0001762322-21-000012 | 10-K | XBRL Viewer

Cover Page - USD ($)	12 Months Ended
Cover Page - USD ($)	Dec. 31, 2020	Mar. 16, 2021	Jun. 30, 2020
Cover [Abstract]
Document Type	10-K
Document Annual Report	true
Document Period End Date	Dec. 31, 2020
Current Fiscal Year End Date	--12-31
Document Transition Report	false
Entity File Number	001-38839
Entity Registrant Name	Shift Technologies, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	82-5325852
Entity Address, Address Line One	2525 16th Street
Entity Address, Address Line Two	Suite 316
Entity Address, City or Town	San Francisco
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	94103-4234
City Area Code	855
Local Phone Number	575-6739
Title of 12(b) Security	Class A common stock, par value $0.0001 per share
Trading Symbol	SFT
Security Exchange Name	NASDAQ
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
ICFR Auditor Attestation Flag	false
Entity Shell Company	false
Entity Public Float			$ 195,242,400
Entity Common Stock, Shares Outstanding		84,088,337
Documents Incorporated by Reference	Portions of the registrant’s definitive proxy statement relating to its annual meeting of stockholders to be held in 2021 (the “2021 Annual Meeting”), to be filed with the Securities and Exchange Commission (the “SEC”) within 120 days after the end of the fiscal year to which this Annual Report on Form 10-K relates, are incorporated herein by reference where indicated. Except with respect to information specifically incorporated by reference in this Annual Report on Form 10-K, such proxy statement is not deemed to be filed as part hereof.
Entity Central Index Key	0001762322
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	FY
Amendment Flag	false

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 233,936	$ 42,976
Accounts receivable, net	8,426	1,839
Inventory	49,086	18,198
Prepaid expenses and other current assets	5,478	1,899
Total current assets	296,926	64,912
Property and equipment, net	2,123	2,120
Capitalized website and internal use software costs, net	6,542	5,679
Restricted cash, non-current	1,605	1,600
Deferred borrowing costs	2,149	5,184
Other non-current assets	2,748	3,274
Total assets	312,093	82,769
Current liabilities:
Accounts payable	10,675	1,967
Accrued expenses and other current liabilities	22,286	5,954
Flooring line of credit	13,870	16,245
Total current liabilities	46,831	24,166
Related party long term note, net, non-current	0	8,505
Financial instruments liability	25,230	4,810
Other non-current liabilities	2,850	1,954
Total liabilities	74,911	39,435
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock – par value $0.0001 per share; 1,000,000 shares authorized at December 31, 2020 and 2019, respectively; after recapitalization there are no preferred shares issued or outstanding at December 31, 2020 and 2019, respectively	0	0
Common stock – par value $0.0001 per share; 500,000,000 shares authorized at December 31, 2020 and 2019, respectively; 83,904,182 and 31,394,963 shares issued and outstanding at December 31, 2020 and 2019, respectively	8	3
Additional paid-in capital	511,617	258,628
Accumulated deficit	(274,443)	(215,297)
Total stockholders’ equity	237,182	43,334
Total liabilities and stockholders’ equity	$ 312,093	$ 82,769

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, authorized (in shares)	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares issued	83,904,182	31,394,963
Common stock, shares outstanding	83,904,182	31,394,963

Consolidated Statements of Operations and Comprehensive Loss - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Revenue
Revenue	$ 195,718	$ 166,235
Cost of sales	183,537	167,997
Gross profit	12,181	(1,762)
Operating expenses:
Selling, general and administrative expenses	83,896	71,860
Depreciation and amortization	4,536	3,221
Total operating expenses	88,432	75,081
Loss from operations	(76,251)	(76,843)
Change in fair value of financial instruments	24,751	144
Interest and other expense, net	(7,646)	(3,784)
Net loss and comprehensive loss attributable to common stockholders	(59,146)	(80,483)
Net loss and comprehensive loss attributable to common stockholders	$ (59,146)	$ (80,483)
Net loss per share attributable to common stockholders, basic and diluted (in dollars per share)	$ (3.12)	$ (25.30)
Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted (in shares)	18,933,980	3,181,273
Ecommerce revenue – net
Revenue
Revenue	$ 158,037	$ 135,277
Other revenue
Revenue
Revenue	6,390	3,150
Wholesale vehicle revenue
Revenue
Revenue	$ 31,291	$ 27,808

Consolidated Statements of Stockholders' Equity - USD ($)

Total

Series D Preferred Stock

Cumulative Effect, Period of Adoption, Adjustment

Shift Series C Warrant

Lithia Warrants

Public And Placement Warrants

Previously Reported

Revision of Prior Period, Adjustment

Common Stock

Series D Preferred Stock

Common Stock

Shift Series C Warrant

Common Stock

Lithia Warrants

Common Stock

Public And Placement Warrants

Common Stock

Previously Reported

Common Stock

Revision of Prior Period, Adjustment

Additional Paid in Capital

Series D Preferred Stock

Additional Paid in Capital

Cumulative Effect, Period of Adoption, Adjustment

Additional Paid in Capital

Shift Series C Warrant

Additional Paid in Capital

Lithia Warrants

Additional Paid in Capital

Public And Placement Warrants

Additional Paid in Capital

Previously Reported

Additional Paid in Capital

Revision of Prior Period, Adjustment

Accumulated Deficit

Previously Reported

Beginning balance (in shares) at Dec. 31, 2018

247,216,590

(247,216,590)

Beginning balance at Dec. 31, 2018

$ 0

$ 213,461,000

$ (213,461,000)

Ending balance (in shares) at Dec. 31, 2019

255,237,101

(255,237,101)

Ending balance at Dec. 31, 2019

$ 0

$ 223,631,000

$ (223,631,000)

Beginning balance (in shares) at Dec. 31, 2018

30,796,944

39,878,225

(9,081,281)

Beginning balance at Dec. 31, 2018

91,192,000

$ 3,915,000

(122,269,000)

213,461,000

$ 3,000

$ 226,003,000

$ 3,915,000

$ 12,542,000

$ 213,461,000

$ (134,814,000)

Increase (Decrease) in Stockholders' Equity [Roll Forward]

Additional Series C-1 issuance costs

(34,000)

$ (7,000)

(34,000)

Issuance of stock (in shares)

^[1]

488,706

Issuance of stock

^[1]

$ 5,793,000

Issuance of warrants upon achievement of milestones

17,910,000

Issuance of common stock upon exercise of vested options (in shares)

131,544

Issuance of common stock upon exercise of vested options

157,000

Repurchase of shares related to early exercise options (in shares)

(34,438)

Issuance of common stock upon early exercise of options (in shares)

12,207

Vesting of early exercised options

98,000

Stock-based compensation expense

1,688,000

Adjustment of vested shares from recourse promissory note

(107,000)

Repurchase of shares related to early exercised options

(30,000)

Exchange of common shares For Series D preferred shares

^[1]

3,235,000

Net loss and comprehensive loss attributable to common stockholders

(80,483,000)

Net loss and comprehensive loss attributable to common stockholders

(80,483,000)

Ending balance (in shares) at Dec. 31, 2019

31,394,963

37,432,555

(6,037,592)

Ending balance at Dec. 31, 2019

$ 43,334,000

$ (180,297,000)

$ 223,631,000

$ 3,000

258,628,000

$ 34,997,000

$ 223,631,000

(215,297,000)

$ (215,297,000)

Ending balance (in shares) at Dec. 31, 2020

Ending balance at Dec. 31, 2020

$ 0

Increase (Decrease) in Stockholders' Equity [Roll Forward]

Issuance of common stock upon exercise of vested options (in shares)

1,127,190

Issuance of common stock upon exercise of vested options

$ 1,234,000

1,234,000

Repurchase of shares related to early exercise options (in shares)

(7,793)

Vesting of early exercised options

1,046,000

Stock-based compensation expense

2,945,000

Warrant redemption/exchange (in shares)

226,535

9,312,736

1,797,213

Warrant redemption/exchange

$ 1,102,000

$ 13,205,000

$ (7,193,000)

$ 1,000

$ 1,102,000

$ 13,204,000

$ (7,193,000)

Merger and PIPE financing (in shares)

40,053,338

Merger and PIPE financing

240,408,000

$ 4,000

240,404,000

Non-cash bonuses in satisfaction of loans to related parties (See Note 10)

247,000

Net loss and comprehensive loss attributable to common stockholders

(59,146,000)

Net loss and comprehensive loss attributable to common stockholders

(59,146,000)

Ending balance (in shares) at Dec. 31, 2020

83,904,182

Ending balance at Dec. 31, 2020

$ 237,182,000

$ 8,000

$ 511,617,000

$ (274,443,000)

[1]	(1) Issuance of Series D redeemable convertible preferred stock has been retroactively restated to give effect to the recapitalization transaction.

Consolidated Statements of Stockholders' Equity (Parenthetical) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($)
Issuance costs related to convertible preferred stock	$ 34
Series D Preferred Stock
Issuance costs related to convertible preferred stock	$ 7

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss and comprehensive loss attributable to common stockholders	$ (59,146)	$ (80,483)
Adjustments to reconcile net loss to net cash and restricted cash used in operating activities:
Depreciation and amortization	4,536	3,221
Stock-based compensation expense	2,614	1,382
Change in fair value of financial instruments (See Note 2)	(24,751)	(144)
Non-cash bonuses in satisfaction of loans to related parties (See Note 10)	247	0
Non-cash expense upon milestone achievement (see Note 10)	0	6,932
Contra-revenue associated with milestones (see Note 10)	637	8,467
Amortization of debt discount	7,030	4,200
Compensation expense from exchange of common stock	0	4,825
Changes in operating assets and liabilities:
Accounts receivable	(6,587)	2,238
Inventory	(30,888)	24,874
Prepaid expenses and other current assets	(3,579)	(626)
Other non-current assets	(228)	(98)
Accounts payable	8,094	(3,185)
Accrued expenses and other current liabilities	15,484	(162)
Other non-current liabilities	685	350
Net cash, cash equivalents, and restricted cash used in operating activities	(85,852)	(28,209)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	(984)	(1,688)
Capitalized website and internal-use software costs	(3,895)	(4,865)
Net cash, cash equivalents, and restricted cash used in investing activities	(4,879)	(6,553)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from delayed draw term loans	12,500	12,500
Repayment of delayed draw term loans	(25,000)	0
Proceeds from SBA PPP loans	6,055	0
Repayment of SBA PPP loans	(6,055)	0
Proceeds from flooring line of credit facility	96,355	112,424
Repayment of flooring line of credit facility	(98,613)	(123,564)
Net contributions from merger and PIPE financing	300,900	0
Exchange of warrants for cash	(7,193)	0
Proceeds from issuance of convertible preferred stock	0	5,800
Issuance costs related to convertible preferred stock	0	(41)
Proceeds from stock option exercises, including from early exercised options	2,753	157
Repurchase of shares related to early exercised options	(6)	(30)
Net cash, cash equivalents, and restricted cash provided by financing activities	281,696	7,246
Net increase (decrease) in cash, cash equivalents and restricted cash	190,965	(27,516)
Cash, cash equivalents and restricted cash, beginning of year	44,576	72,092
Cash, cash equivalents and restricted cash, end of year	235,541	44,576
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	871	1,262
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Vesting of early exercised options	1,046	98
Stock based compensation capitalized to website and internal-use software	$ 331	$ 306

DESCRIPTION OF THE BUSINESS	12 Months Ended
DESCRIPTION OF THE BUSINESS	Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]
DESCRIPTION OF THE BUSINESS	1. DESCRIPTION OF THE BUSINESS Shift Platform, Inc., formerly known as Shift Technologies, Inc. (“Legacy Shift”) was incorporated in the State of Delaware on December 9, 2013. The Company conducts its business through Legacy Shift and its wholly owned subsidiaries Shift Operations, LLC, and Shift Finance, LLC. The Company is based in and operates out of San Francisco, California and operates hubs to purchase, recondition and sell vehicles in San Francisco, Los Angeles, Sacramento, San Diego, Portland and Seattle. Shift operates an innovative platform to make car purchases, car sales and ownership 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 two 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”). Insurance Acquisition Corp. Merger On October 13, 2020, Insurance Acquisition Corp. (“IAC”), an entity listed on the Nasdaq Capital Market under the trade symbol “INSU”, acquired 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, SFT, or the Company. Upon the consummation of the Merger, Shift received approximately $300.9 million, net of fees and expenses. See Note 3 - Merger for additional details regarding this transaction. COVID-19 In March 2020, the World Health Organization declared the outbreak of the novel coronavirus disease (“COVID-19”) as a pandemic, and the Company expects its operations in all locations to be affected as the virus continues to proliferate. 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 customers 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 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), was signed into law in response to the COVID-19 pandemic. The CARES Act includes several significant income tax relief provisions as well as the deferral of the employer portion of the social security payroll tax. The income tax benefits include a favorable increase in the interest expense limitation under section 163(j), allowing a five-year net operating loss (“NOL”) carryback provision for certain NOLs, and increasing the amount of NOLs corporations may use to offset income for taxable years beginning before 2021. The Company has evaluated the income tax impacts of the CARES Act and does not expect that the income tax relief provisions of the CARES Act would significantly impact the Company, since it has had taxable losses since inception. In addition, the Company has adopted the deferral of the employer portion of the social security payroll tax. The deferral is effective from the enactment date through December 31, 2020. As of December 31, 2020, the Company deferred $1.3 million. The deferred amount will be paid in two installments and the amount will be considered timely paid if 50% of the deferred amount is paid by December 31, 2021 and the remainder by December 31, 2022. In April 2020, the Company, through its subsidiaries Shift Technologies and Shift Operations, also borrowed unsecured loans (“PPP Loans”) under the Paycheck Protection Program established under the CARES Act. These loans were repaid with proceeds from the Merger. See Note 7 - Borrowings for additional information regarding the PPP Loans.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain prior period balances have been reclassified to conform to the current period presentation in the consolidated financial statements and the accompanying notes.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of 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, liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to the valuation of vehicle inventory, capitalized website and internal-use software development costs, warrants, stock-based compensation and the valuation allowance related to deferred tax assets.

Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December 31, 2020 and 2019, cash and cash equivalents consisted of bank deposits, money market placements and demand deposits with third-party payment platforms.

Restricted Cash

The restricted cash includes amounts related to letters of credit required in conjunction with lease agreements and collateral related to state licensing requirements. As of December 31, 2020 and 2019, the restricted cash balance was $1.6 million and $1.6 million respectively.

Accounts Receivable, Net

Accounts receivable are primarily due from the partner financial institutions that provide financing to our customers, and are recorded net of any allowance for doubtful accounts. The allowance for doubtful accounts is estimated based upon historical experience, current economic conditions and other factors and is evaluated periodically. As of December 31, 2020 and 2019, the allowance for doubtful accounts was $46 thousand and $0.1 million, respectively. Write-offs were immaterial during the years ended December 31, 2020 and 2019.

Concentrations of Credit Risk and Other Uncertainties

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and accounts receivable. Substantially all of the Company’s cash and cash equivalents were deposited in accounts at one financial institution, and account balances may at times exceed federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial strength of the depository institution in which the cash is held.

Credit risk with respect to accounts receivable is generally not significant due to diversity of the Company’s customers. The Company routinely assesses the creditworthiness of its customers. The Company generally has not experienced any material losses related to receivables from individual customers, or groups of customers during the years ended December 31, 2020 and 2019. The Company does not require collateral. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the Company’s accounts receivable.

As of December 31, 2020 and 2019, receivables from three entities accounted for 58% and 63%, respectively, of the Company’s accounts receivable balance. For the years ended December 31, 2020 and 2019, no customers accounted for more than 10% of the Company’s revenue.

Inventory

Inventory consists of used vehicles, primarily acquired through individual sellers, trade-ins to original equipment manufacturers, and auction. Inventory cost is determined by specific identification and includes acquisition costs, direct and indirect vehicle reconditioning costs including parts and labor, inbound transportation costs and other incremental costs that are capitalized as a component of inventory.

At December 31, 2020 and 2019, inventory was stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price less costs to complete, dispose and transport the vehicles. Selling prices are derived from historical data and trends, such as sales price and inventory turn times of similar vehicles, as well as independent, market resources. Each reporting period the Company recognizes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value through cost of sales in the accompanying consolidated statements of operations and comprehensive loss. For the years ended December 31, 2020 and 2019, the Company charged $0.5 million and $1.7 million to cost of sales to reduce the carrying value of inventory to net realizable value.

Property and Equipment, Net

Property and equipment are recorded at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the related assets, over an estimated useful life of two to five years for most assets. Leasehold improvements are depreciated over the lesser of the useful life or lease term. Major replacements and improvements are capitalized, while general repairs and maintenance are expensed as incurred.

Capitalized Website and Internal-Use Software Development Costs, Net

The Company capitalizes costs associated with customized internal-use software systems that have reached the application development stage. Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related expenses for employees who are directly associated with the applications. Capitalization of such costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete and ready for its intended purpose. Amortization is computed using the straight-line method over 3 years.

Impairment of Long-Lived Assets

The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are impaired, the impairment to be recognized is measured by the amount by which the carrying value exceeds the fair value of such assets. The Company has not recognized any impairment losses during the years ended December 31, 2020 and 2019.

Deferred Borrowing Costs

Deferred borrowings costs are associated with the fair value of the loan guarantee and the fair value of the Delayed Draw Term Loan facility (“DDTL”). Costs related to the fair value of the loan guarantee which are associated with the flooring line of credit are reported as long term assets at each reporting date that such costs were outstanding. Costs related to the fair value of the DDTL are presented net against the related term loan on the consolidated balance sheets. Deferred borrowing costs are amortized into interest expense over the expected term of the related facility. Upon repayment of the DDTL in November 2020, the remaining unamortized deferred borrowing costs of $2.9 million were written off to interest expense on the consolidated statements of operations and comprehensive loss. See Note 7 -Borrowings and Note 10 - Related Party Transactions for further discussion regarding the deferred borrowing costs.

Revenue Recognition

The Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) on January 1, 2019, using the modified retrospective method. ASC 606 prescribes a five-step model that includes: (1) identify the contract; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) performance obligations are satisfied. Based on the manner in which the Company historically recognized revenue, the adoption of ASC 606 did not have a material impact on the amount or timing of its revenue recognition and the Company recognized no cumulative effect adjustment upon adoption.

In accordance with ASC 606, the Company recognizes revenue upon transfer of control of goods or services to customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Control passes to the customer at the time of delivery or pick-up. The Company may collect sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale as required. These taxes are accounted for on a net basis and are not included in revenues or cost of sales. On occasion, the Company may provide cash or non-cash payments to a customer, including in the form of equity, in such cases the Company accounts for such payments under the guidance for consideration payable to a customer and considers whether such amount should be reflected as contra-revenue.

The Company recognizes revenue at a point in time as described below.

Ecommerce Revenue

The Company sells used vehicles to its retail customers through its platform. The transaction price for used vehicles is a fixed amount as set forth in the customer contract. Customers frequently trade-in their existing vehicle to apply toward the transaction price of a used vehicle. Trade-in vehicles represent non-cash consideration which the Company measures at stated contract price for each specific vehicle. The Company satisfies its performance obligation and recognizes revenue for used vehicle sales at a point in time when the vehicles are delivered to or picked up by the customer. The revenue recognized by the Company includes the agreed upon transaction price, including any service fees. Revenue excludes any sales taxes, title and registration fees, and other government fees that are collected from customers. The Company accounts for consideration payable to a customer as a reduction of the transaction price such as discounts, rebates and price concession and, therefore, reduction in revenue.

The Company receives payment for used vehicle sales directly from the customer at the time of sale or from third-party financial institutions within a short period of time following the sale if the customer obtains financing. For any payments received prior to delivery or pick-up of used vehicle, such amounts are deferred and are recorded as a contract liability within current liabilities on the consolidated balance sheets until delivered or picked-up.

Through December 31, 2019, the Company’s return policy allowed customers to initiate a return during the first five days or 200 miles after delivery. In the first quarter of fiscal year 2020, the Company extended the return policy to seven days after delivery. Ecommerce revenue is recognized net of a reserve for returns, which is estimated using historical experience and trends. The returns reserve was immaterial as of December 31, 2020 and 2019.

Other Revenue

The Company provides buyers on its platform with options for financing, insurance, and extended warranties, as well as other value-added products such as vehicle service contracts, gap waiver protection and wheel and tire coverage. All such services are provided by unrelated third-party vendors and the Company has agreements with each of these vendors giving the Company the right to offer such services on its platform.

When a buyer selects a service from these providers, the Company earns a commission based on the actual price paid or financed. The Company concluded that it is an agent for these transactions because it does not control the products before they are transferred to the customer. Accordingly, the Company recognizes commission revenue at the time of sale.

Wholesale Vehicle Revenue

The Company sells vehicles to wholesalers. These vehicles sold to wholesalers are primarily acquired from customers who trade-in their existing vehicles and such vehicles do not meet the Company’s quality standards to list and sell through its website. The Company satisfies its performance obligation and recognizes revenue for wholesale vehicle sales at a point in time when the vehicle is sold at auction or directly to a wholesaler. The transaction price is typically due and collected within one week of the date of the sale.

Contract Costs

The Company elected, as a practical expedient, to expense sales commissions when incurred because the amortization period would have been less than one year. These costs are recorded within selling, general and administrative expenses on the consolidated statements of operations and comprehensive loss.

Cost of Sales

Cost of sales includes the cost to acquire used vehicles and direct and indirect vehicle reconditioning costs associated with preparing the vehicles for resale. Vehicle reconditioning costs include parts, labor, inbound transportation costs and other incremental costs. These costs include shipping costs of auction purchased vehicles, mechanical inspection, vehicle preparation supplies and repair costs necessary for reconditioning the vehicle for resale. The Company has certain inventory that does not meet its specifications to sell to retail customers and sells this inventory through sales at auction, directly to a wholesaler (“DTW”) or through other channels. Cost of sales also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value.

Shipping and Handling

The Company’s logistics costs related to transporting its used vehicle inventory primarily include third-party transportation fees. The portion of these costs related to inbound transportation from the point of acquisition to the relevant reconditioning facility is included in cost of sales when the related used vehicle is sold. Logistics costs not included in cost of sales are accounted for as costs to fulfill contracts with customers and are included in “Selling, general and administrative expenses” in the consolidated statements of operations and comprehensive loss and were $1.9 million and $1.8 million during the years ended December 31, 2020 and 2019, respectively, excluding compensation and benefits.

Selling, General and Administrative Expenses

Selling, general and administrative expenses primarily include payroll and facilities, other than those related to reconditioning vehicles; advertising; stock-based compensation expense; technology expenses and other administrative expenses. For the years ended December 31, 2020 and 2019, advertising expense was $21.6 million and $5.6 million, respectively. Advertising costs are expensed as incurred.

Stock-Based Compensation Expense

Stock-based compensation expense related to awards to employees are measured at the grant date based on the fair value of the award. The fair value of the award is expensed on a straight-line basis over the requisite service period, which is generally the vesting period. The Company elects to account for forfeitures as they occur by reversing compensation cost if the award is forfeited. Exercises of option awards are settled by issuing new shares.

Prior to the adoption of ASU 2018-07, Compensation — Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, on January 1, 2019, for non-employee awards where a measurement date had not been achieved, the Company remeasured and recognized the change in fair value of awards issued to non-employees that occurred in a given reporting period within the statements of operations and comprehensive loss. Following adoption of ASU 2018-07, accounting requirements for equity-based awards to non-employees are aligned with those to employees, including measuring the equity instruments at the grant-date fair value The impact of adoption of this standard did not have a material effect on non-employee awards, other than the reclassification of certain warrants, as discussed in the common stock warrant policy footnote.

See Note 9 - Stock-Based Compensation Plans for additional information on stock-based compensation.

Convertible Preferred Stock Warrant Liability

Warrants for shares that are contingently redeemable are classified as liabilities in the consolidated balance sheets. At initial recognition, the Company classifies these warrants as liabilities on the balance sheets at their estimated fair value. The preferred warrants are subject to remeasurement at each balance sheet date, with changes in fair value recognized in change in fair value of financial instruments on the consolidated statements of operations and comprehensive loss. All outstanding convertible preferred stock warrants were settled prior to the Merger. See Note 3 - Merger for additional information these warrants.

Common Stock Warrant

Prior to the Merger on October 13, 2020, all outstanding common stock warrants issued by Legacy Shift were settled. As a result of the Merger the company assumed IAC’s 7,745,000 outstanding common stock warrants. In December 2020, the Company issued a tender offer to repurchase these warrants in exchange for 0.25 shares of Class A common stock and $1.00 in cash each. See Note 3 - Merger and Note 8 - Stockholders' Equity for additional information.

Prior to the adoption of ASU 2018-07 on January 1, 2019, certain warrants with non-employees were determined to be liability classified and were remeasured at each balance sheet date. Upon adoption of ASU 2018-07, certain warrants on common shares related to non-employee compensation in the amount of $3.9 million were reclassified into additional paid-in capital within equity and are no longer subject to remeasurement.

Interest and Other Income

Interest and other income is comprised of bank interest and other miscellaneous items.

Interest Expense

Interest expense includes interest incurred from the flooring line of credit facility, which is used to finance the purchase of vehicles, as well as the amortization of deferred borrowing costs and other miscellaneous items.

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 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 assumptions 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 that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. As of December 31, 2020 and 2019, all liability-classified financial instruments that are remeasured on a recurring basis have been valued using Level 3 inputs. The determination of the fair value of the Series C and Lithia warrants is based on the Black-Scholes valuation model, which requires significant estimates including the expected volatility of our common stock, expected dividend yield, option term and risk-free rate.

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 common stock. The expected annual volatility of our common stock was estimated to be 60.93% and 63.93% as of the Merger date and December 31, 2020, respectively, based on the historical volatility of comparable publicly traded companies.

The below table illustrates the changes in the fair value of the Company’s Level 3 financial instruments:


(in thousands)	2020		2019
Balance as of January 1	$	4,810	$	8,869
Remeasurement of pre-Merger Series C and Lithia warrants	9,496		(144)
Reclassification of Milestone 3 warrants upon adoption of ASU 2018-07	—		(3,915)
Exercise of Series C and Lithia Warrants prior to the Merger	(14,306)		—
Issuance of Escrow Shares in connection with the Merger	59,477		—
Remeasurement of Escrow Shares liability	(34,247)		—
Balance as of December 31	$	25,230	$	4,810

All Legacy Shift warrants outstanding prior to the merger were exercised and settled via net share settlement. The number of shares issued upon the exercise of the warrants was reduced in lieu of cash payment for the exercise price of the warrants.

Income Taxes

The Company accounts for income taxes using the asset and liability method. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period when such determination is made. As of December 31, 2020 and 2019, respectively, the Company recorded a full valuation allowance on its deferred tax assets.

Tax benefits related to uncertain tax positions are recognized when it is more likely than not that a tax position will be sustained during an audit. Interest and penalties related to unrecognized tax benefits are included within the provision for income tax.

Net Loss Per Share Attributable to Common Stockholders

Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. Under the two-class method, net loss is attributed to common stockholders and participating securities based on their participation rights. The Company considers all series of its redeemable convertible preferred stock to be participating securities. Under the two-class method, the net loss attributable to common stockholders is not allocated to the convertible preferred stock as the holders of the Company’s convertible preferred stock do not have a contractual obligation to share in the Company’s losses. Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. For periods in which the Company reports net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

As the Merger has been accounted for as a reverse recapitalization, the consolidated financial statements of the merged entity reflect the continuation of the pre-merger Shift Technologies, Inc. financial statements, with the Shift Legacy Equity, which has been retroactively adjusted to the earliest period presented to reflect the legal capital of the legal acquirer, Insurance Acquisition Corp. As a result, net loss per share was also restated for periods ended prior to the Merger. See Note 3 - Merger for details of this recapitalization and Note 13 - Net Loss Per Share for discussion of the retrospective restatement of net loss per share.

Comprehensive Loss

Comprehensive loss includes all changes in equity (net assets) from non-owner sources during a period. There have been no items qualifying as comprehensive loss and, therefore the Company’s comprehensive loss was the same as its reported net loss.

Recently Adopted Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue when the customer obtains control of the promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company adopted ASC 606 on January 1, 2019, using the modified retrospective method. Furthermore, based on the manner in which the Company recognizes revenue, the adoption of ASC 606 did not have a material impact on the amount or timing of its revenue recognition and the Company recognized no cumulative effect adjustment upon adoption.

In June 2018, the FASB issued ASU 2018-07, Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The standard expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. The standard is effective beginning January 1, 2020, with early adoption permitted so long as it is not earlier than the entity’s adoption of ASC 606. The Company adopted ASU 2018-07 on January 1, 2019. The Company adopted this standard on January 1, 2019, there were no material impacts upon adoption.

In November 2019, the FASB issued ASU 2019-08, Codification Improvements — Share-Based Consideration Payable to a Customer (“ASU 2019-08”). This ASU clarifies the accounting for share-based payments issued as consideration payable to a customer in accordance with ASC 606. Under ASU 2019-08, entities apply the guidance in ASC 718 to measure and classify share-based payments issued to a customer that are not in exchange for a distinct good or service (i.e., share-based sales incentives). Accordingly, entities use a fair-value-based measure to calculate such incentives on the grant date, which is the date on which the grantor (the entity) and the grantee (the customer) reach a mutual understanding of the key terms and conditions of the share-based consideration. The result is reflected as a reduction of revenue in accordance with the guidance in ASC 606 on consideration payable to a customer. After initial recognition, the measurement and classification of the share-based sales incentives continue to be subject to ASC 718 unless (1) the award is subsequently modified when vested and (2) the grantee is no longer a customer. The guidance is effective for public and private companies’ fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company early adopted this standard in the fiscal year ended December 31, 2019, there were no material impacts upon adoption.

In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). The intent of this pronouncement is to align the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software as defined in ASC 350-40. Under ASU 2018-15, the capitalized implementation costs related to a cloud computing arrangement will be amortized over the term of the arrangement and all capitalized implementation amounts will be required to be presented in the same line items of the financial statements as the related hosting fees. ASU 2018-15 is effective for public and private companies’ fiscal years beginning after December 15, 2019, and December 15, 2020, respectively, and interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2018-15 on January 1, 2020, there were no material impacts upon adoption.

Recently Issued Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-to-use asset representing its right to use the underlying asset for the lease term. This ASU is effective for public and private companies’ fiscal years beginning after December 15, 2018, and December 15, 2021, respectively, with early adoption permitted. The Company expects to adopt ASU 2016-02 under the private company transition guidance beginning January 1, 2022, and is currently evaluating the impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, which amends the guidance on the impairment of financial instruments by requiring measurement and recognition of expected credit losses for financial assets held. This ASU is effective for public and private companies’ fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, and December 15, 2022, respectively. The Company is currently assessing the impact, if any, the guidance will have on the Company’s consolidated financial statements.

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. ASU 2019-12 will be effective for public entities for interim and annual periods beginning after December 15, 2020, with early adoption permitted. ASU 2019-12 will be effective for the Company for annual periods beginning after December 15, 2021, and interim periods beginning after December 15, 2020, with early adoption permitted. The Company is currently assessing the impact, if any, the guidance will have on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance is effective for all entities during the period March 12, 2020, through December 31, 2022. The Company is currently assessing the impact, if any, the guidance will have on the Company’s consolidated financial statements.

MERGER

12 Months Ended

Dec. 31, 2020

Business Combinations [Abstract]

MERGER

3. MERGER

On October 13, 2020, Legacy Shift and IAC consummated the Merger, with Legacy Shift surviving the Merger as a wholly-owned subsidiary of IAC, which was renamed “Shift Technologies, Inc.”. Immediately prior to the closing of the Merger, all shares of outstanding redeemable convertible preferred stock of Legacy Shift were automatically converted into shares of Legacy Shift common stock, and all outstanding warrants for Legacy Shift shares were exercised. Upon the consummation of the Merger, each share of Legacy Shift common stock issued and outstanding was canceled and converted into the right to receive 0.1073 shares (the “Exchange Ratio”) of Class A common stock of IAC.

Upon the closing of the Merger, IAC's certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of all classes of capital stock to 501,000,000 shares, of which 500,000,000 shares were designated Class A common stock, $0.0001 par value per share; and 1,000,000 shares designated preferred stock, $0.0001 par value per share. As of the Closing Date, there were 82,106,969 shares of the Company’s Class A common stock issued and outstanding and warrants to purchase 7,745,000 shares of the Company’s Class A common stock outstanding. There was no Class B common stock and no preferred stock outstanding as the Closing Date.

In connection with the execution of the Merger Agreement, IAC entered into separate subscription agreements (each, a “Subscription Agreement”) with a number of investors (each a “Subscriber”), pursuant to which the Subscribers agreed to purchase, and IAC agreed to sell to the Subscribers, an aggregate of 18,900,000 shares of common stock (the “PIPE Shares”), for a purchase price of $10 per share and an aggregate purchase price of $189.0 million, in a private placement pursuant to the subscription agreements (the “PIPE”). The PIPE investment closed simultaneously with the consummation of the Merger.

The Merger is accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, IAC was treated as the “acquired” company for financial reporting purposes (See Note 1 - Description of the Business). Accordingly, for accounting purposes, the Merger was treated as the equivalent of Shift issuing stock for the net assets of IAC, accompanied by a recapitalization. The net assets of IAC of $0.1 million are stated at historical cost, with no goodwill or other intangible assets recorded.

Prior to the Merger, Legacy Shift and IAC filed separate standalone federal, state and local income tax returns. As a result of the Merger, structured as a reverse acquisition for tax purposes, IAC was renamed Shift Technologies, Inc., and became the parent of the consolidated filing group, with Legacy Shift as a subsidiary.

The following table reconciles the elements of the Merger to the consolidated statement of cash flows and the consolidated statement of stockholders’ equity for the year ended December 31, 2020:


	Recapitalization
Cash - IAC’s trust and cash	$	153,019
Cash - PIPE	189,000
Less: transaction costs and advisory fees paid	(41,119)
Net contributions from merger and PIPE financing	$	300,900
Less: Escrow Shares liability	(59,477)
Less: accrued transaction costs	(1,015)
Merger and PIPE financing	$	240,408

Escrow Shares

The former Legacy Shift stockholders are entitled to receive up to an additional 6,000,218 shares of the Company’s common stock (the “Escrow Shares”). The Escrow Shares were issued to a third-party escrow agent in connection with the closing of the Merger, 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 common stock is greater than $12.00 over any 20 trading days within any 30 trading day period, one-half of the Escrow Shares will be released; and

ii. if at any time during the 30 months following the closing, the closing share price of the Company’s common stock is greater than $15.00 over any 20 trading days within any 30 trading day period, one-half 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 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 common stock after the date of the Merger), then all Escrow Shares shall be released to the Legacy Shift stockholders effective as of immediately prior to the consummation of such change of control.

The Escrow Shares are legally outstanding and the beneficiaries retain all voting, dividend and distribution rights applicable to the Company’s 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 basic net loss per share (see Note 13).

The Escrow Shares meet the accounting definition of a derivative financial instrument. As the number of Escrow Shares that will ultimately be released is partially dependent on variables (namely, the occurrence of a change in control) that are not valuation inputs to a “fixed for fixed” option or forward contract, the Escrow Shares are not considered to be indexed to the Company’s common stock and are therefore classified as a liability. The Company’s obligation to release the Escrow Shares upon achievement of the milestones is recorded to financial instruments liability on the consolidated balance sheets at fair value as of the date of the Merger. Subsequent changes in the fair value of the liability are recorded in change in fair value of financial instruments on the consolidated statements of operations and comprehensive loss. No Escrow Shares had been released as of December 31, 2020.

PROPERTY AND EQUIPMENT, NET

12 Months Ended

Dec. 31, 2020

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT, NET

4. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following (in thousands):


	December 31,
	2020		2019
Equipment	$	2,132	$	1,301
Furniture and fixtures	158		153
Leasehold improvements	1,408		1,268
Total property and equipment	3,698		2,722
Less: accumulated depreciation	(1,575)		(602)
Property and equipment, net	$	2,123	$	2,120

Depreciation expense related to property and equipment was $1.0 million and $0.5 million for the years ended December 31, 2020 and 2019, respectively, is included in depreciation and amortization in the consolidated statements of operations and comprehensive loss.

CAPITALIZED WEBSITE AND INTERNAL-USE SOFTWARE COSTS, NET

12 Months Ended

Dec. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

CAPITALIZED WEBSITE AND INTERNAL-USE SOFTWARE COSTS, NET

5. CAPITALIZED WEBSITE AND INTERNAL-USE SOFTWARE COSTS, NET

Capitalized website and internal-use software development costs consist of the following (in thousands):


	December 31,
	2020		2019
Capitalized website domain costs – nonamortizable	$	385	$	385
Capitalized website and internal-use software development costs – amortizable	17,308		12,891
Less: accumulated amortization	(11,151)		(7,597)
Capitalized website and internal-use software development costs, net	$	6,542	$	5,679

Amortization of capitalized software development costs is included in depreciation and amortization in the consolidated statements of operations and comprehensive loss and amounted to $3.6 million and $2.7 million for the years ended December 31, 2020 and 2019, respectively.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

12 Months Ended

Dec. 31, 2020

Payables and Accruals [Abstract]

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following (in thousands):


	December 31,
	2020		2019
Liability for vehicles acquired under OEM program	$	11,461	$	—
Accrued payroll related costs	4,155		1,083
Provision for DMV refunds	1,093		1,036
Accrued sales taxes	1,503		1,691
Common stock subject to repurchase liability, current portion	524		269
Other accrued expenses	3,550		1,875
Total accrued expenses and other current liabilities	$	22,286	$	5,954

In November 2019, the Company entered into an arrangement with an 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 its inspection and reconditioning center where Shift inspects the vehicle and makes a final purchasing decision regarding the vehicle. Any rejected vehicles are sent to wholesale auction facilities at Shift’s expense, at which point Shift has no further obligations to the automaker for the rejected vehicle. The Company records inventory received under the arrangement with the OEM equal to the amount of the liability due to the OEM to acquire such vehicles. The liability due to the OEM provider for such acquired vehicles is equal to the OEM’s original acquisition price plus 50% of excess estimated sales price over this original acquisition price.

BORROWINGS	12 Months Ended
BORROWINGS	Dec. 31, 2020
Debt Disclosure [Abstract]
BORROWINGS	7. BORROWINGS 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 may be prepaid in part or in full at any time without charge, penalty or premium. The Company may request a one-time increase in the commitment by an amount equal to $20.0 million, provided that certain conditions in the facility agreement are met. The expiration date of the facility was initially September 30, 2019. Advances under the facility accrue interest at LIBOR plus 2.00% and as of December 31, 2020, LIBOR was 0.15%. The obligations under the facility are secured by substantially all of the Company’s inventory, both currently owned or acquired thereafter. Repayment of obligations under the facility are guaranteed by Lithia. Upon expiration of the facility, Lithia has guaranteed the provision of the flooring line of credit through 2021 if the Company is unable to secure an extension of the flooring line of credit facility with US Bank. With the signing of the flooring line of credit with US Bank, the Company entered into the commercial agreement for Milestone 1 and the related warrants were issued. Refer to Note 10 for further details regarding the guarantee of the flooring line of credit, the commercial agreement and the warrants. The loan and security agreement contained a financial covenant that required the Company to maintain a total balance of unrestricted cash and the amount of principal available to be drawn (together, the “Borrower’s Liquidity”) equal to or exceeding four times the decrease, if any, of the cash and cash equivalents balance on the determination date compared with the balance three months prior (together calculated with the Borrower’s Liquidity, the “Liquidity Covenant”). The loan and security agreement also sets forth negative covenants that restrict indebtedness, liens, investments, sales of assets, fundamental changes, distributions and other matters. On February 14, 2019, the Company entered into the first amendment to the FLOC to increase the loanable amount to 100% of cost for used vehicles purchased at auction or 100% of the wholesale value of used cars determined by US Bank. The original loanable amount ranges from 50% to 100%, depending on the purchased channel and model years of each vehicle. The Company also agreed to open a commercial sweep account that reduces the principal balance outstanding. Interest income is earned from the commercial sweep account. On September 24, 2019, the loan and security agreement expiration date was amended from September 30, 2019, to December 31, 2019. Commencing July 31, 2019, the Liquidity Covenant was also amended to a minimum requirement of three times the Company’s three-month cash burn. On November 29, 2019, the loan and security agreement expiration date was amended from December 31, 2019 to September 30, 2020. The advance for loan amount was reduced from 100% to 80% of the wholesale value of used vehicles acquired. The Company is required to pay the remaining related principal portion for any used vehicle not sold at least six months after the advance/funding date. The Liquidity Covenant was further reduced to two times the Company’s three-month cash burn amount of January, February and March 2020, one-half times the three-month cash burn amount of April, May and June 2020, and one times the three-month cash burn amount of succeeding months. On December 21, 2020, the loan and security agreement was further amended to extend the expiration date to October 11, 2021 and to increase the amount available under the FLOC to $50.0 million. The amendment also requires the Company to pay a fee of 0.40% per annum on unused availability under the FLOC. The FLOC is 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. As of December 31, 2020, the Company was not in breach of any debt covenants or subjective acceleration clauses. Delayed Draw Term Loan Agreement Concurrent with the initial closing of the Series D Convertible Preferred Stock, the Company also entered into the Delayed Draw Term Loan Agreement (“DDTL”) with Lithia, whereby Lithia agreed to make up to two term loans (“Term Loan A” and “Term Loan B”) from November 29, 2019, to June 12, 2020 (extended by amendment to July 31, 2020), with a maximum principal amount of $12.5 million per term loan. Interest accrues on the outstanding principal amount of each Term Loan at a rate equal to LIBOR plus 0.50% and the applicable margin at the date of determination and is payable monthly. The principal amount of each Term Loan, together with all accrued and unpaid interest thereon, shall be due and payable in full three years from the first advance under Term Loan A. In connection with the DDTL, the Company and Lithia also entered into a Security Agreement under which the Company and its subsidiaries grant the Lithia a blanket lien on its assets. The DDTL also contains customer events of default that, if triggered, could result in acceleration of the maturity of the Term Loans. The DDTL also sets forth negative covenants that restrict indebtedness, liens, investments, sales of assets, fundamental changes, distributions and other matters. On October 18, 2019, the agreement was amended for additional interest based upon the three-month cash burn set forth in the Company’s financial statements and compliance certificates as of the end of each fiscal quarter. Additional interest of 1.00% is accrued if three-month cash burn is greater than $12.0 million but equal to or less than $13.5 million and 2.00% if greater than $13.5 million. On December 27, 2019, the Company drew down on Term Loan A in the amount of $12.5 million. The Company also agreed beginning March 31, 2020, and succeeding calendar quarters to ensure that three-month cash burn amount does not exceed $14.5 million. The amended financial covenant on liquidity mentioned in last paragraph of flooring line of credit also applies to DDTL agreement. Since entering into the facility, the Company and Lithia have agreed to various amendments which primarily had the effect of clarifying the definitions and requirements of certain financial covenants related to liquidity and cash burn, and extending the deadline to draw Term Loan B to July 31, 2020. In July 2020, the Company drew down $12.5 million on the DDTL to fund Term Loan B. The DDTL, including both Term Loans A and B, was repaid in full in November 2020. SBA PPP Loan On April 22, 2020, the Company, through Shift Platform Inc. (then named Shift Technologies, Inc.), and its wholly owned subsidiary, Shift Operations LLC, obtained loans under the Paycheck Protection Program (the “PPP Loans”) with an outstanding principal amount of $6.1 million. The PPP Loans were made through Newtek Small Business Finance (the “Lender”), and the Company entered into two U.S. Small Business Administration Paycheck Protection Program Notes (the “Agreements”) with the Lender evidencing the PPP Loans. Interest accrues on the outstanding principal balances of the PPP Loans at a fixed rate of 1.0%, which is deferred for the first nine months of the term of the PPP Loans. In conjunction with closing of the Merger in October 2020, the Company repaid the outstanding balance and accrued interest on the PPP Loans in full.

STOCKHOLDERS' EQUITY	12 Months Ended
STOCKHOLDERS' EQUITY	Dec. 31, 2020
Equity [Abstract]
STOCKHOLDERS' EQUITY	8. STOCKHOLDERS' EQUITY Warrant Exchange On December 24, 2020, the Company announced the final results of its offer to exchange (“Offer”) 0.25 shares of Class A common stock and $1.00 in cash, without interest, for each of the 7,532,500 outstanding publicly traded warrants to purchase the Class A common stock of the Company, formerly known as Insurance Acquisition Corp. (“IAC”), in connection with the initial public offering of IAC’s securities on March 22, 2019, which entitle such warrant holders to purchase one share of Class A common stock at an exercise price of $11.50, subject to adjustments (the “Public Warrants”), upon the terms and subject to the conditions set forth in the Company’s Tender Offer Statement on Schedule TO originally filed by the Company with the Securities and Exchange Commission (the “SEC”) on November 5, 2020, as amended. The Offer to exchange expired on December 23, 2020. On December 28, 2020, the Company issued an aggregate of 1,745,078 shares of Class A common stock and $7.0 million in cash in exchange for the Public Warrants validly tendered and accepted for exchange in accordance with the Offer. Pursuant to the terms of the Warrant Exchange Agreements, on December 28, 2020, the Company issued an aggregate of 53,125 shares of Class A common stock and $0.2 million in cash (at the same exchange ratio offered to the Public Warrant holders in the Offer) to the Placement Warrant Holders in exchange for an aggregate of 212,500 Placement Warrants (the “Private Exchange”). In connection with the Offer and the Private Exchange, the Company issued an aggregate of 1,797,213 shares of Class A common stock, representing approximately 2.1% of the shares of Class A Common Stock outstanding after such issuances. The Company subsequently issued 124,253 additional shares of Class A common stock and distributed $0.5 million in cash on January 8, 2021 in exchange for all remaining Public Warrants that were outstanding at December 31, 2020.

STOCK-BASED COMPENSATION PLANS

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION PLANS

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 common stock to officers, employees, directors, and consultants. Options granted to employees and non-employees generally vest ratably over four to five years, with a maximum contractual term of 10 years. Outstanding awards under the 2014 Plan continue to be subject to the terms and conditions of the 2014 Plan. Following the Merger, no further awards will be made under the 2014 Plan. The number of shares authorized for issuance under the 2014 Plan was reduced to the number of shares subject to awards outstanding under the 2014 Plan immediately after the Merger. Shares reserved for awards that are subsequently expired or forfeited will no longer be returned to the pool of shares authorized for issuance under the 2014 Plan.

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 number of shares of post-Merger common stock (each such option, a "Converted Option") equal to the product (rounded down to the nearest whole number) of (i) the number of shares of Legacy Shift common stock subject to such Legacy Shift option immediately prior to the Merger and (ii) the equity award exchange ratio. The per share exercise price for each share of post-Merger common stock issuable upon exercise of the Converted Option is equal to the exercise price per Legacy Shift share of each Legacy Shift option immediately before the Merger, with 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 same terms and conditions (including vesting and exercisability terms) as were applicable to the corresponding former Legacy Shift option immediately prior to the consummation of the Merger. All stock option activity was retroactively restated to reflect the Converted Options.

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"). As of December 31, 2020, 9,852,836 shares were authorized for issuance under the 2020 Plan. In addition, the shares authorized for the 2020 Plan may be increased on an annual basis via an evergreen refresh mechanism for a period of up to 10 years, beginning with the fiscal year that begins January 1, 2021, in an amount equal up to 2% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year.

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. Options awarded under the 2020 Plan expire no more than 10 years from the date of grant. The 2020 Plan became effective immediately upon the closing of the Merger. As of December 31, 2020, no awards had been granted under the 2020 Plan.

As of December 31, 2020, a total of 12,207,672 shares of common stock are reserved for issuance under the 2014 and 2020 Plans and 9,852,836 shares are available for future grants under the 2020 Plan.

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, 2019	3,282,114	$	1.61	7.58	$	5,418
Granted	681,065	4.60
Exercised	(1,127,190)	2.82
Forfeited	(414,500)	2.39
Cancelled (expired)	(66,653)	3.15
As of December 31, 2020	2,354,836	$	1.80	8.40	$	15,230
Exercisable as of December 31, 2020	2,354,836	$	1.80	8.40	$	15,230
Vested and expected to vest as of December 31, 2020	2,354,836	$	1.80	8.40	$	15,230

The weighted-average grant date fair value of options granted during fiscal years 2020 and 2019, was $3.19 and $1.99, respectively. The total intrinsic value of options exercised during fiscal years 2020 and 2019, was $4.8 million and $0.2 million, respectively.

Stock-Based Compensation Expense

For the years ended December 31, 2020 and 2019, the Company recorded stock-based compensation expense of $2.6 million and $1.4 million, respectively, to selling, general and administrative expense on the consolidated statements of operations and comprehensive loss. In addition, the Company capitalized stock-based compensation costs of $0.3 million and $0.3 million, respectively, to capitalized website and internal-use software.

As of December 31, 2020 , there was $3.0 million of unrecognized stock-based compensation expense that is expected to be recognized over a weighted-average period of 1.65 years.

Significant Assumptions in Estimating Option Fair Value

The Black-Scholes model for employee and non-employee stock options incorporates the following assumptions:

Fair Value of Common Stock — A public trading market for our common stock has been established in connection with the completion of the Merger. As such, it will no longer be necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the fair value of our common stock will be determined based on the quoted market price of our common stock.

Prior to the Merger, the fair value of the common stock underlying the stock option awards was determined by the board of directors (“the Board”). Given the absence of a public trading market, the Board considered numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting at which awards were approved. These factors included, but were not limited to (i) contemporaneous third-party valuations of common stock; (ii) the rights, preferences, and privileges of convertible preferred stock relative to common stock; (iii) the lack of marketability of common stock; (iv) stage and development of the Company’s business; (v) general economic conditions; and (vi) the likelihood of achieving a liquidity event, such as an IPO or sale of the Company, given prevailing market conditions. To evaluate the fair value of the underlying shares for grants between two independent valuations and after the last independent valuation, a linear interpolation framework was used to evaluate the fair value of the underlying shares.

Volatility — The expected stock price volatilities are estimated based on the historical and implied volatilities of comparable publicly traded companies as the Company does not have sufficient history of trading its common stock.

Risk-free Interest Rate — The risk-free interest rates are based on US Treasury yields in effect at the grant date for notes with comparable terms as the awards.

Expected Term — The expected term of options granted to employees and non-employees is based on the expected life of the stock options, giving consideration to the contractual terms and vesting schedules.

Dividend Yield — The expected dividend yield assumption is based on the Company’s current expectations about its anticipated dividend policy.

The range of assumptions used in the Black-Scholes model for stock options for the years ended December 31, 2020 and 2019, are as follows:


	Year Ended December 31,
	2020	2019
Expected volatility	52.22% - 57.49%	38.22% - 41.67%
Risk-free interest rate	0.28% - 0.62%	1.52% - 2.60%
Expected term (years)	4.99 - 6.07	5.27 - 6.25
Dividend yield	0%	0%

Common Stock Subject to Repurchase Related to Early Exercised Options

The Company typically allows employees to exercise options prior to vesting. Upon termination of service of an employee, the Company has the right 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 the related dollar amount is recorded as a liability. The liability is reclassified to additional paid in capital as the award vests.

As of December 31, 2020 and 2019, the Company has recorded a liability of $0.7 million and $0.3 million relating to 199,528 and 294,761 options that were exercised but not vested, respectively.

RELATED PARTY TRANSACTIONS	12 Months Ended
RELATED PARTY TRANSACTIONS	Dec. 31, 2020
Related Party Transactions [Abstract]
RELATED PARTY TRANSACTIONS	10. RELATED PARTY TRANSACTIONS Sales with Related Party In December 2018, the Company agreed to sell cars to Lithia under a one-sided marketplace (“OSM”) program whereby the Company acquires cars from various sources in Oxnard, Salem and Fresno markets and sells directly and solely to Lithia. In July 2019, the Salem OSM ceased operations. The Company invoices Lithia based on the purchase price of the car plus an agreed upon margin by location. During the years ended December 31, 2020 and 2019, the Company recognized approximately $5.4 million and $7.1 million, respectively, of sales from the OSM agreement with Lithia. The 2019 revenues were subject to contra-revenue adjustment and fully eliminated following the guidance related to consideration payable to a customer. During the year ended December 31, 2019, the Company recognized contra-revenue of $7.1 million. There was no such contra-revenue adjustment in 2020. Other than sales made through OSM locations, the Company also sells used cars to Lithia using a pricing algorithm as a basis for sales price. During the year ended December 31, 2019, the Company had sales of approximately $0.7 million. The 2019 revenues were subject to contra-revenue adjustment and fully eliminated following the guidance related to consideration payable to a customer. There was no such revenue during the year ended December 31, 2020. Accounts Receivable from Related Party As of December 31, 2020 and 2019, the Company has $0.6 million and $0.3 million in outstanding accounts receivable from Lithia, which is comprised of $0.5 million and $0.3 million, respectively, in vehicle sales and $0.1 million and $22 thousand, respectively, in commissions based on the number of loan contracts booked with US bank. The Company 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 six separate tranches of 14,443,598 shares each. Vesting and exercisability was dependent upon the achievement of the Milestones, as defined below. While the Warrant Agreement establishes general vesting terms for each of the six Milestones, each of the six Milestones contains substantive service or performance requirements, and were non-binding as neither the Company nor Lithia were obligated to perform until the commercial agreement associated with each Milestone was executed. Two tranches of 14,443,598 Warrant Shares were scheduled to vest and become immediately exercisable upon the achievement of each of Milestone 1 and Milestone 2. The remaining four tranches of 14,443,598 Warrant Shares were scheduled to vest and become exercisable on January 12, 2020 (the “Vesting Cliff Date”), provided that Milestone 3, Milestone 4, Milestone 5 and Milestone 6 were achieved prior to such date. If such Milestone had not been achieved by the Vesting Cliff Date, such 14,443,598 Warrant Shares would vest and become immediately exercisable upon the achievement of such Milestone. With respect to any unvested Warrant Shares that had not vested by June 12, 2020 (the “Vesting Termination Date”), the Warrant would automatically terminate. All Warrant Shares became vested prior to the Vesting Termination Date and were exercised prior to the Merger. •Milestone 1 — the Company, with Lithia’s assistance, enters into acceptable credit facilities with access to asset-based used vehicle floorplan financing. •Milestone 2 — the Company and Lithia enter into a data sharing commercial agreement whereby Lithia agrees to transfer certain historical transaction and inventory data to the Company. •Milestone 3 — the Company and Lithia enter into a lease and services agreement whereby Lithia will make available at least one of its locations for the Company’s use as a storage/reconditioning/retail delivery center. •Milestone 4 — the Company and Lithia enter into a lease and services agreement whereby Lithia will make available at least three of its locations for the Company’s use as a storage/reconditioning/retail delivery center. •Milestone 5 — the Company and Lithia enter a commercial agreement whereby Lithia agrees to use commercially reasonable best efforts to help the Company secure and maintain access to finance and insurance products on par with a typical Lithia store. •Milestone 6 — the Company and Lithia entering into a commercial agreement where Lithia will purchase mutually-agreed upon vehicles from the Company in a minimum of three existing Lithia markets. 2018 Milestones The commercial agreement agreed to with Lithia in September 2018 was entered into concurrently with arrangements that provide for Lithia’s guarantee of the flooring line of credit for a three-year period and the provision by Lithia for the delayed draw facility, see Note 7 - Borrowings. The Company determined that there was significant value in the terms received related to both the guarantee and delayed draw facility, for which the Company transferred the warrants identified in Milestone 1 as compensation. Accordingly, upon entering into the arrangements, the Company measured the fair value of the guarantee received at $9.1 million and the fair value of the delayed draw facility at $5.7 million. The fair value of the guarantee is treated as a deferred borrowing cost associated with the flooring line of credit and is included within deferred borrowing costs on the consolidated balance sheet and is being amortized over the three-year guarantee period, which resulted in $3.0 million and $3.0 million of interest expense during the years ended December 31, 2020 and 2019, respectively. At December 31, 2019, the unamortized balance of the deferred loan commitment cost of $4.0 million was presented net against the outstanding Term Loan A balance on the Company’s consolidated balance sheet. The deferred loan commitment cost was being amortized over the four-year loan commitment period and the remaining balance was written off when the DDTL was repaid on November 10, 2020. Amortization of the deferred loan commitment cost associated with the delayed draw facility resulted in total interest expense of $4.0 million and $1.1 million during 2020 and 2019 respectively. The warrants issued with Milestone 1 were determined to be liability classified, subject to remeasurement, and were recorded as a non-current liability on the consolidated balance sheet as of December 31, 2019. The Company recorded a remeasurement loss of $9.5 million and a remeasurement gain of $0.1 million to change in fair value of financial instruments during the years ended December 31, 2020 and 2019, respectively. Milestone 3 was achieved in December 2018 and the Company recorded the release of the corresponding warrant shares at the then fair value of $4.2 million. The warrants issued with Milestone 3 were determined to be liability classified and are subject to remeasurement, and at December 31, 2018, were recorded as a non-current liability on the consolidated balance sheet. On January 1, 2019, the Company adopted ASU 2018-07, and reclassified the fair value of Milestone 3 warrants of $3.9 million from liability to equity and in turn, the balance is no longer subject to remeasurement after the date of adoption. 2019 Milestones Prior to 2019, the Company had generated an immaterial amount of sales from Lithia. Beginning in 2019, the Company began to generate more substantial sales with Lithia. As Lithia is a customer, the Company assessed the warrants as consideration payable to a customer under ASC 606. During 2019, the Company entered into commercial or equivalent agreements related to Milestones 2, 4 and 6 that contractually obligated both the Company and Lithia to perform and, upon signing the relevant agreement, Lithia earned the related warrants. The Company determined that the grant date fair value for the cumulative equity-classified warrants earned related to Milestone 2, 4 and 6 was $13.6 million. For each of Milestones 2,4,and 6, the Company considered whether it received distinct goods or services for which it could reasonably estimate the fair value. For Milestone 2, the Company received historical data from Lithia that provided an immediate benefit to the Company. The Company concluded that the data represented a distinct good or service. The estimated fair value of such benefit of $2.2 million which was recorded immediately to selling, general, and administrative expenses on the consolidated statements of operations and comprehensive loss. For Milestones 4 and 6, the Company received an immaterial amount of distinct goods or services associated with securing the leased space and provisioning of infrastructure so the Company could sell to Lithia in certain markets. Of the remaining value associated with the warrants, $7.8 million was recorded as a reduction to revenue in 2019, which represented the cumulative revenue from Lithia. The Company considered the appropriate treatment for the remaining $3.6 million of value associated with the warrants. The Company determined that it was appropriate to recharacterize such amount that exceeded the cumulative revenue recognized as an expense as the arrangements with Lithia do not provide the Company with an exclusive right to sell cars to Lithia and Lithia has no minimum purchase commitment. Accordingly, the Company recorded $3.6 million to selling, general and administrative expenses for the year ended December 31, 2019. The Company then considered whether any amount that was not related to a distinct good or service should be reflected as an asset by determining whether the warrants could be viewed as an up-front payment to a customer and reflected as an asset at December 31, 2019. However, the Company concluded that as of December 31, 2019, there was no probable future economic benefit obtained or controlled by the Company based on the contractual relationships with Lithia. 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 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 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 consolidated balance sheet. The combined asset recorded of $3.2 million is subject to amortization over a five-year period expected period of benefit. During the years ended December 31, 2020 and 2019, the Company amortized $0.6 million and $0.6 million, respectively of the asset as a reduction to finance and insurance sales, which is recorded within other revenues on the consolidated statements of operations and comprehensive loss. As of December 31, 2020 and 2019, the remaining asset, net of amortization, was $1.9 million and $2.5 million, respectively. With the achievement of Milestone 5 the Company determined that it was appropriate to recharacterize excess consideration received related to the Milestone 5 warrants in the amount of $1.1 million as an expense as the arrangements with Lithia does not provide the Company with an exclusive right to sell cars to Lithia and Lithia has no minimum purchase commitment. Accordingly, the Company recorded $1.1 million to selling, general and administrative expenses during the year ended December 31, 2019. In addition to the amounts noted above which were recorded for distinct goods or services, the aggregate effects of the 2019 Milestones described above on the 2019 statements of operations and comprehensive loss was a reduction to revenues of $7.8 million in Lithia sales and $0.6 million in revenues related to the Milestone 5 contracts and the recharacterization of excess consideration of $4.7 to selling, general and administrative expenses on the consolidated statements of operations and comprehensive loss. Lease Agreements In 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 access to and utilization of reconditioning, offices and parking spaces at the Concord and Portland facilities of Lithia, respectively. Both agreements expire on October 12, 2021, with automatic 12 month renewal subject to terms and conditions of the agreements. During the years ended December 31, 2020 and 2019, total costs related to these agreements were approximately $0.1 million and $0.2 million, respectively, and were expensed to selling, general and administrative expenses on the 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 is 1.50% per annum based on a daily outstanding flooring line of credit and is payable monthly to Lithia. For the years ended December 31, 2020 and 2019, the Company recorded $0.2 million and $0.4 million of interest and $3.0 million and $3.0 million, respectively of deferred borrowing cost amortization to interest expense on the consolidated statements of operations and comprehensive loss. Delayed Draw Term Loan Agreement The Company drew down $12.5 million on December 27, 2019, in accordance with the DDTL agreement. On July 2, 2020, an additional $12.5 million was drawn down. On November 10, 2020 the outstanding amount of $25.0 million was repaid. For the year ended December 31, 2020, the Company recorded $0.3 million of interest and $4.0 million of deferred borrowing cost amortization to interest expense on the consolidated statements of operations and comprehensive loss. There was no interest and $1.1 million in deferred borrowing cost amortization related to this loan for the year ended December 31, 2019. See Note 7 - Borrowings for further discussion regarding the DDTL. Accounts Payable Due to Related Party As of December 31, 2020 and 2019, payables and accruals to Lithia consisted of other miscellaneous expenses of $0.5 million and $0.2 million, respectively. Loan to Employees On July 30, 2018 and April 4, 2019, the Company received partial recourse promissory notes for $0.2 million and $0.1 million, respectively, as loans to an employee. The notes bear interest of 2.87% and 2.59%, respectively, per year, compounded annually. The principal balance together with all accrued but unpaid interest shall be due and payable in full upon the earliest of the day before the ninth anniversary of the promissory note or earlier if the employee ceases to provide services to the Company subject to the terms of the promissory note. Concurrently, the Company entered into a stock pledge agreement whereby the employee granted security interest to the Company for all existing and new shares earned by the employee from the Company. The proceeds from loan the of $0.2 million were used to exercise the employee’s options and no cash was paid to the employee. The Company treated the loan as an off-balance sheet transaction. The proceeds from the loan of $0.1 million was partially paid to the employee and partially used to pay off taxes resulting from exercise of options in 2018. On January 14, 2019, the Company received a promissory note in exchange for a $0.1 million loan to another employee. The note bears an interest of 2.72% per year, compounded annually. The principal balance together with all accrued but unpaid interest shall be due and payable on April 30, 2021, or earlier, subject to the terms of the promissory note. Each of these promissory notes was satisfied prior to the closing of the Merger via the issuance of bonuses to the employees. Exchange of Common Stock for Series D Convertible Preferred Stock In February 2019, the Company approved the sale of up to an aggregate of 5,000,000 shares of common stock (the “Secondary Shares”) at a price per share of $1.2731 by certain holders of common stock to certain existing or new investors in the Company. Concurrent with this approval, the Company also approved the exchange of such Secondary Shares for shares of Series D convertible preferred stock pursuant to the terms and conditions of the stock exchange agreement to be entered into by the Company and the holders of the Secondary Shares. In February, March and September 2019, certain officer and employee stockholders completed secondary sales of 3,464,706 shares of common stock of the Company to new and existing investors. At the same time, the Company issued 3,464,706 shares of Series D convertible preferred stock to the same new and existing investors in exchange for the common stock they had purchased from the employee stockholders. The Company recognized $4.8 million in non-cash compensation expense, $1.6 million in payroll tax liabilities and an increase to additional paid-in-capital, which was computed as the difference between the fair value of Series D convertible preferred stock and common stock at the time of exchange of shares.

COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

11. COMMITMENTS AND CONTINGENCIES

Lease Agreements

The Company is a tenant under various operating leases with third parties, including leases of office facilities and parking/vehicle storage locations. These lease agreements are under noncancellable leases and expire at various dates, ranging from 2021 through 2028.

As of December 31, 2020, future minimum commitments under facility operating leases were as follows (in thousands):


	Total Lease Commitments
Year Ended December 31,
2021	$	6,752
2022	6,069
2023	5,690
2024	4,464
2025	3,622
Thereafter	3,271
Total minimum lease payments	$	29,868

The Company records rent expense on a straight-line basis over the term of the lease. Rent expense was $5.6 million and $7.2 million for the years ended December 31, 2020, and 2019, respectively, and is recorded within selling, general, and administrative expenses.

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.

During December 2020, we received an informal demand from a former financial advisor, claiming that we are required to pay the former financial advisor certain compensation as a result of the Merger. We have accrued an amount with respect to this matter that is not material.

SEGMENT INFORMATION

12 Months Ended

Dec. 31, 2020

Segment Reporting [Abstract]

SEGMENT INFORMATION

12. SEGMENT INFORMATION

The Company has two reportable segments: Retail and Wholesale. 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. Our CODM is our Co-Chief Executive Officers. 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 years ended December 31, 2020 and 2019 the Company did not have sales to customers outside the United States. As of December 31, 2020 and 2019, the Company did not have any assets located outside of the United States.

The Retail reportable 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 vehicle sales. The Wholesale reportable segment represents sales of used vehicles through wholesale auctions or DTW.

Information about the Company’s reportable segments are as follows (in thousands):


	Year Ended December 31, 2020
	Retail		Wholesale		Consolidated
Revenue from external customers	$	164,427	$	31,291	$	195,718
Segment gross profit	$	10,513	$	1,668	$	12,181


	Year Ended December 31, 2019
	Retail		Wholesale		Consolidated
Revenue from external customers	$	138,427	$	27,808	$	166,235
Segment gross profit (loss)	7,160		(8,922)		(1,762)

The reconciliation between reportable segment gross profit to consolidated loss before provision for income taxes is as follows (in thousands):


	Year Ended December 31,
	2020		2019
Segment gross profit	$	12,181	$	(1,762)
Selling, general and administrative expenses	(83,896)		(71,860)
Depreciation and amortization	(4,536)		(3,221)
Change in fair value of financial instruments	24,751		144
Interest and other expense, net	(7,646)		(3,784)
Net loss and comprehensive loss attributable to common stockholders	$	(59,146)	$	(80,483)

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

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Reference 2: http://www.xbrl.org/2003/role/disclosureRef
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Reference 3: http://www.xbrl.org/2003/role/disclosureRef
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-Paragraph 15
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8657-108599

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 21
-Subparagraph (b)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8721-108599

Reference 14: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-URI http://asc.fasb.org/topic&trid=2134510

+ Details

NET LOSS PER SHARE

12 Months Ended

Dec. 31, 2020

Earnings Per Share [Abstract]

NET LOSS PER SHARE

13. NET LOSS PER SHARE

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders:

(in thousands, except share and per share amounts)


	December 31,
	2020		2019
Net loss attributable to common stockholders	$	(59,146)	$	(80,483)
Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted	18,933,980		3,181,273
Net loss per share attributable to common stockholders, basic and diluted	$	(3.12)	$	(25.30)

Net loss per share calculations and potentially dilutive security amounts for all periods prior to the Merger have been retrospectively adjusted to the equivalent number of shares outstanding immediately after the Merger to effect the reverse recapitalization. Historically reported weighted average shares outstanding have been multiplied by 0.0920, which is the share exchange ratio established by the Merger Agreement adjusted to exclude the Escrow Shares. The Escrow Shares are contingently returnable and thus excluded from the calculation of basic net loss per share.

The following potentially dilutive shares were not included in the calculation of diluted shares outstanding for the periods presented as the effect would have been anti-dilutive:


	December 31,
	2020	2019
Escrow Shares	6,000,218	—
Warrants	124,253	—
Stock options	2,354,836	3,282,114
Contingently repurchasable early exercise shares	199,528	294,761
Total	8,678,835	3,576,875

INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

14. INCOME TAXES

Net loss before income taxes was $59.1 million and $80.5 million for the years ended December 31, 2020 and 2019, respectively. The Company had no income tax expense for the years ended December 31, 2020 and 2019.

The following table presents a reconciliation of the statutory federal rate and our effective tax rate:


	Year Ended December 31,
	2020		2019
Provision for income taxes at federal statutory rates	$	(12,420)	$	(16,901)
State taxes, net of federal benefit	(9,401)		(5,297)
Permanent differences	(15,647)		(99)
Stock based compensation on share exchange	—		1,057
Change in valuation allowance	37,578		22,828
Other	(110)		(1,588)
Total	$	—	$	—

Significant components of the Company’s deferred tax assets and liabilities for federal, state and foreign income taxes are as follows at December 31, 2020 and 2019, in thousands:


	Year Ended December 31,
	2020		2019
Deferred tax assets:
Accruals, reserves, and other	$	5,689	$	9,667
Depreciation	981		2,054
Federal net operating loss carryover	68,025		35,146
State net operating loss carryover	22,737		11,786
Total gross deferred tax assets	97,432		58,653
Less: valuation allowance	(96,355)		(58,619)
Net deferred tax assets	1,077		34

Deferred tax liabilities:
Prepaid assets	(1,077)		—
Depreciation	—		(32)
Stock compensation	—		(2)
Total gross deferred tax liabilities	(1,077)		(34)
Net deferred taxes	$	—	$	—

As of December 31, 2020, the Company had U.S. federal net operating loss carryforwards of approximately $323.9 million, which may be available to offset future federal income and expire at various years beginning with 2033. As of December 31, 2020, the Company also had state net operating loss carryforwards of approximately $329.9 million, which may be available to offset future state income tax and expire at various years beginning with 2033.

The Company has evaluated the positive and negative evidence bearing upon the deferred tax assets and whether they will be realized. Based on the Company’s history of operating losses, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of December 31, 2020 and 2019 of $96.4 million and $58.6 million, respectively.

The Company has not performed a Section 382 study to determine whether it had experienced a change in ownership and, if so, whether the tax attributes (net operating losses or credits) were impaired. Under Section 382 of the Internal Revenue Code of 1986, as amended, the Company’s ability to utilize net operating loss or other tax attributes, such as research tax credits, in any taxable year may be limited if the Company has experienced an “ownership change.” Generally, a Section 382 ownership change occurs if there is a cumulative increase of more than 50 percentage points in the stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock within a specified testing period. Similar rules may apply under state tax laws.

As of December 31, 2020 and 2019, the Company does not have any unrecognized tax benefits.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2020 and 2019, the Company had no accrued interest or penalties related to uncertain tax positions and for the years ended December 31, 2020 and 2019 no amounts have been recognized in the Company’s statements of operations and comprehensive loss.

The Company is subject to taxation in the United States and other state jurisdictions. The material jurisdictions in which the Company is subject to potential examination include the United States, California, Oregon, and Virginia. The tax years from fiscal year 2016 and onward remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which the Company is subject. The Company is not currently under examination by any taxing authority. The following table presents the Company’s NOLs by jurisdiction as of December 31, 2020 and 2019:


	December 31,
	2020		2019
Federal	$	323,927	$	167,361
California	309,517		162,541
Oregon	12,404		3,001
Virginia	7,949		3,283

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2022. In addition, the CARES Act allows NOLs incurred in 2019, 2020, and 2021 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has evaluated the impact of the CARES Act and determined that the NOL carryback provision of the CARES Act would result in a material cash benefit since the company has had taxable losses since inception.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References + Details

EMPLOYEE BENEFIT PLANS	12 Months Ended
EMPLOYEE BENEFIT PLANS	Dec. 31, 2020
Retirement Benefits [Abstract]
EMPLOYEE BENEFIT PLANS	15. EMPLOYEE BENEFIT PLANS We currently maintain a 401(k) retirement savings plan for our employees, including our named executive officers, who satisfy certain eligibility requirements. The Internal Revenue Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) plan. The Company did not make any matching contributions for the years ended December 31, 2020 and 2019.

SUBSEQUENT EVENTS	12 Months Ended
SUBSEQUENT EVENTS	Dec. 31, 2020
Subsequent Events [Abstract]
SUBSEQUENT EVENTS	16. SUBSEQUENT EVENTS On January 1, 2021, 1,678,084 additional shares were authorized for issuance under the 2020 Plan’s evergreen refresh mechanism (see Note 9) and added to the pool of shares available to be issued to settle future share-based compensation awards. On February 2, 2021, the Company granted a total of 7,345,862 RSU’s to employees, directors, and officers of the Company. RSU awards for 5,642,970 shares vest over service periods ranging from 1 to 4 years. The remaining 1,702,892 RSU’s vest based on the achievement of certain milestones related the Company’s stock price in the third and fourth twelve month periods following the date of grant.

QUARTERLY FINANCIAL DATA (Unaudited)

12 Months Ended

Dec. 31, 2020

Quarterly Financial Information Disclosure [Abstract]

QUARTERLY FINANCIAL DATA (Unaudited)

17. QUARTERLY FINANCIAL DATA (Unaudited)

The following tables contain selected unaudited statements of operations and comprehensive loss information for each quarter of 2020 and 2019. The following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period. Our business is affected by seasonality, which historically has resulted in higher sales volume during our second and third quarters. Unaudited quarterly results are as follows: (in thousands, except share and per share amounts)


	Year Ended December 31, 2020
	Q1		Q2		Q3		Q4
Revenue	$	29,952	$	32,441	$	59,914	$	73,411
Gross profit	3,342		3,573		3,726		1,540
Net loss and comprehensive loss attributable to common stockholders	(12,332)		(18,994)		(23,320)		(4,500)
Net loss per share, basic and diluted	$	(3.84)	$	(5.79)	$	(6.96)	$	(0.07)
Weighted average shares outstanding used in computation of net loss per share	3,214,113		3,278,547		3,352,870		66,074,932

	Year Ended December 31, 2019
	Q1		Q2		Q3		Q4
Revenue	$	50,568	$	42,460	$	45,857	$	27,350
Gross profit (loss)	185		(381)		(852)		(714)
Net loss and comprehensive loss attributable to common stockholders	(23,352)		(17,630)		(18,980)		(20,521)
Net loss per share, basic and diluted	$	(6.90)	$	(5.62)	$	(6.01)	$	(6.51)
Weighted average shares outstanding used in computation of net loss per share	3,384,071		3,134,742		3,157,479		3,151,520

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	12 Months Ended
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	Dec. 31, 2020
Accounting Policies [Abstract]
Basis of Presentation	Basis of Presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain prior period balances have been reclassified to conform to the current period presentation in the consolidated financial statements and the accompanying notes.
Principles of Consolidation	Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates	Use of 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, liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to the valuation of vehicle inventory, capitalized website and internal-use software development costs, warrants, stock-based compensation and the valuation allowance related to deferred tax assets. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates.
Cash and Cash Equivalents	Cash and Cash EquivalentsThe Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Restricted Cash	Restricted CashThe restricted cash includes amounts related to letters of credit required in conjunction with lease agreements and collateral related to state licensing requirements.
Accounts Receivable, Net	Accounts Receivable, NetAccounts receivable are primarily due from the partner financial institutions that provide financing to our customers, and are recorded net of any allowance for doubtful accounts. The allowance for doubtful accounts is estimated based upon historical experience, current economic conditions and other factors and is evaluated periodically.
Concentrations of Credit Risk and Other Uncertainties	Concentrations of Credit Risk and Other Uncertainties Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and accounts receivable. Substantially all of the Company’s cash and cash equivalents were deposited in accounts at one financial institution, and account balances may at times exceed federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial strength of the depository institution in which the cash is held. Credit risk with respect to accounts receivable is generally not significant due to diversity of the Company’s customers. The Company routinely assesses the creditworthiness of its customers. The Company generally has not experienced any material losses related to receivables from individual customers, or groups of customers during the years ended December 31, 2020 and 2019. The Company does not require collateral. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the Company’s accounts receivable.
Inventory	Inventory Inventory consists of used vehicles, primarily acquired through individual sellers, trade-ins to original equipment manufacturers, and auction. Inventory cost is determined by specific identification and includes acquisition costs, direct and indirect vehicle reconditioning costs including parts and labor, inbound transportation costs and other incremental costs that are capitalized as a component of inventory. At December 31, 2020 and 2019, inventory was stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price less costs to complete, dispose and transport the vehicles. Selling prices are derived from historical data and trends, such as sales price and inventory turn times of similar vehicles, as well as independent, market resources. Each reporting period the Company recognizes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value through cost of sales in the accompanying consolidated statements of operations and comprehensive loss.
Property and Equipment, Net	Property and Equipment, Net Property and equipment are recorded at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the related assets, over an estimated useful life of two to five years for most assets. Leasehold improvements are depreciated over the lesser of the useful life or lease term. Major replacements and improvements are capitalized, while general repairs and maintenance are expensed as incurred.
Capitalized Website and Internal-Use Software Development Costs, Net	Capitalized Website and Internal-Use Software Development Costs, Net The Company capitalizes costs associated with customized internal-use software systems that have reached the application development stage. Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related expenses for employees who are directly associated with the applications. Capitalization of such costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete and ready for its intended purpose. Amortization is computed using the straight-line method over 3 years.
Impairment of Long-Lived Assets	Impairment of Long-Lived AssetsThe Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are impaired, the impairment to be recognized is measured by the amount by which the carrying value exceeds the fair value of such assets.
Deferred Borrowing Costs	Deferred Borrowing CostsDeferred borrowings costs are associated with the fair value of the loan guarantee and the fair value of the Delayed Draw Term Loan facility (“DDTL”). Costs related to the fair value of the loan guarantee which are associated with the flooring line of credit are reported as long term assets at each reporting date that such costs were outstanding. Costs related to the fair value of the DDTL are presented net against the related term loan on the consolidated balance sheets. Deferred borrowing costs are amortized into interest expense over the expected term of the related facility. Upon repayment of the DDTL in November 2020, the remaining unamortized deferred borrowing costs of $2.9 million were written off to interest expense on the consolidated statements of operations and comprehensive loss.
Revenue Recognition	Revenue Recognition The Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) on January 1, 2019, using the modified retrospective method. ASC 606 prescribes a five-step model that includes: (1) identify the contract; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) performance obligations are satisfied. Based on the manner in which the Company historically recognized revenue, the adoption of ASC 606 did not have a material impact on the amount or timing of its revenue recognition and the Company recognized no cumulative effect adjustment upon adoption. In accordance with ASC 606, the Company recognizes revenue upon transfer of control of goods or services to customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Control passes to the customer at the time of delivery or pick-up. The Company may collect sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale as required. These taxes are accounted for on a net basis and are not included in revenues or cost of sales. On occasion, the Company may provide cash or non-cash payments to a customer, including in the form of equity, in such cases the Company accounts for such payments under the guidance for consideration payable to a customer and considers whether such amount should be reflected as contra-revenue. The Company recognizes revenue at a point in time as described below. Ecommerce Revenue The Company sells used vehicles to its retail customers through its platform. The transaction price for used vehicles is a fixed amount as set forth in the customer contract. Customers frequently trade-in their existing vehicle to apply toward the transaction price of a used vehicle. Trade-in vehicles represent non-cash consideration which the Company measures at stated contract price for each specific vehicle. The Company satisfies its performance obligation and recognizes revenue for used vehicle sales at a point in time when the vehicles are delivered to or picked up by the customer. The revenue recognized by the Company includes the agreed upon transaction price, including any service fees. Revenue excludes any sales taxes, title and registration fees, and other government fees that are collected from customers. The Company accounts for consideration payable to a customer as a reduction of the transaction price such as discounts, rebates and price concession and, therefore, reduction in revenue. The Company receives payment for used vehicle sales directly from the customer at the time of sale or from third-party financial institutions within a short period of time following the sale if the customer obtains financing. For any payments received prior to delivery or pick-up of used vehicle, such amounts are deferred and are recorded as a contract liability within current liabilities on the consolidated balance sheets until delivered or picked-up. Through December 31, 2019, the Company’s return policy allowed customers to initiate a return during the first five days or 200 miles after delivery. In the first quarter of fiscal year 2020, the Company extended the return policy to seven days after delivery. Ecommerce revenue is recognized net of a reserve for returns, which is estimated using historical experience and trends. The returns reserve was immaterial as of December 31, 2020 and 2019. Other Revenue The Company provides buyers on its platform with options for financing, insurance, and extended warranties, as well as other value-added products such as vehicle service contracts, gap waiver protection and wheel and tire coverage. All such services are provided by unrelated third-party vendors and the Company has agreements with each of these vendors giving the Company the right to offer such services on its platform. When a buyer selects a service from these providers, the Company earns a commission based on the actual price paid or financed. The Company concluded that it is an agent for these transactions because it does not control the products before they are transferred to the customer. Accordingly, the Company recognizes commission revenue at the time of sale. Wholesale Vehicle Revenue The Company sells vehicles to wholesalers. These vehicles sold to wholesalers are primarily acquired from customers who trade-in their existing vehicles and such vehicles do not meet the Company’s quality standards to list and sell through its website. The Company satisfies its performance obligation and recognizes revenue for wholesale vehicle sales at a point in time when the vehicle is sold at auction or directly to a wholesaler. The transaction price is typically due and collected within one week of the date of the sale. Contract Costs The Company elected, as a practical expedient, to expense sales commissions when incurred because the amortization period would have been less than one year. These costs are recorded within selling, general and administrative expenses on the consolidated statements of operations and comprehensive loss.
Cost of Sales	Cost of Sales Cost of sales includes the cost to acquire used vehicles and direct and indirect vehicle reconditioning costs associated with preparing the vehicles for resale. Vehicle reconditioning costs include parts, labor, inbound transportation costs and other incremental costs. These costs include shipping costs of auction purchased vehicles, mechanical inspection, vehicle preparation supplies and repair costs necessary for reconditioning the vehicle for resale. The Company has certain inventory that does not meet its specifications to sell to retail customers and sells this inventory through sales at auction, directly to a wholesaler (“DTW”) or through other channels. Cost of sales also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value.
Shipping and Handling	Shipping and HandlingThe Company’s logistics costs related to transporting its used vehicle inventory primarily include third-party transportation fees. The portion of these costs related to inbound transportation from the point of acquisition to the relevant reconditioning facility is included in cost of sales when the related used vehicle is sold. Logistics costs not included in cost of sales are accounted for as costs to fulfill contracts with customers
Selling, General and Administrative Expenses	Selling, General and Administrative ExpensesSelling, general and administrative expenses primarily include payroll and facilities, other than those related to reconditioning vehicles; advertising; stock-based compensation expense; technology expenses and other administrative expenses. For the years ended December 31, 2020 and 2019, advertising expense was $21.6 million and $5.6 million, respectively. Advertising costs are expensed as incurred.
Stock-Based Compensation Expense	Stock-Based Compensation Expense Stock-based compensation expense related to awards to employees are measured at the grant date based on the fair value of the award. The fair value of the award is expensed on a straight-line basis over the requisite service period, which is generally the vesting period. The Company elects to account for forfeitures as they occur by reversing compensation cost if the award is forfeited. Exercises of option awards are settled by issuing new shares. Prior to the adoption of ASU 2018-07, Compensation — Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, on January 1, 2019, for non-employee awards where a measurement date had not been achieved, the Company remeasured and recognized the change in fair value of awards issued to non-employees that occurred in a given reporting period within the statements of operations and comprehensive loss. Following adoption of ASU 2018-07, accounting requirements for equity-based awards to non-employees are aligned with those to employees, including measuring the equity instruments at the grant-date fair value The impact of adoption of this standard did not have a material effect on non-employee awards, other than the reclassification of certain warrants, as discussed in the common stock warrant policy footnote.
Convertible Preferred Stock Warrant Liability	Convertible Preferred Stock Warrant LiabilityWarrants for shares that are contingently redeemable are classified as liabilities in the consolidated balance sheets. At initial recognition, the Company classifies these warrants as liabilities on the balance sheets at their estimated fair value. The preferred warrants are subject to remeasurement at each balance sheet date, with changes in fair value recognized in change in fair value of financial instruments on the consolidated statements of operations and comprehensive loss. All outstanding convertible preferred stock warrants were settled prior to the Merger. See Note 3 - Merger for additional information these warrants.
Common Stock Warrant	Common Stock WarrantPrior to the Merger on October 13, 2020, all outstanding common stock warrants issued by Legacy Shift were settled. As a result of the Merger the company assumed IAC’s 7,745,000 outstanding common stock warrants. In December 2020, the Company issued a tender offer to repurchase these warrants in exchange for 0.25 shares of Class A common stock and $1.00 in cash each.
Interest and Other Income	Interest and Other Income Interest and other income is comprised of bank interest and other miscellaneous items.
Interest Expense	Interest Expense Interest expense includes interest incurred from the flooring line of credit facility, which is used to finance the purchase of vehicles, as well as the amortization of deferred borrowing costs and other miscellaneous items.
Fair Value Measurements	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 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 assumptions 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 that are significant to the fair value of the assets or liabilities. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. As of December 31, 2020 and 2019, all liability-classified financial instruments that are remeasured on a recurring basis have been valued using Level 3 inputs. The determination of the fair value of the Series C and Lithia warrants is based on the Black-Scholes valuation model, which requires significant estimates including the expected volatility of our common stock, expected dividend yield, option term and risk-free rate.
Income Taxes	Income Taxes The Company accounts for income taxes using the asset and liability method. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period when such determination is made. As of December 31, 2020 and 2019, respectively, the Company recorded a full valuation allowance on its deferred tax assets. Tax benefits related to uncertain tax positions are recognized when it is more likely than not that a tax position will be sustained during an audit. Interest and penalties related to unrecognized tax benefits are included within the provision for income tax.
Net Loss Per Share Attributable to Common Stockholders	Net Loss Per Share Attributable to Common Stockholders Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. Under the two-class method, net loss is attributed to common stockholders and participating securities based on their participation rights. The Company considers all series of its redeemable convertible preferred stock to be participating securities. Under the two-class method, the net loss attributable to common stockholders is not allocated to the convertible preferred stock as the holders of the Company’s convertible preferred stock do not have a contractual obligation to share in the Company’s losses. Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. For periods in which the Company reports net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. As the Merger has been accounted for as a reverse recapitalization, the consolidated financial statements of the merged entity reflect the continuation of the pre-merger Shift Technologies, Inc. financial statements, with the Shift Legacy Equity, which has been retroactively adjusted to the earliest period presented to reflect the legal capital of the legal acquirer, Insurance Acquisition Corp. As a result, net loss per share was also restated for periods ended prior to the Merger.
Comprehensive Loss	Comprehensive Loss Comprehensive loss includes all changes in equity (net assets) from non-owner sources during a period. There have been no items qualifying as comprehensive loss and, therefore the Company’s comprehensive loss was the same as its reported net loss.
Recently Adopted Accounting Pronouncements and Recently Issued Accounting Standards	Recently Adopted Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue when the customer obtains control of the promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company adopted ASC 606 on January 1, 2019, using the modified retrospective method. Furthermore, based on the manner in which the Company recognizes revenue, the adoption of ASC 606 did not have a material impact on the amount or timing of its revenue recognition and the Company recognized no cumulative effect adjustment upon adoption. In June 2018, the FASB issued ASU 2018-07, Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The standard expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. The standard is effective beginning January 1, 2020, with early adoption permitted so long as it is not earlier than the entity’s adoption of ASC 606. The Company adopted ASU 2018-07 on January 1, 2019. The Company adopted this standard on January 1, 2019, there were no material impacts upon adoption. In November 2019, the FASB issued ASU 2019-08, Codification Improvements — Share-Based Consideration Payable to a Customer (“ASU 2019-08”). This ASU clarifies the accounting for share-based payments issued as consideration payable to a customer in accordance with ASC 606. Under ASU 2019-08, entities apply the guidance in ASC 718 to measure and classify share-based payments issued to a customer that are not in exchange for a distinct good or service (i.e., share-based sales incentives). Accordingly, entities use a fair-value-based measure to calculate such incentives on the grant date, which is the date on which the grantor (the entity) and the grantee (the customer) reach a mutual understanding of the key terms and conditions of the share-based consideration. The result is reflected as a reduction of revenue in accordance with the guidance in ASC 606 on consideration payable to a customer. After initial recognition, the measurement and classification of the share-based sales incentives continue to be subject to ASC 718 unless (1) the award is subsequently modified when vested and (2) the grantee is no longer a customer. The guidance is effective for public and private companies’ fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company early adopted this standard in the fiscal year ended December 31, 2019, there were no material impacts upon adoption. In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). The intent of this pronouncement is to align the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software as defined in ASC 350-40. Under ASU 2018-15, the capitalized implementation costs related to a cloud computing arrangement will be amortized over the term of the arrangement and all capitalized implementation amounts will be required to be presented in the same line items of the financial statements as the related hosting fees. ASU 2018-15 is effective for public and private companies’ fiscal years beginning after December 15, 2019, and December 15, 2020, respectively, and interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2018-15 on January 1, 2020, there were no material impacts upon adoption. Recently Issued Accounting Standards In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-to-use asset representing its right to use the underlying asset for the lease term. This ASU is effective for public and private companies’ fiscal years beginning after December 15, 2018, and December 15, 2021, respectively, with early adoption permitted. The Company expects to adopt ASU 2016-02 under the private company transition guidance beginning January 1, 2022, and is currently evaluating the impact on the Company’s consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, which amends the guidance on the impairment of financial instruments by requiring measurement and recognition of expected credit losses for financial assets held. This ASU is effective for public and private companies’ fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, and December 15, 2022, respectively. The Company is currently assessing the impact, if any, the guidance will have on the Company’s consolidated financial statements. 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. ASU 2019-12 will be effective for public entities for interim and annual periods beginning after December 15, 2020, with early adoption permitted. ASU 2019-12 will be effective for the Company for annual periods beginning after December 15, 2021, and interim periods beginning after December 15, 2020, with early adoption permitted. The Company is currently assessing the impact, if any, the guidance will have on the Company’s consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance is effective for all entities during the period March 12, 2020, through December 31, 2022. The Company is currently assessing the impact, if any, the guidance will have on the Company’s consolidated financial statements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Changes in the Fair Value of Level 3 Financial Instruments

The below table illustrates the changes in the fair value of the Company’s Level 3 financial instruments:


(in thousands)	2020		2019
Balance as of January 1	$	4,810	$	8,869
Remeasurement of pre-Merger Series C and Lithia warrants	9,496		(144)
Reclassification of Milestone 3 warrants upon adoption of ASU 2018-07	—		(3,915)
Exercise of Series C and Lithia Warrants prior to the Merger	(14,306)		—
Issuance of Escrow Shares in connection with the Merger	59,477		—
Remeasurement of Escrow Shares liability	(34,247)		—
Balance as of December 31	$	25,230	$	4,810

MERGER (Tables)

12 Months Ended

Dec. 31, 2020

Business Combinations [Abstract]

Reconciliation of Merger Elements to the Consolidated Statement of Cash Flows and Consolidated Statements of Changes in Equity

The following table reconciles the elements of the Merger to the consolidated statement of cash flows and the consolidated statement of stockholders’ equity for the year ended December 31, 2020:


	Recapitalization
Cash - IAC’s trust and cash	$	153,019
Cash - PIPE	189,000
Less: transaction costs and advisory fees paid	(41,119)
Net contributions from merger and PIPE financing	$	300,900
Less: Escrow Shares liability	(59,477)
Less: accrued transaction costs	(1,015)
Merger and PIPE financing	$	240,408

PROPERTY AND EQUIPMENT, NET (Tables)

12 Months Ended

Dec. 31, 2020

Property, Plant and Equipment [Abstract]

Property and Equipment, Net

Property and equipment, net consists of the following (in thousands):


	December 31,
	2020		2019
Equipment	$	2,132	$	1,301
Furniture and fixtures	158		153
Leasehold improvements	1,408		1,268
Total property and equipment	3,698		2,722
Less: accumulated depreciation	(1,575)		(602)
Property and equipment, net	$	2,123	$	2,120

CAPITALIZED WEBSITE AND INTERNAL-USE SOFTWARE COSTS, NET (Tables)

12 Months Ended

Dec. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Capitalized Website and Internal-Use Software Development Costs

Capitalized website and internal-use software development costs consist of the following (in thousands):


	December 31,
	2020		2019
Capitalized website domain costs – nonamortizable	$	385	$	385
Capitalized website and internal-use software development costs – amortizable	17,308		12,891
Less: accumulated amortization	(11,151)		(7,597)
Capitalized website and internal-use software development costs, net	$	6,542	$	5,679

Capitalized Website and Internal-Use Software Development Costs

Capitalized website and internal-use software development costs consist of the following (in thousands):


	December 31,
	2020		2019
Capitalized website domain costs – nonamortizable	$	385	$	385
Capitalized website and internal-use software development costs – amortizable	17,308		12,891
Less: accumulated amortization	(11,151)		(7,597)
Capitalized website and internal-use software development costs, net	$	6,542	$	5,679

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables)

12 Months Ended

Dec. 31, 2020

Payables and Accruals [Abstract]

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):


	December 31,
	2020		2019
Liability for vehicles acquired under OEM program	$	11,461	$	—
Accrued payroll related costs	4,155		1,083
Provision for DMV refunds	1,093		1,036
Accrued sales taxes	1,503		1,691
Common stock subject to repurchase liability, current portion	524		269
Other accrued expenses	3,550		1,875
Total accrued expenses and other current liabilities	$	22,286	$	5,954

STOCK-BASED COMPENSATION PLANS (Tables)

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

Employee and Non-Employee Stock Option Activity

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, 2019	3,282,114	$	1.61	7.58	$	5,418
Granted	681,065	4.60
Exercised	(1,127,190)	2.82
Forfeited	(414,500)	2.39
Cancelled (expired)	(66,653)	3.15
As of December 31, 2020	2,354,836	$	1.80	8.40	$	15,230
Exercisable as of December 31, 2020	2,354,836	$	1.80	8.40	$	15,230
Vested and expected to vest as of December 31, 2020	2,354,836	$	1.80	8.40	$	15,230

Valuation Assumptions for Stock Options

The range of assumptions used in the Black-Scholes model for stock options for the years ended December 31, 2020 and 2019, are as follows:


	Year Ended December 31,
	2020	2019
Expected volatility	52.22% - 57.49%	38.22% - 41.67%
Risk-free interest rate	0.28% - 0.62%	1.52% - 2.60%
Expected term (years)	4.99 - 6.07	5.27 - 6.25
Dividend yield	0%