Description of Business and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2021

Description of Business and Summary of Significant Accounting Policies

The Merger

The Merger

On July 30, 2020, Porch.com, Inc. (“Legacy Porch”) entered into a definitive agreement (as amended, the “Merger Agreement”) with PropTech Acquisition Corporation (“PTAC”), a special purpose acquisition company, whereby the parties agreed to merge, resulting in the parent of Porch.com, Inc. becoming a publicly-listed company under the name Porch Group, Inc. (“Porch”). This merger (the “Merger”) closed on December 23, 2020, and was accounted for as a reverse recapitalization, equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation accompanied by a recapitalization (“Recapitalization”). The accounting is similar to that of a reverse acquisition, except that no goodwill or other intangible assets should be recorded. Therefore, the net assets of PTAC as of December 23, 2020, were stated at historical cost, and no goodwill or other intangible assets were recorded.

COVID-19 Update

COVID-19 Update

The novel coronavirus disease 2019 (“COVID-19”) and the measures adopted by government entities in response to it have adversely affected Porch’s business operations since March of 2020. The impact of the COVID-19 pandemic and related mitigation on Porch’s ability to conduct ordinary course business activities has been and may continue to be impaired for an indefinite period of time. The extent of the continuing impact of the COVID-19 pandemic on Porch’s operational and financial performance will depend on various future developments, including the duration and spread of the outbreak and impact on the Company’s customers, suppliers, and employees, all of which remain uncertain at this time. Porch expects the COVID-19 pandemic to continue to have an uncertain impact on future revenues and results of operations, but is unable to predict the size and duration of such impact.

Unaudited Interim Financial Statements

Unaudited Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements include the accounts of Porch Group, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these unaudited condensed consolidated financial statements and notes should be read in conjunction with the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020, filed with the SEC on May 19, 2021.The information as of December 31, 2020 included in the unaudited condensed consolidated balance sheets was

derived from the Company’s audited consolidated financial statements. Certain reclassifications to 2020 balances were made to conform to the current period presentation in the consolidated financial statements.

The unaudited condensed consolidated financial statements included in this Quarterly Report were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are of a normal recurring nature) considered necessary to present fairly the Company’s financial position, results of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for the periods and dates presented. The results of operations for both the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other interim period or future year.

Comprehensive Income (Loss)

Comprehensive Income (Loss)

Comprehensive income (loss) consists of adjustments related to (1) unrealized gains and losses on available-for-sale securities, and (2) the effect of the Company’s own credit components on the fair value of certain convertible notes at fair value in accordance with the fair value option (“FVO Notes”).

Each reporting period, the fair value of the FVO Notes is determined and resulting gains and losses from the change in fair value of the FVO Notes associated with the Company’s own credit component is recognized in accumulated other comprehensive income (“AOCI”), while the resulting gains and losses associated with non-credit components are included in the unaudited condensed consolidated statements of operations. The FVO Notes were extinguished during the quarter ended June 30, 2020, resulting in a reversal of the previously recognized gain from the change in fair value of the FVO associated with the Company’s own credit component in AOCI.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. On an ongoing basis these estimates, which include, but are not limited to, estimated variable consideration for services performed, the allowance for doubtful accounts, depreciable lives for property and equipment, acquired intangible assets, goodwill, the valuation allowance on deferred tax assets, assumptions used in stock-based compensation, unpaid losses and loss adjustment expenses, contingent consideration, earnout liabilities and private warrant liabilities, are evaluated by management. Actual results could differ from those estimates, judgments, and assumptions, and to the extent those differences are material, the consolidated financial statements will be affected.

Segment Reporting

Segment Reporting

The Company operates as a single reportable segment. Operating segments are components of an enterprise for which separate discrete financial information is available and operational results are regularly evaluated by the chief operating decision maker (“CODM”) for the purposes of making decisions regarding resource allocation and assessing performance. The Company has determined that its Chief Executive Officer (“CEO”) is the CODM, and to date, the CEO has made such decisions and assessed performance at the aggregated level.

All the Company’s revenue is generated in the United States.

As of June 30, 2021 and December 31, 2020, the Company did not have assets located outside of the United States.

Concentration of Credit Risk

Concentration of Credit Risk

Financial instruments which potentially subject the Company to credit risk consist principally of cash, money market accounts on deposit with financial institutions, money market funds, certificates of deposit and fixed- maturity securities, as well as receivable balance in the course of collection.

The Company’s insurance subsidiary has exposure and remains liable in the event of an insolvency of one of its primary reinsurers. Management and its reinsurance intermediary regularly assess the credit quality and ratings of its

reinsurer base companies. No individual reinsurer represented more than 10% of the Company’s insurance subsidiary’s total reinsurance receivables as of the dates or for the periods presented.

Substantially all of the Company’s insurance-related revenues are derived from customers in Texas, Arizona, Georgia, North Carolina, and South Carolina, which could be adversely affected by economic conditions, an increase in competition, or environmental impacts and changes.

Cash, Cash Equivalents and Restricted Cash

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. The Company maintains cash balances that may exceed the insured limits by the Federal Deposit Insurance Corporation.

Restricted cash equivalents as of June 30, 2021 includes $314 thousand held in certificates of deposits and money market mutual funds pledged to the Department of Insurance in certain states as a condition of its Certificate of Authority for the purpose of meeting obligations to policyholders and creditors and $1.9 million related to acquisition indemnification hold backs. Restricted cash as of December 31, 2020 includes $8.4 million related to the Paycheck Protection Program Loans held in escrow with a commercial bank (see Note 7) and a $3.0 million minimum cash balance required by the Company’s senior secured lender.

The reconciliation of cash and cash equivalents to amounts presented in the consolidated statements of cash flows are as follows:

	June 30, 2021		December 31, 2020
Cash and cash equivalents	$	150,201	$	196,046
Restricted cash and restricted cash equivalents - current		2,222		11,407
Cash, cash equivalents and restricted cash	$	152,423	$	207,453

Accrued expenses and other current liabilities as of June 30, 2021, include $17.9 million of both claim and general operating expense checks issued in excess of cash book balances, not yet presented for payments.

Investments

Investments

The Company’s investments are primarily comprised of short-term certificates of deposit, U.S. Treasury notes, and mortgage-backed securities and are classified as available-for-sale and reported at fair value with unrealized gains and losses included in AOCI. Investments are classified as current or non-current based upon the remaining maturity of the investment. Amortization of premium and accretion of discount are computed using the effective interest method. The amortization of discounts and premiums on mortgage-backed securities takes into consideration actual and future estimated principal prepayments. The Company utilizes estimated prepayment speed information obtained from published sources. The effects of the yield of a security from changes in principal prepayments are recognized prospectively. The degree to which a security is susceptible to yield adjustments is influenced by the difference between its carrying value and par, the relative sensitivity of the underlying mortgages backing the assets to prepayment in a changing interest rate environment, and the repayment priority for structured securities.

The Company evaluates whether declines in the fair value of its investments below amortized cost are other-than-temporary. This evaluation includes the Company's ability and intent to hold the security until an expected recovery occurs, the severity and duration of the unrealized loss, as well as all available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable forecasts, when developing estimates of cash flows expected to be collected.

Realized gains and losses on sales of investments are determined using the specific-identification method.

Accounts Receivable and Long-term Insurance Commissions Receivable

Accounts receivable represent amounts due from enterprise customers and other corporate partnerships, as well as due and deferred insurance premiums. Due and deferred premiums consist of uncollateralized premiums and agents’ balances which are in the process of collection as well as premiums earned but not yet due from customers. Long-term insurance commissions receivable balance consists of the estimated commissions from policy renewals expected to be collected. The Company estimates allowances for uncollectible receivables based on the credit worthiness of its customers, historical trend analysis, and general economic conditions. Consequently, an adverse change in those factors could affect the Company’s estimate of allowance for doubtful accounts. The allowance for uncollectible receivables at June 30, 2021 and December 31, 2020, was $327 and $249, respectively.

Deferred Policy Acquisition Costs

Deferred Policy Acquisition Costs

The Company capitalizes deferred policy acquisitions costs (“DAC”) which consist of commissions, premium taxes and policy underwriting and production expenses that are directly related to the successful acquisition of new or renewal insurance contracts. DAC are amortized to expense on a straight-line basis over the terms of the policies to which they relate. DAC is also reduced by ceding commissions which represent recoveries of acquisition costs. DAC is periodically reviewed for recoverability and adjusted if necessary. Future investment income is considered in determining the recoverability of DAC. As of June 30, 2021, DAC of $3.1 million is included in prepaid expenses and other current assets.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Fair value, as defined by the accounting standards, represents the amount at which an asset or liability would be transferred in a current orderly transaction between willing market participants. Emphasis is placed on observable inputs being used to assess fair value. To reflect this approach the standards require a three-tiered fair value hierarchy be applied based on the nature of the inputs used when measuring fair value. The three hierarchical levels of inputs are as follows:

Level 1 Observable inputs, such as quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date;

Level 2 Observable inputs, other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. This may include active markets for similar assets and liabilities, quoted prices in markets that are not highly active, or other inputs that are observable or can be corroborated by observable market data; and

Level 3 Unobservable inputs that are arrived at by means other than current observable market activity.

The level of the least observable significant input used in assessing the fair value determines the placement of the entire fair value measurement in the hierarchy. Management’s assessment of the significance of a particular input to the fair value measurement requires the use of judgment specific to the asset or liability.

Losses and Loss Adjustment Expenses Reserves

Losses and Loss Adjustment Expenses Reserves

The liability for losses and loss adjustment expenses (“LAE”) is an estimate of the amounts required to cover known incurred losses and LAE, and is developed through the review and assessment of loss reports, along with the analysis of known claims. These reserves include management’s estimate of the amounts for losses incurred but not reported (“IBNR”), based on evaluation of overall loss reporting patterns as well as the loss development cycles of individual claim cases. Although management believes that the balance of these reserves is adequate, as such liabilities are necessarily dependent on estimates, the ultimate expense may be more or less than the amounts presented. The approach and methods for developing these estimates and for recording the resulting liability are continually reviewed. Any adjustments to this reserve are recognized in the statement of operations. Losses and LAE, less related reinsurance are charged to expense as incurred.

The following table provides the rollforward of the beginning and ending reserve balances for losses and LAE, gross of reinsurance for June 30, 2021:

	2021
Losses and LAE reserve at April 5	$	84,366
Reinsurance recoverables on losses and LAE		(82,898)
Losses and LAE reserve, net of reinsurance recoverables at April 5		1,468
Net incurred losses and LAE during the current year		31,134
Net claim and LAE payments during the current year		(24,516)
Reserve for losses and LAE, net of reinsurance recoverables, at end of year		8,086
Reinsurance recoverables on losses and LAE		107,414
Losses and LAE reserve at June 30	$	115,500

Reinsurance

Reinsurance

In the normal course of business, the Company continually monitors its risk exposure and seeks to reduce the overall exposure to losses that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk with other insurance enterprises or reinsurers. The Company only engages quality, financially rated reinsurers and continually monitors the financial ratings of these companies through its brokers. The amount and type of reinsurance employed is based on management’s analysis of liquidity as well as its estimates of probable maximum loss and evaluation of the conditions within the reinsurance market. Reinsurance premiums, expense reimbursements, and reserves related to reinsured business are accounted for on a basis consistent with those used for the original policies issued and the terms of the reinsurance contracts. Premiums paid for reinsurance are recognized as reductions of revenue.

The effects of reinsurance on premiums written and earned were as follows, for the period since the acquisition date of April 5, 2021 to June 30, 2021:

	June 30, 2021
	Written		Earned
Direct premiums	$	81,132	$	62,352
Ceded premiums		(70,844)		(59,077)
Net premiums	$	10,288	$	3,275

Other Insurance Liabilities, Current

Other Insurance Liabilities, Current

The following table details the components of other insurance liabilities, current on the condensed consolidated balance sheets:

	June 30, 2021
Ceded reinsurance premiums payable	$	61,604
Funds held under reinsurance treaty		3,435
Commissions payable, reinsurers and agents		8,402
General and accrued expenses payable		26,006
Advance premiums		6,761
Other Insurance liabilities, current	$	106,208

Earnout Shares

Earnout Shares

Upon the Merger, 6,000,000 restricted common shares, subject to vesting and cancellation provisions, were issued to holders of pre-Merger Porch common stock (the “earnout shares”). The earnout shares were issued in three equal tranches with separate market vesting conditions. One-third of the earnout shares met the market vesting condition when

the Company’s common stock had a closing price of greater than or equal to $18.00 over 20 trading days within a thirty-consecutive trading day period (see Note 9). An additional third will vest when the Company’s common stock has a closing price of greater than or equal to $20.00 over the same measurement criteria. The final third will vest when the Company’s common stock has a closing price of greater than or equal to $22.00 over the same measurement criteria. Additional earnout shares may also be issued to earnout stockholders, on a pro rata basis, depending on forfeitures of employee earnout shares that are subject to a continued service vesting condition (see Note 9).

The earnout shares are accounted for as a derivative financial instrument, which is classified as a liability and periodically measured at fair value, with changes in fair value recognized in the statement of operations. Note 4 denotes the beginning and ending balances of the earnout share liability, and activity recognized during the period.

Revenue Recognition

Revenue Recognition

The Company generates its Core Services Revenue from (1) fees received for connecting homeowners to individual contractors, small business service providers and large enterprise service providers, (2) commissions from third-party insurance carriers, and (3) insurance premiums, policy fees and other insurance-related fees generated through its own insurance carrier. The Company’s Managed Services Revenue is generated from fees received for providing select and limited services directly to homeowners. The Company’s Software and Service Subscription Revenue is generated from fees received for providing subscription access to the Company’s software platforms and subscription services across various industries.

Core Services Revenue

Core Services Revenue is generated by the Company connecting third-party service providers (“Service Providers”) with homeowners that meet pre-defined criteria and who may be looking for relevant services. Service Providers represent a broad variety of offerings across the construction and repair, utilities, and other connected services spaces, which includes movers, TV/Internet, warranties, security monitoring providers, plumbers, electricians, roofers, et al. The Company also connects homeowners with home and auto insurance policies from third-party insurance carriers, and in April 2021, began providing various forms of homeowners insurance through its own insurance carrier and managing general agency.

Revenue generated from Service Providers is recognized at a point in time upon the connection of a homeowner to the Service Provider, at which point the Company’s performance obligation has been satisfied. The transaction price is generally either a fixed price per qualifying lead or activated service, or a percentage of the revenue the Service Provider ultimately generates through the homeowner connection. When the revenue to which the Company is entitled is based on the amount of revenue the Service Provider generates from the homeowner, the transaction price is considered variable and an estimate of the constrained transaction price is recorded by the Company upon delivery of the lead or upon the activation of the service.

Amounts received in advance of delivery of leads to the Service Provider is recorded as deferred revenue. Certain Service Providers have the right to return leads in limited instances. An estimate of returns is included as a reduction of revenue based on historical experience or specific identification depending on the contractual terms of the arrangement. Estimated returns are not material in any period presented.

In January 2020, the Company, through its wholly-owned subsidiary and licensed insurance agency, Elite Insurance Group (“EIG”), began selling homeowner and auto insurance policies for third-party insurance carriers. The transaction price for these arrangements is the estimated lifetime value (“LTV”) of the commissions to be paid by the third-party carrier for the policies sold. The LTV represents fixed first-year commission upon sale of the policy as well as the estimated variable future renewal commissions expected. The Company constrains the transaction price based on its best estimate of the amount which will not result in a significant reversal of revenue in a future period. After a policy is sold to an insurance carrier, the Company has no additional or ongoing contractual obligation to the policyholder or insurance carrier.

The Company estimates LTV by evaluating various factors, including commission rates for specific carriers and estimated average plan duration based on insurance carrier and market data related to policy renewals for similar insurance policies. On a quarterly basis, management reviews and monitors changes in the data used to estimate LTV as well as the cash received for each policy type compared to original estimates. The Company analyzes these fluctuations and, to the extent it identifies changes in estimates of the cash commission collections that it believes are indicative of an increase or decrease to prior period LTVs, the Company will adjust LTV for the affected policies at the time such determination is made. Changes in LTV may result in an increase or a decrease to revenue. Changes to the estimated variable consideration were not material for the periods presented.

Starting in April 2021, through the newly-acquired HOA, the Company is authorized to write various forms of homeowners insurance. Insurance-related revenues included in Core Services Revenue primarily relate to premiums, policy fees, excess ceding commissions and reinsurance profit share, and loss adjustment income. Premiums are recognized as revenue on a daily pro rata basis of the policy term. The portion of premiums related to the unexpired term of policies in force as of the end of the measurement period and to be earned over the remaining term of these policies, is deferred and reported as deferred revenue.

Policy fees are collected by HAMGA and include application fees, which are intended to offset the costs incurred in establishing the insurance policy. Policy fees on policies where premium is traditionally paid in full upon inception of the policy are recognized when written.

Excess ceding commissions represent the commissions from reinsurers in excess of the portion which represents the reimbursement of acquisition costs associated with insurance risk ceded to reinsurers and is earned on a pro-rata basis over the life of the insurance policy. Reinsurance profit share is additional ceding commissions payable to the Company based on attaining specified loss ratios within individual treaty years. Reinsurance profit share income is recognized when earned, which includes adjustments to earned reinsurance profit share based on changes in incurred losses.

Loss adjustment fee income is recognized when the claim file is opened, and other fee income is recognized when the related service is performed.

Managed Services Revenue

Managed services revenue includes fees earned from providing a variety of services directly to the homeowner, including handyman and moving services. The Company generally invoices for managed services projects on a fixed fee or time and materials basis. The transaction price represents the contractually agreed upon price with the end customer for providing the respective service. Revenue is recognized as services are performed based on an output measure of progress, which is generally over a short duration (e.g., same day). Fees earned for providing managed services projects are non-refundable and there is generally no right of return.

The Company acts as the principal in managed services revenue as it is primarily responsible to the end customer for providing the service, has a level of discretion in establishing pricing, and controls the service prior to providing it to the end customer. This control is evidenced by the ability to identify, select, and direct the service provider that provides the ultimate service to end customers.

Software and Service Subscription Revenue

Software and Service Subscription Revenue is primarily generated from the vertical software sold to home inspectors and other home services companies. The Company does not provide the customer with the right to take possession of any part of the software supporting the cloud-based application services. However, the Company does provide certain data analytics and marketing services under subscription contracts. The Company’s standard subscription contracts are monthly contracts in which pricing is based on a specified volume of activity completed through the software. Fees earned for providing access to the subscription software and services are non-refundable and there is no right of return. Revenue is recognized based on the amount which the Company is entitled to for providing access to the subscription software and services during the monthly contract term.

Income Taxes

Income Taxes

Provisions for income taxes for the three months ended June 30, 2021 and 2020 were $7.7 million benefit and $3 thousand expense, respectively, and the effective tax rates for these periods were 30.94% and (0.11%), respectively. The difference between the Company’s effective tax rates for the 2021 period and the U.S. statutory rate of 21% was primarily due to a full valuation allowance related to the Company’s net deferred assets and the impact of acquisitions on the Company’s valuation allowance. The difference between the Company’s effective tax rates for the 2020 period and the U.S. statutory rate of 21% was primarily due to a full valuation allowance related to the Company’s net deferred tax assets.

Other income (expense), net

Other income (expense), net

The following table details the components of other income (expense), net on the condensed consolidated statements of operations:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Loss on remeasurement of debt	$	—	$	(958)	$	—	$	(1,412)
Loss on remeasurement of legacy preferred stock warrant liability		—		(920)		—		(1,999)
Other, net		(165)		37		(91)		(57)
	$	(165)	$	(1,841)	$	(91)	$	(3,468)

Emerging Growth Company Status

Emerging Growth Company Status

The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). In accordance with the JOBS Act, the Company previously elected to delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. As of June 30, 2021, the last business day of the second fiscal quarter, the Company met certain thresholds for qualification as a “large accelerated filer” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended. Therefore, the Company expects to lose EGC status as of December 31, 2021. The impact of this change in filing status includes being subject to the requirements of large accelerated filers, which includes shortened filing timelines, no delayed adoption of certain accounting standards, and attestation of the Company’s internal control over financial reporting by its independent auditor.

Recent Accounting Pronouncements Not Yet Adopted

Recent Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The ASU is effective for public companies, excluding entities eligible to be smaller reporting companies, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020 and adoption must be as of the beginning of the Company’s annual fiscal year. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Additionally, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326 in April 2019 and ASU 2019-05, Financial Instruments — Credit Losses (Topic 326) — Targeted Transition Relief in May 2019. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. In November 2019, the FASB issued ASU No. 2019-10, which

defers the effective date of ASU No. 2016-13 for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. In the event the Company no longer qualifies as an emerging growth company, it will no longer qualify for the deferral of the effective date available for emerging growth companies. The Company is currently evaluating the impact of the adoption of ASU No. 2016-13 on the consolidated balance sheets, statements of operations, and statements of cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard is effective for non-public companies for reporting periods beginning after December 15, 2021 and early adoption is permitted. The comprehensive new standard will amend and supersede existing lease accounting guidance and is intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. The guidance requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In the event the Company no longer qualifies as an emerging growth company, it will no longer qualify for the deferral of the effective date available for emerging growth companies. The Company is currently evaluating the impact that adoption will have on the consolidated balance sheets, statements of operations, and statements of cash flows and expects that the adoption of the ASU will increase assets and liabilities related to the Company’s operating leases on the consolidated balance sheets. The Company estimates that as of June 30, 2021, the adoption of Topic 842 would increase the Company’s total assets reflecting right of use asset of approximately $4.0 million and total liabilities reflecting the lease obligation payable of approximately $4.0 million.