Senior Unsecured Notes bear interest at a rate of 6.00% per annum and will mature on May 11, 2025. The Company may, at its option, prepay the Senior Unsecured Notes in their entirety (i) if prior to November 11, 2024, at 100% of the principal amount plus accrued and unpaid interest thereon to (but excluding) such date and a premium specified therein, or (ii) if on or after November 11, 2024, at 100% of the principal amount plus accrued and unpaid interest thereon to (but excluding) such date. The Senior Unsecured Notes are senior unsecured indebtedness of the Company.
As of June 30, 2022, discounts and deferred borrowing costs related to the Senior Unsecured Notes totaled $2.6 million and $0.2 million, respectively, and are included as a reduction to long-term debt, net on the condensed consolidated balance sheets. For the three and six months ended June 30, 2021, the Company recorded $0.2 million of contractual interest expense and $0.1 million, respectively, of discount and deferred borrowing cost amortization to interest and other expense, net on the condensed consolidated statements of operations and comprehensive loss.
The estimated fair value of the Senior Unsecured Notes (Level 2) at June 30, 2022 was $16.1 million.
Convertible Notes
On May 27, 2021, the Company completed a private offering of its 4.75% Convertible Senior Notes due 2026 (the “Notes”). The aggregate principal amount of the Notes sold in the offering was $150.0 million. The Notes are the Company’s senior unsecured obligations and will rank equally in right of payment with the Company’s future senior unsecured indebtedness, senior in right of payment to the Company’s future indebtedness that is expressly subordinated to the Notes and effectively subordinated to the Company’s future secured indebtedness, to the extent of the value of the collateral securing that indebtedness.
The Notes accrue interest payable semi-annually in arrears at a rate of 4.75% per year. The Notes will mature on May 15, 2026, unless earlier converted, redeemed or repurchased by the Company.
The Notes are convertible into shares of the Company’s Class A common stock at an initial conversion rate of 118.6556 shares of the Company’s Class A common stock per $1,000 principal amount of Notes (which is equivalent to an initial conversion price of approximately $8.43 per share of the Company’s Class A common stock). The initial conversion price represents a premium of approximately 27.50% over the last reported sale price of the Company’s Class A common stock on May 24, 2021, which was $6.61 per share. The conversion rate will be subject to adjustment upon the occurrence of certain events prior to the maturity date. The Company will increase the conversion rate on a sliding scale to up to a maximum of 151.2859 per $1,000 principal amount for a holder who elects to convert its notes in connection with certain corporate events or the Company’s delivery of a notice of redemption, as the case may be, in certain circumstances.
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SHIFT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Noteholders may convert their notes at their option only in the following circumstances:
1.during any calendar quarter commencing after the calendar quarter ending on June 30, 2021, if the last reported sale price per share of our Class A common stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;
2.during the 5 consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our Class A common stock on such trading day and the conversion rate on such trading day;
3.upon the occurrence of certain corporate events or distributions on our Class A common stock;
4.if we call such notes for redemption; and
5.at any time from, and including, November 15, 2025 until the close of business on the second scheduled trading day immediately before the maturity date.
Conversions of the Notes will be settled in cash, shares of the Company's Class A common stock or a combination thereof, at the Company's election.
The Notes will be redeemable, in whole or in part (subject to a partial redemption limitation), at the Company’s option at any time, and from time to time, on or after May 20, 2024 and on or before the 40th scheduled trading day immediately before the Maturity Date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if (i) the last reported sale price per share of the Company’s Class A common stock exceeds 130% of the conversion price on (1) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (2) the trading day immediately before the date the Company sends such notice; and (ii) a registration statement covering the resale of the shares of the Company’s Class A common stock, if any, issuable upon conversion of the Notes in connection with such optional redemption is effective and available for use and is expected, as of the date the redemption notice is sent, to remain effective and available during the period from, and including the date the redemption notice is sent to, and including, the business day immediately before the related redemption date, unless the Company elects cash settlement in respect of the conversions in connection with such optional redemption.
In addition, calling any Note for redemption will constitute a make-whole fundamental change with respect to that Note, in which case the holdersconversion rate applicable to the conversion of that Note will have “piggy-back” registration rightsbe increased in certain circumstances if it is converted after it is called for redemption and on or prior to include such securities in other registration statements filed bythe business day immediately before the related redemption date. If the Company elects to redeem less than all of the outstanding Notes, at least $50.0 million aggregate principal amount of Notes must be outstanding and rightsnot subject to redemption as of the date the Company sends the related redemption notice.
Unamortized deferred borrowing costs at June 30, 2022 were $5.1 million, and are included as a reduction to long-term debt, net on the condensed consolidated balance sheets. For the three months ended June 30, 2022, the Company recorded $1.8 million of contractual interest expense and $0.3 million of deferred borrowing cost amortization, respectively. For the six months ended June 30, 2022, the Company recorded $3.6 million of contractual interest expense and $0.6 million, respectively, of deferred borrowing cost amortization to interest and other expense, net on the condensed consolidated statements of operations and comprehensive loss. For the three and six months ended June 30, 2021, the Company recorded $0.7 million of contractual interest expense and $0.1 million, respectively, of deferred borrowing cost amortization to interest and other expense, net on the condensed consolidated statements of operations and comprehensive loss. The effective interest rate of the Notes is 5.73%.
The estimated fair value of the Notes (Level 2) at June 30, 2022 was $41.8 million.
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SHIFT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company used a portion of the net proceeds from the sale of the notes to pay the cost of the capped call transactions (see Note 8 - Stockholders' Equity (Deficit)), and is using the remaining proceeds for working capital and general corporate purposes.
Ally Flooring Line of Credit
On December 9, 2021, the Company entered into a $100.0 million flooring line of credit facility with Ally Bank to finance its used vehicle inventory (the “Ally FLOC”), which is secured by substantially all of the Company’s assets. Borrowings under the Ally FLOC bear interest at the Prime Rate (as defined in the agreement) plus 1.50%. As of June 30, 2022, the weighted average interest rate on borrowings outstanding under the Ally FLOC was 6.25%. As of June 30, 2022, the Company had an outstanding balance under the facility of $93.8 million and $6.2 million of unused capacity. As of December 31, 2021, the Company had an outstanding balance under the facility of $83.3 million and $16.7 million in unused capacity.
Under the Ally FLOC, repayment of amounts drawn for the purchase of a vehicle should generally be made as soon as practicable after selling or otherwise disposing of the vehicles. Outstanding balances related to vehicles held in inventory for more than 180 days require monthly principal payments equal to 10% of the original principal amount of that vehicle until the remaining outstanding balance is 50% (or less) of the original principal balance. Prepayments may be made without incurring a premium or penalty. Additionally, the Company is permitted to make prepayments to the lender to be held as principal payments and subsequently reborrow such amounts.
The Ally FLOC requires the Company to register for resale such securities pursuantmaintain unrestricted cash and cash equivalents of not less than 20% of the total credit line, and to Rule 415 undermaintain an additional restricted cash balance equal to 10% of the Securities Act. However,total credit line. Additionally, the registration rights agreement provides thatAlly FLOC requires the company to maintain at least 10% equity in the Company’s total inventory balance. As of June 30, 2022, 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 statementwas in compliance with all covenants related to the Initial Public Offering and may not exercise its demand rights on moreAlly FLOC.
Additionally, the Company is required to pay an availability fee each calendar quarter if the average outstanding balance for such quarter is less than one occasion.50% of the average total credit line for such quarter. The Company will bearwas required to pay an upfront commitment fee upon execution of the expenses incurredAlly FLOC.
US Bank Flooring Line of Credit
On October 11, 2018, the Company entered into a flooring line of credit facility (“FLOC”) with U.S. Bank National Association (“US Bank”), with the proceeds from such arrangement available to finance the purchase of vehicles. The FLOC initially allowed for a $30.0 million commitment of advances, whereby the Company may borrow, prepay, repay and reborrow the advances. Advances were able to be prepaid in part or in full at any time without charge, penalty or premium. Advances under the facility accrued interest at LIBOR plus 2.00%. The obligations under the facility were secured by substantially all of the Company’s inventory, both currently owned or acquired thereafter. Repayment of obligations under the facility were guaranteed by Lithia. Refer to Note 10 - Related Party Transactions for further details regarding the guarantee of the flooring line of credit, the commercial agreement and the warrants.
Subsequent amendments extended the expiration date to October 11, 2021 and increased the amount available under the FLOC to $50.0 million. The amendments also required the Company to pay a fee of 0.40% per annum on unused availability under the FLOC, and reduced the Liquidity Covenant to 1 times the three-month cash burn amount.
The FLOC was subject to customary 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.
The FLOC expired on October 11, 2021 and was repaid in full.

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SHIFT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
8. STOCKHOLDERS' EQUITY (DEFICIT)
Capped Call Transactions
On May 27, 2021, in connection with the filing of any such registration statements.

Underwriting Agreement

The underwriters were paid a cash underwriting discount of 2.0%issuance of the gross proceedsNotes (see Note 7 - Borrowings), the Company consummated privately negotiated capped call transactions (the “Capped Call Transactions”) with certain of the Initial Public Offering, or $2,620,000. In addition, the underwriters’ representative will be entitledinitial purchasers, their respective affiliates and other counterparties (the "Capped Call Counterparties"). The Capped Call Transactions initially cover, subject to a deferred fee of $6,419,000. The deferred fee will become payableanti-dilution adjustments substantially similar to those applicable to the underwriters’ representative fromNotes, the amounts held innumber of the Trust Account solely inCompany’s Class A common shares underlying the eventNotes. The Capped Call Transactions are expected generally to reduce the potential dilution to holders of the Company’s Class A common stock upon conversion of the Notes and/or offset the potential cash payments that the Company completes a Business Combination,could be required to make in excess of the principal amount of any converted Notes upon conversion thereof, with such reduction and/or offset subject to the terms of the underwriting agreement.


INSURANCE ACQUISTION CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(Unaudited)

NOTE 7. STOCKHOLDERS’ EQUITY

Preferred Stock  —a cap. 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 determinedCapped Call Transactions are settled from time to time byupon the Company’s Boardconversion of Directors. At March 31, 2019the Notes, with a final expiration date of May 15, 2026. The Capped Call Transactions are settled in the same proportion of cash and December 31, 2018, there were no sharesstock as the converted Notes. The proportion of preferredcash and stock issued or outstanding.

Class A Common Stock — used to settle the Notes is at the discretion of the Company.

The Company is authorized to issue 50,000,000 sharescap price of the Capped Call Transactions was initially approximately $14.8725 per share, which represents a premium of approximately 125% above the last reported sale price per share of Class A common stock on NASDAQ on May 24, 2021, and is subject to certain adjustments under the terms of the Capped Call Transactions.
The Capped Call Transactions are separate transactions entered into by the Company with a par valuethe Capped Call Counterparties, are not part of $0.0001 per share.the terms of the Notes and will not change any holder’s rights under the Notes. Holders of the Notes will not have any rights with respect to the Capped Call Transactions.
The Company used approximately $28.4 million of the net proceeds from the offering of the Notes to pay the cost of the Capped Call Transactions. The Capped Call Transactions do not meet the criteria for separate accounting as a derivative as they are indexed to the Company's stock. The premiums paid for the Capped Call Transactions have been included as a net reduction to additional paid-in capital on the condensed consolidated balance sheets.
The settlement amount of the Capped Call Transactions at June 30, 2022 was zero. The settlement amount shall be greater than zero if the volume weighted average price ("VWAP") of the Company's Class A common stock are entitledis above $8.43 at any time over the 40 consecutive trading days immediately prior to one vote for each share. At March 31, 2019settlement.
At-the-Market Offering
On May 6, 2022, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”), with Cantor Fitzgerald & Co. (the “Agent”), pursuant to which the Company may offer and December 31, 2018, there were 1,474,099 and -0-sell, at its option, shares of the Company’s Class A common stock, issuedpar value $0.0001 per share, having an aggregate offering price of up to $150.0 million (the “Placement Shares”), through the Agent, as its sales agent, from time to time at prevailing market prices in an “at-the-market offering” within the meaning of Rule 415 of the Securities Act, including sales made to the public directly on or through the Nasdaq Capital Market and outstanding, excluding 14,015,901 and -0-any other trading market for shares of our Class A common stock (the “Offering”).
Under the Sales Agreement, the Company may from time to time deliver placement notices to the Agent designating the number of Placement Shares and the minimum price per share thereof to be offered. However, subject to possible redemption, respectively.

Class B Commonthe terms and conditions of the Sales Agreement, the Agent is not required to sell any specific number or dollar amount of Placement Shares but will act as Agent using their commercially reasonable efforts consistent with their normal trading and sales practices and applicable state and federal laws, rules and regulations and the rules of the Nasdaq Stock — Market. The Company is authorizedor the Agent may suspend the offering of Placement Shares by notifying the other party. The Offering will terminate after the sale of all of the Placement Shares subject to issue 10,000,000the Sales Agreement, or sooner in accordance with the Sales Agreement, upon proper notice by us and/or the Agents or by mutual agreement. The Company will pay the Agent a commission of up to 3.0% of the gross sales price of the shares of Class B common stock with a par valuethe Placement Shares sold under the Sales Agreement.

As of $0.0001 per share. Holders ofJune 30, 2022, the Company’s Class B common stock are entitled to one vote for each common share. At March 31, 2019 and December 31, 2018, there were 5,163,333Company had not sold any shares of Class B common stock issued and outstanding.

Holders of Class B common stock will vote on the election of directors priorpursuant to the consummationSales Agreement.

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Table of a Business Combination. HoldersContents
SHIFT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
9. STOCK-BASED COMPENSATION PLANS
The Company’s 2014 Stock Option Plan (the “2014 Plan”) provides for the grant of restricted stock awards and incentive and non-qualified options and to purchase Class A common stock to officers, employees, directors, and Class B common stockconsultants. Options granted to employees and non-employees generally vest ratably over four to five years, with a maximum contractual term of ten years. Outstanding awards under the 2014 Plan continue to be subject to the terms and conditions of 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. As a result, no further awards will vote together asbe made under the 2014 Plan. 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.
Each Legacy Shift option from the 2014 Plan that was outstanding immediately prior to the Merger, whether vested or unvested, was converted into an option to purchase a single class on all other matters submitted to a votenumber of stockholders except as required by law.

The shares of Class B common stock will automatically convert into shares ofpost-Merger Class A common stock at the time of(each such option, a Business Combination on a one-for-one basis, subject to adjustment. In the case that additional shares of Class A common stock or equity-linked securities are issued or deemed issued in excess of the amounts offered in the Initial Public Offering and related"Converted Option") equal to the closingproduct (rounded down to the nearest whole number) of a Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that(i) the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted basis, 25% of the sum of the total number of all shares of common stock issued and outstanding upon completion of the Initial Public Offering, including Placement Shares, plus all shares of Class A common stock and equity-linked securities issued or deemed issued in connection with a Business Combination (excluding any shares or equity-linked securities issued, or to be issued, to any seller in a Business Combination). Holders of Founder Shares may also elect to convert their shares of Class B common stock into an equal number of shares of Class ALegacy Shift common stock subject to adjustment as provided above, at any time.

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 the later of (a) 30 days after the completion of a Business Combination or (b) March 22, 2020. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.

The Company will not be obligated to deliver any shares of Class A common stock pursuantsuch Legacy Shift option immediately prior to the Merger and (ii) the equity award exchange ratio. The per share exercise price for casheach share 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 ofpost-Merger Class A common stock issuable upon exercise of the Public Warrants has not been declared effectiveConverted Option is equal to the exercise price per Legacy Shift share of each Legacy Shift option immediately before the Merger, with certain adjustments necessary to preserve ISO classification of awards for income tax purposes. The mechanism of conversion resulted in the fair value of each Converted Option award equaling the fair value of the corresponding Legacy Shift option award immediately prior to the consummation of the Merger. Except as specifically provided in the Merger Agreement, following the Merger, each Converted Option continues to be governed by the endsame terms and conditions (including vesting and exercisability terms) as were applicable to the corresponding former Legacy Shift option immediately prior to the consummation of 60 business days followingthe Merger. All stock option activity was retroactively restated to reflect the Converted Options. No stock options were granted during the three and six months ended June 30, 2022.

At the Company's special meeting of stockholders held on October 13, 2020, the stockholders approved the 2020 Omnibus Equity Compensation Plan (the "2020 Plan"). The 2020 Plan provides for the grant of incentive and non-qualified stock option, restricted stock units ("RSUs"), restricted share awards, stock appreciation awards, and cash-based awards to employees, directors, and consultants of the Company. Awards under the 2020 Plan expire no more than ten years from the date of grant. The 2020 Plan became effective immediately upon the closing of a Business Combination, warrant holders may, until such time as there is an effective registration statementthe Merger.
In June 2022, the Company's Compensation Committee adopted the 2022 Employment Inducement Plan and during any period whengranted at total of 461,650 inducement RSU awards to form Fair employees joining the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant tofollowing the exemption provided by Section 3(a)(9)acquisition of the Securities Act.

Marketplace Assets (see Note 2 - Business Combinations). The grants of restricted stock units were promised to each of the employees in their employment agreements or offer letters with the Company has agreedas a material inducement to employment in accordance with Nasdaq Listing Rule 5635(c)(4). All awards will vest subject to continued employment and vest on May 20, 2023.

Activity related to employee and non-employee stock options issued under the 2014 Plan is set forth below:
Number of
Shares		Weighted
Average
Exercise Price		Weighted Average
Remaining
Contractual Life
(Years)		Aggregate Intrinsic Value (000’s)
As of December 31, 20211,597,793 $1.59 7.47$3,574 
Granted— — 
Exercised(12,309)0.22 
Forfeited(41,522)4.07 
Cancelled (expired)(51,990)3.60 
As of June 30, 20221,491,972$1.46 6.90$411 
Exercisable as of June 30, 20221,491,972$1.46 6.90$411 
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SHIFT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Activity related to employee and non-employee RSU awards issued under the 2020 Plan and the 2022 Employment Inducement Plan is set forth below:
Number of
Shares		Weighted
Average
Grant Date Fair Value		Weighted Average
Remaining
Contractual Life
(Years)		Aggregate Intrinsic Value (000’s)
Unvested as of December 31, 20219,733,977 $6.14 2.21$33,193 
Granted3,688,452 1.87 
Vested(1,549,763)7.49 
Forfeited(3,192,284)7.60 
Unvested as of June 30, 20228,680,382$4.29 1.26$5,843 
Vested and unreleased207,699
Outstanding as of June 30, 20228,888,081
Unvested RSUs as of June 30, 2022 include 1,021,544 RSUs that as soon as practicable, but in no event later than 15 business days aftervest if 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 issuanceprice of the shares ofCompany's Class A common stock issuable upon exerciseexceeds thresholds ranging from $23 to $28 during the two year period following the second anniversary of the warrants and to maintainlater of the closing of the Merger or the grantee's date of hire. The grant date fair values of awards with market-based vesting conditions were determined using a current prospectus relating to those sharesMonte Carlo valuation model, which requires significant estimates including the expected volatility of our Class A common stock untilstock.
Stock-Based Compensation Expense
For the warrants expire or are redeemed, as specified inthree months ended June 30, 2022 and 2021, the warrant agreement. Company recorded stock-based compensation expense to selling, general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss of $4.9 million and $5.4 million, respectively. In addition, the Company capitalized stock-based compensation costs for the three months ended June 30, 2022 and 2021 of $0.3 million and $0.2 million, respectively, to capitalized website and internal use software costs, net.
For the six months ended June 30, 2022 and 2021, the Company recorded stock-based compensation expense to selling, general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss of $9.1 million and $13.6 million, respectively. In addition, the Company capitalized stock-based compensation costs for the six months ended June 30, 2022 and 2021 of $0.7 million and $0.4 million, respectively, to capitalized website and internal use software costs, net.
As of June 30, 2022, there was $30.7 million of unrecognized stock-based compensation expense that is expected to be recognized over a weighted-average period of 2.13 years.
Common Stock Subject to Repurchase Related to Early Exercised Options
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.


INSURANCE ACQUISTION CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(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 wishtypically allows employees 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,options prior to such issuance), the exercise pricevesting. Upon termination of the Public Warrants will be adjusted (to the nearest cent) to be equal to 115%service 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

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 whichan employee, the Company has the abilityright to repurchase at the original purchase price any non-vested but issued common shares. Such an exercise is not substantive for accounting purposes. The consideration received for an exercise of an option is considered to be a deposit of the exercise price, and intentthe related dollar amount is recorded as a liability. The liability is reclassified to hold until maturity. Held-to-maturity treasury securities areadditional paid in capital as the award vests.

As of June 30, 2022 and December 31, 2021, the Company has recorded at amortized costa liability of $0.1 million and $0.2 million relating to 32,360 and 59,639 options that were exercised but not vested, respectively.
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SHIFT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
10. RELATED PARTY TRANSACTIONS
Sales with Related Party
The Company operates a one-sided marketplace (“OSM”) program whereby the Company acquires cars from various sources in Oxnard, California and sells them directly and solely to Lithia. The Company invoices Lithia based on the accompanying condensed balance sheetspurchase price of the car plus an agreed upon margin. During the three months ended June 30, 2022 and adjusted for2021, the amortization or accretionCompany recognized zero and $4.6 million, respectively, of premiums or discounts.

At March 31, 2019, assets heldsales from the OSM agreement with Lithia. During the six months ended June 30, 2022 and 2021, the Company recognized approximately $4.7 million and $6.9 million, respectively, of sales from the OSM agreement with Lithia. The OSM program was terminated in the Trust Account weresecond quarter of 2022 with the last sale to Lithia being in March 2022.

Accounts Receivable from Related Party
As of June 30, 2022 and December 31, 2021, the Company had $0.2 million and $2.1 million in outstanding accounts receivable from Lithia, which is comprised of $28,581$0.1 million and $2.0 million, respectively, in cashvehicle sales and $150,680,659$25 thousand and $77 thousand, respectively, in U.S. Treasury Bills.


INSURANCE ACQUISTION CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(Unaudited)

commissions based on the number of loan contracts booked with US bank. The gross holding lossesCompany operates under Lithia’s master agreement with US Bank where the collections pass through Lithia.

Warrant and Commercial Agreements
In September 2018, the Company entered into a warrant agreement (the “Warrant Agreement”) and a commercial agreement for Milestone 1 with Lithia and granted Lithia a warrant to purchase 86,661,588 shares of Legacy Shift common stock at an exercise price of $0.01 per share (the “Warrant Shares”). The Warrant Shares were scheduled to 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. All Warrant Shares became vested prior to the Vesting Termination Date and were exercised prior to the Merger.
In connection with the negotiations related to Milestone 5, Lithia facilitated an agreement with Automotive Warranty Services (“AWS”) to sell and market AWS’s service plans, whereby the Company receives commission rates from AWS of comparable terms to those received by Lithia. In substance the Company paid Lithia, in the form of Warrant Shares, to make an upfront payment to Company’s customers on behalf of the Company as the Company achieved favorable pricing from AWS. The benefits of this agreement were guaranteed by Lithia for an initial term of five years commencing on the signing date of the agreement. Such arrangement was the first of a number of agreements to be entered into under the terms of Milestone 5, see further discussion below. The estimated fair value of held-to-maturity securities at March 31,the in substance upfront payment to AWS was $2.8 million with an offsetting entry recorded to additional paid-in capital, representing a capital transaction with a related party.
Milestone 5 was met in October 2019 are as follows:

  Held-To-Maturity Amortized Cost  Gross
Holding
Losses		  Fair Value 
March 31, 2019 U.S. Treasury Securities (Mature on 9/26/2019) $150,680,659  $(19,349) $150,661,310 

and the Company recorded the warrants to additional paid-in capital based on a fair value of $4.3 million. Milestone 5 was achieved after a mutual signed agreement was entered into evidencing that Lithia provided commercially best efforts to help the Company secure and maintain access to four finance and insurance products on par with a typical Lithia store. The fair value of the in substance upfront payment, other than the $2.8 million for AWS discussed above, was $0.4 million and was recorded to other non-current assets on the condensed consolidated balance sheets. The combined asset recorded of $3.2 million is subject to amortization over a five-year period expected period of benefit. During both of the three months ended June 30, 2022 and 2021, the Company amortized $0.2 million and during both of the six months ended June 30, 2022 and 2021 the Company amortized $0.3 million of the asset as a reduction to finance and insurance sales, which is recorded within other revenue, net on the condensed consolidated statements of operations and comprehensive loss. As of June 30, 2022 and December 31, 2021, the remaining asset, net of amortization, was $0.9 million and $1.2 million, respectively.

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SHIFT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

Lease Agreements
On November 1, 2018 and July 10, 2019, pursuant to Milestone 3 and 4, the Company and Lithia, entered into license and services agreements that govern the Company’s financial assetsaccess to and utilization of reconditioning, offices and parking spaces at the Concord and Portland facilities of Lithia, respectively. Both agreements expired on October 12, 2021. During the three and six months ended June 30, 2021, total costs related to these agreements were $50 thousand and $100 thousand, respectively. The lease costs were expensed to selling, general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss.
Flooring Line of Credit Guarantee
In February 2019, the Company entered into a guarantee agreement with Lithia. The interest rate was 1.50% per annum based on a daily outstanding flooring line of credit and was payable monthly to Lithia. For the three months ended June 30, 2021, the Company recorded $5 thousand of interest and $0.8 million of deferred borrowing cost amortization to interest and other expense, net on the condensed consolidated statements of operations and comprehensive loss. For the six months ended June 30, 2021, the Company recorded $36 thousand of interest and $1.6 million of deferred borrowing cost amortization to interest and other expense, net on the condensed consolidated statements of operations and comprehensive loss. The guarantee expired coterminously with the FLOC on October 11, 2021.
Accounts Payable Due to Related Party
As of June 30, 2022 and December 31, 2021 payables and accruals to Lithia consisted of other miscellaneous expenses of $0.2 million and $0.2 million, respectively.
11. LEASES
The Company is a tenant under various operating leases with third parties, including leases of office facilities and vehicle inspection, reconditioning and storage locations.
The Company assesses whether each lease is an operating or finance lease at the lease commencement date. The Company does not have any material leases, individually or in the aggregate, classified as a finance leasing arrangement.
The Company’s real estate leases often require it to make payments for maintenance in addition to rent as well as payments for real estate taxes and insurance. Maintenance, real estate taxes, and insurance payments are generally variable costs which are based on actual expenses incurred by the lessor. Therefore, these amounts are not included in the consideration of the contract when determining the right-of-use asset and lease liability but are reflected as variable lease expenses in the period incurred.
Leases with an initial term of 12 months or less are not recorded on the Company’s condensed consolidated balance sheets and expense for these leases are recognized on a straight-line basis over the lease term.
As the rate implicit in the lease is generally not readily determinable for the Company’s operating leases, the discount rates used to determine the present value of the Company’s lease liabilities reflects management’s estimateare based on the Company’s incremental borrowing rate at the lease commencement date and commensurate with the remaining lease term. The incremental borrowing rate for a lease is the rate of amounts thatinterest the Company would have receivedto pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments 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 ofa similar economic environment. The Company uses 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 liabilitiesincremental borrowing rate based on the observable inputsinformation available at commencement date in determining the present value of lease payments.
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SHIFT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

The Company’s lease costs and unobservable inputs usedactivity for the three and six months ended June 30, 2022 were as follows (in thousands):
Three Months Ended June 30, 2022Six Months Ended June 30, 2022
Lease cost
Operating lease cost$5,224 $7,386 
Short-term lease cost253 1,085 
Variable lease cost191 376 
Total lease cost$5,668 $8,847 
Cash paid for amounts included in the measurement of operating lease liabilities
Operating cash flows from operating leases$2,010 $3,935 
Weighted average remaining lease term - operating leases (in years)5.66
Weighted average discount rate - operating leases7.36 %
Operating leases liabilities by maturity date from June 30, 2022 were as follows (in thousands):
Year ended December 31,Operating Leases
2022$5,023 
20239,812 
20247,952 
20257,145 
20267,059 
Thereafter14,742 
Total minimum lease payments$51,733 
Less: Imputed interest10,257 
Total lease liabilities$41,477 
As of June 30, 2022, the total minimum lease payments presented above excludes approximately $4.6 million of minimum lease payments for leases of vehicle storage and reconditioning facilities executed but not yet commenced.
Rent expense for operating leases during the three and six months ended June 30, 2021 was $2.2 million and $4.0 million, respectively.
Facility Closure
During the three months ended June 30, 2022, the Company discontinued plans to open additional hub facilities and ceased using certain real estate leaseholds acquired 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.

NOTE 9. SUBSEQUENT EVENTS

anticipation thereof. The Company evaluated subsequent eventsdetermined that the facility closures should be accounted for under the abandonment model because the short length of the remaining terms of the impacted leases is likely to interfere with the Company's ability to sublease the properties before the end of the lease terms. For the each of the three and transactions that occurred aftersix months ended June 30, 2022, the balance sheet date upCompany recognized additional rent expense of $1.8 million included in selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss related to the dateclosures.

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SHIFT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
12. COMMITMENTS AND CONTINGENCIES
Litigation
The Company may be subject to legal proceedings and claims that arise in the ordinary course of business. Other than the matter discussed below, Management is not currently aware of any matters that will have a material effect on the financial position, results of operations, or cash flows of the Company.
On May 7, 2021, we were named in a lawsuit filed in the U.S. District Court for the Southern District of New York (Stifel, Nicolaus & Company, Inc. v. Shift Technologies, Inc. 21-cv-04135) by a former financial advisor, Stifel, Nicolaus & Company, Inc. (“Stifel”), claiming that we are required to pay the former financial advisor certain compensation as a result of the Merger. In addition, the complaint seeks punitive damages as a result of alleged unjust enrichment for the amount of the benefits allegedly conferred on Shift by Stifel. The Company believes it has meritorious defenses against the claim, and the probable incurred losses related to the claim are immaterial as of June 30, 2022. Based on such information as is available to us, the range of additional reasonably possible losses related to the claim does not exceed $4.0 million, excluding any punitive damages which the Company cannot currently estimate. The Company believes the claim is without merit and intends to defend itself vigorously; however, there can be no assurances that the condensed financial statements were issued. Based upon this review,Company will be successful in its defense.
13. SEGMENT INFORMATION
The Company currently is organized into 2 reportable segments: Retail and Wholesale. The Retail segment represents retail sales of used vehicles through the Company’s ecommerce platform and fees earned on sales of value-added products associated with those vehicles sales such as vehicle service contracts, guaranteed asset protection waiver coverage, prepaid maintenance plans, and appearance protection plans. The Wholesale segment represents sales of used vehicles through wholesale auctions or directly to a wholesaler (“DTW”).
No operating segments have been aggregated to form the reportable segments. The Company determined its operating segments based on how the chief operating decision maker (“CODM”) or decision-making group reviews the Company’s operating results in assessing performance and allocating resources. The CODM is the Chief Executive Officer. The CODM reviews revenue and gross profit for each of the reportable segments. Gross profit is defined as revenue less cost of sales incurred by the segment. The CODM does not evaluate operating segments using asset information as these are managed on an enterprise wide group basis. Accordingly, the Company does not report segment asset information. During the three and six months ended June 30, 2022 and 2021, the Company did not identifyhave sales to customers outside the United States. As of June 30, 2022 and December 31, 2021, the Company did not have any subsequent events thatassets located outside of the United States.
Information about the Company’s reportable segments are as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Revenue from external customers
Retail$204,201 $134,763 $395,993 $227,736 
Wholesale19,532 20,087 47,319 33,118 
Consolidated$223,733 $154,850 $443,312 $260,854 
Segment gross profit (loss)
Retail$12,506 $15,978 $23,433 $23,215 
Wholesale(628)353 (768)481 
Consolidated$11,878 $16,331 $22,665 $23,696 
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SHIFT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The reconciliation between reportable segment gross profit to net loss and comprehensive loss attributable to common stockholders is as follows (in thousands):
 Three Months Ended
June 30,		Six Months Ended June 30,
 2022202120222021
Segment gross profit$11,878 $16,331 $22,665 $23,696 
Selling, general and administrative expenses(58,744)(48,143)(122,281)(98,378)
Depreciation and amortization(2,459)(1,561)(4,139)(2,662)
Change in fair value of financial instruments— 3,470 — 5,624 
Interest and other expense, net(2,846)(1,758)(5,424)(2,696)
Net loss before income taxes$(52,171)$(31,661)$(109,179)$(74,416)
14. NET LOSS PER SHARE
The following table sets forth the computation of net loss and comprehensive loss per share attributable to common stockholders, basic and diluted:
 Three Months Ended
June 30,		Six Months Ended June 30,
(in thousands, except share and per share amounts)2022202120222021
Net loss and comprehensive loss attributable to common stockholders$(52,198)$(31,661)$(109,247)$(74,416)
Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted80,952,782 78,046,020 79,902,644 78,000,870 
Net loss and comprehensive loss per share attributable to common stockholders, basic and diluted$(0.64)$(0.41)$(1.37)$(0.95)
The following potentially dilutive shares were not included in the calculation of diluted shares outstanding for the periods presented as the effect would have required adjustment or disclosurebeen anti-dilutive:
 As of June 30,
 20222021
Escrow Shares3,000,109 6,000,218 
Convertible Notes17,798,340 17,798,340 
Stock options1,491,972 1,889,585 
Restricted stock units8,888,081 8,051,322 
Contingently repurchasable early exercise shares32,360 100,893 
Total31,210,862 33,840,358 
15. INCOME TAXES
The Company recorded a provision for income taxes of $27 thousand and zero during the three months ended June 30, 2022 and 2021, respectively, and recorded $68 thousand and zero during the six months ended June 30, 2022 and 2021, respectively. The Company continues to maintain a full valuation allowance for its net U.S. federal and state deferred tax assets.
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SHIFT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
16. SUBSEQUENT EVENTS
Project Focus Restructuring Plan
On July 22, 2022, the Company's Board of Directors approved the implementation of Project Focus, a restructuring plan designed to position the Company for long-term profitable growth by prioritizing unit economics, reducing operating expenses and maximizing liquidity (“Project Focus”).
In connection with the implementation of the Project Focus, we expect to incur total cash charges of approximately $2.4 million, consisting primarily of severance and other related personnel reduction costs. Additionally, we expect to recognize approximately $11.5 million to $14.5 million of non-cash lease impairment and other charges related to closing physical locations in the condensed financial statements.

third and fourth fiscal quarters of 2022. The charges that the Company expects to incur are subject to a number of assumptions, and actual expenses may differ materially from the estimates disclosed above.

CEO Transition
On August 9, 2022, the Company announced that Jeffrey Clementz will succeed George Arison, our founder, as the Company's Chief Executive Officer. Mr. Arison will continue to serve in his capacity as Chairman of the Board. Mr. Clementz previously served as our President since September 2021. The Company has entered into a new employment agreement with Mr. Clementz in connection with his appointment as Chief Executive Officer.
CarLotz Merger
In August 2022, the Company announced the Agreement and Plan of Merger between the Company and CarLotz, Inc. (the “CarLotz Merger”). The Carlotz Merger is expected to close in the fourth quarter of 2022, contingent upon the resolution of certain conditions to closing.
At closing, each outstanding share of CarLotz Class A common stock will be converted into the right to receive a number of shares of Shift common stock as determined by the Exchange Ratio. The “Exchange Ratio” will be adjusted, immediately prior to closing, to a ratio equal to (i) the product of (A) the number of issued and outstanding shares of Shift common stock immediately prior to the closing and (B) 99.99%, divided by (ii) the number of shares of CarLotz common stock outstanding immediately prior to the closing expressed on a fully-diluted and as-converted to CarLotz common stock basis. The determination of the Exchange Ratio is subject to additional terms and conditions set forth in the Agreement and Plan of Merger.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References

You should read the following management’s discussion and analysis together with our condensed consolidated financial statements and related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q and Part II, Item 8 of our Annual Report of Form 10-K for the year ended December 31, 2021. This discussion contains forward-looking statements about Shift’s business, operations and industry that involve risks and uncertainties, such as statements regarding Shift’s plans, objectives, expectations and intentions. Shift’s future results and financial condition may differ materially from those currently anticipated by Shift as a result of the factors described in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Throughout this report (this “Quarterly Report”) to “we,”section, unless otherwise noted “we”, “us” or, “our” and the “Company” refer to Shift and its consolidated subsidiaries.
Insurance Acquisition Corp. References to our “management” or our “management team”Merger
On October 13, 2020, Insurance Acquisition Corp. (“IAC”), an entity listed on the Nasdaq Capital Market under the trade symbol “INSU”, acquired Shift Platform, Inc., formerly known as Shift Technologies, Inc. (“Legacy Shift”), by the merger of IAC Merger Sub, Inc., a direct wholly owned subsidiary of IAC, with and into Legacy Shift, with Legacy Shift continuing as the surviving entity and a wholly owned subsidiary of IAC (the “Merger”). The public company resulting from the merger was renamed Shift Technologies, Inc., which we refer to as Shift, we, us, our, officers and directors, references toSFT, or the “Sponsor” refer to Insurance Acquisition Sponsor, LLC and Dioptra Advisors, LLC. The following discussion and analysisCompany. Upon the consummation of the Company’sMerger, Shiftreceived approximately $300.9 million, net of fees and expenses. For financial conditionreporting purposes IAC was treated as the “acquired” company and resultsLegacy Shift was treated as the accounting acquirer.
Overview
Shift is a leading end-to-end ecommerce platform transforming the used car industry with a technology-driven, hassle-free customer experience.
Shift’s mission is to make car purchase and ownership simple — to make buying or selling a used car fun, fair, and accessible to everyone. Shift provides comprehensive, technology-driven solutions throughout the car ownership lifecycle:
•finding the right car,
•a seamless digitally-driven purchase transaction including financing and vehicle protection products,
•an efficient, fully-digital trade-in/sale transaction,
•and a vision to provide high-value support services during car ownership.
Each of operations should be read in conjunctionthese steps is powered by Shift’s software solutions, mobile transactions platform, and scalable logistics, combined with the financial statementsCompany’s centralized inspection, reconditioning and storage centers, called hubs.
Recent Events
Project Focus Restructuring Plan
On August 9, 2022, the Company announced the implementation of Project Focus, a restructuring plan designed to position the Company for long-term profitable growth by prioritizing unit economics, reducing our operating expenses and maximizing liquidity (“Project Focus”, the “Plan”). The primary elements of the Plan are as follows:
•Optimizing unit economics and GPU, by
◦Streamlining all sales through Shift’s most profitable online checkout channel, which allows consumers to purchase a vehicle entirely online, and eliminating test drives
◦rebalancing inventory mix and assortment to favor Value vehicles, which Shift defines as older than 8 years or over 80,000 miles
•Consolidating Shift’s physical operations to three West Coast hubs in Los Angeles, Oakland, and Portland to efficiently support our new, delivery-centric fulfillment model, and closing seven existing hubs
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•Restructuring our workforce around our reduced physical footprint and more-efficient fulfillment model, eliminating approximately 650 positions or 60% of our workforce
•Undertaking additional efforts to reduce spending on overhead
We expect the reduction in force to be completed in the third and fourth quarters of 2022 and the notes thereto contained elsewhere in this Quarterly Report. Certain information containedremaining aspects of Plan to be implemented by the end of 2022.
In connection with the implementation of the Project Focus, we expect to incur total cash charges of approximately $2.4, consisting primarily of severance and other related personnel reduction costs. Additionally, we expect to recognize approximately $11.5 to $14.5 million of non-cash lease impairment and other charges related to closing physical locations in the discussionthird fiscal quarter of 2022.
The foregoing estimates are based upon current assumptions and analysis set forth below includes forward-looking statements that involveexpectations but are subject to known and unknown risks and uncertainties.

Special Note Regarding Forward-Looking Statements

This Quarterly Report includes “forward-looking statements” within Accordingly, we may not be able to fully realize the meaningcost savings and benefits initially anticipated from the Plan, and the expected costs may be greater than expected. See Part II, Item 1A of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis ofon Form 10-Q under the heading “Risk Factors— Risks Related to Our Financial Condition and Results of Operations” regardingOperations.” for more information.

CEO Transition
On August 9, 2022, the Company’s financial position, business strategy andCompany announced that Jeffrey Clementz will succeed George Arison, our co-founder, as the plans and objectives of management for future operations, are forward-looking statements. Words suchCompany's Chief Executive Officer. Mr. Arison will continue to serve in his capacity as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors sectionChairman of the Company’s final prospectus for its Initial Public Offering filedBoard of Directors. Mr. Clementz previously served as our President since September 2021. The Company has entered into a new employment agreement with the SEC. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Overview

We are a blank check company formed under the laws of the State of Delaware on March 13, 2018 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar Business Combination with one or more target businesses. We intend to effectuate our Business Combination using cash from the proceeds of our Initial Public Offering and the sale of the Placement Units that occurred simultaneously with the completion of our Initial Public Offering, our capital stock, debt or a combination of cash, stock and debt.

The issuance of additional shares of our stock in a Business Combination:

●may significantly dilute the equity interest of investors;
●may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded our common stock;
●could cause a change in control if a substantial number of shares of our common stock is issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;
●may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and
●may adversely affect prevailing market prices for our common stock and/or warrants.

Similarly, if we issue debt securities, it could result in:

●default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations;
●acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
●our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand and the lender demands payment;
●limitations on our ability to obtain additional financing if the debt security contains covenants restricting our ability to incur debt;
●our inability to pay dividends on our common stock due to covenants limiting or prohibiting dividends;
●using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce, or possibly eliminate, the funds available for use as dividends on our common stock, expenses, capital expenditures, acquisitions and other general corporate purposes;
●limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
●increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and


●limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt.

We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.

Results of Operations

We have not generated any revenues to date. Our only activities from inception to March 31, 2019 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expensesMr. Clementz in connection with completing a his appointment as Chief Executive Officer.


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Business Combination.

Description

Launched in 2014, Shift operates vehicle inventory inspection, reconditioning and storage centers. For the three months ended March 31, 2019, weJune 30, 2022, the Company had a net loss$223.7 million in revenue, an increase of $3,233, which consists44% compared to $154.9 million of operating costsrevenue for the three months ended June 30, 2021. For the six months ended June 30, 2022, the Company had $443.3 million in revenue, an increase of $59,55670% compared to $260.9 million of revenue for the six months ended June 30, 2021. 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.
Shift’s differentiated strategy offers a wide variety of vehicles across the entire spectrum of model, price, age, and mileage to ensure that Shift has the right car for income taxesbuyers regardless of $2,917, offsetinterest, need, budget, or credit.
For all ecommerce buyers, Shift offers a full suite of options to consumers to finance and protect their vehicle through our mobile point-of-sale solution. 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 cars that meet their budget based on the financing options for which they are likely to be able to qualify. Customers can also get approved for financing before they select a car, making it much more likely that the customer will purchase a car from us.
Shift focuses on unit economics driven by interest income on marketable securities held in the Trust Account of $59,240.

Liquiditydirect vehicle acquisition channels, optimized inventory mix and Capital Resources

On March 22, 2019, we consummated the Initial Public Offering of 15,065,000 Units, which included the full exercise by the underwriters of their over-allotment option in the amount of 1,965,000 Units, at $10.00 per Unit, generating gross proceeds of $150,650,000. Simultaneouslyancillary product offerings, combined with the closing of the Initial Public Offering, we consummated the sale of 425,000 Placement Units to the Sponsorstreamlined inventory onboarding, controlled fulfillment costs, and Cantor at a price of $10.00 per Unit, generating gross proceeds of $4,250,000.

Following the Initial Public Offering and the sale of the Placement Units, a total of $150,650,000 was placed in the Trust Account and we had $1,048,801 of cash held outside of the Trust Account, after payment of costs related to the Initial Public Offering, and available for working capital purposes. We incurred $9,661,484 in transaction costs, including $2,620,000 of underwriting fees, $6,419,000 of deferred underwriting fees and $622,484 of other costs.

centralized software. For the three months ended June 30, 2022, Shift sourced 95% of its inventory from consumer-sellers and partners driving improved 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 provides Shift access to a deep pool of scarce, highly desirable inventory.

Sellers are able to go to Shift.com, submit information on their car, and get a quote instantly. Shift uses a proprietary algorithm for pricing that utilizes current market information about market conditions, demand and supply, and car option data, among other factors. Using proprietary pricing and Shift-built mobile diagnostic tools, Shift provides an immediate quote for a customer’s trade-in vehicle, and will schedule an on-demand evaluation at the customer’s location by a member of Shift’s staff. Shift provides selling customers with information on market rates and, when a customer is ready to sell their car, we can 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.
Over time, we intend to expand our machine learning-enabled recommendation engine to better help customers find the cars best suited to them. Customer response to the Shift experience is extremely positive, resulting in a rating of 4.4 out of 5 stars on Trustpilot as of July 2022, compared to a weighted average review of 2.3 out of 5 stars for our two largest ecommerce peers. These positive experiences are expected to allow Shift to serve customers over the entire lifecycle of vehicle 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, we will continue to establish a long-term customer base that will return for future transactions.

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Revenue Model
Shift’s two-sided model generates value from both the purchase and sale of vehicles along with financing and vehicle protection products. We acquire cars directly from consumers, partners, and other sources and sell vehicles through our ecommerce platform directly to consumers in a seamless end-to-end process. This model captures value from the difference in the price at which the car is acquired and sold, as well as through fees on the sale of ancillary products such as financing and vehicle protection products, also referred to as finance and insurance (“F&I”), 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 June 30, 2022 and 2021, was $223.7 million and $154.9 million, respectively. Our revenue for the six months ended June 30, 2022 and 2021, was $443.3 million and $260.9 million, respectively.
Inventory Sourcing
We source the majority of our vehicles directly from consumers and partners who use the Shift platform to resell trade-in and other vehicles. These channels provide scarce and desirable local inventory of used cars of greater quality than those typically found at auction. In addition to those primary channels, we supplement our vehicle acquisitions with purchases from auto auctions, as well as some vehicles sourced locally through the trade-in program of an original equipment manufacturer (“OEM”).
Proprietary machine learning-enabled software inputs vast quantities of data across both the supply and demand sides to optimize our vehicle acquisition strategy. As we accumulate data, we expect to improve the performance of our model to optimize our vehicle selection and disposal.
Vehicle Reconditioning
All of the cars Shift sells undergo a rigorous 150+ point mechanical inspection and reconditioning process at one of our regional reconditioning facilities (or at a third-party partner when additional capacity is needed, such as during the establishment of a new hub location) to help ensure that they’re safe, reliable, up to cosmetic standards, and comfortable. We have created two classifications of inventory for reconditioning — Value and Certified — to optimize the level of reconditioning for each vehicle classification. This allows us to efficiently provide each customer with the greatest value through a tailored reconditioning approach. Value cars are typically sold at a lower price point and are sought after by consumers who have different expectations and tolerances for cosmetic reconditioning standards — therefore, we focus on mechanical and safety issues for these vehicles, with less emphasis on cosmetic repair, in order to optimize reconditioning costs. This operational flexibility in our reconditioning process improves our ability to grow profitably and is a primary factor in our decision to conduct reconditioning in-house.
Logistics Network
The primary components of our logistics network consists of intra-city Shift personnel and inter-city third-party carriers. Shift personnel are able to transport vehicles to and from customers, while providing a customer friendly white glove experience, including delivery and disposal. This provides the benefit of a seamless experience as well as an on-site sales support agent to guide the customer through the process. Our agreements with long distance haulers allow us to combine the nodes in our network and deliver vehicles between cities. The Company has also recently invested in in-house long-distance hauling capabilities. Strategically, this provides customers with a broad set of inventory and a great speed of delivery.
Financing and Vehicle Protection Products
We generate revenue by earning no obligation referral fees for selling ancillary products to customers that purchase vehicles through the Shift platform. Since we earn fees for the F&I products we sell, our gross profit on these items is equal to the revenue we generate. Our current offering consists of financing from third-party lenders, guaranteed asset protection (“GAP”) waiver, vehicle protection plans and vehicle service contracts. We plan to offer additional third-party products to provide a wider product offering to customers and expect these products to contribute to reaching our revenue and profitability targets.
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Factors Affecting our Business Performance
Various trends and other factors have affected and may continue to affect our business, financial condition and operating results, including:
Shift Marketplace Launch
Late in the second quarter of 2022, we soft launched our Shift Marketplace powered by Fair (the "Marketplace"). Customers in the greater Los Angeles area are able to shop inventory from both Shift's first-party owned vehicles and third-party dealer partners. While still in the very early stages, we believe the Marketplace business will be a significant contributor to our future growth.
Deeper Market Penetration Within Our Existing Markets
We believe that there remains a substantial opportunity to capture additional market share within our existing service areas. We’ve proven our ability to command a strong market share through effective marketing channels, as demonstrated by our current market share in our most established cities.
Improvements in Technology Platform
We are constantly investing in our technology platform to improve both customer experience and our business performance. We regularly implement changes to our software to help customers find the right car for them, while the machine learning component of our inventory and pricing model ensures we get the right cars at the right price. As our algorithms evolve, we are able to better monetize our inventory of vehicles through better pricing, while simultaneously customers are much more likely to purchase a car on our website, thus driving higher demand and sales volume.
Improvements in Reconditioning Processes
We learned early on from our experience in the used car sales business that to be a reliable used car resource with desirable inventory for all customer types, we needed to control our own reconditioning processes. Our reconditioning program has constantly improved over the course of our history, and we are happy with what we have achieved. Each unit of our inventory is reconditioned with a focus on safety first, while optimizing for repairs that will have the highest return on investment (“ROI”). We believe that our network of reconditioning centers and connecting logistics routes have excess capacity, which we plan to utilize as we increase retail sales volumes. Increasing capacity utilization will positively affect gross profit per unit by reducing per unit overhead costs.
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Growth in Other Revenue from Existing Revenue Streams
We have made great strides over the past two years developing our “other revenue” streams, which comprise the financing and vehicle protection products that we can offer on our digital financing platform, and other ancillary products. We have invested in the technology, as well as the sales team, to increase the likelihood that consumers will purchase ancillary products in connection with the sale of a vehicle, and we see more opportunity for additional revenue within our existing channels purely from further expansion of our attach rates for our entire financing and vehicle protection product suite.
Growth in Other Revenue from Expansion of Product Offerings
We see great opportunity to further expand our other revenue streams through additional product offerings beyond the existing offerings on our platform. These incremental revenue streams will come in the form of on-boarding new lending partners to our existing loan program, as well as introducing entirely new financing and vehicle protection products to offer our customers. We intend to continue to grow this business segment to service every addressable need of our customers during the vehicle purchase process.
Seasonality
We expect our quarterly results of operations, including our revenue, gross profit, profitability, if any, and cash flow to vary significantly in the future, based in part on, among other things, consumers’ car buying patterns. We have typically experienced higher revenue growth rates in the second and third quarters of the calendar year than in each of the first or fourth quarters of the calendar year. We believe these results are due to seasonal buying patterns driven in part by the timing of income tax refunds, which we believe are an important source of car buyer down payments on used vehicle purchases. We recognize that in the future our revenues may be affected by these seasonal trends (including any disruptions to normal seasonal trends arising from the COVID-19 pandemic), as well as cyclical trends affecting the overall economy, specifically the automotive retail industry.

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Impact of COVID-19
In March 31, 2019,2020, the World Health Organization declared a global pandemic related to the rapidly growing outbreak of a novel strain of coronavirus known as COVID-19, and in the following weeks, shelter-in-place ordinances were put into effect in regions where Shift operates. We saw a slowing of vehicle sales immediately following the shelter-in-place ordinances in March; however, within five weeks, we were back near our pre-COVID-19 weekly sales volumes. Although the ultimate impacts of COVID-19 remain uncertain, a 2020 survey found that 46% of U.S. adults surveyed plan to use their cars more often and public transportation less often in the future. Additionally, the pandemic has accelerated trends of online adoption more broadly. We believe that this global pandemic will push people to look to alternative means of personal transportation, and our product is well suited to provide customers with a safe, clean means of transportation, through our contactless purchase and delivery processes. Therefore, while it remains possible that sustained or deepened impact on consumer demand resulting from COVID-19 or the related economic recession could negatively impact Shift’s performance, we believe that Shift is well positioned to weather the pandemic. In 2021 and 2022, pandemic-related economic stimulus and constraints in the supply of new and used vehicles have increased acquisition cost, demand and pricing for our products, while labor shortages have abated since the initial pandemic lockdowns.
Ultimately, the magnitude and duration of the impact to Shift’s operations is impossible to predict due to:
•uncertainties regarding the duration of the COVID-19 pandemic and how long related disruptions will continue;
•the impact of governmental orders and regulations that have been, and may in the future be, imposed;
•the impact of COVID-19 on wholesale auctions, state DMV titling and registration services and other third parties on which we rely;
•uncertainties related to the impact of COVID-19 variants and government actions that that may be taken in response;
•uncertainties as to the impact of vaccination campaigns underway in key markets; and
•potential deterioration of economic conditions in the United States, which could have an adverse impact on discretionary consumer spending.
We will continue to monitor and assess the impact of the COVID-19 pandemic on our business and our results of operations and financial condition as the pandemic continues to evolve.

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Key Operating Metrics
We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our progress and make strategic decisions. Our key operating metrics measure the key drivers of our growth, including opening new hubs, increasing our brand awareness through unique site visitors and continuing to offer a full spectrum of used vehicles to service all types of customers.
Ecommerce Units Sold
We define ecommerce units sold as the number of vehicles sold to customers in a given period, net of returns. We currently have a seven-day, 200 mile return policy. The number of ecommerce units sold is the primary driver of our revenues and, indirectly, gross profit, since ecommerce unit sales enable multiple complementary revenue streams, including all financing and protection products. We view ecommerce units sold as a key measure of our growth, as growth in this metric is an indicator of our ability to successfully scale our operations while maintaining product integrity and customer satisfaction.
Wholesale Units Sold
We define wholesale units sold as the number of vehicles sold through wholesale channels in a given period. While wholesale units are not the primary driver of revenue or gross profit, wholesale is a valuable channel as it allows us to be able to purchase vehicles regardless of condition, which is important for the purpose of accepting a trade-in from a customer making a vehicle purchase from us, and as an online destination for consumers to sell their cars even if not selling us a car that meets our retail standards.
Ecommerce Average Sale Price
We define ecommerce average sale price (“ASP”) as the average price paid by a customer for an ecommerce vehicle, calculated as ecommerce revenue divided by ecommerce units. Ecommerce average sale price helps us gauge market demand in real-time and allows us to maintain a range of inventory that most accurately reflects the overall price spectrum of used vehicle sales in the market. We believe this metric provides transparency and is comparable to our peers.
Wholesale Average Sale Price
We define wholesale average sale price as the average price paid by a customer for a wholesale vehicle, calculated as wholesale revenue divided by wholesale units. We believe this metric provides transparency and is comparable to our peers.
Gross Profit per Unit
We define gross profit per unit as the gross profit for ecommerce, other, and wholesale, each of which divided by the total number of ecommerce units sold in the period. We calculate gross profit as the revenue from vehicle sales and services less the costs associated with acquiring and reconditioning the vehicle prior to sale. Gross profit per unit is primarily driven by ecommerce vehicle revenue, which generates additional revenue through attachment of our financing and protection products, and gross profit generated from wholesale vehicle sales. We present gross profit per unit from our three revenues streams as Ecommerce gross profit per unit, Wholesale gross profit per unit and Other gross profit per unit.
Average Monthly Unique Visitors
We define a monthly unique visitor as an individual who has visited our website within a calendar month, based on data collected on our website. We calculate average monthly unique visitors as the sum of monthly unique visitors in a given period, divided by the number of months in that period. To classify whether a visitor is “unique”, we dedupe (a technique for eliminating duplicate copies of repeating data) each visitor based on email address and phone number, if available, and if not, we use the anonymous ID which lives in each user’s internet cookies. This practice ensures that we do not double-count individuals who visit our website multiple times within a month. We view average monthly unique visitors as a key indicator of the strength of our brand, the effectiveness of our advertising and merchandising campaigns and consumer awareness.
Average Days to Sale
We define average days to sale as the number of days between Shift’s acquisition of a vehicle and sale of that vehicle to a customer, averaged across all ecommerce units sold in a period. We view average days to sale as a useful metric in understanding the health of our inventory.
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Ecommerce Vehicles Available for Sale
We define ecommerce vehicles available for sale as the number of ecommerce vehicles in inventory on the last day of a given reporting period. Until we reach an optimal pooled inventory level, we view ecommerce vehicles available for sale as a key measure of our growth. Growth in ecommerce vehicles available for sale increases the selection of vehicles available to consumers, which we believe will allow us to increase the number of vehicles we sell. Moreover, growth in ecommerce vehicles available for sale is an indicator of our ability to scale our vehicle purchasing, inspection and reconditioning operations.

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Results of Operations
The following table presents our revenue, gross profit, and unit sales information by channel for the periods indicated:
Three Months Ended June 30,Six Months Ended June 30,
 20222021Change20222021Change
 ($ in thousands, except per unit metrics)
Revenue:   
Ecommerce vehicle revenue, net$194,981 $129,688 50.3 %$378,062 $218,642 72.9 %
Other revenue, net9,220 5,075 81.7 %17,931 9,094 97.2 %
Wholesale vehicle revenue19,532 20,087 (2.8)%47,319 33,118 42.9 %
Total revenue$223,733 $154,850 44.5 %$443,312 $260,854 69.9 %
Cost of sales:   
Ecommerce vehicle cost of sales$191,695 $118,785 61.4 %$372,560 $204,521 82.2 %
Wholesale vehicle cost of sales20,160 19,734 2.2 %48,087 32,637 47.3 %
Total cost of sales$211,855 $138,519 52.9 %$420,647 $237,158 77.4 %
Gross profit:   
Ecommerce vehicle gross profit$3,286 $10,903 (69.9)%$5,502 $14,121 (61.0)%
Other gross profit9,220 5,075 81.7 %17,931 9,094 97.2 %
Wholesale vehicle gross profit (loss)(628)353 (277.9)%(768)481 (259.7)%
Total gross profit$11,878 $16,331 (27.3)%$22,665 $23,696 (4.4)%
Unit sales information:   
Ecommerce vehicle unit sales6,872 5,871 17.0 %13,586 10,323 31.6 %
Wholesale vehicle unit sales1,161 1,944 (40.3)%3,136 3,471 (9.7)%
Average selling prices per unit (“ASP”):   
Ecommerce vehicles$28,373 $22,090 28.4 %$27,827 $21,180 31.4 %
Wholesale vehicles$16,823 $10,333 62.8 %$15,089 $9,541 58.1 %
Gross profit per unit(1):
   
Ecommerce gross profit per unit$478 $1,857 (74.3)%$405 $1,368 (70.4)%
Other gross profit per unit1,342 864 55.3 %1,320 881 49.8 %
Wholesale gross profit (loss) per unit(91)60 (251.7)%(57)47 (221.3)%
Total gross profit per unit$1,729 $2,781 (37.8)%$1,668 $2,296 (27.4)%
Non-financial metrics
Average monthly unique visitors833,320 563,497 47.9 %828,088 636,453 30.1 %
Average days to sale63 53 18.9 %60 50 20.0 %
Ecommerce vehicles available for sale5,359 5,200 3.1 %5,359 5,200 3.1 %

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We present operating results down to gross profit from three distinct revenue channels:
Ecommerce Vehicles: The ecommerce channel within our Retail segment represents sales of used vehicles directly to our customers through our website.
Other: The other channel within our Retail segment represents fees earned on sales of value-added products associated with the sale of ecommerce vehicles.
Wholesale Vehicles: The Wholesale channel is the only component of our Wholesale segment and represents sales of used vehicles through wholesale auctions.
Three Months Ended June 30, 2022
Ecommerce Vehicle Revenue, Net
Ecommerce vehicle revenue increased by $65.3 million, or 50.3%, to $195.0 million during the three months ended June 30, 2022, from $129.7 million in the comparable period in 2021. This increase was partly driven by an increase in ecommerce unit sales, as we sold 6,872 ecommerce vehicles in the three months ended June 30, 2022, compared to 5,871 ecommerce vehicles in the three months ended June 30, 2021. The increase in unit sales was driven by increased market penetration in our existing markets and by increased inventory units available for sale. The increase in sellable inventory levels was partly due to investments that increased our reconditioning throughput.
The increase in ecommerce vehicle revenue was also partly due to an increase in ecommerce ASP, which was $28,373 for the three months ended June 30, 2022, compared to $22,090 for the three months ended June 30, 2021. This increase in ecommerce ASP was primarily a reflection of increased demand for used vehicles coupled with lower-than-average inventory levels across the domestic used automotive market as a whole.
Other Revenue, Net
Other revenue increased by $4.1 million, or 81.7%, to $9.2 million during the three months ended June 30, 2022, from $5.1 million in the comparable period in 2021. This increase was primarily due to strategic investments to enhance and expand our ancillary product offerings to better monetize our unit sales.
Wholesale Vehicle Revenue
Wholesale vehicle revenue decreased by $0.6 million, or 2.8%, to $19.5 million during the three months ended June 30, 2022, from $20.1 million in the comparable period in 2021. The decrease was primarily due to a decrease in wholesale unit sales as we sold 1,161 wholesale vehicles in the three months ended June 30, 2022, compared to 1,944 wholesale vehicles in the three months ended June 30, 2021. This decrease in wholesale vehicle revenue was offset by a 62.8% increase in ASP driven by favorable conditions in the wholesale auto market.
Cost of Sales
Cost of sales increased by $73.3 million, or 52.9%, to $211.9 million during the three months ended June 30, 2022, from $138.5 million in the comparable period in 2021. The increase was primarily due to an increase in unit sales as we sold 8,033 total vehicles in the three months ended June 30, 2022, compared to 7,815 total vehicles in the three months ended June 30, 2021. The remainder of the increase is due to increased buying and selling prices in the used auto market as a whole, caused by constrained supplies of new and used vehicles.
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Ecommerce Vehicle Gross Profit
Ecommerce vehicle gross profit decreased by $7.6 million, or 69.9%, to $3.3 million during the three months ended June 30, 2022, from $10.9 million in the comparable period in 2021. The decrease was primarily driven by a decrease in ecommerce gross profit per unit, which shrank to $478 per unit for the three months ended June 30, 2022, from $1,857 per unit in the comparable period in 2021. This decrease in ecommerce gross profit per unit was largely driven by atypical vehicle appreciation witnessed in the comparable period of 2021.

The decrease in ecommerce vehicle gross profit was offset by an increase in ecommerce units sold, as described in “Ecommerce Vehicle Revenue, Net” above. This decrease in ecommerce gross profit per unit was largely driven by atypical vehicle appreciation witnessed in the comparable period. Ecommerce vehicle gross profit is expected to recover as cohorts of older inventory acquired at higher prices (lower gross profit) are sold through and as our mix of vehicles shifts towards a more balanced ratio of Core and Value vehicles. Shift defines Value vehicles as being over eight years old or 80,000 miles.
Other Gross Profit
Other gross profit increased by $4.1 million, or 81.7%, to $9.2 million during the three months ended June 30, 2022, from $5.1 million in the comparable period in 2021. The increase was primarily driven by an increase in ecommerce units sold, as described in “Ecommerce Vehicle Revenue, Net” above. The increase in other gross profit was also partly due to an increase in other gross profit per unit to $1,342 during the three months ended June 30, 2022, from $864 per unit in the comparable period in 2021. Other revenue consists of 100% gross margin products for which gross profit equals revenue. Therefore, changes in other gross profit and the associated drivers are identical to changes in other revenue and the associated drivers.
Wholesale Vehicle Gross Profit
Wholesale vehicle gross profit decreased by $1.0 million, or 277.9%, to $(0.6) million during the three months ended June 30, 2022, from $0.4 million in the comparable period in 2021. The decrease was primarily driven by a decrease in wholesale gross profit per unit, which shrank to $(91) per unit for the three months ended June 30, 2022, from $60 in the comparable period in 2021. The decrease was primarily due to atypical vehicle appreciation in 2021 due to more severe supply constraints and more favorable economic conditions; as well as a temporary reduction in our acquisition of direct-to-wholesale vehicles as we refine our pricing within this segment of our business.
Components of SG&A
Three Months Ended June 30,
 20222021Change
 ($ in thousands)
Compensation and benefits(1)
$25,985$23,7789.3 %
as a % of revenue11.6 %15.4 %
Marketing expenses10,45710,913(4.2)%
as a % of revenue4.7 %7.0 %
Other costs(2)
22,30213,45265.8 %
as a % of revenue10.0 %8.7 %
Total selling, general and administrative expenses$58,744$48,14322.0 %
as a % of revenue26.3 %31.1 %
____________
(1)Compensation and benefits includes all payroll and related costs, including benefits, payroll taxes and equity-based compensation, except those related to preparing vehicles for sale, which are included in cost of sales, and those related to the development of software products for internal use, which are capitalized to software and amortized over the estimated useful lives of the related assets. Certain reclassifications have been made to the comparable period to conform to the current presentation. Specifically, $1.2 million of contractor costs were reclassified from other costs to compensation and benefits, and $84 thousand of public relations costs were reclassified from marketing expenses to other costs.
(2)Other costs include all other selling, general and administrative expenses such as hub operating costs, vehicle shipping costs for internal purposes, corporate occupancy, professional services, registration and licensing, and IT expenses.
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Selling, general and administrative expenses increased by $10.6 million, or 22.0%, to $58.7 million during the three months ended June 30, 2022, from $48.1 million in the comparable period in 2021. The increase was partly due to an increase in compensation costs of $2.2 million, driven by the increase in average headcount from 930 to 1,198. Lastly, other costs increased by $8.8 million due primarily to increased selling costs in support of revenue growth.
Selling, general and administrative expenses have decreased as a percentage of revenue from 31.1% to 26.3% as the Company increases in scale and begins to achieve operating leverage.

Six Months Ended June 30, 2022
Ecommerce Vehicle Revenue, Net
Ecommerce vehicle revenue increased by $159.4 million, or 72.9%, to $378.1 million during the six months ended June 30, 2022, from $218.6 million in the comparable period in 2021. This increase was partly driven by an increase in ecommerce unit sales, as we sold 13,586 ecommerce vehicles in the six months ended June 30, 2022, compared to 10,323 ecommerce vehicles in the six months ended June 30, 2021. The increase in unit sales was driven by increased market penetration in our existing markets and by increased inventory units available for sale. The increase in sellable inventory levels was partly due to investments that increased our reconditioning throughput.
The increase in ecommerce vehicle revenue was also partly due to an increase in ecommerce ASP, which was $27,827 for the six months ended June 30, 2022, compared to $21,180 for the six months ended June 30, 2021. This increase in ecommerce ASP was primarily a reflection of increased demand for used vehicles coupled with lower-than-average inventory levels across the auto market as a whole.
Other Revenue, Net
Other revenue increased by $8.8 million, or 97.2%, to $17.9 million during the six months ended June 30, 2022, from $9.1 million in the comparable period in 2021. This increase was primarily due to strategic investments to enhance and expand our ancillary product offerings to better monetize our unit sales.
Wholesale Vehicle Revenue
Wholesale vehicle revenue increased by $14.2 million, or 42.9%, to $47.3 million during the six months ended June 30, 2022, from $33.1 million in the comparable period in 2021. This increase in wholesale vehicle revenue was primarily due to a 58.1% increase in ASP driven by favorable conditions in the wholesale auto market. The increase was partly offset by an decrease in wholesale unit sales as we sold 3,136 wholesale vehicles in the six months ended June 30, 2022, compared to 3,471 wholesale vehicles in the six months ended June 30, 2021.
Cost of Sales
Cost of sales increased by $183.5 million, or 77.4%, to $420.6 million during the six months ended June 30, 2022, from $237.2 million in the comparable period in 2021. The increase was primarily due to an increase in unit sales as we sold 16,722 total vehicles in the six months ended June 30, 2022, compared to 13,794 total vehicles in the six months ended June 30, 2021. The remainder of the increase is due to increased buying and selling prices in the used auto market as a whole, caused by constrained supplies of new and used vehicles.
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Ecommerce Vehicle Gross Profit
Ecommerce vehicle gross profit decreased by $8.6 million, or 61.0%, to $5.5 million during the six months ended June 30, 2022, from $14.1 million in the comparable period in 2021. The decrease was primarily driven by a decrease in ecommerce gross profit per unit, which shrank to $405 per unit for the six months ended June 30, 2022, from $1,368 per unit in the comparable period in 2021.The decrease in ecommerce vehicle gross profit was also offset by an increase in ecommerce units sold, as described in “Ecommerce Vehicle Revenue, Net” above. This decrease in ecommerce gross profit per unit was largely driven by atypical vehicle appreciation witnessed in the comparable period of 2021; and, sell-through of inventory acquired in late 2021 during periods of abnormally high used vehicle pricing, which we sold early in the first quarter of 2022. Ecommerce vehicle gross profit is expected to improve through a more balanced sales mix of older and newer vehicles as well as through the return of normal depreciation and seasonality cycles.
Other Gross Profit
Other gross profit increased by $8.8 million, or 97.2%, to $17.9 million during the six months ended June 30, 2022, from $9.1 million in the comparable period in 2021. The increase was primarily driven by an increase in ecommerce units sold, as described in “Ecommerce Vehicle Revenue, Net” above. The increase in other gross profit was also partly due to the increase in other gross profit per unit to 1,320 during the six months ended June 30, 2022, from $881 per unit in the comparable period in 2021. Other revenue consists of 100% gross margin products for which gross profit equals revenue. Therefore, changes in other gross profit and the associated drivers are identical to changes in other revenue and the associated drivers.
Wholesale Vehicle Gross Profit
Wholesale vehicle gross profit decreased by $1.2 million, or 259.7%, to $(0.8) million during the six months ended June 30, 2022, from $0.5 million in the comparable period in 2021. The decrease was partly due to the decrease in wholesale gross profit per unit, which shrank to $(57) per unit for the six months ended June 30, 2022, from $47 in the comparable period in 2021. The decrease was primarily due to a combination of unusually low seasonally adjusted prices in the wholesale market and a reduction in our direct-to-wholesale vehicle acquisitions, which are typically significantly more profitable.
Components of SG&A
Six Months Ended June 30,
 20222021Change
 ($ in thousands)
Compensation and benefits(1)
$56,499 $47,140 19.9 %
as a % of revenue12.7 %18.1 %
Marketing expenses22,366 26,240 (14.8)%
as a % of revenue5.0 %10.1 %
Other costs(2)
43,416 24,998 73.7 %
as a % of revenue9.8 %9.6 %
Total selling, general and administrative expenses$122,281 $98,378 24.3 %
as a % of revenue27.6 %37.7 %
____________
(1)Compensation and benefits includes all payroll and related costs, including benefits, payroll taxes and equity-based compensation, except those related to preparing vehicles for sale, which are included in cost of sales, and those related to the development of software products for internal use, which are capitalized to software and amortized over the estimated useful lives of the related assets. Certain reclassifications have been made to the comparable period to conform to the current presentation. Specifically, $2.3 million of contractor costs were reclassified from other costs to compensation and benefits, and $149 thousand of public relations costs were reclassified from marketing expenses to other costs.
(2)Other costs include all other selling, general and administrative expenses such as hub operating costs, vehicle shipping costs for internal purposes, corporate occupancy, professional services, registration and licensing, and IT expenses.
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Selling, general and administrative expenses increased by $23.9 million, or 24.3%, to $122.3 million during the six months ended June 30, 2022, from $98.4 million in the comparable period in 2021. The increase was partly due to the increase in compensation costs of $9.4 million, driven by the increase in average headcount from 874 to 1,232. The increase was offset by a decrease in marketing expense of $3.9 million, which resulted from abnormally high marketing spend in the comparable period caused by overlapping marketing campaigns while the Company transitioned to it current, more efficient brand marketing strategy. Lastly, other costs increased by $18.4 million due primarily to increased selling costs in support of revenue growth.
Selling, general and administrative expenses have decreased as a percentage of revenue from 37.7% to 27.6% as the Company increases in scale and begins to achieve operating leverage. The decrease in marketing expense as percentage of revenue is also due to investments in brand marketing increasing the efficiency of our marketing spend and the transition-related expense in the comparable period discussed above.
Liquidity and Capital Resources
Sources of liquidity
Our main source of liquidity is cash generated from financing activities. Cash generated from financing activities through June 30, 2022 primarily includes proceeds from the Merger and PIPE financing completed in October 2020, issuance of convertible notes and senior unsecured notes, and proceeds from the Flooring Line of Credit facility with Ally ("Ally FLOC"). Refer to Note 7 - Borrowings and Note 10 - Related Party Transactions in our “Notes to Condensed Consolidated Financial Statements” for additional information.
On May 27, 2021, the Company completed a private offering of its 4.75% Convertible Senior Notes due 2026 (the “Notes”). The aggregate principal amount of the Notes sold in the offering was $150.0 million. The Notes accrue interest payable semi-annually in arrears at a rate of 4.75% per year. The Notes will mature on May 15, 2026, unless earlier converted, redeemed or repurchased by the Company. See Note 7 - Borrowings in the “Notes to Condensed Consolidated Financial Statements” for additional details regarding the Notes. The Company used approximately $28.4 million of the net proceeds from the sale of the Notes to pay the cost of the Capped Call Transactions (see Note 8 - Stockholders' Equity (Deficit)), and is using the remaining proceeds for working capital and general corporate purposes.
On May 11, 2022, in conjunction with the acquisition of Fair (See Note 2 - Business Combinations), the Company entered into an agreement with SB LL Holdco, Inc. ("SB LL Holdco") to a sale of $20.0 million aggregate principal amount of 6.00% Senior Unsecured Notes due May 11, 2025 ("Senior Unsecured Notes").
Since inception, the Company has generated recurring losses which has resulted in an accumulated deficit of $550.0 million as of June 30, 2022. During the six months ended June 30, 2022, the Company had negative operating cash flows of $98.1 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.
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Liquidity and Management's Plan
For the six months ended June 30, 2022 and 2021, the Company generated negative cash flows from operations of approximately $98.1 million and $140.9 million, respectively, and generated net losses of approximately $109.2 million and $74.4 million, respectively. As of June 30, 2022, the Company had unrestricted cash and cash equivalents of $88.5 million and total working capital of $84.5 million. Since inception, the Company has had negative cash flows and losses from operations which it has funded primarily through issuances of common and preferred stock and through a reverse recapitalization via its merger with Insurance Acquisition Corp. in October 2020. The Company has historically funded vehicle inventory purchases through its vehicle floorplan facilities (see Note 7 - Borrowings to the accompanying condensed consolidated financial statements). In addition, the Company has entered into an "At the Market" (ATM) facility that allows it to raise capital via the sale of its Class A Common Stock ( see Note 8 - Stockholders' Equity (Deficit) to the accompanying condensed consolidated financial statements). The Company also continually assesses other opportunities to raise debt or equity capital.
The Company's plan is to raise capital, whether through the ATM or other capital-raising efforts to provide net proceeds which the Company believes will be sufficient to provide the liquidity necessary to satisfy its obligations over the next twelve months. The Company's ability to raise capital from the ATM facility may be constrained by the price of and demand for the Company's Class A Common Stock. There can be no assurance that net proceeds from the ATM will be sufficient, or that the Company will be able to complete its other planned capital raising efforts and raise sufficient additional capital that will provide it with sufficient liquidity to satisfy its obligations over the next twelve months.
The Company has also begun to implement the Project Focus Restructuring Plan (“Project Focus”, the “Plan”), which is designed to improve the Company’s liquidity by improving unit economics and reducing selling, general, and administrative expenses. The Plan seeks to achieve these goals by eliminating less profitable fulfillment channels, consolidating operations into fewer physical locations, and reducing headcount accordingly. Please see Note 16 - Subsequent Events to the accompanying condensed consolidated financial statements for additional information.
In August 2022, the Company announced the Agreement and Plan of Merger between the Company and CarLotz, Inc. (the “CarLotz Merger”). The Merger is expected to close in the fourth quarter of 2022, contingent upon the resolution of customary conditions to closing. The CarLotz Merger is expected to increase the liquidity available to the combined entity by adding the cash resources of legacy CarLotz to the combined entity and obviating the need for legacy Carlotz to invest in technologies already developed by Shift. There can be no guarantee that the conditions to closing will be met, or that once closed the acquisition will provide any of the expected benefits.
In accordance with Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued or available to be issued. Management determined as a result of this evaluation the Company’s losses and negative cash flows from operations since inception, combined with its current cash and working capital position, raise substantial doubt about the Company’s ability to continue as a going concern.
The condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. Accordingly, the accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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Debt obligations
See Note 7 - Borrowings of the “Notes to Condensed Consolidated Financial Statements” for information regarding the Company’s debt obligations.
Cash Flows — Six Months Ended June 30, 2022 and 2021
The following table summarizes our cash flows for the periods indicated:
Six Months Ended June 30,
 20222021
 ($ in thousands)
Cash Flow Data:  
Net cash, cash equivalents, and restricted cash used in operating activities$(98,133)$(140,879)
Net cash, cash equivalents, and restricted cash used in investing activities(23,430)(5,855)
Net cash, cash equivalents, and restricted cash provided by financing activities27,504 150,903 
Operating Activities
For the six months ended June 30, 2022, net cash used in operating activities was $158,616, which was comprised$98.1 million, a decrease of our$42.7 million from cash used in operating activities of $140.9 million for the six months ended June 30, 2021. The change is due to an increase in net loss of $3,233$34.8 million, an increase in cash used to pay accrued expenses of $15.2 million, a decrease in stock-based compensation of $4.5 million, offset by an increase in depreciation and interest earned on marketable securities heldamortization of $2.1 million, an increase in the Trust Accountchange in fair value of $59,240financial instruments from 2021 of $5.6 million, an increase of $21.1 million in cash provided by collections of accounts receivable, a decrease in cash used to acquire inventory of $59.4 million, and changesa decrease in cash used to pay accounts payable of $7.3 million.
Investing Activities
For the six months ended June 30, 2022, net cash used in investing activities of $23.4 million was primarily driven by the purchase of the Marketplace Assets from Fair Financial Corp. (See Note 2 - Business Combinations of the “Notes to Condensed Consolidated Financial Statements”) as well as capitalization of website and internal-use software costs and purchases of capital equipment.
Financing Activities
For the six months ended June 30, 2022, net cash provided by financing activities was $27.5 million, primarily due to net proceeds from the Senior Unsecured Notes of $20.0 million and the Flooring Line of Credit of $10.6 million (See Note 7 - Borrowings of the “Notes to Condensed Consolidated Financial Statements”).
Contractual Obligations
As of June 30, 2022 and December 31, 2021, the Company reported a liability for vehicles acquired under OEM program of $4.4 million and $3.6 million, respectively. 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 Company has various operating assetsleases of real estate and liabilities, which used $96,143equipment. See Note 11 - Leases to the accompanying condensed consolidated financial statements for further discussion of the nature and timing of cash for operating activities.  

As of March 31, 2019, we had marketable securities held in the Trust Account of $150,709,240 (including $59,240 of interest income) consisting of U.S. Treasury Bills withobligations due under these leases.

Off-Balance Sheet Arrangements
We are not a maturity of 180 days or less. Interest income on the balance in the Trust Account may be used by usparty to pay taxes. Through March 31, 2019, we did not withdraw any interest earned on the Trust Account.

We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less amounts released to us to pay taxes and deferred underwriting commissions) to consummate our Business Combination. 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 operations of the target business or businesses, make other acquisitions and pursue our growth strategies.

At March 31, 2019, we had cash of $918,331 held outside the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, production facilities or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.

In order to fund working capital requirements or finance transaction costs in connection with a Business Combination, our Sponsor or one of its affiliates has committed to loan us funds as may be required up to a maximum of $750,000, and may, but is not obligated to, loan us additional funds to fund our additional working capital requirements and transaction costs. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants identical to the Placement Warrants, at a price of $1.00 per warrant at the option of the lender.

We do not believe we will need to raise additional funds in order to meet the expenditures required to identify and acquire a target business. However, if our estimate of the costs of undertaking due diligence investigations and negotiating a Business Combination is less than the actual amount necessary to do so, we may have insufficient funds available to pursue and consummate our Business Combination. Moreover, we may need to obtain additional financing if we become obligated to redeem a significant number of our public shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt. Subject to compliance with applicable securities laws, we would only obtain such financing simultaneously with the consummation of our Business Combination.


Off-balance sheet financing arrangements

We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements, as of March 31, 2019. We do not participate in transactions that create relationships with unconsolidated entitiesincluding guarantee contracts, retained or financial partnerships, often referred to ascontingent interests, certain derivative instruments and variable interest entities which wouldthat either have, been established for the purpose of facilitating off-balance sheet arrangements. Weor are reasonably likely to have, not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debta current or commitments of other entities, or purchased any non-financial assets.

Contractual obligations

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of the Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support to the Company. We began incurring these fees on March 19, 2019 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and the Company’s liquidation.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have not identified any critical accounting policies.

Recent accounting pronouncements

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have afuture material effect on our condensed consolidated financial statements.

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Critical Accounting Policies and Estimates
See Part II, Item 7, "Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2021 except as described in Note 1 - Description of the Business and Accounting Policies to the accompanying condensed consolidated financial statements under the heading "Recently Adopted Accounting Standards."
Business Combination
We account for business combinations using the acquisition method of accounting, which requires all assets acquired and liabilities assumed to be recorded at their respective fair values at the date of acquisition. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. The determination of the acquisition date fair value of the assets acquired and liabilities assumed requires significant estimates and assumptions, such as, if applicable, forecasted revenue growth rates and operating cash flows, royalty rates, customer attrition rates, obsolescence rates of developed technology, and discount rates. These estimates are inherently uncertain and subject to refinement. Depending on the nature of the acquired assets, we use either the income approach or the cost to recreate approach to measure the fair value of these intangible assets. Under the cost to recreate approach, the company estimates the cost to re-create an equivalent asset based on estimated labor hours, labor cost, other costs as applicable, and appropriate profit margins. Under the income approach, the Company estimates future cash flows and discounts these cash flows at a rate of return that reflects the Company’s relative risk. When estimating the significant assumptions to be used in the valuation we include consideration of current industry information, market and economic trends, historical results of the acquired business and other relevant factors. These significant assumptions are forward-looking and could be affected by future economic and market conditions. We engage the assistance of valuation specialists in connection with determining fair values of assets acquired and liabilities assumed in a business combination.
Available Information
Our website is located at www.shift.com, and our investor relations website is located at www.investors.shift.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, our Proxy Statements, and any amendments to these reports, are available through our investor relations website, free of charge, after we file them with the SEC.
We webcast via our investor relations website our earnings calls and certain events we participate in or host with members of the investment community. Our investor relations website also provides notifications of news or announcements regarding our financial performance and other items of interest to our investors, including SEC filings, investor events, press releases, and earnings releases. Further, corporate governance information, including our certificate of incorporation, bylaws, governance guidelines, board committee charters, and code of conduct, is also available on our investor relations website. The content of our websites are not incorporated by reference into this Quarterly Report on Form 10-Q or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 US treasuries. Due

Not applicable to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.

Smaller Reporting Companies.

ITEM 4. CONTROLS AND PROCEDURES

1. Disclosure Controls and Procedures

We maintain disclosure controls 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 Chief Executive Officer 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 Procedures

Ourprocedures, 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.


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As of the end of the period covered by this Quarterly Report on Form 10-Q, we evaluated the effectiveness of the design and operation of our Disclosure Controls, which was done under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based on the evaluation of our Disclosure Controls, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2022, our Disclosure Controls were not effective due to material weaknesses in the Company's internal control over financial reporting as disclosed below.

2. Material Weaknesses

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, we identified material weaknesses in our internal control over financial reporting. The first material weakness relates to lack of a process to demonstrate commitment to attracting, developing, and retaining competent individuals in alignment with objectives. This material weakness impacted the effectiveness of our disclosure controlscontrol environment, and procedures asour entity level controls. It resulted in the Company not maintaining a complement of March 31, 2019, pursuant to Rule 13a-15(b)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 Exchange Act. BasedCompany’s operations and transactions. Remediation efforts undertaken by the Company in 2021 identified an additional material weakness related to insufficient selection and development of Information Technology General Controls (ITGCs) to support the achievement of objectives.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. These material weaknesses could result in a misstatement of account balances or disclosures that would result in a material misstatement of our annual or interim consolidated financial statements that may not be detected.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements or prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions, and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

3. Plan to Remediate Material Weaknesses

The Company is devoting significant time, attention, and resources to remediating the above material weaknesses. The Company has executed or continues to execute the following steps intended to remediate the material weaknesses described above and strengthen our Chief Executive Officerinternal control:

•The Company hired experienced finance and accounting executives in the positions of Chief Financial Officer, concluded that, asChief Accounting Officer, Director of March 31, 2019,SEC Reporting, and Director of Internal Audit.
•The Company has invested in increased headcount and training for the accounting function.
•The Company engaged external consultants to assist the Company in designing, implementing, and monitoring an appropriate system of internal control, including ITGCs.
•The Company is executing several initiatives to strengthen our disclosureITGC environment, including but not limited to:
•Implementing additional training to ensure a clear understanding of risk assessment, controls and monitoring activities related to automated processes and systems and ITGCs related to financial reporting.
•Implementing improved IT policies, procedures were effective.

and control activities for key systems which impact our financial reporting.

•Increasing the amount of resources dedicated to monitoring ITGCs related to financial reporting, including addition of personnel with the appropriate level of knowledge, experience and training to ensure compliance with policies and procedures.

The material weaknesses will not be considered remediated, however, until the accounting executives hired in 2021 have been in their roles for a sufficient period of time, and we have concluded, through testing, that applicable controls are designed and operating effectively.

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We plan to continue to devote significant time and attention to remediate the above material weaknesses as soon as reasonably practicable. As we continue to evaluate our controls, we will make the changes described above as well as any others needed to enhance our control environment and remediate the material weaknesses. We believe these actions will be sufficient to remediate the identified material weaknesses and strengthen our internal control over financial reporting; however, there can be no guarantee that such remediation will be sufficient. We will continue to evaluate the effectiveness of our controls and will make any further changes management determines appropriate.

4. Changes in Internal Control Overover Financial Reporting

There


Except as described above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)that occurred during the most recent quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART

Part II - OTHER INFORMATION

Other Information

ITEM 1. LEGAL PROCEEDINGS.

None.

PROCEEDINGS
The Company may be subject to legal proceedings and claims that arise in the ordinary course of business. Other than the matter discussed below, Management is not currently aware of any matters that will have a material effect on the financial position, results of operations, or cash flows of the Company.
On May 7, 2021, we were named in a lawsuit filed in the U.S. District Court for the Southern District of New York (Stifel, Nicolaus & Company, Inc. v. Shift Technologies, Inc. 21-cv-04135) by a former financial advisor, Stifel, Nicolaus & Company, Inc. (“Stifel”), claiming that we are required to pay the former financial advisor certain compensation as a result of the Merger. In addition, the complaint seeks punitive damages as a result of alleged unjust enrichment for the amount of the benefits allegedly conferred on Shift by Stifel. The Company believes it has meritorious defenses against the claim, and the probable incurred losses related to the claim are immaterial as of June 30, 2022. Based on such information as is available to us, the range of additional reasonably possible losses related to the claim does not exceed $4.0 million, excluding any punitive damages which the Company cannot currently estimate. The Company believes the claim is without merit and intends to defend itself vigorously; however, there can be no assurances that the Company will be successful in its defense.

ITEM 1A. RISK FACTORS.

Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our final prospectus filed with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, thereFACTORS

There have been no material changes to the risk factors disclosedincluded in our final prospectus filedAnnual Report on Form 10-K for the fiscal year ended December 31, 2021, except as follows:
The Company’s losses and negative cash flows from operations since inception, combined with its current cash and working capital position, raise substantial doubt about the SEC, exceptCompany’s ability to continue as a going concern.
Since inception, the Company has generated recurring losses which has resulted in an accumulated deficit of $550.0 million as of June 30, 2022. During the three months ended June 30, 2022, the Company had negative operating cash flows of $98.1 million. As of June 30, 2022, the Company had unrestricted cash and cash equivalents of $88.5 million and total working capital of $84.5 million. The accompanying consolidated financial statements have been prepared under the assumption that we may disclose changeswill continue as a going concern for the next twelve months. However, there is substantial doubt about the Company’s ability to continue as a going concern.
Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing or generate profitable operations. Historically we have funded operations through issuances of common and preferred stock and through a reverse recapitalization via our merger with Insurance Acquisition Corp. in October 2020. We have also historically funded vehicle inventory purchases through our vehicle floorplan facilities. There can be no assurance that additional financing will be available or will be available on commercially reasonable terms. The inclusion of disclosures expressing substantial doubt about our ability to continue as a going concern could materially adversely affect our stock price and our ability to raise new capital or enter into strategic alliances.
Acquisitions such factors or disclose additional factorsas the Fair acquisition, Joint Ventures and Other Strategic Alliances May Have an Adverse Effect on Our Business; We May Fail to Realize the Anticipated Benefits of such Transactions
In order to position ourselves to take advantage of growth opportunities, from time to time we may make strategic acquisitions and enter into joint ventures and other strategic alliances that involve significant risks and uncertainties. For example, during 2022 we completed the acquisition of certain automotive dealer marketplace assets and all of the issued and outstanding limited liability company interests of Fair Dealer Services, LLC, a Delaware limited liability company (collectively, the “Marketplace Assets”), from Fair Financial Corp., a Delaware corporation (“Fair”) and Fair IP, LLC, a Delaware limited liability company, and (for limited purposes) Cayman Project 2 Limited, a company incorporated under the laws of Cayman Islands (“SB LL Holdco”), pursuant to the terms of the Amended and Restated Purchase Agreement dated May 11, 2022. Risks and uncertainties relating to this transaction and any other acquisitions, joint ventures and other strategic alliances we may undertake include:
•the difficulty in combining, integrating and managing newly acquired businesses or any businesses of a joint venture or strategic alliance in an efficient and effective manner;
•the challenges in achieving the objectives, cost savings, synergies and other benefits expected from such transactions;
•the risk of diverting resources and the attention of senior management from the operations of our business;
•additional demands on management related to integration efforts or the increase in the size and scope of our company following an acquisition or to the complexities of a joint venture or strategic alliance, including challenges of coordinating geographically dispersed organizations and addressing differences in corporate cultures or management philosophies;
•difficulties in the assimilation and retention of key employees and in maintaining relationships with present and potential customers, distributors and suppliers;
•the lack of unilateral control over a joint venture or strategic alliance and the risk that joint venture or strategic partners have business goals and interests that are not aligned with ours, or the failure of a joint venture partner to satisfy its obligations or its bankruptcy or malfeasance;
•costs and expenses associated with any undisclosed or potential liabilities of an acquired business;
•delays, difficulties or unexpected costs in the integration, assimilation, implementation or modification of platforms, systems, functions (including corporate, administrative, information technology, marketing and distribution functions), technologies, infrastructure, and product and service offerings of the acquired business, joint venture or strategic alliance, or in the harmonization of standards, controls (including internal accounting controls), procedures and policies;
•the risk that funding requirements of the acquired business, joint venture or combined company may be significantly greater than anticipated;
•the risks of entering markets in which we have less experience; and
•the risks of disputes concerning indemnities and other obligations that could result in substantial costs.
We may not achieve the anticipated growth, cost savings or other benefits from the Fair acquisition or any other transaction we may undertake without adversely affecting current revenues and investments in future growth. Moreover, the anticipated growth, cost savings, synergies and other benefits of the Fair acquisition or any other transaction we may undertake may not be realized fully, or at all, or may take longer to realize than expected. Additionally, we may inherit legal, regulatory, and other risks of the acquired business, whether known or unknown to us, which may be material to the combined company. Moreover, uncertainty about the effect of a pending transaction on employees, suppliers and customers may have an adverse effect on us and/or the acquired business, which uncertainties may impair our or its ability to attract, retain and motivate key personnel, and could cause our or its customers, suppliers and distributors to seek to change existing business relationships with either of us. In addition, in connection with acquisitions, joint ventures or strategic alliances, we may incur debt, issue equity securities, assume contingent liabilities or have amortization expenses and write-downs of acquired assets, which could cause our earnings per share to decline. In addition, companies such as Fair that are private companies at the time of acquisition are not subject to reporting requirements and may not have accounting personnel specifically employed to review internal controls over financial reporting and other procedures or to ensure compliance with the requirements of the Sarbanes-Oxley Act of 2002. Bringing the legacy systems for these businesses into compliance with those requirements and integrating them into our compliance and accounting systems may cause us to incur substantial additional expense, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources.
Mergers, acquisitions, joint ventures and strategic alliances are inherently risky and subject to many factors outside of our control, and we cannot be certain that our previous or future acquisitions, joint ventures and strategic alliances will be successful and will not materially adversely affect our business, operating results or financial condition. We may not be able to successfully integrate the businesses, products, technologies or personnel that we might acquire in the future, and any strategic investments we make may not meet our financial or other investment objectives. Any failure to do so could seriously harm our business, financial condition and results of operations.

Our restructuring and the associated workforce reduction announced in August 2022 may not result in anticipated savings, could result in total costs and expenses that are greater than expected and could disrupt our business.
In August 2022, we announced a reduction in workforce by approximately 60% in connection with the restructuring of our business to prioritize and focus on improving unit economics and reducing selling, general and administrative costs. We may not realize, in full or in part, the anticipated benefits, savings and improvements in our future filings withoperating structure from our restructuring efforts due to unforeseen difficulties, delays or unexpected costs. If we are unable to realize the SEC.

expected operational efficiencies and cost savings from the restructuring, our operating results and financial condition, and cash flows would be adversely affected. We also cannot guarantee that we will not have to undertake additional workforce reductions or restructuring activities in the future. Furthermore, our strategic restructuring plan may be disruptive to our operations. For example, our workforce reductions could yield unanticipated consequences, such as attrition beyond planned staff reductions, increased difficulties in our day-to-day operations and reduced employee morale. If employees who were not affected by the reduction in force seek alternate employment, this could result in us seeking contract support at unplanned additional expense or harm our productivity. Our workforce reductions could also harm our ability to attract and retain qualified management and personnel who are critical to our business. Our business, financial condition and results of operations could be materially and adversely affected by any failure to attract or retain qualified personnel.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Unregistered Sales of Equity Securities

PROCEEDS

On March 22, 2019, we sold 425,000 Placement Units in a private placement forMay 11, 2022, the Company completed the Fair acquisition and issued an aggregate purchase price of $4,250,000, or $10.00 per Unit, to the Sponsor (375,000 Placement Units) and Cantor (50,000 Placement Units),2,066,978 shares of Class A common stock. Such shares were issued pursuant to an exemption from registration contained in reliance upon Section 4(a)(2) of the Securities Act. Each Placement Unit consists of one share of Class A common stock and one-half of one placement warrant. The Placement Warrants are identicalPursuant to the warrants included inAmended and Restated Equity and Asset Purchase Agreement dated May 11, 2022, the Units issued inSellers represented to the Initial Public Offering, exceptCompany that if held by Cantor, the Sponsor or their permitted transferees, (a) they are not redeemable by the Company, (b) they (including the underlying Class A common stock) may not be transferred, assigned or sold until 30 days after the consummation“accredited investors” as that term is defined in Regulation D of the Company’s initial Business Combination, subject to certain limited exceptions, and (c) they may be exercised on a cashless basis. In addition, for so long as the placement warrants are held by Cantor or its designees, they maySecurities Act. Appropriate legends stating that such shares have not be exercised after March 19, 2024. No underwriting discounts or commissions were paid with respect to the private placement. 

Use of Proceeds

On March 22, 2019, we consummated our Initial Public Offering of 15,065,000 Units, which included the full exercise by the underwriters of their over-allotment option in the amount of 1,965,000 Units, at $10.00 per Unit, generating gross proceeds of $150,650,000. Each Unit consists of one share of our Class A common stock and one-half of one warrant, where each whole warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share, subject to adjustment.

Cantor (as representative of the underwriters) and BTIG served as the underwriters for the Initial Public Offering. The Units sold in the Initial Public Offering werebeen registered under the Securities Act on aand may not be offered or sold absent registration statement on Form S-1 (No. 333-229741), which was declared effective by the SEC on March 19, 2019.

We incurred a total of $9,661,484 in transaction costs relatedor pursuant to an exemption therefrom were affixed to the Initial Public Offering. We paid a total of $2,620,000 in underwriting discounts and commissions and approximately $622,484 in other costs and expenses relatedcertificates or book entry statements evidencing such shares. See Note 2 - Business Combinations to the Initial Public Offering. In addition, the underwriters agreed to defer $6,419,000 in underwriting discounts and commissions (which is currently held in the Trust Account), which will be payable only upon consummation of an initial Business Combination.

After deducting the underwriting discounts and commissions (excluding the deferred portion of up to $6,419,000 in underwriting discounts and commissions, which will be payable only upon consummation of an initial Business Combination) and the total offering expenses, the total net proceeds from our Initial Public Offering and the Private Placement were $151,698,801 of which $150,650,000 (or approximately $10.00 per Unit sold in the Initial Public Offering) was placed in the Trust Account.

For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Quarterly Report.

accompanying condensed consolidated financial statements for further information.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

DISCLOSURES
None.
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ITEM 5. OTHER INFORMATION.

On May 13, 2019, the Company entered into Amendment No. 1 to the Letter Agreement dated March 19, 2019 by and among the Company and certain security holders, officers and directorsINFORMATION

None.
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Table of the Company. Pursuant to the Amendment, the officers and directors of the Company are permitted to engage in certain limited formation activities with respect to, and serve as officers and directors of, any blank check company, prior to the time those activities would have been permitted to be undertaken by the officers and directors under the terms of the Letter Agreement.  The foregoing description of the Amendment to the Letter Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment, which is attached as Exhibit 10.8 to this Quarterly Report and incorporated herein by reference.

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ITEM 6. EXHIBITS.

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

EXHIBITS

EXHIBIT INDEX
No.Description of Exhibit
1.1Exhibit No.Underwriting Agreement, dated March 19, 2019, between the Company and Cantor Fitzgerald & Co. (1)Description
3.12.1
3.22.2Agreement and Plan of Merger dated August 9, 2022 by and between Shift Technologies, Inc. and CarLotz, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on August 9, 2022). †
10.1
10.2
10.3
10.4Third Amendment to the Employment Agreement by and between Shift Technologies, Inc. and Jeffrey Clementz (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on August 9, 2022).*
10.5
4.1Warrant Agreement, dated March 19, 2019, between Continental Stock Transfer & Trust Company and the Company. (1)
10.1Letter Agreement, dated March 19, 2019, by and among the Company and certain security holders, officers and directors of the Company. (1)
10.2Investment Management Trust Account Agreement, dated March 19, 2019, between Continental Stock Transfer & Trust Company and the Company. (1)
10.3Registration Rights Agreement, dated March 19, 2019, between the Company and certain security holders of the Company. (1)
10.4Placement Unit Subscription Agreement, dated March 19, 2019, between the Company and Insurance Acquisition Sponsor, LLC. (1)
10.5Placement Unit Subscription Agreement, dated March 19, 2019, between the Company and Cantor Fitzgerald & Co. (1)
10.6Administrative Services Agreement, dated March 19, 2019, between the Company and Cohen & Company LLC. (1)
10.7Loan Commitment Agreement, dated March 19, 2019, between the Company and Insurance Acquisition Sponsor, LLC. (1)
10.8*Amendment No. 1 to LetterRetention Bonus Agreement, dated as of May 13, 2019.June 22, 2022, by and between Shift Technologies, Inc. and Sean Foy (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on June 24, 2022).*
31.1*10.6
10.7
10.8
10.9Form of Voting and Support Agreement by and among Shift Technologies, Inc., Carlotz, Inc., and certain shareholders of Shift Technologies, Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on August 9, 2022). †
10.10Form of Voting and Support Agreement by and among Shift Technologies, Inc., Carlotz, Inc., and certain shareholders of CarLotz, Inc. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on August 9, 2022). †
31.1
31.2*31.2
32.1**32.1
32.2**Certification of Principaland Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101.INS*101.INSInline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.CAL*101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.SCH*101.DEFXBRL Taxonomy Extension Schema Document
101.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

*Filed herewith.
**104Furnished.Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
(1)†

Previously filed as an exhibitSchedules and similar attachments have been omitted pursuant to our Current Report on Form 8-K filed on March 25, 2019.

Item 601(a)(5) of Regulation S-K. Shift agrees to furnish a supplemental copy of any omitted schedule or attachment to the SEC upon request.
(2)*Previously filed as an exhibit to our Registration Statement on Form S-1 filed on February 25, 2019.Indicates management contract or compensatory plan or arrangement.

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SIGNATURES

Table of Contents
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

INSURANCE ACQUISITION CORP.
SHIFT TECHNOLOGIES, INC.
Date: May 14, 2019/s/ John M. ButlerOded Shein
Name:John M. ButlerOded Shein
Title:Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 2019/s/ Paul Vernhes
Name:Paul Vernhes
Title:Chief Financial Officer
(Principal Financial OfficerAugust 9, 2022

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