| Summary of Significant Accounting Policies | Note 2 – Summary of Significant Accounting
Policies Basis of Presentation and Principles of
Consolidation The unaudited condensed consolidated financial
statements are presented in U.S. dollars and have been prepared in conformity with accounting principles generally accepted in the United
States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP
as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”)
of the Financial Accounting Standards Board (“FASB”). In the opinion of management, the accompanying
unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary
for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The December
31, 2022 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures
required by GAAP. Results for interim periods should not be considered indicative of results for any other interim period or for
the full year. The unaudited condensed consolidated financial
statements include the accounts of PARTS iD, Inc. and its wholly owned subsidiary PARTS iD, LLC. All intercompany accounts and transactions
have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during
the reporting period. Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the level
of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b)
the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates
and assumptions affecting the financial statements include revenue recognition, return allowances, allowance for credit losses, depreciation,
inventory valuation, valuation of deferred income tax assets and the capitalization and recoverability of software development costs. Stock Compensation Compensation expense related to stock option
awards and restricted stock units granted to certain employees, directors and consultants is based on the fair value of the awards on
the grant date. If the service inception date precedes the grant date, accrual of compensation cost for periods before the grant date
is based on the fair value of the award at the reporting date. In the period in which the grant date occurs, cumulative compensation
cost is adjusted to reflect the cumulative effect of measuring compensation cost based on fair value at the grant date rather than the
fair value previously used at the service inception date or any subsequent reporting date. Forfeitures are recorded as they occur. The
Company recognizes compensation cost related to time-vested options and restricted stock units with graded vesting features on a straight-line
basis over the requisite service period. Compensation cost related to performance-vesting options and performance-based units, where
a performance condition or a market condition that affects vesting exists, is recognized over the shortest of the explicit, implicit,
or defined service periods. Compensation cost is adjusted depending on whether the performance condition is achieved. If the achievement
of the performance condition is probable or becomes probable, the full fair value of the award is recognized. If the achievement of the
performance condition is not probable or ceases to be probable, then no compensation cost is recognized or amounts previously recognized
are reversed. Concentration of Credit Risk Financial instruments that expose the Company
to a concentration of credit risk principally include cash and accounts receivable balances. The Company has significant cash balances
at financial institutions which throughout the year regularly exceed the federally insured limit of $250,000. Any loss incurred or lack
of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and
cash flows. The Company manages accounts receivable credit risk through its policy of limiting extensions of credit to customers. Substantially
all customer orders are paid by credit card at the point of sale. Going Concern These condensed consolidated financial statements
have been prepared in accordance with GAAP assuming the Company will continue as a going concern. The going concern assumption contemplates
the realization of assts and satisfaction of liabilities in the normal course of business. We have operated with a negative working capital
model since our inception. The Company has a working capital deficiency of approximately $45.9 million. We continue to face macro-economic
headwinds and the resulting declining revenue and profitability, which increased the working capital deficit, and resulted in the use
of approximately $3.6 million in cash from operating activities, of which $0.5 million was attributable to changes in working
capital during the quarter ended March 31, 2023. With this, substantial doubt exists about the Company’s ability to continue as
a going concern within one year from the date of the issuance of these condensed consolidated financial statements. The accompanying condensed consolidated financial
statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and
settlement of liabilities in the normal course of business, and does not reflect any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty
related to our ability to continue as a going concern. To address liquidity concerns, the Company is
pursuing additional financing and continues to restructure and optimize its operations including moderating capital investments, improving
gross margin, reducing expenses, and renegotiating vendor payment terms. In addition, to address its liquidity needs, the Company recently
obtained an aggregate of (i) $5 million of net funding from JGB (as discussed below) and (ii) $2.9 million from the sale and issuance
of convertible notes and warrants (as discussed below). $2.0 million was used to pay JGB pursuant to the Amendment to the Loan Agreement
(as discussed below). PARTS iD has
also retained Canaccord Genuity Group, Inc. (“Canaccord”) as its financial advisor and DLA Piper LLP (US) as its legal
counsel to assist in evaluating potential strategic alternatives. There can be no assurance
that the evaluation of strategic alternatives will result in any potential transaction, or any assurance as to its outcome or timing. PARTS iD has
not set a timetable for completion of the process and does not intend to disclose developments related to the process unless and until PARTS iD executes
a definitive agreement with respect thereto, or the Board otherwise determines that further disclosure is appropriate or required. Accounts Receivable Accounts receivable balances include amounts
due from customers. The Company periodically reviews its accounts receivable balances to determine whether an allowance for credit losses
is necessary based on an analysis of past due accounts, historical occurrences of credit losses, existing economic conditions, and other
circumstances that may indicate that the realization of an account is in doubt. As of March 31, 2023 and December 31, 2022 the Company
determined that an allowance for credit losses was not necessary. Inventor Inventory consists of purchased goods that are
immediately available-for-sale and are stated at the lower cost or net realizable value, determined using the first-in first-out method.
Merchandise-in-transit directly from suppliers to customers is recorded in inventory until the product is delivered to the customer.
As of March 31, 2023, and December 31, 2022, merchandise-in-transit amounted to $413,628 and $957,735, respectively. The risk of loss
is transferred from the supplier to the Company at the shipping point. Since the purchased goods are immediately shipped directly from
suppliers to customers the Company deemed that an inventory reserve for obsolete or slow-moving goods was unnecessary. Other Current Assets Other current assets include advances to vendors
amounting to $2,204,192 and $1,796,680 as of March 31, 2023, and December 31, 2022, respectively, which is included in prepaid expenses
and other current assets on the condensed consolidated balance sheets. Website and Software Development The Company capitalizes certain costs associated
with website and software developed for internal use in accordance with ASC 350-50, Intangibles – Goodwill and Other –
Website Development Costs, Intangibles – Goodwill and Other – Internal Use Software, Intan ible Assets Intangible assets consist of indefinite-lived
domain names and are stated at cost less impairment losses, if any. The Company reviews its intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. When such events
occur, the Company compares the carrying amount of the asset to the undiscounted expected future cash flows related to the asset. If
the comparison indicates that an impairment exists, the amount of the impairment is calculated as the difference between the excess of
the carrying amount over the fair value of the asset. The Company has determined that there were no triggering events in the three months
ended March 31, 2023 and 2022, and no impairment charges were necessary. During the first quarter of 2023 the Company
sold its Onyx.com domain name for $250,000. Property and Equipment Property and equipment are stated at cost less
accumulated depreciation. Depreciation of property and equipment is calculated on a straight-line basis over the estimated useful lives
of the assets as follows:
Asset Class Estimated useful
lives
Video and studio equipment 5 years
Website and internally developed software 3 years
Computer and electronics 5 years
Vehicles 5 years
Furniture and fixtures 5 years
Leasehold improvements Lesser of useful life or lease term Accounts Payable Accounts payable as of March 31, 2023, consisted
of amounts payable to vendors of $34.8 million and credit card payable of $3.3 million payable to a credit card company. The Company
has not reached a definitive agreement with the credit card company on paying off the balance owed. The Company stopped making any payments
and is responsible for late fees and any interest on the outstanding balance. As of December 31,2022, accounts payable consisted of amounts
payable to vendors of $33.1 million and $3.3 million credit card payable to the same credit card company mentioned above. Revenue Reco nition In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). This standard replaced all previous accounting guidance
on this topic, eliminated all industry-specific guidance and provided a unified model to determine how revenue is recognized. The core
principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The
standard requires companies to use more judgment and make more estimates than under prior guidance. Judgments include identifying performance
obligations in the contract, estimating the amount of consideration to include in the transaction price, and allocating the transaction
price to each performance obligation. In determining the appropriate amount of revenue
to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identifies contracts
with customers; (ii) identifies performance obligation(s); (iii) determines the transaction price; (iv) allocates the transaction price
to the performance obligation(s); and (v) recognizes revenue when (or as) the Company satisfies each performance obligation. The Company recognizes revenue on product sales
through its website as the principal in the transaction as the Company has concluded it controls the product before it is transferred
to the customer. The Company controls products when it is the entity responsible for fulfilling the promise to the customer and takes
responsibility for the acceptability of the goods, assumes inventory risk from shipment through the delivery date, has discretion in
establishing prices, and selects the suppliers of products sold. Sales discounts earned by customers at the time of purchase and taxes collected
from customers, which are remitted to governmental authorities, are deducted from gross revenue in determining net revenue. Allowances
for sales returns are estimated and recorded based on historical experience and reduce product revenue, inclusive of shipping fees, by
expected product returns. Allowances for sales returns at March 31, 2023 and December 31, 2022, were $1,210,692 and $549,250, respectively. The Company has two types of contractual liabilities:
(a) amounts received from customers prior to the delivery of products are recorded as customer deposits in the accompanying condensed
consolidated balance sheets and are recognized as revenue when the products are delivered, which amounted to $1,169,758 and $3,098,119
at March 31, 2023 and December 31, 2022, respectively, and (ii) site credits (which are initially recorded in accrued expenses and are
recognized as revenue in the period they are redeemed), amounting to $3,533,519 and $3,414,019 at March 31, 2023 and December 31, 2022,
respectively. Cost of Goods Sold Cost of goods sold consists of the cost of product
sold to customers, plus shipping and handling costs and shipping supplies, net of vendor rebates. Advertising Costs Advertising costs are expensed as incurred. The
Company incurred $1.1 million in advertising costs during the quarter ended March 31, 2023, and $9.7 million during the quarter ended
March 31, 2022. Income Taxes The Company is a C corporation for U.S. federal
income tax purposes. Accordingly, the Company accounts for income taxes in accordance with the provisions of ASC 740, Income Taxes
ASC 740 also provides guidance on the accounting
for uncertain tax positions recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement
process for financial statement recognition and measurement of a tax position 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. ASC 740
also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Based on the Company’s evaluation, management concluded that there are no significant uncertain tax positions requiring recognition
in the Company’s condensed consolidated financial statements. The Company files U.S. federal and State of New Jersey tax returns
and had no unrecognized tax benefits at March 31 ,2023 and December 31, 2022. The Company’s policy for recording interest
and penalties associated with audits is to record such expenses as a component of income tax expense. There were no amounts accrued for
penalties or interest as of or during the quarters ended March 31, 2023 and 2022. Management is currently unaware of any issues under
review that could result in significant payments, accruals, or material deviations from its filing positions. Earnings (Loss) Per Share For the quarters ended March 31, 2023 and 2022,
basic net loss per common share was determined by dividing net loss attributable to common stockholders by the weighted-average number
of shares of common stock outstanding during the period. For purposes of calculating diluted net loss per common share, the denominator
includes both the weighted average common shares outstanding and the number of common stock equivalents if the inclusion of such common
stock equivalents would be dilutive. Dilutive common stock equivalents potentially include performance-based stock units and unvested
restricted stock units using the treasury stock method. For all periods presented, there is no difference in the number of shares used
to compute basic and diluted net loss per common share due to the Company’s net loss. Recently Adopted Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial
Instruments – Credit Losses (Topic 326), Certain Significant Risks and Uncertainties In February 2022, the Russian Federation launched
a full-scale invasion against Ukraine, and sustained conflict and disruption in the region is ongoing. The Company’s engineering
and product data development team as well as back office and part of its customer service center are in Ukraine. The Company’s
ability to maintain adequate liquidity for its operations is dependent upon several factors, including its revenue and earnings, the
impacts of COVID-19 and Russian-Ukraine conflict on macroeconomic conditions, and its ability to take further cost savings and cash conservation
measures if necessary. The Russian-Ukraine conflict could have a material adverse effect upon the Company. Significant Accounting Policies There have been no significant changes from the
significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” included in our Annual
Report on Form 10-K for the year ended December 31, 2022 (our “2022 Form 10-K”). |
