8-K/A

united states 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 2)

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 9, 2021

METROMILE, INC.

(Exact name of registrant as specified in its charter)

Delaware	001-39484	84-4916134
(State or Other Jurisdiction	(Commission File Number)	(I.R.S. Employer
of Incorporation)		Identification No.)

425 Market Street #700
San Francisco, CA	94105
(Address of principal executive offices)	(Zip Code)

(888) 242-5204

(Registrant’s telephone number,
including area code)

N/A

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240-13e-4(c))

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

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	MILE	The Nasdaq Capital Market
Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per share	MILEW	The Nasdaq Capital Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b–2 of the Securities Exchange Act of 1934 (§240.12b–2 of this chapter).

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

INTRODUCTORY NOTE

On February 11, 2021, Metromile, Inc., a Delaware corporation (the “Company”) (f/k/a INSU Acquisition Corp. II), filed a Current Report on Form 8-K and Amendment No. 1 on Form 8-K/A (together, the “Original Report”) to report, among other events, the Closing and related matters under Items 1.01, 2.01, 3.02, 3.03, 4.01, 5.01, 5.03, 5.05, 5.06 and 9.01 of Form 8-K.

This Amendment No. 2 on Form 8-K/A is being filed in order to (i) amend the financial statements provided under Item 9.01(a) in the Original Report to include the audited consolidated financial statements of Legacy Metromile as of December 31, 2020 and 2019 and for the years ended December 31, 2020 and 2019, (ii) include the related Management’s Discussion and Analysis of Financial Condition and Results of Operations for Legacy Metromile for the year ended December 31, 2020, and (iii) include the unaudited pro forma condensed combined balance sheet of the Company as of December 31, 2020 and the unaudited pro forma condensed combined statement of operations of the Company for the year ended December 31, 2020.

This Amendment No. 2 does not amend any other item of the Original Report or purport to provide an update or a discussion of any developments at the Company or its subsidiaries subsequent to the filing date of the Original Report. The information previously reported in or filed with the Original Report is hereby incorporated by reference to this Form 8-K/A. Capitalized terms used but not defined herein have the meanings given to such terms in the Original Report.

1

Item 9.01 Financial Statements and Exhibits.

(a) Financial statements of businesses acquired

The audited consolidated financial statements of Legacy Metromile as of December 31, 2020 are filed as Exhibit 99.1 to this Amendment No. 2 and incorporated herein by reference.

Legacy Metromile’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2020 is filed as Exhibit 99.2 to this Amendment No. 2 and incorporated herein by reference.

(b) Pro forma financial information

The unaudited pro forma condensed combined financial information of the Company for the year ended December 31, 2020 is set forth in Exhibit 99.3 to this Amendment No. 2 and is incorporated herein by reference.

(d) Exhibits

Exhibit No.	Description
99.1	Audited Consolidated Financial Statements of Legacy Metromile as of December 31, 2020 and 2019 and for the years ended December 31, 2020 and 2019.
99.2	Management’s Discussion and Analysis of Financial Condition and Results of Operations for Legacy Metromile for the years ended December 31, 2020 and 2019.
99.3	Unaudited pro forma condensed combined financial information of the Company as of and for the year ended December 31, 2020.

2

SIGNATURES

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

Dated: March 31, 2021	METROMILE, INC.
	By:	/s/ Dan Preston
	Name:	Dan Preston
	Title:	Chief Executive Officer

3

EX-99.1

Exhibit 99.1

METROMILE OPERATING COMPANY

Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-4
Consolidated Statements of Comprehensive Loss	F-5
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit	F-6
Consolidated Statements of Cash Flows	F-7
Notes to Consolidated Financial Statements	F-8

F-1

Report of Independent Auditors

The Board of Directors and Stockholders of

Metromile Operating Company.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Metromile Operating Company (and subsidiaries) (the “Company”), as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Moss Adams LLP

San Francisco, CA

March 30, 2021

We have served as the Company’s auditor since 2016 

F-2

METROMILE OPERATING COMPANY

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	December 31,			December 31,
	2019			2020
Assets
Investments
Marketable securities	$	9,352		$	-
Marketable securities - restricted		36,963			24,651
Total investments		46,315			24,651
Cash and cash equivalents		18,687			19,150
Restricted cash and cash equivalents		24,200			31,038
Receivable for securities		225			-
Premiums receivable		16,602			16,329
Accounts receivable		5,590			4,999
Reinsurance recoverable on paid loss		12,541			8,475
Reinsurance recoverable on unpaid loss		28,837			33,941
Prepaid reinsurance premium		12,904			13,668
Prepaid expenses and other assets		8,621			7,059
Deferred transaction costs		-			3,581
Deferred policy acquisition costs, net		1,421			656
Telematics devices, improvements and equipment, net		10,570			12,716
Website and software development costs, net		16,481			18,401
Intangible assets		7,500			7,500
Total assets	$	210,494		$	202,164
Liabilities, Convertible Preferred Stock and Stockholders’ Deficit
Loss and loss adjustment expense reserves	$	52,222		$	57,093
Ceded reinsurance premium payable		36,864			27,000
Payable to carriers - premiums and LAE, net		2,553			849
Unearned premium reserve		15,171			16,070
Deferred revenue		5,200			5,817
Accounts payable and accrued expenses		5,911			8,222
Note payable		24,102			51,934
Deferred tax liability		84			-
Warrant liability		1,738			83,652
Other liabilities		5,189			8,554
Total liabilities		149,034			259,191
Commitments and contingencies (Note 11)
Convertible preferred stock, $0.0001 par value; 77,497,580, and 88,406,871 shares authorized as of December 31, 2019, and 2020, respectively; 67,728,286 shares issued and outstanding as of December 31,  2019 and 2020; liquidation preference of $302,397 as of December 31, 2019 and 2020		304,469			304,469
Stockholders’ equity (deficit):
Common stock, $0.0001 par value; 96,000,000 and 110,000,000 shares authorized as of December 31, 2019 and 2020, respectively; 8,730,377 and 8,855,395 shares issued and outstanding as of December 31, 2019 and 2020		1			1
Accumulated paid-in capital		3,816			5,482
Note receivable from executive		(408	)		(415	)
Accumulated other comprehensive gain/(loss)		60			11
Accumulated deficit		(246,478	)		(366,575	)
Total stockholders’ deficit		(243,009	)		(361,496	)
Total liabilities, convertible preferred stock and stockholders’deficit	$	210,494		$	202,164

See notes to consolidated financial statements.

F-3

METROMILE OPERATING COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

	Years Ended December 31,
	2019			2020
Revenue
Premiums earned, net	$	23,807		$	12,464
Investment income		1,898			523
Other revenue		27,050			22,077
Total revenue		52,755			35,064
Costs and expenses
Losses and loss adjustment expenses		30,758			21,208
Policy servicing expense and other		16,297			16,813
Sales, marketing and other acquisition costs		23,954			5,483
Research and development		9,055			8,211
Amortization of capitalized software		10,648			11,188
Other operating expenses		18,896			16,981
Total costs and expenses		109,608			79,884
Loss from operations		(56,853	)		(44,820	)
Other expense
Interest expense		247			6,067
Increase in fair value of stock warrant liability		92			69,294
Total other expense		339			75,361
Net loss before taxes		(57,192	)		(120,181	)
Income tax provision/(benefit)		37			(84	)
Net loss after taxes	$	(57,229	)	$	(120,097	)
Net loss per share, basic and diluted	$	(6.85	)	$	(13.72	)
Weighted-average shares used in computing basic and diluted net loss per share		8,359,973			8,755,116

See notes to consolidated financial statements.

F-4

METROMILE OPERATING COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

	Years Ended December 31,
	2019			2020
Net loss	$	(57,229	)	$	(120,097	)
Unrealized net gain (loss) on marketable securities		61			(49	)
Total comprehensive loss	$	(57,168	)	$	(120,146	)

See notes to consolidated financial statements.

F-5

METROMILE OPERATING COMPANY

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(dollars in thousands)

	Convertible Preferred Stock				Common Stock						Note			Accumulated Other Comprehensive			Accumulated
	Shares		Amount		Shares		Amount		APIC		Receivable			Income			Deficit			Total
Balances as of December 31, 2018		67,728,286	$	304,469		7,942,833	$	1	$	1,030	$	(387	)	$	(1	)	$	(189,249	)	$	(188,606	)
Vested portion of common stock options		-		-		787,544		-		1,359		-			-			-			1,359
Stock-based compensation		-		-		-		-		1,427		-			-			-			1,427
Interest on stock purchase promissory note		-		-		-		-		-		(21	)		-			-			(21	)
Unrealized net gain on marketable securities		-		-		-		-		-		-			61			-			61
Net loss		-		-		-		-		-		-			-			(57,229	)		(57,229	)
Balances as of December 31, 2019		67,728,286	$	304,469		8,730,377	$	1	$	3,816	$	(408	)	$	60		$	(246,478	)	$	(243,009	)
Vested portion of common stock options		-		-		125,018		-		209		-			-			-			209
Stock-based compensation		-		-		-		-		1,457		-			-			-			1,457
Interest on stock purchase promissory note		-		-		-		-		-		(7	)		-			-			(7	)
Unrealized net loss on marketable securities		-		-		-		-		-		-			(49	)		-			(49	)
Net loss		-		-		-		-		-		-			-			(120,097	)		(120,097	)
Balances as of December 31, 2020		67,728,286	$	304,469		8,855,395	$	1	$	5,482	$	(415	)	$	11		$	(366,575	)	$	(361,496	)

See notes to consolidated financial statements.

F-6

METROMILE OPERATING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Years Ended December 31,
	2019			2020
Cash flows from operating activities:
Net loss	$	(57,229	)	$	(120,097	)
Adjustments to reconcile net loss to cash used in operating activities
Depreciation and amortization		15,651			17,004
Stock-based compensation		1,427			1,457
Change in fair value of warrant liability		92			69,294
Telematic devices unreturned		989			682
Amortization of debt issuance costs		30			687
Noncash interest and other (expense)/income		(181	)		1,136
Changes in operating assets and liabilities
Premiums receivable		(1,041	)		273
Accounts receivable		64			591
Reinsurance recoverable on paid loss		(5,017	)		4,066
Reinsurance recoverable on unpaid loss		(11,194	)		(5,104	)
Prepaid reinsurance premium		(4,070	)		(764	)
Prepaid expenses and other assets		(3,984	)		2,920
Deferred transaction costs		-			(3,581	)
Deferred policy acquisition costs, net		(1,508	)		(976	)
Accounts payable and accrued expenses		484			2,119
Ceded reinsurance premium payable		13,821			(9,864	)
Loss and loss adjustment expense reserves		11,037			4,871
Payable to carriers - premiums and LAE, net		(435	)		(1,704	)
Unearned premium reserve		1,042			899
Deferred revenue		4,400			617
Deferred tax liability		37			(84	)
Other liabilities		4,844			3,365
Net cash used in operating activities		(30,741	)		(32,193	)
Cash flows from investing activities:
Purchases of telematics devices, improvements, and equipment		(7,970	)		(6,903	)
Payments relating to capitalized website and software  development costs		(12,167	)		(13,108	)
Purchase of securities		(204,044	)		(26,646	)
Sales and maturities of marketable securities		160,893			48,462
Net cash (used in) provided by investing activities		(63,288	)		1,805
Cash flow from financing activities:
Proceeds from notes payable		24,441			37,480
Payment on notes payable		(1,653	)		-
Repurchase of unvested common stock options		(22	)		-
Proceeds from exercise of common stock options and warrants		1,343			209
Net cash provided by financing activities		24,109			37,689
Net (decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents		(69,920	)		7,301
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period		112,807			42,887
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	42,887		$	50,188
Supplemental cash flow data:
Cash paid for interest	$	212		$	2,797
Non-cash investing and financing transactions:
Purchases of telematics devices, improvements and equipment included in accounts payable at year end	$	1		$	-
Capitalized stock-based compensation	$	400		$	522
Preferred stock warrant issued in conjunction with note payable	$	499		$	12,620
Reclassification of liability to equity for vesting of stock options	$	38		$	-

See notes to consolidated financial statements.

F-7

METROMILE OPERATING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Overview and Basis of Presentation

Description of Business

Metromile Operating Company (“Metromile”) was incorporated in the State of Delaware on January 14, 2011 as Fair Auto, Inc. and changed its name to MetroMile, Inc. in May 2012 and to Metromile Operating Company in February 2021. Metromile, through its wholly owned subsidiary, Metromile Insurance Services LLC (the “GA Subsidiary”), sells pay-per-mile auto insurance to consumers in eight states: California, Washington, Oregon, Illinois, Pennsylvania, Virginia, New Jersey, and Arizona. Metromile has a wholly owned subsidiary, Metromile Insurance Company (the “Insurance Company”), which focuses on property and casualty insurance. In January 2019, Metromile formed Metromile Enterprise Solutions, LLC (“Enterprise”), a wholly owned subsidiary, which focuses on selling its insurance solution technology to third party customers. Metromile, the GA Subsidiary, the Insurance Company, and Enterprise collectively are referred to as the “Company.”

The Insurance Company provides automobile insurance to customers with premiums based on a flat rate plus an adjustable rate based on actual miles driven. To record miles driven, the GA Subsidiary may provide drivers with a telematics device, the Metromile Pulse, which plugs into a car’s on-board diagnostic system to capture mileage.

The GA Subsidiary acts as a full-service insurance General Agent (“GA”). As a full-service GA, the subsidiary provides all policy pricing, binding, and servicing (payments and customer service) for the policyholders. Until late 2016, the GA Subsidiary underwriting carrier was National General Insurance (“NGI”) and its related carriers. The GA Subsidiary began transitioning NGI-issued policies upon renewal in late 2016 to the Insurance Company and has only a small number of policies with NGI as of December 31, 2020. The GA Subsidiary is the sole agent for the Insurance Company.

NGI handles claims for the GA Subsidiary’s policies underwritten by NGI and its related carriers, for which it pays NGI a fee for the loss adjustment expense (“LAE”). NGI bears the risk of loss under these policies. Accordingly, the Company has no exposure to claims that would require an accrual for those NGI-related losses.

The Insurance Company bears risk of loss under all insurance policies it underwrites. The financial statements include reserves for future claims based on actuarial estimates for the Insurance Company. The Loss and LAE reserves as of December 31, 2019 and 2020 were $52.2 million and $57.1 million, respectively.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. of America (“GAAP”) and in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). References to the Accounting Standard Codification (“ASC”) and Accounting Standard Updates (“ASU”) included hereinafter refer to the Accounting Standards Codification and Updates established by the Financial Accounting Standards Board (“FASB”) as the source of authoritative GAAP. The consolidated financial statements include the accounts of Metromile, Inc. and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated in consolidation.

F-8

Liquidity and Capital Resources

The Company’s consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has had recurring losses and an accumulated deficit since its inception, related primarily to the development of its website, technology, customer acquisition, insurance losses and other operations. The Company obtained additional funding of $310 million in 2021 to support its ongoing operations and fund future growth of the Company. Management has concluded that substantial doubt regarding the Company’s ability to continue as a going concern for the period January 2021 through March 2022 has been alleviated based upon the recent funding and future operational improvement plans.

In the first quarter of 2020, the global pandemic caused by COVID-19 breached the U.S. and resulted in Shelter-In-Place orders across the country and insurance department bulletins limiting the actions that insurance carriers may take and reducing the amount of premiums that will be promptly received in the short term. These factors resulted in a significant decline in both revenues and losses of the Insurance Company. In addition, in response to these events, the Company performed a reduction in force of 125 employees to further align costs with revenue and to extend the current capital runway. The Company will continue to monitor the situation closely, but given the uncertainty about the duration or magnitude of the pandemic, management cannot estimate the impact on its financial condition, operations, and workforce.

Revision to Previously Issued Financial Statements

The Company has made revisions to the table in Note 16, Segment and Geographic Information, which presents a reconciliation of the Company’s total reportable segments’ contributions to its total loss from operations .To reflect proper classification of certain income and expense amounts $1.9 million was reclassified from Policy services expenses and other to Other income within the reconciliation presented for the year ended December 31, 2019. The revisions had no effect on total liabilities, stockholders’ deficit or net loss after taxes as previously reported.

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. The Company’s principal estimates include unpaid losses and LAE reserves; the fair value of investments; the fair value of share-based awards; the fair value of the warrant liability; premium refunds to policyholders; reinsurance recoverable on unpaid loss; and the valuation allowance for income taxes. Because of uncertainties associated with estimating the amounts, timing and likelihood of possible outcomes, actual results could differ materially from these estimates.

Revenue Recognition

Insurance Services

The Company’s insurance services are accounted for in accordance with Topic 944, Insurance. Policies are written for six-month terms and are considered short-duration contracts for the purposes of accounting under U.S. GAAP. The premium for the policies provides for a base rate per month for the entire policy term, plus a per-mile rate multiplied by the mileage driven each day (based on data from the telematics device subject to a daily maximum). Upon the binding of the policy, the customer pays at least the first month’s base rate and then is billed monthly in arrears for the mileage-based premium portion of the policy plus each subsequent month’s base rate not otherwise prepaid upon binding of the policy. Base premiums are recognized ratably over the policy term and mileage-based premiums are recognized monthly as incurred. All earned premiums are presented net of bad debt expense in the Company’s consolidated statement of operations.

F-9

Investment Income

Investment income is recorded as earned. Investment income consists primarily of interest on the Company’s highly liquid fixed income securities and is recognized on an accrual basis.

Other Revenue

Other revenue principally consists of enterprise revenue discussed below, reinsurance profit commissions based on performance of the ceded business, commission on NGI policies, and revenue related to policy acquisition costs as part of the reinsurance arrangement as described in Note 9, Reinsurance.

The commission on NGI policies is recognized on a net basis and was insignificant in the periods presented. The revenue related to the acquisition costs for policies newly ceded to the reinsurers is recognized as the policies become part of the reinsurance arrangement. No amounts are due back to the reinsurers should a ceded policy cancel after entering the reinsurance arrangement.

Enterprise services are accounted for by applying the requirements of Topic 606, Revenue from Contracts with Customers. Topic 606 establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. Topic 606 also includes Subtopic 340-40, Other Assets and Deferred Costs-Contracts with Customers, which requires the deferral of incremental costs of obtaining a contract with a customer. Collectively, references to Topic 606 used herein refer to both Topic 606 and Subtopic 340-40.

The Company accounts for revenue contracts with customers by applying the requirements of Topic 606, which includes the following steps:

● Identification of the contract, or contracts, with a customer

● Identification of the performance obligations in the contract

● Determination of the transaction price

● Allocation of the transaction price to the performance obligations in the contract

● Recognition of revenue when, or as, the Company satisfies a performance obligation

The Company has developed technologies intended for internal use to service their insurance business and through its enterprise services started offering these products and services to third party customers during the year ended December 31, 2019. The Company also has referral agreements with third party carriers and ad exchange agreements whereby the Company can receive consideration for such services. As such, the Company has three categories of revenue agreements that are included within the scope of Topic 606: 1) subscription and professional services agreements, 2) referral agreements, and 3) ad exchange agreements. For the periods presented, the Company’s revenues from referral and ad exchange agreements have not been significant.

The Company’s technology agreements include software subscription-as-a-service (“SaaS”) which provides the customer with the right to access the Company’s core software via a hosted solution. Customers who purchase the SaaS service also receive technical support and access to updates and upgrades. The Company’s performance obligations related to its SaaS offering is a stand-ready obligation to provide the customer with continuous access to the hosted service as well as to provide updates/upgrades and technical support. Access to the platform represents a series of distinct services as the Company continually provides access to, and fulfills its obligation to, the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. The Company recognizes revenue ratably because the customer receives and consumes the benefits of the platform throughout the contract period.

F-10

During the year ended December 31, 2020, the Company sold a perpetual license for its software. Revenue for this license was recognized up-front upon delivery of the software license.

In addition, the Company offers customization and implementation services for customers. Customization services are provided when a customer requests the development of a specific feature and/or functionality that is not currently present within the solution as of the date of execution of the agreement. Implementation services include installation, custom builds, data migration, integration to other application programming interfaces, and training of customer personnel. Both customization and implementation services are priced based on mutual negotiation and subject to Company approvals. Occasionally, these services are offered at a discount or included as a bundle with pricing for the software or SaaS products. These services are not considered to represent distinct performance obligations and when present are combined with the overall subscription service. Revenue recognition begins when all services have been completed and are made available to customers.

Deferred Contract Acquisition Costs

Prior to the adoption of Topic 606 on January 1, 2019, sales commissions associated with the Company’s technology agreements were not deferred and expensed as incurred. Under Topic 606, the Company recognizes an asset for the incremental costs of obtaining a contract with a customer if the entity expects to recover such costs. Sales commissions are considered incremental and recoverable costs of obtaining a contract with a customer. Contract acquisition costs are accrued and capitalized upon execution of the sales contract by the customer. The Company allocates commission costs to the performance obligations in an arrangement consistent with the allocation of the transaction price. The portion of these costs that are attributed to performance obligations delivered over time are capitalized and recorded in prepaid expense and other current assets on the Company’s consolidated balance sheet.

Deferred contract costs on the Company’s consolidated balance sheets were approximately $0.2 million as of December 31, 2019 and 2020. Amortization expense related to deferred contract costs through the years ended December 31, 2019 and 2020 was not significant. There was no impairment loss in relation to the costs capitalized for the periods presented.

Deferred Revenue

The deferred revenue balance consists of subscription and professional services for the Company’s technology agreements which have been invoiced in advance of when the revenue recognition criteria are met. The Company’s subscription contracts are typically invoiced to its customers at the beginning of the term, or in some instances, such as in multi-year arrangements, in annual installments. Accordingly, the Company’s deferred revenue balance does not include revenues for future years of multi-year non-cancellable contracts that have not yet been billed.

The Company recognizes subscription revenue ratably over the contract term beginning on the date that services are made available to customers, which may be after the contract commencement date if additional customization or implementation services are required to make the subscription service available to customers. On the contract commencement date, the Company records amounts due in accounts receivable and in deferred revenue. To the extent the Company bills customers in advance of the contract commencement date, the accounts receivable and corresponding deferred revenue amounts are netted to zero on the consolidated balance sheets, unless such amounts have been paid as of the balance sheet date.

The Company recognized $0.8 million and $2.3 million of revenue during the years ended December 31, 2019, and 2020, respectively, that was included in the deferred revenue balances at the beginning of the respective years.

F-11

Remaining Performance Obligations

Remaining performance obligations represent contracted revenues that are non-cancellable and have not yet been recognized due to unsatisfied or partially satisfied performance obligations. This includes deferred revenues and amounts that will be invoiced and recognized as revenues in future periods. As of December 31, 2019 and 2020, future estimated revenue related to performance obligations for subscriptions with terms of more than one year that are unsatisfied or partially unsatisfied at the end of the reporting periods was approximately $19.6 million and $17.2 million, respectively. As of December 31, 2019 and December 31, 2020 the Company expects to recognize revenue on approximately 40% and 51% of these unsatisfied performance obligations, respectively over the following 24 months and the remainder thereafter.

Losses and Loss Adjustment Expenses and Loss and Loss Adjustment Expenses Reserves

The Insurance Company’s losses and LAE are presented net of any reinsurance and charged to income as incurred. The liabilities for unpaid losses and LAE represent the estimated liabilities for reported claims, claims incurred but not yet reported, and the related LAE. Losses and loss adjustment expenses also includes the LAE related to NGI as well as LAE incurred directly, including claims personnel and related expenses, compensation related to customer experience, depreciation on telematics devices, packaging and postage for shipping devices to customers, fulfillment service center costs, and third-party web-hosting costs.

Liability for unpaid losses and LAE for policies underwritten by the Insurance Company represents management’s best estimate of the ultimate net cost of all reported and unreported losses incurred during the years ended December 31, 2019 and 2020. The reserves for unpaid losses and LAE are estimated using individual case-basis valuations and statistical analyses. Estimated reserves are computed in accordance with accepted actuarial standards and principles. Several different actuarial approaches are considered, and reserve estimates may rely on a single or multiple techniques, depending on the appropriateness of the technique in a given situation. One branch of techniques that is frequently relied upon belongs to chain ladder methods in which data is aggregated into appropriate accident periods (when a claim occurred) and historical loss patterns are applied to actual paid losses and reported losses (paid losses plus individual case reserves as established by claim adjusters).

The chain ladder method uses a ratio of losses from consecutive periods to calculate a development factor amongst various accident periods at similar maturities. An age-to-age factor is the expected development for future accident periods at a similar maturity. This is judgmentally selected based on a variety of inputs including, but not limited to, industry trends, company-specific trends, changes in claims handling practices, and changes in judicial environment and other external influences. Age-to-age factors are then multiplied and applied to the known losses to estimate the ultimate loss. The primary assumption of this approach is that historical development patterns are predictive of how current and future accident periods will develop. Modifications and variations of this approach can be made to better address certain issues that may arise, such as a sudden change in claim reserving process from claim adjusters, changes in payment and closure rate of claims, and external factors. Large losses, severe weather events, and other catastrophic events may significantly increase the variance of development patterns. These may be capped or excluded in the data and analyzed separately.

The use of these methods on paid data as opposed to reported data has both benefits and drawbacks. For a sufficiently large dataset, paid data tends to be more stable, but may finalize later, creating additional uncertainty and potential to both over- and under-estimate reserves. For newer, immature accident periods, approaches using paid data may create very volatile estimates as a relatively small amount has been paid, which is then multiplied by a large multiplier from the age-to-age factors as described above. Reported data includes payments made to date as well as the best estimate from claim adjusters of future payments. The claim adjusters are able to review each claim and incorporate facts about each individual event to estimate losses on a claim-by-claim basis. Reported data tends to require less future development than paid data, which decreases the potential variance from the ultimate amount to be paid for a claim. It may however be influenced by changes in claims reserving and settlement practices, which need to be accounted for when using historical data to predict future liabilities.

F-12

The estimates are subject to the effects of trends in loss severity and frequency. Although considerable variability is inherent in such estimates, management believes the reserves for losses and LAE are adequate. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known; such adjustments are included in the current year’s operations. Salvage and subrogation recoverables are estimated using the case basis method or historical statistics. Salvage and subrogation estimated recoverables are deducted from the liability for unpaid losses and LAE.

Reinsurance

The Company enters into ceded reinsurance contracts to protect its business from losses due to concentration of risk and to manage its operating leverage ratios. The Company has entered into quota-share reinsurance agreements with reinsurers under which risks are covered on a pro-rata basis for all policies underwritten by the Insurance Company. Premiums ceded to reinsurers are reported as a reduction of premiums written, and expenses incurred in connection with ceded policies have been accounted for as a reduction of the Company’s related deferred policy acquisition costs.

The Company is exposed to credit risk from reinsurance recoverables and prepaid reinsurance premiums, which is mitigated by using a trust account.

Cash, Cash Equivalents and Restricted Cash

For purposes of the consolidated financial statements, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company’s operating cash is held in an overnight sweep account. The Company’s cash is maintained in checking accounts, money market funds, and other highly liquid fixed income investments.

Certain of the Company’s cash accounts are restricted. The Company holds certificates of deposits as collateral on its letters of credit in conjunction with its office leases and corporate credit cards. As part of the Company’s debt arrangement, a certain cash minimum must be maintained in a separate bank account as part of the debt covenants. The Company also collects insurance policy premiums that it holds in a segregated account for transmittal to the applicable underwriting carrier or for the benefit of policyholders for insurance-related claims. Cash held by the Insurance Company is restricted for use by the Insurance Company for the benefit of its policyholders.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk, to the extent of the amounts recorded on the consolidated balance sheets, consist principally of cash and marketable securities. The Company, at times, maintains cash balances with its primary bank in excess of Federal Deposit Insurance Corporation limits. The Company places its cash and cash equivalents with financial institutions with high credit standing. The Company places its excess cash in marketable investment grade securities. There are no significant concentrations in any one issuer of debt securities.

The ceding of insurance does not legally discharge the Company from its primary liability for the full amount of the policy coverage, and therefore the Company will be required to pay the loss and bear collection risk if the reinsurer fails to meet its obligations under the reinsurance agreement. To minimize exposure to significant losses from reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk.

The Company did not have any customers whose revenue or account receivable balance individually represented 10% or more of the Company’s total revenues or accounts receivable, respectively, during the years presented. However, one customer made up 99.8% of the Company’s Enterprise business solutions segment revenue (see Note 16, Segment and Geographic Information).

F-13

Marketable Securities

The Company classifies marketable investment securities as available-for-sale. Interest income and dividends on securities are recognized in income on an accrual basis. Premiums and discounts on debt securities are amortized as an adjustment to interest income using the interest method. These securities are reported at their estimated fair value with unrealized gains and losses reported as a separate component of comprehensive income in stockholders’ deficit and classified into unrestricted and restricted marketable securities. Purchases and sales of investments are recorded on a trade date basis. Realized gains and losses are determined based on the specific identification method. Certain marketable securities are restricted as they are held by the Insurance Company and are either pledged as statutory deposits for state licenses or restricted as to the distribution of the assets of the Insurance Company under the regulations of the State of Delaware.

Telematics Devices, Improvements, and Equipment, Net

Telematics devices, improvements, and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which is generally estimated to be three to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements. Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized.

Website and Software Development Costs, Net

Costs related to the planning and post-implementation phases of the Company’s website and software development efforts are recorded as an operating expense. Direct costs incurred in the development phase of major development efforts and upgrades are capitalized and amortized using the straight-line method over an estimated useful life, generally estimated to be three years.

Deferred Policy Acquisition Costs (“DPAC”)

The Company defers sales commissions and expenses, marketing and underwriting costs, net of reinsurance ceding commission, directly relating to the successful acquisition of policies that the GA Subsidiary binds, and costs related to written premiums to the extent they are considered recoverable. These costs are then expensed over the customer’s policy term including estimated renewal periods. The method followed to determine the deferred policy acquisition costs limits the deferral to its realizable value by considering estimated future claims and expenses to be incurred as premiums are earned. Changes in estimates, if any, are recorded in the accounting period in which changes are determined.

When anticipated losses, LAE, commissions, and other policy acquisition costs exceed recorded unearned premium, any future premiums on existing policies, and anticipated investment income on existing policies, a premium deficiency reserve is recognized by recording a reduction to DPAC with a corresponding charge to operations. The Company does not include anticipated investment income as a factor in the premium deficiency calculations. The Company concluded that no premium deficiency adjustments were necessary through December 31, 2019 and 2020.

Any excess ceding commissions over and above the portion that represents a recovery of deferred policy acquisition costs is recorded as a deferred liability and amortized over the same period in which the related premiums are earned.

F-14

Impairment of Long-Lived Assets

The Company evaluates the carrying amount of its long-lived assets, primarily telematics devices, improvements, equipment, website and software development costs, and policy acquisition costs for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company assesses recoverability using undiscounted cash flows attributed to that asset. If impairment has occurred, any excess of the carrying value over the fair value is recorded as a loss. No impairment occurred during the years presented.

Indefinite-lived intangible assets, such as the Company’s insurance licenses included as intangible assets on the accompanying consolidated balance sheet, are subject to annual impairment testing. On an annual basis or more frequently if a triggering event occurs, the fair value of indefinite-lived intangible assets are evaluated to determine if an impairment charge is required.

Warrants Exercisable for Preferred and Common Stock

The Company generally accounts for warrants to purchase common stock as a component of equity at its issued cost unless the warrants include a conditional obligation to issue a variable number of shares or there is a deemed possibility that the Company may need to settle the warrants in cash. For warrants issued with a conditional obligation to issue a variable number of shares or the deemed possibility of a cash settlement, the Company records the fair value of the warrants as a liability at each balance sheet date. The warrant liability is subsequently marked to estimated fair value at each reporting date based on current fair value, with the changes in fair value reported in results of operations.

Freestanding warrants issued by the Company to purchase shares of its convertible preferred stock are classified as liabilities on the consolidated balance sheets and are measured at their estimated fair value, as the underlying convertible preferred stock is considered contingently redeemable. The initial liability recorded is adjusted for changes in fair value at each reporting date with an offsetting entry recorded as a component of other income, net in the accompanying consolidated statements of operations. The liability will continue to be adjusted for changes in fair value until the earlier of the exercise date or the conversion of the underlying convertible preferred stock into common stock, at which time the convertible preferred stock warrants will convert to common stock warrants, and the liability will be reclassified to stockholders’ deficit.

The Company estimates the fair value of these warrants at the respective dates using the Black-Scholes option valuation model based on the estimated fair value of the underlying common stock or convertible preferred stock at the valuation measurement date, the remaining contractual term of the warrant, risk-free interest rates, expected dividends, and the expected volatility of the price of the underlying convertible preferred stock. These estimates, especially the market value of the underlying common stock or convertible preferred stock and the related expected volatility, are highly judgmental and could differ materially in the future.

Stock-Based Compensation

Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period of the respective award. The expense recorded is based on awards ultimately expected to vest and, therefore, is reduced by estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company calculates the fair value of options using the Black-Scholes option pricing model and recognizes expense using the straight-line attribution approach. Awards with performance conditions and no service conditions are expensed when the performance condition is deemed probable of being achieved and is based on the fair value of the award at that time.

F-15

Advertising Expenses

The Company expenses advertising costs as incurred. Advertising costs were approximately $18.6 million, and $7.2 million in the years ended December 31, 2019, and 2020, respectively, and are included in sales and marketing expense in the accompanying consolidated statements of operations.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process in which (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

All tax years remain open and subject to federal and state examination.

Net Loss per Share

Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. 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 redeemable convertible preferred stock as the holders of its redeemable convertible preferred stock do not have a contractual obligation to share in the Company’s losses. Under the two-class method, net income is attributed to common stockholders and participating securities based on their participation rights. 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. Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of stock options and redeemable convertible preferred stock. As the Company has reported losses for the years presented, all potentially dilutive securities are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.

Recently Adopted Accounting Pronouncements

The Company adopted the following accounting standards during the year ended December 31, 2020:

In August 2018, the FASB issued ASU No. 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. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The guidance will be effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company adopted this standard effective January 1, 2020. The adoption of this standard did not have a material impact to the Company’s results of operations for the year ended December 31, 2020.

F-16

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), to improve the effectiveness of disclosures in the note to the financial statements by facilitating clear communication of the information required by generally accepted accounting principles. The adoption of ASU 2018-13 is effective for the Company beginning January 1, 2020. The adoption of this standard did not have a material impact to the Company’s results of operations for the year ended December 31, 2020.

Recent Issued Accounting Pronouncements

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act until such time as the Company is no longer considered to be an EGC. The adoption dates discussed below reflect this election.

In February 2016, FASB issued ASU 2016-02, Leases (Topic 842). Lessees will need to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model but updated to align with certain changes to the lessee model and the new revenue recognition standard. The standard will be effective beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluating this new standard and the impact it will have on its consolidated financial statements.

In June 2016, FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), intended to improve the timing, and enhance the accounting and disclosure, of credit losses on financial assets. This update modified the existing accounting guidance related to the impairment evaluation for available-for-sale debt securities, reinsurance recoverables, and premiums receivables and could result in the creation of an allowance for credit losses as a contra asset account. The ASU requires a cumulative-effect change to retained earnings in the period of adoption and prospective changes on previously recorded impairments, to the extent applicable. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2022. The Company is currently evaluating this new standard and believes that it will not have a material impact on the Company’s consolidated financial statements with its current investment portfolio.

In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued. The standard is effective upon issuance through December 31, 2022 and may be applied at the beginning of the interim period that includes March 12, 2020 or any date thereafter. The Company is currently evaluating this new standard and the impact it will have on its consolidated financial statements.

2. Fair Value of Financial Instruments

Topic 820, Fair Value Measurements, defines fair value 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. Topic 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

F-17

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.

An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Cash and Cash Equivalents

The Company’s cash and cash equivalents are demand and money market accounts and other highly liquid investments with an original maturity of three months or less. Demand and money market accounts are at stated values. Fair values for other cash equivalents are classified as Level 1 or Level 2 and are based upon appropriate valuation methodology.

Marketable Securities — Available-for-sale

The Company classifies highly liquid money market funds, U.S. Treasury bonds and certificates of deposit within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets and upon models that take into consideration such market-based factors as recent sales, risk-free yield curves, and prices of similarly rated bonds. Commercial paper, corporate bonds, corporate debt securities, repurchase agreements, and asset backed securities are classified within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded. The Company did not hold any securities classified within Level 3 as of December 31, 2019 and 2020.

Assets measured on a recurring basis at fair value, primarily related to marketable securities, included in the consolidated balance sheets as of December 31, 2019 and 2020 (in thousands):

	Fair Value Measurement at December 31, 2019
	Level 1		Level 2		Level 3		Total
Cash equivalents
Money market accounts	$	5,275	$	-	$	-	$	5,275
Total cash equivalents		5,275		-		-		5,275
Restricted cash equivalents
Money market accounts		1,896		-		-		1,896
Repurchase agreements		-		2,000		-		2,000
Certificates of deposits		3,771		-		-		3,771
Total restricted cash equivalents		5,667		2,000		-		7,667
Marketable securities
Corporate debt securities		-		7,852		-		7,852
Asset backed securities		-		1,500		-		1,500
Total marketable securities		-		9,352		-		9,352
Marketable securities - restricted
Corporate debt securities		-		12,505		-		12,505
U.S. treasury securities		10,627		1,055		-		11,682
Commercial paper		-		6,273		-		6,273
Asset backed securities		-		6,503		-		6,503
Total marketable securities - restricted	$	10,627	$	26,336	$	-	$	36,963

F-18

	Fair Value Measurement at December 31, 2020
	Level 1		Level 2		Level 3		Total
Cash equivalents
Money market accounts	$	6,771	$	-	$	-	$	6,771
Total cash equivalents		6,771		-		-		6,771
Restricted cash equivalents
Money market accounts		6,201		-		-		6,201
Certificates of deposits		3,331		-		-		3,331
Total restricted cash equivalents		9,532		-		-		9,532
Marketable securities - restricted
Corporate debt securities		-		5,955		-		5,955
U.S. treasury securities		6,994		-		-		6,994
Commercial paper		-		8,791		-		8,791
Asset backed securities		-		2,911		-		2,911
Total marketable securities - restricted	$	6,994	$	17,657	$	-	$	24,651

Warrants

The Company estimated the fair value of warrants exercisable for convertible preferred stock measured at fair value on a recurring basis at the respective dates using the Black-Scholes option valuation model, based on the estimated fair value of the underlying convertible preferred stock at the valuation measurement date, the remaining contractual term of the warrant, the risk-free interest rates, the expected dividends, and the expected volatility of the price of the underlying stock using guideline companies for reference. These estimates, especially the market value of the underlying stock and the related expected volatility, are highly judgmental and could differ materially in the future.

There were no changes in the valuation techniques during the periods presented. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date and as such are classified as Level 3 liabilities.

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 liabilities for the years ended December 31, 2019 and 2020 (in thousands):

Balance at December 31, 2018	$	1,147
Issuance of warrant on Series E convertible preferred stock		499
Increase in fair value of warrant		92
Balance at December 31, 2019		1,738
Issuance of warrant on Series E convertible preferred stock		12,620
Increase in fair value of warrant		69,294
Balance at December 31, 2020	$	83,652

F-19

The fair value of the convertible preferred stock warrants was determined using the Black-Scholes option valuation model using the following assumptions for values as of December 31, 2019 and 2020:

	Estimated
	Fair Value of
	Warrants
	as of										Risk-Free			Expected
	December 31,		Exercise		Dividend						Interest			Term
	2019		Price		Yield			Volatility			Rate			(in Years)
Series A	$	972	$	0.6000		0	%		66.00	%		1.60	%		2.42
Series C	$	127	$	4.3857		0	%		44.00	%		1.60	%		2.33
Series D	$	140	$	5.1549		0	%		40.00	%		1.59	%		1.42
Series E	$	499	$	6.3867		0	%		34.00	%		1.62	%		3.13

	Estimated
	Fair Value of
	Warrants
	as of										Risk-Free			Expected
	December 31,		Exercise		Dividend						Interest			Term
	2020		Price		Yield			Volatility			Rate			(in Years)
Series A	$	4,459	$	0.6000		0	%		63.00	%		0.27	%		0.46
Series C	$	883	$	4.3857		0	%		61.00	%		0.27	%		0.46
Series D	$	1,163	$	5.1549		0	%		61.00	%		0.09	%		0.46
Series E	$	3,763	$	6.3867		0	%		60.00	%		0.58	%		0.46
Series E	$	73,162	$	6.3867		0	%		60.00	%		0.09	%		0.46
Series E	$	222	$	8.7900		0	%		60.00	%		0.09	%		0.46

Through December 31, 2019 and 2020, there were no transfers to or from any Level. The carrying amounts of accounts payable, accrued expenses, notes payable, and convertible debt approximate their fair values because of the relatively short periods until they mature or are required to be settled.

F-20

3. Marketable Securities

The Company has investments in certain debt securities that have been classified as available-for-sale and recorded at fair value. These investments are included in both assets for securities with a maturity of one-year or less and assets for securities with a maturity of more than one-year. These securities are held in the Insurance Company and shown as restricted given that the transfer of these assets is subject to the approval of the state regulators. As of December 31, 2019 and 2020, deposits with various states consisted of bonds with carrying values of $4.6 million and $4.9 million, respectively.

When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates and the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of the investment’s cost basis. As of December 31, 2019 and 2020, the Company does not consider any of its investments to be other-than-temporarily impaired. Unrealized gains and losses arising from the revaluation of available-for-sale securities are included in the consolidated statements of other comprehensive loss. Realized gains and losses on sales of investments are generally determined using the specific identification method and are included in the consolidated statements of operations.

The cost basis and fair value of available-for-sale securities as of December 31, 2019 and 2020 are presented below (in thousands):

	As of December 31, 2019
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gain		Loss		Fair Value
Marketable securities
Corporate debt securities	$	7,848	$	4	$	-	$	7,852
Asset backed securities		1,499		1		-		1,500
Total marketable securities	$	9,347	$	5	$	-	$	9,352
Marketable securities - restricted
Corporate debt securities	$	12,481	$	24	$	-	$	12,505
U.S. treasury securities		11,659		23		-		11,682
Commercial paper		6,273		-		-		6,273
Asset backed securities		6,495		8		-		6,503
Total marketable securities - restricted	$	36,908	$	55	$	-	$	36,963

F-21

	As of December 31, 2020
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gain		Loss		Fair Value
Marketable securities - restricted
Corporate debt securities	$	5,938	$	17	$	-	$	5,955
U.S. treasury securities		6,994		-		-		6,994
Commercial paper		8,791		-		-		8,791
Asset backed securities		2,911		-		-		2,911
Total marketable securities - restricted	$	24,634	$	17	$	-	$	24,651

The amortized cost and estimated fair value of marketable securities as of December 31, 2019 and 2020 are shown below by contractual maturity (in thousands):

	As of December 31, 2019
	Amortized		Estimated
	Cost		Fair Value
Due within one year	$	44,057	$	44,105
Due between one to five years		2,198		2,210
	$	46,255	$	46,315

	As of December 31, 2020
	Amortized		Estimated
	Cost		Fair Value
Due within one year	$	21,603	$	21,629
Due between one to five years		3,031		3,022
	$	24,634	$	24,651

F-22

4. Telematics Devices, Improvements, and Equipment, Net

Telematics devices, improvements, and equipment consist of the following (in thousands):

	December 31,
	2019			2020
Telematics devices	$	14,061		$	14,018
Equipment		2,102			2,677
Leasehold improvements		2,785			7,324
Property and equipment, gross		18,948			24,019
Less accumulated depreciation and amortization		(8,378	)		(11,303	)
Telematics devices, improvements, and equipment, net	$	10,570		$	12,716

For the years ended December 31, 2019 and 2020, total depreciation and amortization expense was approximately $3.3 million, and $4.0 million respectively, included as part of policy servicing expense and other expense on the Company’s consolidated statements of operations.

The Company has one major vendor that supplies all telematics devices. The Company expects to maintain this relationship with the vendor for the foreseeable future. As of December 31, 2019 and 2020 , the Company had approximately 48,800 and 49,200 telematics devices available to send to policyholders, respectively.

5. Website and Software Development Costs, Net

Website and software development costs consist of the following (in thousands):

	December 31,
	2019			2020
Capitalized website and software development costs	$	51,370		$	64,478
Less accumulated amortization		(34,889	)		(46,077	)
Capitalized website and software development costs, net	$	16,481		$	18,401

For the years ended December 31, 2019 and 2020 total amortization expense was approximately $10.6 million and $11.2 million respectively. For the years ended December 31, 2019 and 2020 the net amount of capitalized website and software development costs written off was approximately $0.2 million and $0 respectively.

F-23

6. Deferred Policy Acquisition Costs, Net

DPAC consists of the following (in thousands):

	December 31,
	2019			2020
Deferred policy acquisition costs	$	9,731		$	10,511
Less deferred ceding commission		(1,242	)		(1,202	)
Less accumulated amortization		(7,068	)		(8,653	)
Deferred policy acquisition costs, net	$	1,421		$	656

For the years ended December 31, 2019 and 2020, total amortization expense was approximately $1.7 million and $1.5 million, respectively, included as part of sales, marketing and other acquisition costs on the Company’s consolidated statements of operations.

7. Intangible Assets

Intangible assets of $7.5 million as of December 31, 2019 and 2020, are primarily related to the state insurance licenses acquired in 2016. These intangibles carry an indefinite life and are evaluated at least annually for impairment. For the years ended December 31, 2019 and 2020, the Company did not record an impairment charge.

8. Loss and Loss Adjustment Expense Reserves

The following table provides a reconciliation of the beginning and ending reserve balances for losses and LAE, net of reinsurance recoverable, as of December 31, 2019 and 2020 (in thousands):

	December 31,
	2019			2020
Balance at January 1	$	41,185		$	52,222
Less reinsurance recoverable		(17,643	)		(28,837	)
Net balance at January 1		23,542			23,385
Incurred related to:
Current year		31,706			16,140
Prior years		(1,082	)		4,793
Total incurred		30,622			20,933
Paid related to:
Current year		17,032			6,425
Prior years		13,747			14,741
Total paid		30,779			21,166
Net balance at end of period		23,385			23,152
Plus reinsurance recoverable		28,837			33,941
Balance at end of period	$	52,222		$	57,093

F-24

These reserve estimates are generally the result of ongoing analysis of recent loss development trends and emerging historical experience. Original estimates are increased or decreased as additional information becomes known regarding individual claims. In setting reserves, the Company reviewed its loss data to estimate expected loss development. Management believes that the use of sound actuarial methodology applied to its analyses of historical experience provides a reasonable estimate of future losses. However, actual future losses may differ from the Company’s estimates, and future events beyond the control of management, such as changes in law, judicial interpretations of law and inflation, may favorably or unfavorably impact the ultimate settlement of the Company’s losses and LAE.

The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and LAE. While anticipated price increases due to inflation are considered in estimating the ultimate claim costs, the increase in average severities of claims is caused by a number of factors that vary with the individual type of policy written. Future average severities are projected based on historical trends adjusted for implemented changes in underwriting standards, policy provisions, and general economic trends.

The estimation of unpaid losses and LAE reserves is based on existing factors at the date of estimation. Accordingly, future events may result in ultimate losses and LAE significantly varying from a reasonable provision as of the date of estimation. Unfavorable development of claims in future years could result in a significant negative impact on operations, stockholders’ surplus, and risk-based capital. Such development, if not offset by other increases in stockholders’ surplus, could result in the insurance departments of the state of domicile taking regulatory actions against the Company.

In 2019, the Company experienced favorable development on losses and LAE from prior accident years driven by lower-than-estimated severity of collision claims in 2018. In 2020, the Company experienced unfavorable development on losses and LAE from prior accident years as a result of adverse LAE development. The Company has not had any unfavorable prior year claim experience on retrospectively rated policies. However, the business to which the development relates is subject to premium adjustments.

The following is supplementary information about average historical claims duration as of December 31, 2020. Given the stage of the Insurance Company, historical data for claims is limited to five years.

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years	1		2		3		4		5		6	7	8	9	10
Automobile	47	%	28	%	11	%	9	%	3	%

F-25

The following is information about incurred and paid claims development as of December 31, 2020, net of reinsurance, as well as cumulative claim frequency and the total of incurred-but-not-reported (“IBNR”) liabilities plus expected development on reported claims included within the net incurred claims amounts.

The information about incurred and paid claims development for the years ended December 31, 2011 to December 31, 2020, including claim frequency, is presented below. The Company tracks claim frequency by individual claimant (dollars in thousands).

	Automobile																				As of December 31, 2020
	Incurred loss and loss adjustment expenses, net of reinsurance For the Years Ended December 31,																				Total of IBNR Liabilities Plus Expected Development on Reported		Cumulative Number of Reported
Accident Year	2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018*		2019*		2020		Claims		Claims
2011	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-		-
2012						-		-		-		-		-		-		-		-		-		-
2013								-		-		-		-		-		-		-		-		-
2014										-		-		-		-		-		-		-		-
2015												-		-		-		-		-		-		-
2016												2,530		3,107		2,818		3,030		3,215		29		1,633
2017														34,309		36,244		36,326		37,529		793		29,121
2018																37,879		36,501		38,657		2,448		44,090
2019																		31,705		32,954		5,220		51,016
2020																				16,140		7,469		36,291
Total																			$	128,495

F-26

	Automobile
	Cumulative paid loss and loss adjustment expenses, net of reinsurance
	For the Years Ended December 31,
Accident Year	2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018*		2019*		2020
2011	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
2012						-		-		-		-		-		-		-		-
2013								-		-		-		-		-		-		-
2014										-		-		-		-		-		-
2015												-		-		-		-		-
2016												1038		2,254		2,640		3,004		3,096
2017														21,246		29,988		33,987		36,121
2018																20,771		30,154		34,465
2019																		17,032		25,235
2020																				6,426
Total																				105,343
All outstanding liabilities before 2011, net of reinsurance																				-
Liabilities for loss and LAE, net of reinsurance																			$	23,152

* Unaudited required supplemental information

F-27

The following table reconciles the incurred and paid claims development to the liability for losses and loss adjustment expenses for the year ended December 31, 2020 (in thousands):

Total incurred losses and loss adjustment expenses, net of reinsurance	$	128,495
Total paid losses and loss adjustment expenses, net of reinsurance		(105,343	)
Liabilities for loss and LAE, net of reinsurance		23,152
Reinsurance recoverable on losses and LAE		33,941
Loss and loss adjustment expense reserves, gross of reinsurance	$	57,093

9. Reinsurance

The Company uses reinsurance contracts to protect itself from losses due to concentration of risk and to manage its operating leverage ratios. Effective May 1, 2017, two quota-share reinsurance agreements were entered into under which 85% of the Company’s premiums and losses related to its renewal business occurring May 1, 2017 through April 30, 2018 were ceded to two unaffiliated reinsurers. Effective May 1, 2018, three quota-share reinsurance agreements were in place whereby 85% of the Company’s premiums and losses related to its second term renewal business occurring May 1, 2018 through April 30, 2019, but not covered by the earlier quota-share agreements, were ceded to three unaffiliated reinsurers. Effective May 1, 2019, four quota-share reinsurance agreements were in place whereby 85% of the Company’s premiums and losses, subject to a loss corridor, related to its new and renewal business occurring May 1, 2019 through April 30, 2020, but not covered by the earlier quota-share agreements, were ceded to four unaffiliated reinsurers. Effective May 1, 2020, four quota-share reinsurance agreements were in place whereby 85% of the Company’s premiums and losses, subject to a loss corridor for one agreement, related to its new and renewal business occurring May 1, 2020 through April 30, 2021, but not covered by the earlier quota-share agreements, were ceded to five unaffiliated reinsurers. In addition, under the reinsurance agreements effective May 1, 2017 and May 1, 2018, LAE is ceded at a fixed rate of 3% of ceded earned premium. Under the reinsurance agreement effective May 1, 2019, LAE is ceded at a fixed rate of 6% of ceded earned premium and will be revalued effective May 1, 2021. Under the reinsurance agreement effective May 1, 2020, LAE is ceded at a fixed rate of 4.75 – 6.0% of ceded earned premium. For the reinsurance agreements effective May 1, 2017 and May 1, 2018, the Company receives a 10.2% ceding commission, sliding based on loss ratios of the ceded business. For the reinsurance agreement effective May 1, 2019, the Company receives a 10.0% ceding commission. For the reinsurance agreement effective May 1, 2020, the Company receives a 10.0 – 11.75% ceding commission, sliding based on loss performance of the ceded business.

In addition, the Company receives revenue from the reinsurers related to the acquisition costs incurred related to the ceded policies. The revenue is based on the number of policies newly ceded to the reinsurers. During the years ended December 31, 2019 and 2020 the Company received $25.2 million and $11.3 million respectively, for acquisition costs from the reinsurers, pursuant to the existing reinsurance agreements. This revenue is recorded in other revenue on the consolidated statements of operations.

F-28

The insurance company is not relieved of its primary obligations to policyholders as a result of any reinsurance agreements. The credit risk associated with the Company’s reinsurance contracts is mitigated by using a diverse group of reinsurers and monitoring their financial strength ratings. The reinsurance counterparties and their A.M. Best financial strength rating are as follows: Mapfre Re (A), Cincinnati Insurance Company (A+), Partner Re (A+), Horseshoe Re (not rated), and Topsail Re (not rated). For reinsurance counterparties not rated, adequate levels of collateral are required either in the form of a letter of credit or funded trust account.

The effect of the Company’s reinsurance agreements on premiums, loss and LAE related to the insurance company for the years ended December 31, 2019 and 2020 is as follows (in thousands):

	December 31, 2019
	Premium			Premium			Unearned			Losses and LAE			Loss and LAE
	Written			Earned			Premium			Incurred			Reserves
Direct	$	103,280		$	102,238		$	15,171		$	87,359		$	52,222
Ceded		(79,678	)		(75,608	)		(12,904	)		(56,736	)		(28,837	)
Net	$	23,602		$	26,630		$	2,267		$	30,623		$	23,385

	December 31, 2020
	Premium			Premium			Unearned			Losses and LAE			Loss and LAE
	Written			Earned			Premium			Incurred			Reserves
Direct	$	100,611		$	99,712		$	16,070		$	74,943		$	57,093
Ceded		(85,504	)		(84,740	)	($	13,668	)		(54,010	)		(33,941	)
Net	$	15,107		$	14,972		$	2,402		$	20,933		$	23,152

10. Notes Payable, net

The following table summarizes the Company’s debt outstanding, net of issuance costs (in thousands):

	December 31,
	2019			2020
2019 Loan and Security Agreement		25,000			25,000
Subordinated Note Purchase and Security Agreement		-			32,461
Paycheck Protection Program Loan		-			5,880
Principal Amount Due		25,000			63,341
Less: Unamortized debt issuance costs and discounts		(898	)		(11,407	)
Notes payable, net	$	24,102		$	51,934

F-29

Paycheck Protection Program Loan

In April 2020, the Company was granted a loan under the Paycheck Protection Program offered by the Small Business Administration under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), section 7(a)(36) of the Small Business Act for approximately $5,900,000. The loan was evidenced by a promissory note and bore interest at 1% with payments deferred for 10 months after the covered period of 24 weeks. Monthly payments of principal and interest of approximately $330,000 would have begun in September 2021 and continued through maturity in April 2022, if required. The loan was subject to partial or full forgiveness if the Company: used all proceeds for eligible purposes; maintained certain employment levels; and maintained certain compensation levels in accordance with and subject to the CARES Act and the rules, regulations and guidance. This loan was repaid in February 2021 and is no longer outstanding (see Note 19).

Subordinated Note Purchase and Security Agreement

In April 2020, the Company entered into a subordinated debt transaction (the “Note Purchase and Security Agreement”) with Hudson Structured Capital Management and an affiliate (collectively, “Hudson”) with borrowings totaling $31.6 million through December 31, 2020 in the aggregate, along with $0.9 million of capitalized payment in kind (“PIK”) interest. The transaction further provided for additional funds up to $15.0 million over time, from Hudson, the timing of which was subject to reinsurance settlement timing. The outstanding principal under the Note Purchase and Security Agreement was due in April 2025 and bore interest at the following rates: 2% per annum payable quarterly in arrears in cash, and a varying interest rate of 9.0% to 11.0% of PIK interest. The PIK interest was based on the aggregate outstanding principal balance as follows: (i) 11.0% if the outstanding balance was less than $5.0 million; (ii) 10.0% if the outstanding balance was greater than or equal to $5.0 million but less than $10.0 million, and (iii) 9.0% if the outstanding balance was greater than or equal to $10.0 million. PIK interest represents contractually deferred interest that is added to the principal balance outstanding and due at maturity. The loan was secured by substantially all assets of the Company. As of December 31, 2020, the outstanding principal and capitalized PIK interest on the Note Purchase and Security Agreement was $32.5 million, along with $0.6 million of accrued PIK interest not subject to capitalization as of such date. This loan was repaid in March 2021 and is no longer outstanding (see Note 19).

As part of the Note Purchase and Security Agreement, the Company issued warrants for up to 8,536,938 of Series E convertible preferred shares, which the Company estimated to have a fair value of $12.5 million at issuance which was recorded as a discount to the debt and is being amortized to interest expense over the term of the debt. These warrants were exercised in February 2021 and are no longer outstanding (see Note 19).

2019 Loan and Security Agreement

In December 2019, the Company entered into a Loan and Security Agreement (the “2019 Loan and Security Agreement”) with a group of lenders for a term loan in the amount of $25.0 million. Minimum payments of interest were due monthly through December 2021. Beginning in January 2022, equal payments of principal would have been due monthly in an amount necessary to fully amortize the loan by June 5, 2024. An end of term payment of $0.6 million was due at maturity or date of any prepayment. At the time of origination, the lender was granted a warrant to purchase Series E convertible preferred stock, estimated to have a fair value of $0.5 million at issuance. The warrants were exercised in February 2021 and are no longer outstanding (see Note 19). The loan was secured by substantially all assets of the Company. The Company was required to obtain the lender’s consent regarding certain dispositions, and changes in business, management, or ownership including mergers and acquisitions, as more fully described in the 2019 Loan Agreement. The balance outstanding net of debt issuance costs for the 2019 Loan Agreement was $24.1 million and $24.3 million as of December 31, 2019 and 2020, respectively.

F-30

The loan was able to be prepaid in an amount equal to the outstanding principal, accrued interest, and the end of term fee, plus a prepayment charge of 3% if paid in the first year after the effective date, 2% if paid in the second year after the effective date, or 1% if prepaid after the second year subsequent to the effective date. The following table summarizes the principal amounts due on the Company’s outstanding debt as of December 31, 2020 (in thousands):

Year Ended December 31,	Amount
2021	$	1,307
2022		14,573
2023		10,000
2024		5,000
2025		32,461
Thereafter		-
Total minimum principal payments	$	63,341

This loan was prepaid in February 2021 and is no longer outstanding (see Note 19).

11. Commitments

The Company leases facilities in San Francisco, California, which is the corporate headquarters, Tempe, Arizona and Boston, Massachusetts, as well as certain equipment. The leases are non-cancellable operating leases that expire on various dates through 2030.

Future minimum lease payments relating to these agreements as of December 31, 2020, are as follows (in thousands):

Year Ended December 31,	Purchase Obligations		Leases		Total
2021	$	3,949	$	3,276	$	7,225
2022		-		3,093		3,093
2023		-		3,181		3,181
2024		-		3,190		3,190
2025		-		2,433		2,433
Thereafter		-		11,186		11,186
Total minimum lease payments	$	3,949	$	26,359	$	30,308

In 2019, the company entered into a new lease for office space in San Francisco, CA. This lease commenced in August 2019 and includes minimum lease payments of approximately $22.6 million in total through March 2030.

F-31

The Company moved into the new San Francisco office space in March 2020. The Company exited the prior office space in February 2020 and ceased lease payments at that time in accordance with an executed updated lease agreement. For the years ended December 31, 2019, and 2020, rent expense was approximately $3.2 million, and $2.9 million, respectively, included as part of other operating expenses on the Company’s consolidated statements of operations.

The Company was not a party to any material litigation, regulatory actions, or arbitration other than what is routinely encountered in claims activity and routine regulatory examinations, none of which is expected by the Company to have a materially adverse effect on the Company’s financial position or operations and/or cash flow as of December 31, 2019 and 2020.

12. Convertible Preferred Stock and Common Stock

Series E-1 Conversion to Series D

In April 2020, the Company amended the conversion rights of non-voting convertible Series E-1 preferred stock to provide for conversion on a 1:1 basis into shares of convertible Series D preferred stock. In December 2020, holders of non-voting convertible Series E-1 preferred stock elected to convert 6,197,651 shares into an equivalent number of shares of convertible Series D preferred stock in accordance with the amended convertible Series E-1 preferred stock conversion rights. Upon conversion of the Series E-1 convertible preferred stock to Series D convertible preferred stock, which had an equivalent fair value on the date of conversion, approximately $31.9 million was reclassified within the Company’s consolidated balance sheets for the balances of such classes of shares of convertible preferred stock, based on an original issue price and liquidation preference of $5.1549 per share for both classes of convertible preferred stock.

Authorized, Issued, and Outstanding Shares and Liquidation Preference

The authorized, issued, and outstanding shares of common stock and the authorized, issued, outstanding, and aggregate liquidation preference of the Company’s convertible preferred stock as of December 31, 2019 were as follows (dollars in thousands):

	December 31, 2019
	Number of Shares							Aggregate
			Issued and			Aggregate		Liquidation
Series	Authorized		Outstanding			Balance		Preference
Series A Senior		7,149,996		6,833,329		$	4,032	$	4,100
Series B Senior		5,716,573		5,716,573			9,949		10,000
Series C Senior		9,163,070		9,084,063			39,613		39,840
Series D Senior		19,076,254		18,627,495			93,727		96,023
Series E Senior		23,486,500		14,561,640			90,468		93,001
Series E-1 Senior (non-voting)		11,238,520		11,238,519			57,933		57,933
Junior Preferred		1,666,667		1,666,667			1,479		1,500
		77,497,580		67,728,286		$	297,201	$	302,397
Common stock:
Shares		96,000,000		8,730,794
Less shares subject to restriction		-		(417	)
Total		96,000,000		8,730,377

F-32

The authorized, issued, and outstanding shares of common stock and the authorized, issued, outstanding, and aggregate liquidation preference of the Company’s convertible preferred stock as of December 31, 2020 were as follows (dollars in thousands):

	December 31, 2020
	Number of Shares						Aggregate
			Issued and		Aggregate		Liquidation
Series	Authorized		Outstanding		Balance		Preference
Series A Senior		7,149,996		6,833,329	$	4,032	$	4,100
Series B Senior		5,716,573		5,716,573	$	9,949	$	10,000
Series C Senior		9,163,070		9,084,063	$	39,613	$	39,840
Series D Senior		29,985,545		24,825,146	$	125,675	$	127,971
Series E Senior		23,486,500		14,561,640	$	90,468	$	93,001
Series E-1 Senior (non-voting)		11,238,520		5,040,868	$	25,985	$	25,985
Junior Preferred		1,666,667		1,666,667	$	1,479	$	1,500
		88,406,871		67,728,286	$	297,201	$	302,397
Common stock		110,000,000		8,855,395

Convertible Preferred Stock

All convertible preferred stock converted into common stock February 2021 and is no longer outstanding (see Note 19). Significant terms of the outstanding convertible preferred stock series were as follows:

Dividends — Each share of Series A, Series B, Series C, Series D, Series E, and Series E-1 convertible preferred stock (“Senior convertible preferred stock”) was entitled to receive, when and if declared by the Company’s Board of Directors, noncumulative dividends at an annual rate of $0.0480 for Series A convertible preferred stock, $0.1399 for Series B convertible preferred stock, $0.3509 for Series C convertible preferred stock, $0.4124 for Series D convertible preferred stock, $0.5109 for Series E convertible preferred stock, and $0.4124 for Series E-1 convertible preferred stock payable in preference and priority to any distributions made to holders of Junior convertible preferred stock or common stock. After the payment of dividends to holders of Senior convertible preferred stock, the holders of Junior convertible preferred stock were entitled to receive, when and if declared by the Company’s Board of Directors, noncumulative dividends at an annual rate of $0.0720 per share. Additional dividends or distributions would have been distributed among all holders of common stock and convertible preferred stock pro-rata on the number of shares of common stock held by each assuming full conversion of all preferred stock. No dividends could have been paid on the common stock until the dividends on the Senior preferred stock and Junior preferred stock were paid. No dividends have been declared to date.

F-33

Voting Rights — Each holder of common stock is entitled to one vote for each share. The holders of each share of Series A convertible preferred Stock, Series B convertible preferred stock, Series C convertible preferred stock, Series D convertible preferred stock, Series E convertible preferred stock, and Junior convertible preferred stock (collectively, the “Voting convertible preferred stock”) were entitled to the number of votes equal to the number of shares of common stock into which such shares could then be converted and have voting rights and powers equal to the voting rights and powers of the common stock. The holders of the Voting convertible preferred stock, voting as a separate class, were entitled to elect three directors to the Company’s Board of Directors. The holders of the Company’s common stock were entitled to elect two directors to the Company’s Board of Directors. The holders of the common stock and Senior convertible preferred stock, voting as a single class of stock, assuming a full conversion, elected all remaining directors of the Company. The Company was prohibited from taking certain material actions unless approved by the holders of 60% of the then outstanding shares of Voting convertible preferred stock. The holders of Series E-1 convertible preferred stock did not have any voting rights.

For so long as any shares of Series E convertible preferred stock remained outstanding (as adjusted for any recapitalization), the Company could not (by amendment, merger, consolidation, or otherwise), without first obtaining the approval (by vote or written consent as provided by law) of the holders of at least 60% of the outstanding shares of the Series E convertible preferred stock (voting together as a single class and on an as-converted basis), have taken any action that altered or changed the rights, preferences, privileges, or powers of the Series E convertible preferred stock in a manner that adversely affects the holders thereof differently than the holders of any other series of convertible preferred stock.

Liquidation — In the event of any liquidation, dissolution, or winding up of the Company, either voluntary or involuntary, the holders of Senior convertible preferred stock were entitled to receive, prior and in preference to any distributions of assets to the holders of the Junior convertible preferred stock or the common stock, an amount equal to the sum of any declared but unpaid dividends plus a liquidation preference per share of $0.6000 for Series A convertible preferred stock, $1.7493 for Series B convertible preferred stock, $4.3857 for Series C convertible preferred stock, $5.1549 for Series D convertible preferred stock, $6.3867 for Series E convertible preferred stock, and $5.1549 for Series E-1 convertible preferred stock.

If upon any liquidation, dissolution, or winding up of the Company, the available funds and assets to be distributed to the holders of the Senior convertible preferred stock were insufficient to permit the payment to such stockholders of their full preferential amount, then all of the available funds and assets were to be distributed among the holders of Senior convertible preferred stock pro-rata according to the number of outstanding shares held by each holder thereof.

The Junior convertible preferred stockholders had a preference to common stockholders upon liquidation, dissolution, or winding up of the Company of $0.9000 per share plus any declared but unpaid dividends.

F-34

Redemption Rights — No shares of Senior convertible preferred stock, Junior convertible preferred stock, or common stock had redemption rights.

Conversion — The holders of the Senior and Junior convertible preferred stock had the option to convert each share into one share of common stock. The conversion price for the Senior and Junior convertible preferred stock was subject to adjustment to account for certain dilutive issuances including stock splits.

Shares of Senior and Junior convertible preferred stock would have converted automatically into shares of common stock at the conversion price at the time in effect for such Senior and Junior convertible preferred stock (i) immediately prior to the closing of a firm commitment underwritten initial public offering pursuant to a registration statement under the Securities Act of 1933, as amended, provided that the offering price per share was not less than $10.00 (as may be adjusted for stock splits, recapitalizations, and the like) and the aggregate gross proceeds to the Company were not less than $90.0 million, or (ii) upon the Company’s receipt of the written consent of the holders of at least 60% of the then outstanding shares of Voting convertible preferred stock (voting as a single class and on an as-converted basis) or, if later, the effective date for conversion specified in such requests to the conversion of all then outstanding shares of convertible preferred stock.

Pro-rata Participation and Other Rights — Pursuant to an Investor Rights Agreement between the Company and the holders of convertible preferred stock, “Significant Holders” (those holding more than 1,000,000 shares of convertible preferred stock) had the right to purchase their pro-rata portion of securities offered by the Company in the future, subject to customary exceptions. In the event that a Significant Holder did not purchase its pro-rata share, then the other participating Significant Holders could have elected to purchase the declined pro-rata allocation. The related agreements also contained various rights and obligations such as registration rights, obligations with respect to voting for director or in connection with a change of control, right of first refusal and co-sale rights, and anti-dilution adjustments, including price-based anti-dilution adjustments and adjustments for stock splits, stock dividends, and reclassifications, as more fully described therein.

The terms of all classes of convertible preferred stock included embedded conversion features related to anti-dilution. These conversion option provisions met the “fixed for fixed” and “clearly and closely related” criteria so the feature was not bifurcated from the host. The voting rights of the preferred stockholders provided for share redemption upon the occurrence of an event such as liquidation that was not solely within the control of the issuer. Accordingly, the preferred stock series have been presented as temporary or mezzanine equity in the accompanying consolidated balance sheets.

Common Stock

Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock then outstanding.

The Company has adequate authorized but unissued common stock available for outstanding instruments convertible into common stock as of December 31, 2019 and 2020.

F-35

Warrants

As of December 31, 2019, the following warrants were issued and outstanding:

						Exercise
Shares		Underlying	Reason	Warrants		Price
Subject to Warrants	Issue Date	Security	for Grant	Outstanding		per Share		Expiration
Series A Preferred	September 7, 2012	Series A Preferred	Financing		316,667	$	0.6000	5 years post IPO
Common	July 30, 2015	Common Stock	Services		76,000	$	0.8700	July 30, 2020
Series C Preferred	December 14, 2015	Series C Preferred	Financing		79,007	$	4.3857	December 14, 2025
Series D Preferred	July 16, 2018	Series D Preferred	Financing		112,500	$	5.1549	June 30, 2025
Series D Preferred	December 12, 2018	Series D Preferred	Financing		7,031	$	5.1549	December 12, 2025
Series E Preferred	December 5, 2019	Series E Preferred	Financing		341,477	$	6.3867	December 31, 2029

As of December 31, 2020, the following warrants were issued and outstanding:

						Exercise
Shares		Underlying	Reason	Warrants		Price
Subject to Warrants	Issue Date	Security	for Grant	Outstanding		per Share		Expiration
Series A Preferred	September 7, 2012	Series A Preferred	Financing		316,667	$	0.6000	5 years post IPO
Series C Preferred	December 14, 2015	Series C Preferred	Financing		79,007	$	4.3857	December 14, 2025
Series D Preferred	July 16, 2018	Series D Preferred	Financing		112,500	$	5.1549	June 30, 2025
Series D Preferred	December 12, 2018	Series D Preferred	Financing		7,031	$	5.1549	December 12, 2025
Series E Preferred	December 5, 2019	Series E Preferred	Financing		341,477	$	6.3867	December 31, 2029
Series E Preferred	July 29, 2020	Series E Preferred	Financing		8,536,938	$	6.3867	July 29, 2030
Series E Preferred	November 16, 2020	Series E Preferred	Other		35,000	$	8.7900	November 18, 2025

A discussion of the valuation methodology for the warrants exercisable for convertible preferred stock issued through 2020 is provided in Note 2, Fair Value of Financial Instruments. The value of these warrants at inception has been recorded as debt issuance costs on the loans with which they were issued, which have been accounted for as an adjustment to the effective rate of interest. The periodic adjustments to mark each warrant to fair value are recorded in the accompanying consolidated statements of operations. All warrants were exercised in February 2021 and are no longer outstanding (see Note 19).

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13. Stock Option Plan

In 2011, the Company’s Board of Directors adopted the 2011 Equity Incentive Plan (the “Plan”). The Plan provides for the granting of stock options to officers, directors, employees, and consultants of the Company. Options granted under the Plan may be Incentive Stock Options (“ISO”) or Nonstatutory Stock Options (“NSO”) as determined by the Board of Directors at the time of the option grant. Only employees are eligible for the grant of ISOs. Only employees, consultants, and outside directors will be eligible for the grant of NSOs or the award or the sale of shares.

The Board of Directors determines the period over which options become exercisable and options generally vest over a four-year period. However, no option will become exercisable after the expiration of ten years from the date of grant. The term of an ISO granted to a 10% stockholder will not exceed five years from the date of the grant. The exercise price of an ISO granted to a 10% stockholder will not be less than 110% of the estimated fair value of the shares on the date of the grant. The exercise price of an ISO granted to any employee other than 10% stockholder will not be less than 100% of the estimated fair value of the shares on the date of grant.

The exercise price of an NSO granted to a 10% stockholder will not be less than 100% of the estimated fair value of the shares on the date of the grant. The exercise price of an NSO granted to any grantee other than 10% stockholder will not be less than 85% the estimated fair value of the shares on the date of the grant. In the case of options intended to qualify as performance-based compensation, the exercise price will not be less than 100% of the estimated fair value of the shares on the date of the grant.

The Plan allows employees with the ability to “early exercise” stock options (the underlying shares of common stock are referred to as “restricted stock units” or “RSUs”). Early exercise allows employees to exercise a stock option into an RSU and remit cash consideration or a recourse note to the Company for the exercise price in exchange for the RSU but before the requisite service is provided (e.g., before the award is vested). Although on early exercise the employee is deemed to own the resulting shares for tax and legal purposes, the employee has exercised the stock option award before the employee actually vests in the award under its original terms. The RSU received by the employee contains a repurchase provision contingent on the employee’s termination prior to vesting. The repurchase price is the original exercise price. Consequently, the early exercise is not considered to be a substantive exercise for accounting purposes, and, therefore, the payment received by the employer for the exercise price is initially recognized as a liability and the shares are not deemed to be “outstanding” for accounting reporting purposes. As the RSU vests, the liability and underlying shares are reclassified from a liability to equity.

Pursuant to the Plan, the Company had reserved 14,177,581 shares of common stock for issuance as of December 31, 2019 and 2020. There were 2,485,921 and 2,011,981 shares of common stock available for future issuance as of December 31, 2019 and 2020, respectively.

The Company uses the Black-Scholes option pricing model to estimate the fair value of each option grant on the date of grant or modification. The Company amortizes the estimated fair value to stock compensation expense using the straight-line method over the vesting period of the option. The following is a description of the significant assumptions used in the option pricing model:

● Expected term — The expected term is the period of time when granted options are expected to be outstanding. In determining the expected term of options, the Company utilized the midpoint between the vesting date and contractual expiration date.

● Volatility — Because the Company’s stock is not traded in an active market, the Company calculates volatility by using the historical stock prices of comparable public companies.

● Risk-free interest rate — The Company bases the risk-free interest rate used in the Black-Scholes option valuation model on the rate of treasury securities with the same term as the options.

● Forfeiture rate — The weighted average forfeiture rate of unvested options.

● Expected dividends — The Company does not have plans to pay cash dividends in the future. Therefore, the Company uses an expected dividend yield of zero in the Black-Scholes option valuation model.

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The following assumptions were used to estimate the value of options granted during the years ended December 31, 2019 and 2020:

	Years ended December 31,
	2019	2020
Forfeiture rate	15.77% - 19.76%	19.62% - 25.76%
Volatility	45.00%	47.00% - 62.00%
Expected term (years)	6.02-6.08	4.95 - 7.00
Risk-free interest rate	1.39% - 2.49%	0.26% - 1.73%
Expected dividends	-	-

The following table summarizes the activity of the Company’s stock option plan:

						Weighted-
				Weighted-		Average		Aggregate
	Stock			Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value
	Options			Price		Term (Years)		(in thousands)
Outstanding as of December 31, 2018		5,697,328
Options granted		2,300,450		$	3.00
Options exercised		(797,961	)	$	1.72
Options cancelled or expired and returned to plan		(1,703,118	)	$	2.39
Outstanding as of December 31, 2019		5,496,699		$	2.38		7.97	$	6,642
Options granted		3,285,266		$	3.18
Options exercised		(125,018	)	$	1.94
Options cancelled or expired and returned to plan		(2,816,326	)	$	2.77
Outstanding as of December 31, 2020		5,840,621		$	2.65		8.10	$	70,192
Vested and expected to vest as of December 31, 2019		4,690,842		$	2.32		7.99	$	5,968
Vested and exercisable as of December 31, 2019		5,496,669		$	2.38		7.96	$	6,403
Vested and expected to vest as of December 31, 2020		4,443,952		$	2.49		7.55	$	52,705
Vested and exercisable as of December 31, 2020		2,161,405		$	2.03		6.38	$	27,324

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The fair value of stock options granted are recognized as compensation expense in the consolidated statements of operations over the related vesting periods. The weighted-average grant date fair value per share of stock options granted during the years ended December 31, 2019 and 2020 was $3.00 and $3.18, respectively. As of December 31, 2019 and 2020, there was approximately $2.8 million and $3.3 million of unrecognized stock-based compensation cost related to stock options granted under the Plan, respectively, which is expected to be recognized over an average period of 2.62 years and 2.83 years, respectively.

Awards with performance conditions and no service conditions are expensed when the performance condition is deemed probable of being achieved and is based on the fair value of the award at that time. As of December 31, 2020, the Company had granted 550,000 options with performance conditions. These options have no required service period. As of December 31, 2020, the performance conditions were not deemed probably of being met and therefore no corresponding stock-based compensation expense was recorded.

The contingent obligation related to RSUs as of December 31, 2019, and 2020 was $1,000, and $0, respectively.

The following table illustrates stock-based compensation expense for employee and nonemployee options for the years ended December 31, 2019 and 2020 (in thousands).

	Years Ended December 31, 2020
	2019		2020
Cost of revenues	$	56	$	104
Research and development		525		714
Sales and marketing		115		44
Other operating expenses		731		595
Total stock-based compensation	$	1,427	$	1,457

The amounts capitalized as part of website and software development costs for the years ended December 31, 2019 and 2020 was $0.4 million and $0.5 million, respectively.

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14. 401(k)

The Company has a 401(k) retirement plan that covers all employees who have met certain eligibility requirements. The 401(k) plan provides for voluntary contributions by employees of up to 90% of their eligible compensation, subject to the maximum allowed by law. The Company is not required to make contributions to the plan but can make discretionary contributions. The Company did not make any contributions to the plan during the years ended December 31, 2019 or 2020.

15. Income Taxes

The components of the Company’s federal income tax expense (benefit) are as follows:

	As of December 31,
	2019		2020
Current	$	-	$	-
Deferred		37		(84	)
Income tax expense (benefit)	$	37	$	(84	)

The following table presents a reconciliation of the tax expense (benefit) based on the statutory rate to the Company’s actual tax expense (benefit) in the consolidated statements of operations:

	As of December 31,
	2019			2020
Statutory tax expense (benefit)	$	(12,001	)	$	(25,241	)
Warrants - mark to market		19			14,552
Research and development		(1,530	)		(1,170	)
Change in valuation allowance		13,488			11,435
Other, net		61			340
Income tax expense (benefit)	$	37		$	(84	)

The effective income tax rate differs from the statutory federal rate, primarily due to non-deductible warrants and valuation allowance.

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The following table summarizes information regarding the Company’s net deferred tax assets and the valuation allowance (in thousands):

	As of December 31,
	2019			2020
Deferred tax assets:
Net operating loss carryforwards	$	61,824		$	73,364
Tax credit forwards		3,704			4,780
Unearned premium reserves		97			103
Discounting of unpaid losses		155			167
Stock compensation		395			501
Other		-			1,048
Total deferred tax assets		66,175			79,963
Deferred tax liabilities:
Depreciation & Amortization		(3,914	)		(3,691	)
Other		(185	)		-
Total deferred tax liabilities		(4,099	)		(3,691	)
Net deferred tax assets		62,076			76,272
Less valuation allowance		(62,160	)		(76,272	)
Balance end of year	$	(84	)	$	-

Realization of deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which are uncertain. The Company is also in a cumulative loss position. Accordingly, net deferred tax assets have been fully offset by a valuation allowance.

As of December 31, 2020, the Company had federal and state net operating loss (“NOL”) carryforwards of approximately $279 million and $258 million, respectively. As of December 31, 2019, the Company had federal and state net operating loss carryforwards of approximately $236 million and $217 million, respectively. Of the Company’s NOLs, $142 million of federal losses will begin to expire in the years 2031 through 2040 and $137 million of losses can be carried forward indefinitely. State NOL’s have varying expiration periods, beginning from 2027 to 2038.

As of December 31, 2020, the company had federal and state research and development tax credit carryforwards of approximately $4 million and $3 million, respectively. As of December 31, 2019, the company had federal and state research and development tax credit carryforwards of approximately $3 million and $2 million, respectively. The federal tax credit carryforwards expire at various dates beginning in 2033 if not utilized. The state tax credit carryforwards do not expire.

In October 2016, the Company underwent a change of control under Section 382 of the Internal Revenue Code by the purchase of interest by additional investors. The company is not expected to lose any deferred tax assets as a result of these limitations. The Company may experience ownership changes in the future as a result of subsequent shifts in its stock ownership.

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Uncertain Tax Positions

The following is a reconciliation of the beginning and ending amount of the Company’s total gross unrecognized tax benefit liabilities (in thousands):

	Year Ended December 31,
	2019		2020
Gross unrecognized tax benefit, beginning of the year	$	854	$	1,364
Increases related to tax positions taken during current year		510		390
Gross unrecognized tax benefit, ending balance	$	1,364	$	1,754

As of December 31, 2020, all unrecognized tax benefits, if realized, would be subject to a full valuation allowance and, and would not affect the Company’s tax rate.

The Company does not anticipate that the total amounts of unrecognized tax benefits will significantly increase or decrease in the next 12 months.

A number of the Company’s tax returns remain subject to examination by taxing authorities. These include U.S. federal returns and returns for certain states for 2011 and later years.

The Company is not currently under examination by income tax authorities in any federal or state jurisdictions.

16. Segment and Geographic Information

The Company operates in the following two reportable segments, which are the same as its operating segments:

- Insurance Services. Providing insurance policies for automobile owners

- Enterprise Business Solutions. Providing access to its developed technology under SaaS arrangements along with professional services to third party customers.

Operating segments are based upon the nature of the Company’s business and how its business is managed. The Company’s Chief Operating Decision Maker (“CODM”) is its Chief Executive Officer. The CODM uses the Company’s operating segment financial information to evaluate segment performance and to allocate resources. The CODM does not evaluate the performance of the Company’s assets on a segment basis for internal management reporting and, therefore, such information is not presented.

Contribution is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. Segment contribution is segment revenue less the related costs of revenue and sales and marketing expenses. It excludes certain operating expenses that are not allocated to segments because they are separately managed at the consolidated corporate level. These unallocated costs include stock-based compensation expense, research and development expenses, and general and administrative expenses such as legal and accounting.

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The total assets of Insurance services and Enterprise business solutions segments are $196.1 million and $6.1 million respectively. The consolidated total assets of Operating segments are $202.2 million.

The following table summarizes the operating results of the Company’s reportable segments (in thousands):

	Years Ended December 31,
	2019			2020
Revenue:
Insurance services	$	51,955		$	29,395
Enterprise business solutions		800			5,669
Total revenue	$	52,755		$	35,064
Contribution:
Insurance services	$	1,545		$	11,914
Enterprise business solutions		(2,817	)		(563	)
Total contribution	$	(1,272	)	$	11,351

The following table provides a reconciliation of the Company’s total reportable segments’ contribution to its total loss from operations (in thousands):

	Years Ended December 31,
	2019			2020
Total segment contribution	$	(1,272	)	$	11,351
Ceded premium, losses and LAE		(7,304	)		15,443
Other income		1,849			2,421
Policy services expenses and other		2,100			2,676
Sales, marketing, and other acquisition costs		23,553			5,029
Research and development		5,839			2,433
Amortization of capitalized software		10,648			11,188
Other operating expenses		18,896			16,981
Loss from operations	$	(56,853	)	$	(44,820	)

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Geographical Breakdown of Direct Earned Premiums

Direct earned premium by state is as follows (in thousands):

	Years Ended December 31,
	2019		2020
California	$	59,287	$	58,276
Washington		10,765		11,391
New Jersey		10,353		9,155
Oregon		8,066		7,232
Illinois		5,168		4,474
Arizona		3,304		4,527
Pennsylvania		3,418		2,932
Virginia		1,877		1,725
Total premiums earned	$	102,238	$	99,712

During the years ended December 31, 2019 and 2020, the Company recognized $0.8 million, and $5.7 million of revenue earned from customers outside the United States, respectively. Long-lived assets are all held in the U.S. For the years ended December 31, 2019 and 2020, substantially all of the Company’s revenue was earned from customers residing in the United States.

17. Related-Party Transactions

In August 2014, the Company loaned the Chief Executive Officer (“CEO”) $0.4 million with interest at 3.09% and adjusted to 1.5% in April 2020, which was used to early exercise stock options issued to the CEO and was due at the earlier of one year after termination of employment, upon an Initial Public Offering or change in control, or ten years from the date issued. The loan was full recourse, and also collateralized by the underlying common shares. For accounting under GAAP, the note receivable is presented as contra-equity in the accompanying consolidated balance sheets. This loan was paid in full in February 2021 and is no longer outstanding (see Note 19).

In March 2018, the Company entered into an agreement with a third party under which the Company developed proprietary software solutions and provides access to and use of such software solutions and related services. In July 2018, the third party became an investor of the Company as part of the Series E convertible preferred stock Financing. During the years ended December 31, 2019 and 2020, the Company recognized $0.8 million and $5.7 million of revenue from the investor, respectively. The Company had no outstanding accounts receivable balances from the investor as of December 31, 2019 and 2020. The Company continues to enter into contracts with the investor related to the Company’s Enterprise business solutions (see Note 16, Segment and Geographic Information).

An executive of Hudson, who the Company entered into a Note Purchase and Security Agreement with in 2020 (see Note 10, Notes Payable, net), is on the Company’s Board of Directors. This loan was repaid in March 2021 and is no longer outstanding (see Note 19).

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18. Statutory Financial Information

The Insurance Company is subject to regulation and supervision in each of the jurisdictions where it is domiciled and licensed to conduct business. Generally, regulatory authorities have broad supervisory and administrative powers over such matters as licenses, standards of solvency, premium rates, policy forms, investments, security deposits, methods of accounting, form and content of financial statements, reserves for unpaid loss and LAE, reinsurance, minimum capital and surplus requirements, dividends and other distributions to stockholders, periodic examinations, and annual and other report filings. Such regulation is generally for the protection of the policyholders rather than stockholders. The NAIC uses risk-based capital standards for property and casualty insurers as a means of monitoring the financial strength of insurance companies.

The Company maintained statutory capital and surplus and had statutory net loss as of and for the years ended December 31, 2019 and 2020 as follows (in thousands):

	Years Ended December 31
	2019			2020
Statutory capital and surplus	$	25,076		$	22,453
Statutory net loss	$	(3,595	)	$	(2,078	)

The policyholder’s surplus of the Insurance Company as of December 31, 2020 included capital contributions from Metromile of $18.6 million.

Dividend payments are restricted by the laws of the State of Delaware. The maximum amount that can be paid without prior notice or approval is the greater of 10% of surplus as regards policyholders as of the preceding December 31 or net income not including realized capital gains for the twelve-month period ending the preceding December 31. Because the Company has an unassigned deficit at December 31, 2019 and 2020, the Company’s dividend policy is governed by Section 5005(B) of the Delaware insurance code whereby a domestic insurer may not declare or pay a dividend or other distribution from any source other than earned surplus without the commissioner’s prior approval. The Insurance Company paid no dividends to the Company in 2019 or 2020.

The Insurance Company is subject to certain risk-based capital (“RBC”) requirements as specified by the National Association of Insurance Commissioners (“NAIC”). Under these requirements, the amount of capital and surplus maintained by an insurance company is to be determined based on the various risk factors related to it. As of December 31, 2019 and 2020, the Insurance Company’s capital and policyholders’ surplus exceeded the minimum RBC requirements.

19. Subsequent Events

In January 2021, the Company received additional loan proceeds of $2.0 million related to the Note Purchase and Security Agreement (see Note 10) with Hudson. In March 2021, the Company repaid its outstanding obligations on this loan in the amount of $37.0 million.

In February 2021, the Company completed a business combination (“Merger”) with INSU Acquisition Corp. II (“INSU”), where the Company merged with the subsidiary INSU, with Metromile surviving the merger as a wholly owned subsidiary of INSU. In connection with the transaction, the Company repaid its outstanding obligations on Paycheck Protection Program Loan and 2019 Loan (see Note 10) in the amount of $5.9 million and $26.5 million respectively.

In February 2021, Metromile Insurance Company entered into a settlement agreement with Horseshoe Re Limited (“Horseshoe”) to commute the reinsurance agreements between the two parties with effective dates beginning May 1, 2017, May 1, 2018, and May 1, 2019. Pursuant to the settlement, Metromile Insurance Company paid approximately $9 million, net, for commutation of the underlying agreements.

In February 2021, the loan to the CEO was repaid in full, including interest using shares of common stock.

In February 2021, a performance-based stock option award with the CEO was amended such that the performance condition was met upon consummation of the Merger. 

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EX-99.2

Exhibit 99.2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our results of operations and financial condition. This discussion and analysis should be read together with the consolidated financial statements and related notes thereto that are attached as Exhibit 99.1 to this Amendment No. 2 to our Current Report on Form 8-K, originally filed on February 11, 2021. In addition to historical financial information, this discussion contains forward-looking statements based upon our current expectations that involve risks and uncertainties, including those set forth under the section entitled “Risk Factors” included in our Annual Report on Form 10-K (the “Form 10-K”). Please also see the section entitled “Cautionary Note Regarding Forward-Looking Statements” in the Form 10-K. Our actual results could differ materially from such forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in the Form 10-K.

On February 9, 2021, (the “Closing Date”), we completed the previously announced business combination pursuant to that certain Agreement and Plan of Merger and Reorganization, dated November 24, 2020, as amended on January 12, 2021 and February 8, 2021 (the “Merger Agreement”), by and among INSU Acquisition Corp. II (“INSU”), INSU II Merger Sub Corp., a Delaware corporation and direct wholly owned subsidiary of INSU (“Merger Sub”) and Metromile Operating Company (formerly known as MetroMile, Inc.), a Delaware corporation (“Legacy Metromile”). Pursuant to the terms of the Merger Agreement, a business combination between INSU and Legacy Metromile was effected through the merger of Merger Sub with and into Legacy Metromile, with Legacy Metromile continuing as the surviving entity and a wholly owned direct subsidiary of the Company (the “Merger” and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”). On the Closing Date, and in connection with the closing of the Merger, INSU changed its name to Metromile, Inc. Unless the context indicates otherwise, references in this discussion to the “Company,” “Metromile,” “we,” “us,” “our” and similar terms refer to Legacy Metromile and its consolidated subsidiaries prior to the consummation of the Business Combination.

Overview

We started Metromile based on the simple observation that the physical world is being increasingly digitized, that this digital data can be used to better estimate the future, and that the best opportunity to create value for everyday customers in an increasingly predictable world is to reinvent insurance, one of the largest and most important global markets.

At its core, insurance financially protects the insured customer from the occurrence of specific future events. If these events can be more accurately estimated, using data and data science, then the insurance provided can be more accurately priced — lower likelihood events would cause the price of insurance to go down and higher likelihood events would cause the price of insurance to go up. The proliferation of sensor data, from cars, mobile phones, and elsewhere, means we have a greater ability to estimate the likelihood of future events and, thus, help many customers who are overpaying for insurance save money.

We founded Metromile in 2011 to realize this opportunity and tackle the broken auto insurance industry. With data science as our foundation, we offer our insurance customers real time, personalized auto insurance policies, priced and billed by the mile, with rates based on precisely how and how much they actually drive, instead of using the industry standard approximations and estimates that make prices unfair for most customers.

Through our digitally native offering, built around the needs of the modern driver, we believe our per-mile insurance policies save our customers, on average, 47% over what they were paying their previous auto insurer. We base this belief on data our customers self-reported in 2018 with respect to premiums paid to providers before switching to Metromile.

We believe the opportunity for our personalized per-mile insurance product is significant. Federal Highway Administration data indicates that approximately 35% of drivers drive more than half the total miles driven. We believe there is a correlation between the number of miles driven and the number of insurable losses. An October 2016 report by the Insurance Information Institute noted that the increase in claims frequency appears directly linked to the increase in the number of miles driven. Notwithstanding the relationship between miles driven and claims, auto insurance premiums have historically been priced based on a driver’s “class” — and drivers are charged the same basic premium rate as others in their class no matter the actual miles driven. In the traditional pricing model, a driver’s age, credit score, accident history, and geography influences the premium paid more than the actual miles driven. Thus, the 35% of drivers who account for more than half the total miles driven are not paying premiums based on how often they are behind the wheel and increasing the potential for an insurable loss claim. We believe the traditional pricing model is inherently unfair to the majority of drivers — the 65% of drivers who drive less than half the miles driven — as they are effectively subsidizing the minority of drivers who are high-mileage drivers. By offering auto insurance using a per-mile rate and then billing each customer monthly based on their actual miles driven, we are able to provide significant savings to the 65% of drivers who drive less than half the miles driven. Customers can simply use their connected car or use The Pulse to share their data with us — which includes miles driven, and in certain states where permitted by insurance regulators (four of the eight in which we currently operate), driving habits, such as phone use, speeding, hard-braking, accelerating, cornering, and location. Our customers are able to choose when and how to drive and share this information with us to realize these data driven savings every day.

The U.S. auto insurance market is massive, dominated by insurers stuck on legacy technology infrastructure who offer antiquated services. U.S. personal auto insurers write approximately $250 billion of premiums each year, with no carrier currently achieving more than 20% market share. We believe we are strategically positioned to succeed as industry incumbents struggle to meet the significant structural changes underway in an increasingly digital world. The advent of mobile phones has revolutionized modern mobility, while connected and autonomous technologies are drastically changing consumer relationships with vehicles. As we scale and accumulate more data, we believe that we can deliver increasingly better service, pricing and experiences for customers across all stages of the policy lifecycle.

Our Model

The traditional auto insurance industry is focused on charging customers static insurance rates based on a “class” of driver, which is determined based on a set of variables that approximate and estimate risk. The traditional approach requires little ongoing customer engagement and requires manual claims servicing, which results in lower gross margins. In contrast, our model is digitally native, automated, and built using predictive models. Our product provides customized rates for each individual driver, using telematics data and proprietary predictive models to assess risk and determine pricing for each customer, while billing customers based only for their actual miles driven. We have automated the claims approval process, resulting in higher margins, and reduced fraud rates through real-time reporting from telematics devices, resulting in lower loss ratios.

We have experienced strong growth since inception; however, our focus has been on prioritizing unit economics rather than solely focusing on revenue growth through increased net losses. Our priority has been on developing a durable business advantage.

Our gross profit/(loss), which is impacted by our reinsurance arrangements, decreased from $(4.9) million for the year ended December 31, 2019 to $(14.1) million for the year ended December 31, 2020. However, our accident year contribution profit/(loss), a non-GAAP financial measure that excludes the results of prior period development on loss and loss adjustment expenses (“LAE”), increased from $(0.6) million for the year ended December 31, 2019 to $18.4 million for the year ended December 31, 2020, largely due to a decrease in losses. Accident year refers to the year in which the loss occurs, and estimates are made to determine the ultimate expected cost of that loss. These estimates are reassessed each period, and the movement from the initial estimate of that accident period is known as prior period development. We view accident year contribution margin as the most relevant metric of current product profitability and use accident year contribution margin to consistently evaluate the variable contribution to our business from insurance operations from period to period based on the most current product profitability. Contribution profit/(loss), a non-GAAP financial measure that includes the results of prior period development on loss and LAE, increased from $1.5 million for the year ended December 31, 2019 to $11.9 million for the year ended December 31, 2020. These year-over-year improvements are largely due to a decrease in losses. We use contribution profit/(loss) as a key measure of our progress towards profitability and to consistently evaluate the variable contribution to our business from insurance operations from period to period. See the section entitled “— Non-GAAP Financial Measures” for additional information regarding our use of accident year contribution profit/(loss) and contribution profit/(loss)and a reconciliation to the most comparable GAAP measure.

2

Reinsurance

We obtain reinsurance to help manage our exposure to property and casualty insurance risks, and since May 2017, we have had proportional reinsurance protecting our business.

The reinsurance arrangement covering the periods May 1, 2017 to April 30, 2018 and May 1, 2018 to April 30, 2019 covered 85% of our renewal policies and beginning May 1, 2019, the reinsurance arrangements expanded to also include new policies. Thus, since May 1, 2019, we have ceded a larger percentage of our premium than in prior periods, resulting in a significant decrease in our revenues as reported under GAAP. In addition, under the reinsurance agreements from various years, LAE is ceded at a fixed rate ranging from 3% to 6% of ceded earned premium. Going forward, and given the strength of our current balance sheet, we are working to restructure our current reinsurance programs to allow us to manage our surplus at the insurance carrier at a lower cost of capital. We will continue to monitor our reinsurance needs, including new quota share arrangements, to maintain adequate capital levels at the insurance company level.

As we enter into new reinsurance arrangements, whereby the terms and structure may vary widely, our prior results, impacted by reinsurance, may not be a good indicator of future performance, including the fluctuations experienced in gross profit. Thus, we use accident year contribution profit/(loss) and contribution profit/(loss) as key measures of our performance.

Key Performance Indicators

We regularly review key operating and financial performance indicators to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions. We believe these non-GAAP financial and operational measures are useful in evaluating our performance, in addition to our financial results prepared in accordance with GAAP. See the section entitled “— Non-GAAP Financial Measures” for additional information regarding our use of accident year contribution profit/(loss), contribution profit/(loss), accident year loss ratio and accident year LAE ratio and a reconciliation to the most comparable GAAP measures. 

The following table presents these metrics as of and for the periods presented:

	Year Ended December 31,
	2019			2020
	($ in millions, except for Direct Earned Premium per Policy)
Policies in Force (end of period)		88,099			92,635
Direct Earned Premium per Policy (annualized)	$	1,211		$	1,092
Direct Written Premium	$	103.3		$	100.6
Direct Earned Premium	$	102.2		$	99.7
Gross Profit/(Loss)	$	(4.9	)	$	(14.1	)
Gross Margin		(9.3	)%		(40.3	)%
Accident Year Contribution Profit/(Loss)	$	(0.6	)	$	18.4
Accident Year Contribution Margin		(0.6	)%		18.1	%
Contribution Profit/(Loss)	$	1.5		$	11.9
Contribution Margin		1.5	%		11.8	%
Direct Loss Ratio		73.0	%		57.7	%
Direct LAE Ratio		12.5	%		17.7	%
Accident Year Loss Ratio		75.7	%		57.4	%
Accident Year LAE Ratio		11.9	%		11.5	%

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Policies in Force

We define policies in force as the number of current and active policyholders as of the period end date. We view policies in force as an important metric to assess our financial performance because policy growth drives our revenue growth, increases brand awareness and market penetration, generates additional data to continue to improve the performance of our platform, and provides key data to assist strategic decision making for our company. 

Direct Earned Premium per Policy 

We define direct earned premium per policy as the ratio of direct earned premium divided by the average policies in force for the period, presented on an annualized basis. We view premiums per policy as an important metric because it is a reliable indicator of revenue earned in any given period, and growth in this metric would be a clear indicator of the growth of the business. However, as evidenced by the substantial reduction in miles driven during the 2019 novel coronavirus (“COVID-19”) pandemic, near-term fluctuations in miles driven can lead to fluctuations in direct earned premium. Thus, we refer to policies in force as a more stable indicator of overall growth. Direct earned premium excludes the impact of premiums ceded to reinsurers such that it reflects the actual business volume and direct economic benefit generated from our customer acquisition efforts. Additionally, premiums ceded to reinsurers can change based on the type and mix of reinsurance structures we use.

Direct Written Premium 

We define direct written premium as the total amount of direct premiums on policies that were bound during the period. Direct written premium is a standard insurance metric and is included here for consistency. However, given that much of our premium is written and earned as customer miles are driven (i.e., customers are billed based on true use), unlike our competitors that write all premium up-front, we believe earned premium is a more meaningful comparison to other insurers. Direct written premium excludes mileage-based premium that has not yet been earned. It also excludes the impact of premiums ceded to reinsurers such that it reflects the actual business volume and direct economic benefit generated from our customer acquisition efforts. Additionally, premiums ceded to reinsurers can change based on the type and mix of reinsurance structures we use. 

Direct Earned Premium 

We define direct earned premium as the amount of direct premium that was earned during the period. Premiums are earned over the period in which insurance protection is provided, which is typically six months. We view direct earned premium as an important metric because it allows us to evaluate our growth prior to the impact of ceded premiums to our reinsurance partners. It is the primary driver of our consolidated GAAP revenues and represents the result of our sustained customer acquisition efforts. As with direct written premium, direct earned premium excludes the impact of premiums ceded to reinsurers to manage our business, and therefore should not be used as a substitute for net earned premium, total revenue, or any other measure presented in accordance with GAAP.

Gross Profit/(Loss)

Gross profit/(loss) is defined as total revenue minus losses and LAE, policy servicing expense and other, and amortization of capitalized software. Gross margin is equal to gross profit/(loss) divided by total revenue. Gross profit/(loss) includes the effects of reinsurance, thereby increasing volatility of this measure without corresponding changes in the underlying business or operations.

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Contribution Profit/(Loss) and Accident Year Contribution Profit/(Loss)  

Contribution profit/(loss), a non-GAAP financial measure, is defined as gross profit/(loss), excluding the effects of reinsurance arrangements on both total revenue and losses and LAE. It also excludes enterprise software revenues, investment income earned at the holding company, amortization of internally developed software, and devices, while including other policy servicing expenses. Accident year contribution profit/(loss), a non-GAAP financial measure, further excludes the results of prior period development on losses and LAE. We believe the resulting calculations are inclusive of the variable costs of revenue incurred to successfully service a policy, but without the volatility of reinsurance. We use contribution profit/(loss) as a key measure of our progress towards profitability and to consistently evaluate the variable contribution to our business from insurance operations from period to period because it is the result of direct earned premiums, plus investment income earned at the insurance company, minus direct losses, direct LAE, premium taxes, bad debt, payment processing fees, data costs, underwriting reports, and other costs related to servicing policies. Accident year contribution profit/(loss) further excludes the results of prior period development on loss and LAE, thereby providing the most accurate view of the performance of our underlying insurance product, which drives our growth investment decisions and is a strong indicator of future loss performance.

See the section entitled “— Non-GAAP Financial Measures” for a reconciliation of total revenue to contribution profit/(loss) and accident year contribution profit/(loss). 

Contribution Margin and Accident Year Contribution Margin

Contribution margin, a non-GAAP financial measure, is defined as contribution profit/(loss) divided by adjusted revenue. Adjusted revenue excludes the net effect of our reinsurance arrangements, revenue attributable to our enterprise segment, interest income generated outside of our insurance company, and bad debt expense. We view contribution margin as an important metric because it most closely correlates to the economics of our core underlying insurance product and measures our progress towards profitability. Accordingly, we use this non-GAAP financial measure to consistently evaluate the variable contribution to our business from insurance operations from period to period. Accident year contribution margin, a non-GAAP financial measure, is defined as accident year contribution profit/(loss) divided by adjusted revenue. We view accident year contribution margin as an important metrics as it excludes the results of prior period development on loss and LAE, thereby providing the most meaningful view of the performance of our current underlying insurance product, which drives our growth investment decisions and is a strong indicator of future loss performance.

See the section entitled “— Non-GAAP Financial Measures” for a reconciliation of total revenue to contribution profit/(loss) and accident year contribution profit/(loss).

Direct and Accident Year Loss Ratio 

We define direct loss ratio expressed as a percentage, as the ratio of direct losses to direct earned premium. Direct loss ratio excludes LAE. We view direct loss ratio as an important metric because it allows us to evaluate losses and LAE separately prior to the impact of reinsurance. 

We define accident year loss ratio as direct loss ratio excluding prior year development on losses. We view accident year loss ratio as an important metric because it allows us to evaluate the expected ultimate losses, including losses not yet reported, for the most recent accident year.

Direct and Accident Year LAE Ratio 

We define direct LAE ratio expressed as a percentage, as the ratio of direct LAE to direct earned premium. We view direct LAE ratio as an important metric because it allows us to evaluate losses and LAE separately prior to the impact of reinsurance. We actively monitor the direct LAE ratio as it has a direct impact on our results regardless of our reinsurance strategy. 

We define accident year LAE ratio as direct LAE ratio excluding prior year development on LAE. We view accident year LAE ratio as an important metric because it allows us to evaluate the expected ultimate LAE, including LAE for claims not yet reported, for the most recent accident year.

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Recent Developments Affecting Comparability 

Business Combination with INSU

In February 2021, we completed the Merger with INSU and became a wholly owned direct subsidiary of a publicly traded company. The Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, INSU, who was the legal acquirer, is treated as the “acquired” company for financial reporting purposes and we are treated as the accounting acquirer. This determination was primarily based on the fact that our stockholders prior to the Merger have a majority of the voting power of the post-Merger company, our senior management now comprise substantially all of the senior management of the post-Merger company, the relative size of our company compared to INSU, and that our operations comprise the ongoing operations of the post-Merger company. Accordingly, for accounting purposes, the Merger is treated as the equivalent of a capital transaction in which issued stock for the net assets of INSU, which are stated at historical cost, with no goodwill or other intangible assets recorded, and our financial statements became those of INSU.

In connection with the closing of the Merger and the concurrent private placement, we received approximately $310.0 million of cash, which we used to repay certain indebtedness as described herein and in our audited consolidated financial statements filed as Exhibit 99.1 to this Current Report on Form 8-K/A. We expect to use our cash on hand for working capital and general corporate purposes. We may also use the proceeds for the acquisition of, or investment in, technologies, solutions, or businesses that complement our business.

COVID-19 Impact 

In March 2020, the World Health Organization declared COVID-19 a global pandemic. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business. We have taken measures in response to the ongoing COVID-19 pandemic, including closing our offices and implementing a work from home policy for our nationwide workforce; implementing additional safety policies and procedures for our employees; and suspending employee travel and in-person meetings. We may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, and stockholders. 

For the year ended December 31, 2020, we generated $99.7 million in direct earned premium, a decrease of $2.5 million or 2.5%, as compared to $102.2 million for the year ended December 31, 2019. This decrease was primarily due to the decrease in overall miles driven, which is attributable to the COVID-19 pandemic given the implementation of “shelter-in-place” and other orders, which reduced daily miles driven by our customers. Based on internal data, the average miles driven per policy declined by 48% for the second quarter of 2020 as compared to the same period in 2019, although improved once restrictions were lifted such that average miles driven per policy decreased 23% for 2020 as compared to 2019. We believe that the potential long-term impacts of COVID-19, as more companies embrace work from home policies, represents an opportunity for us to increase our customer base as drivers continue to look for value-driven insurance solutions that provide the same or a better quality product that aligns to their own driving behaviors.

The future impact of the COVID-19 pandemic on our operational and financial performance will depend on certain developments, including the duration and spread of the pandemic, impact on our customers and their spending habits, impact on our marketing efforts, and effect on our suppliers, all of which are uncertain and cannot be predicted. Public and private sector policies and initiatives to reduce the transmission of COVID-19 and disruptions to our operations and the operations of our third-party suppliers, along with the related global slowdown in economic activity, may result in decreased revenues and increased costs. Impacts on our revenue and costs may continue through the duration of this crisis. It is possible that the COVID-19 pandemic, the measures taken by federal, state, or local authorities and businesses affected and the resulting economic impact may materially and adversely affect our business, results of operations, cash flows and financial positions as well as our customers.

Key Factors and Trends Affecting our Operating Performance 

Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following: 

Our Ability to Attract New Customers 

Our long-term growth will depend, in large part, on our continued ability to attract new customers to our platform. Our growth strategy is centered around accelerating our existing position in markets that we already serve, expanding into new markets nationally across the United States, developing new strategic partnerships with key players in the automotive industry, and growing our enterprise software sales.

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Our Ability to Retain Customers 

Turning our customers to lifetime customers is key to our success. We realize increasing value from each customer retained as a recurring revenue base, which forms a basis for organic growth for our new product offerings and improves our loss ratios over time. Our ability to retain customers will depend on a number of factors, including our customers’ satisfaction with our products, offerings of our competitors and pricing of our products. 

Our Ability to Expand Nationally Across the United States

Our long-term growth opportunity will benefit from our ability to provide insurance across more states in the United States. Today, we are licensed in 49 states and the District of Columbia, and active in eight states. We plan to apply our highly scalable model nationally, with a tailored approach to each state, driven by the regulatory environment and local market dynamics. This will allow us to expand rapidly and efficiently across different geographies while maintaining a high level of control over the specific strategy within each state.

Our Ability to Introduce New and Innovative Products  

Our growth will depend on our ability to introduce new and innovative products that will drive the organic growth from our existing customer base as well as from potential customers. Our insurance offerings as well as our technology platform offered to enterprise customers provides us with a foundation to provide a broad set of insurance products to consumers in the future.

Our Ability to Manage Risk Through Our Technology  

Risk is managed through our technology, artificial intelligence, and data science, which we utilize to accurately determine the risk profiles of our customers. Our ability to manage risk is augmented over time as data is continuously collected and analyzed by our machine learning with the objective of lowering our loss ratios over time. Our success depends on our ability to adequately and competitively price risk.  

Components of Our Results of Operations 

Revenue 

Revenues are generated primarily from the sale of our pay-per-mile auto insurance policies within the United States, revenue related to policy acquisition costs recovered as part of the reinsurance arrangement, and through sales of our proprietary AI claims platform. Revenue excludes premiums ceded to our reinsurers (see the section entitled “— Reinsurance” for further information).

Premiums Earned, net 

Premiums earned, net represents the earned portion of our gross written premium, less the earned portion that is ceded to third-party reinsurers under our reinsurance agreements. Revenue from premiums is earned over the term of the policy, which is written for six-month terms. The premium for the policy provides for a base rate per month for the entire policy term upon the binding of the policy plus a per-mile rate multiplied by the miles driven each day (based on data from the telematics device, subject to a daily maximum).  

Investment Income 

Investment income represents interest earned from our fixed maturity and short-term investments less investment expenses and is recorded as the income is earned. Investment income is directly correlated with the size of our investment portfolio and with the market level of interest rates. The size of our investment portfolio is expected to increase in future periods, and therefore investment income is also expected to increase, as we continue to invest both customer premiums and equity proceeds into our investment portfolio.  

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Other Revenue 

Other revenue consists of enterprise revenue, revenue related to policy acquisition costs recovered as part of the reinsurance arrangements with our reinsurance partners, reinsurance profit commissions based on performance of the ceded business, and policy commissions earned from National General Insurance (“NGI”). We have developed technologies intended for internal use to service our insurance business and have started offering our technologies to third-party insurance carriers. Enterprise revenue represents revenues generated from the licensing of such internally developed software on a subscription basis, and sales of our professional services, which includes customization and implementation services for customers. We also earn revenues from policy acquisition costs recovered for policies newly ceded to our reinsurance partners, and we earn commissions for policies underwritten by NGI prior to becoming a full-stack insurance carrier in 2016.  

Costs and Expenses 

Our costs and expenses consist of losses and LAE, policy servicing expense and other, sales, marketing, and other acquisition costs, research and development, amortization of capitalized software, and other operating expenses.  

Losses and LAE

Our losses and LAE consist of the net cost to settle claims submitted by our customers. Losses consist of claims paid, case reserves, as well as claims incurred but not reported, net of estimated recoveries from salvage and subrogation. LAE consists of costs borne at the time of investigating and settling a claim. Losses and LAE represents management’s best estimate of the ultimate net cost of all reported and unreported losses occurred through the balance sheet date. Estimates are made using individual case-basis valuations and statistical analyses and are continually reviewed and adjusted as necessary as experience develops or new information becomes known. These reserves are established to cover the estimated ultimate cost to settle insured losses.  

Both losses and LAE are net of amounts ceded to reinsurers. We enter into reinsurance contracts to protect our business from losses due to concentration of risk and to manage our operating leverage ratios, as well as to provide additional capacity for growth. Our reinsurance contracts consist of quota-share reinsurance agreements with our reinsurance partners under which risks are covered on a pro-rata basis for all policies underwritten by us (see the section entitled “— Reinsurance” for further discussion). These expenses are a function of the size and term of the insurance policies we write and the loss experience associated with the underlying risks. Losses and LAE may be paid out over a period of years. 

Various other expenses incurred during claims processing are allocated to losses and LAE. These amounts include claims adjusters’ salaries and benefits, employee retirement plan related expenses and share-based compensation expenses (Personnel Costs); software expenses; and overhead allocated based on headcount (Overhead). 

Policy Servicing Expense and Other 

Policy servicing expense and other includes personnel costs related to our technical operations and customer experience teams, data transmission costs, credit card and payment processing expenses, premium taxes, and amortization of telematic devices. Policy servicing expense and other is expensed as incurred.

Sales, Marketing and Other Acquisition Costs 

Sales, marketing, and other acquisition costs includes spend related to advertising, branding, public relations, third-party marketing, consumer insights and reinsurance ceding commissions. These expenses also include related personnel costs and overhead. We incur sales, marketing and other acquisition costs for all product offerings including our newly introduced software as a service (“SaaS”) platform which provides access to our developed technology under SaaS arrangements, along with professional services to third-party customers (“Enterprise business solutions”). Sales, marketing and other acquisition costs are expensed as incurred, except for costs related to deferred acquisition costs that are capitalized and subsequently amortized over the same period in which the related premiums are earned. We plan to continue investing in marketing to attract and acquire new customers, increase our brand awareness, and expand our Enterprise product offering. We expect that sales and marketing expenses will increase in absolute dollars in future periods and vary from period-to-period as a percentage of revenue in the near-term. We expect that, in the long-term, our sales, marketing and other acquisition costs will decrease as a percentage of revenue as the proportion of renewals to our total business increases. 

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Research and Development

Research and development consist of costs that support our growth and expansion initiatives inclusive of website development costs, software development costs related to our mobile app and Enterprise business solution, and new product development costs. These costs include third-party services related to data infrastructure support; personnel costs and overhead for product design, engineering, and management; and amortization of internally developed software. Research and development costs are expensed as incurred, except for costs related to internally developed software that are capitalized and subsequently amortized over the expected useful life. We expect that research and development expenses will increase in both absolute dollars and percentage of revenues in future periods in the near-term. We expect that, in the long-term, our research and development expenses will decrease as a percentage of revenue as these represent largely fixed costs. 

Amortization of Capitalized Software 

Amortization of capitalized software relates to the amortization recorded for the capitalized website and software development costs for the period presented.  

Other Operating Expenses 

Other operating expenses primarily relate to personnel costs and overhead for corporate functions, external professional service expenses and depreciation expense for computers, furniture, and other fixed assets. General and administrative expenses are expensed as incurred.  

We expect to incur incremental operating expenses to support our global operational growth and enhancements to support our reporting and planning functions. 

We expect to incur significant additional operating expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and the listing standards of the Nasdaq, additional corporate, director and officer insurance expenses, greater investor relations expenses and increased legal, audit and consulting fees. We also expect to increase the size of our accounting, finance, and legal teams to support our increased compliance requirements and the growth of our business. As a result, we expect that our other operating expenses will increase in absolute dollars and percentage of revenues in future periods in the near-term. We expect that, in the long-term, our other operating expenses will decrease as a percentage of revenue as these represent largely fixed costs. 

Interest expense 

Interest expense primarily relates to interest incurred on our long-term debt, the amortization of debt issuance costs, and changes in the fair value of warrant liabilities that are associated with our long-term debt. 

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Results of Operations 

The following table presents our consolidated statement of operations for the years ended December 31, 2020 and 2019, and the dollar and percentage change between the two periods:

	Year Ended December 31,
(in thousands)	2019			2020			$ Change			% Change
Revenue
Premiums earned, net	$	23,807		$	12,464		$	(11,343	)		(48	)%
Interest income		1,898			523			(1,375	)		(72	)%
Other revenue		27,050			22,077			(4,973	)		(18	)%
Total revenue	$	52,755		$	35,064		$	(17,691	)		(34	)%
Operating Expenses
Losses and loss adjustment expenses	$	30,758		$	21,208		$	(9,550	)		(31	)%
Policy servicing expense and other		16,297			16,813			516			3	%
Sales, marketing and other acquisition costs		23,954			5,483			(18,471	)		(77	)%
Research and development		9,055			8,211			(844	)		(9	)%
Amortization of capitalized software		10,648			11,188			540			5	%
Other operating expenses		18,896			16,981			(1,915	)		(10	)%
Total Operating Expenses	$	109,608		$	79,884		$	(29,724	)		(27	)%
Loss from operations	$	(56,853	)	$	(44,820	)	$	12,033			(21	)%
Other expense
Interest expense	$	247		$	6,067		$	5,820			2,356	%
Increase in fair value of stock warrant liability		92			69,294			69,202			N.M.
Total other income	$	339		$	75,361		$	75,022			N.M.
Net loss before taxes	$	(57,192	)	$	(120,181	)	$	(62,989	)		110	%
Income tax provision/(benefit)	$	37		$	(84	)	$	(121	)		(327	)%
Net loss	$	(57,229	)	$	(120,097	)	$	(62,868	)		110	%

N.M. — Percentage change not meaningful

Comparison of the Years Ended December 31, 2019 and 2020

Revenue

Premiums Earned, net

Net premiums earned decreased $11.3 million, or 48%, from $23.8 million for the year ended December 31, 2019 to $12.5 million for the year ended December 31, 2020, which was primarily attributable to a $9.1 million increase in premiums ceded to our reinsurance partners, which is reflective of the inclusion of new business into the reinsurance program, and a $2.7 million decrease in earned premiums due to an overall decrease in miles driven by customers in response to COVID-19 shelter-in-place restrictions, which generally began in March 2020. We believe direct earned premium is the best measure of top-line revenue, as it excludes the impacts of reinsurance financing.

Interest Income

Interest income decreased $1.4 million, or 72%, from $1.9 million for the year ended December 31, 2019 to $0.5 million for the year ended December 31, 2020. The decrease was primarily due to a lower balance of highly liquid fixed income investments during the year ended December 31, 2020.

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Other Revenue

Other revenue decreased $5.0 million, or 18%, from $27.1 million for the year ended December 31, 2019 to $22.1 million for the year ended December 31, 2020. The decrease was primarily attributable to a $10.9 million decrease in revenues from policy acquisition costs recovered for policies onboarded into our reinsurance program, offset by a $4.9 million increase in revenues from new customer implementations of our Enterprise business solutions (“EBS”) and $1.0 million increase in policy commissions earned from NGI. A substantial portion of EBS revenue was from one customer who was an investor and therefore a related party as described in Note 17 of our audited consolidated financial statements as of December 31, 2020, which are filed as Exhibit 99.1 to this Current Report on Form 8-K/A.

Costs and Expenses

Losses and LAE

Losses and LAE decreased $9.6 million, or 31%, from $30.8 million for the year ended December 31, 2019 to $21.2 million for the year ended December 31, 2020. The decrease was primarily driven by a $13.3 million net decrease in total losses due to an overall decrease in claims, partially as the result of less miles driven by customers, and a $4.7 million increase in LAE due to an increase in defense and cost containment reflecting a reserve adjustment for periods prior to 2020. Given that our pricing model is billed based on true miles driven, our direct earned premium was also reduced in this timeframe.

Policy Servicing Expense and Other

Policy servicing expense and other increased $0.5 million, or 3%, from $16.3 million for the year ended December 31, 2019 to $16.8 million for the year ended December 31, 2020. The increase was primarily attributable to a $0.9 million increase in software subscription costs. The increase was partially offset by a decrease of $0.2 million in personnel related expenses.

Sales, Marketing, and Other Acquisition Costs

Sales, marketing, and other acquisition costs decreased $18.5 million, or 77%, from $24.0 million for the year ended December 31, 2019 to $5.5 million for the year ended December 31, 2020. The decrease was primarily attributable to an $11.1 million decrease in both our online and offline marketing campaigns, $5.2 million increase in reinsurance ceding commission which serves as an offset to sales and marketing expense, and $2.4 million decrease in personnel costs attributable to a reduction in force in response to the COVID-19 pandemic.

Amortization of Capitalized Software

Amortization of capitalized software increased $0.5 million, or 5%, from $10.6 million for the year ended December 31, 2019 to $11.2 million for the year ended December 31, 2020. The increase was primarily related to the amortization of our website development costs and capitalized costs related to internal use software.

Other Operating Expenses

Other operating expenses decreased $1.9 million, or 10%, from $18.9 million for the year ended December 31, 2019 to $17.0 million for the year ended December 31, 2020. The decrease was primarily driven by a $1.8 million decrease in recruiting, personnel, and general corporate overhead costs.

Interest Expense

Interest expense increased $5.8 million, or 2,356%, from $0.2 million for the year ended December 31, 2019 to $6.1 million for the year ended December 31, 2020. The increase was primarily attributable to a higher outstanding debt balance in 2020 as compared to 2019, which resulted in additional interest expense incurred.

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Increase in fair value of stock warrant liability

Fair value of stock warrant liability increased $69.2 million, from $0.1 million for the year ended December 31, 2019 to $69.3 million for the year ended December 31, 2020. The increase was primarily driven by the change in fair value of our preferred stock warrants issued in April 2020.

Non-GAAP Financial Measures

The non-GAAP financial measures below have not been calculated in accordance with generally accepted accounting principles in the United States (“GAAP”), and should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. In addition, accident year contribution profit/(loss) and contribution profit/(loss) should not be construed as indicators of our operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that these non-GAAP measures fail to address. We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions. Therefore, its use can make it difficult to compare our current results with our results from other reporting periods and with the results of other companies.

Our management use these non-GAAP financial measures, in conjunction with GAAP financial measures, as an integral part of managing our business and to, among other things: (1) monitor and evaluate the performance of our business operations and financial performance; (2) facilitate internal comparisons of the historical operating performance of our business operations; (3) facilitate external comparisons of the results of our overall business to the historical operating performance of other companies that may have different capital structures and debt levels; (4) review and assess the operating performance of our management team; (5) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and (6) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.

The following table provides a reconciliation of total revenue to contribution profit/(loss) and accident year contribution profit/(loss) for the years ended December 31, 2019 and 2020:

	Year Ended December 31,
	2019			2020
	($ in millions)
Total revenue	$	52.8		$	35.1
Losses and LAE		(30.8	)		(21.2	)
Policy servicing expense and other		(16.3	)		(16.8	)
Amortization of capitalized software		(10.6	)		(11.2	)
Gross profit/(loss)		(4.9	)		(14.1	)
Gross margin		(9.3	)%		(40.3	)%
Less revenue adjustments:
Revenue Adjustments Related to Reinsurance		49.4			69.5
Revenue from Enterprise Segment		(0.8	)		(5.7	)
Interest Income and Other		1.9			2.4
Less costs and expense adjustments:
Loss and LAE Adjustments Related to Reinsurance		(56.7	)		(54.0	)
Loss and LAE Adjustments Related to Prior Period Development		(2.2	)		6.5
Bad Debt, Report Costs and Other Expenses		(1.8	)		(1.1	)
Amortization of Internally Developed Software		10.6			11.2
Devices		3.9			3.7
Accident year contribution profit/(loss)	$	(0.6	)	$	18.4
Prior Period Development		2.2			(6.5	)
Contribution profit/(loss)	$	1.5		$	11.9
Adjusted revenue	$	103.3		$	101.3
Accident year contribution margin		(0.6	)%		18.1	%
Contribution margin		1.5	%		11.8	%

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Liquidity and Capital Resources

We are a holding company that transacts a majority of our business through operating subsidiaries. Through our insurance subsidiaries, we sell pay-per-mile auto insurance policies to customers and through our Enterprise subsidiary, we sell our insurance solution technology to third-party insurance carriers. Since inception through completion of the Merger, we financed our operations primarily through sales of insurance policies, sales of our Enterprise platform, and the net proceeds received from the issuance of preferred stock, debt, and sales of investments. As of December 31, 2020, we had $19.2 million in cash and cash equivalents. In February 2021, we completed the Merger with INSU and received $310.0 million in cash from the trust account and the private placements. Our cash and cash equivalents primarily consist of bank deposits and money market funds. Our marketable securities consist of U.S. treasury securities, municipal securities, corporate debt securities, residential and commercial mortgage-backed securities, and other debt obligations.

Insurance companies in the United States are also required by state law to maintain a minimum level of capital and surplus. Insurance companies are subject to certain risk-based capital (“RBC”) requirements as specified by NAIC. These standards for property and casualty insurers are used as a means of monitoring the financial strength of insurance companies. Under these requirements, the amount of capital and surplus maintained by an insurance company is to be determined based on the various risk factors related to it. Such regulation is generally for the protection of the policyholders rather than stockholders. As of December 31, 2019 and 2020, our capital and policyholders’ surplus exceeded the minimum RBC requirements. We believe that our existing cash and cash equivalents, marketable securities, and cash flow from operations will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our insurance premium growth rate, renewal activity, including the timing and the amount of cash received from customers, the expansion of marketing activities, the timing and extent of spending to support development efforts, the introduction of new and enhanced products, the continuing market adoption of offerings on our platform, and the current uncertainty in the global markets resulting from the worldwide COVID-19 pandemic.

As part of our plans to restructure our reinsurance program and ensure the insurance carrier is adequately capitalized, approximately $50.0 million moved from unrestricted to restricted cash in the first quarter of 2021, a portion of which will be used for reinsurance commutation settlement.

The following table summarizes our cash flow data for the periods presented:

	Year Ended December 31,
	2019			2020
	($ in millions)
Net cash used in operating activities	$	(30.7	)		(32.2	)
Net cash (used in)/provided by investing activities		(63.3	)		1.8
Net cash provided by financing activities		24.1			37.7

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Operating Activities

Net cash used in operating activities for the year ended December 31, 2020 was $32.2 million, which was a decrease of net cash used of $1.5 million from $30.7 million for the year ended December 31, 2019. Cash used during this period included $29.8 million from net loss for the year ended December 31, 2020, excluding the impact of changes in fair value of our outstanding warrants, depreciation expense and stock-based compensation and other non-cash expenses. Net cash provided by changes in our operating assets and liabilities decreased by $2.4 million, which is primarily attributable to ceded reinsurance premiums, reinsurance recoverable on unpaid losses, accounts payable and accrued expense, prepaid reinsurance premium, premiums receivable which outpaced reinsurance recoverable on paid losses, prepaid expenses and other, unearned premium reserve, and loss and LAE reserves.

Net cash used in operating activities for the year ended December 31, 2019 was $30.7 million. Cash used during this period included $39.2 million from net loss for the year ended December 31, 2019, excluding the non-cash impacts from depreciation, stock-based compensation, and other non-cash items. Net cash provided by changes in operating assets and liabilities primarily consisted of increases in ceded reinsurance premium payable, loss and LAE reserves, other liabilities, and unearned premium reserves which outpaced the growth of premiums and accounts receivable, reinsurance recoverable and accounts payable. The decrease in cash used in operating activities from the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to the volume and timing of claims payments and a decrease in personnel costs attributable to a reduction in force in response to the COVID-19 pandemic.

Investing Activities

Net cash provided by investing activities for the year ended December 31, 2020 was $1.8 million, which was primarily driven by maturities of marketable securities offset by our continued investment in telematics devices, leasehold improvements, and other equipment, as well as continued investment in our website and software development. Net cash used in investing activities was $63.3 million for the year ended December 31, 2019 which was primarily driven by increased purchases of marketable securities, our continued investment in telematics devices, leasehold improvements, and other equipment, as well as continued investment in our website and software development offset by maturities of our marketable securities.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2020 was $37.7 million compared to $24.1 million used in financing activities for the year ended December 31, 2019. The increase in cash provided by financing activities is primarily due to the April 2020 issuance of subordinated debt and receipt of a loan under the Paycheck Protection Program. The Paycheck Protection Program loan was repaid in full in connection with the Business Combination, and the April 2020 subordinated debt was prepaid in full in March 2021.

Net cash provided by financing activities for the year ended December 31, 2019 was $24.1 million primarily from cash received from the incurrence of indebtedness, partially offset by the repayment of our outstanding indebtedness.

Contractual Obligations

The following is a summary of material contractual obligations and commitments as of December 31, 2020:

	Total		2021		2022 – 2023		2024 – 2025		Thereafter
	(in millions)
Long-term debt	$	63.3	$	1.3	$	24.6	$	37.5	$
Interest on long-term debt		9.4		3.3		4.8		1.3
Operating Leases		26.4		3.3		6.3		5.6		11.2
Purchase Commitments		3.9		3.9
Total	$	103.0	$	11.8	$	35.7	$	44.4	$	11.2

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As of December 31, 2020, we issued subordinated debt with the following principal and interest amounts due: $4.6 million over 2021, $29.4 million over 2022 – 2023, $38.8 million over 2024 – 2025, and no principal and interest due after 2025 (see the section entitled “— Financing Arrangements — Subordinated Note Purchase and Security Agreement” for further information). Additionally, we entered into a non-cancellable agreement to purchase telematic devices, with $3.9 million due in 2021.

Financing Arrangements

Subordinated Note Purchase and Security Agreement

In April 2020, we entered into that certain Note Purchase and Security Agreement (as amended, the “Note Purchase Agreement”) with us, as issuer, certain of our subsidiaries, as guarantors, and certain affiliates of Hudson Structured Capital Management (collectively, “Hudson”), as purchasers and the collateral agent. The Note Purchase Agreement was amended in February 2021 to reflect the consummation of the Merger by adding INSU as a guarantor and reflecting our new corporate structure. An executive of Hudson is on our board of directors and is a related party, as discussed in Item 13 of the Form 10-K.

Under the Note Purchase Agreement, we could issue up to $50.0 million in aggregate principal amount of senior secured subordinated payable in kind (“PIK”) notes due in 2025 (the “Notes”). The Note Purchase Agreement further provided for additional funds of up to an aggregate of $15.0 million over time from Hudson, the timing of which was subject to reinsurance settlement timing. Notes issued under the Note Purchase Agreement were due on the fifth anniversary of their issuance, starting in April 2025, and bore interest at the following rates: 2% per annum payable quarterly in arrears in cash, and a varying interest rate of 9.0% to 11.0% PIK interest. The PIK interest was based on the aggregate outstanding principal balance as follows: (i) 11.0% if the outstanding balance was less than $5.0 million; (ii) 10.0% if the outstanding balance was greater than or equal to $5.0 million but less than $10.0 million, and (iii) 9.0% if the outstanding balance was greater than or equal to $10.0 million. PIK interest represents contractually deferred interest that was added to the principal balance outstanding each quarter and due at maturity. The Notes were secured by substantially all of our assets. We had the right to prepay the Notes at any time subject to payment of a fee. As of December 31, 2020, $31.6 million aggregate principal amount of the Notes was outstanding, along with $0.9 million of capitalized PIK interest. Subsequent to December 31, 2020, we issued additional Notes having an aggregate principal amount of $2.0 million. As of March 30, 2021, there was approximately $36.6 million of principal and PIK interest outstanding under the Hudson debt facility, which we repaid on such date, along with the prepayment fee of $0.4 million. Accordingly, there are no longer any Notes outstanding.

As part of the entry into the original Note Purchase Agreement, we issued warrants for up to 8,536,938 of Series E convertible preferred shares, which we estimated to have a fair value of $12.5 million at issuance, which was recorded as a discount to the debt and is being amortized to interest expense over the term of the debt. These warrants were net exercised immediately prior to the Effective Time (as defined in the Merger Agreement) and are no longer outstanding.

Paycheck Protection Program Loan

In April 2020, we were granted a loan under the Paycheck Protection Program offered by the Small Business Administration under the CARES Act, section 7(a)(36) of the Small Business Act for approximately $5.9 million. The balance outstanding for the Paycheck Protection Program loan was $5.9 million at December 31, 2020. We repaid this loan concurrent with the consummation of the Merger and it is no longer outstanding.

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2019 Loan and Security Agreement

In December 2019, we entered into a Loan and Security Agreement (the “2019 Loan and Security Agreement”) with us, as borrower, certain of our subsidiaries, as guarantors and certain affiliates of Multiplier Capital, LLC and other financial institutions, as lenders and agent, providing for a term loan in aggregate principal amount of $25.0 million. Minimum payments of interest were due monthly through December 2021. Beginning in January 2022, equal payments of principal would have been due monthly in an amount necessary to fully amortize the loan by June 5, 2024. An end of term payment of $0.6 million was due at maturity or date of any prepayment. The loan was secured by substantially all of our and the guarantor’s assets. Lender’s consent was required to be obtained regarding certain dispositions, and changes in business, management, or ownership including mergers and acquisitions, such as the Merger, as more fully described in the 2019 Loan Agreement. The balance outstanding net of debt issuance costs for the 2019 Loan Agreement was $24.1 million and $24.3 million as of December 31, 2019 and 2020, respectively.

The loan could be prepaid in an amount equal to the outstanding principal, accrued interest, and the end of term fee, plus a prepayment charge of 3% if paid in the first two years after the effective date, 2% if paid in the third year after the effective date, or 1% if prepaid after the third year subsequent to the effective date. Accordingly, we prepaid this loan in connection with the consummation of the Merger and is no longer outstanding.

At the time of origination, the lender was granted a warrant to purchase Series E convertible preferred stock, estimated to have a fair value of $0.5 million at issuance. These warrants were net exercised immediately prior to the Effective Time and are no longer outstanding.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity or cash flows.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with GAAP. The preparation of the consolidated financial statements in conformity with GAAP requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the period. We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates related to reserves for loss and LAE, premium write-offs, and share-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

We believe that the accounting policies described below involve a significant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For further information, see Note 2, Summary of Significant Accounting Policies, to the audited consolidated financial statements filed as Exhibit 99.1 to this Current Report on Form 8-K/A.

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Unpaid Losses and LAE Reserves

Unpaid losses and LAE reserves are the difference between the estimated ultimate cost of losses and the amount of paid losses as of the reporting date. These reserves reflect our management’s best estimate for both reported claims and incurred but not reported claims and the reserves include estimates of all expenses associated with processing and settling all reported and unreported claims. Our management regularly reviews the reserve estimates and updates those estimates as new information becomes available or as events emerge that may affect the resolution of unsettled claims. Losses and LAE reserves are estimated based on the assumption that past-experience is an appropriate indicator of future events. Updates made to reserve estimates based on new information may cause changes in prior reserve estimates. These changes are recorded as Loss and loss adjustment expenses in the period such changes are determined. Estimating the ultimate cost of claims and claims expenses is an inherently complex process that involves a high degree of judgment. The estimate of unpaid losses and LAE reserves utilizes several key judgmental inputs:

● the determination of the appropriate actuarial estimation methods to be applied to outstanding claims,

● estimations of claims cycle times and claims settlement practices,

● estimates of expected losses through the use of historical loss data, and

● broader macroeconomic assumptions such as expectations of future inflation rates.

Claims are classified based on accident year or the year in which the claims occurred. This classification is utilized within actuarial models to prepare estimates of required reserves for payments to be made in the future. Claim cycle times, or the speed of claim to claim settlement, vary and depend on the type of claim being reported; property damage as compared to personal injury claims. Claims involving property damage are generally settled faster than personal injury claims. It has been our management’s experience that the longer the cycle time, the more the ultimate settlement amount can vary. Historical loss patterns are then applied to actual paid losses and reported losses by accident year to develop expectations of future payments. Implicit within the actuarial models are the impacts of inflation, especially for claims with longer expected cycle times. See Note 8, Loss and Loss Adjustment Expense Reserves, to our audited consolidated financial statements filed as Exhibit 99.1 to this Current Report on Form 8-K/A for more information regarding the methodologies used to estimate loss and LAE reserves.

Considerable variability is inherent in these estimates, which may have a material impact on the ultimate liability. The aggregation of numerous estimates for each of the major components of losses and groups of states as well as other considerations such as trends in claim frequency and severity, regulatory and judicial environments, allocations of ceded amounts in accordance with reinsurance agreements, and driving behavior including miles driven, may impact reported losses and IBNR. Reserve estimates are inherently very complex to determine and subject to significant judgment, and do not represent an exact determination for each outstanding claim. Due to the inherent uncertainty in estimating reserves, we evaluated what the potential impact on consolidated results of operations, financial position, and liquidity would be based on a hypothetical 10% change in reserves described above. A 10% variance in estimated reserves net of reinsurance would be approximately $2.3 million as of December 31, 2020, and would result in an increase or decrease to Net loss of $2.3 million to a Net loss of $122.4 million or $117.8 million, respectively. This would also result in a change to Total stockholders’ deficit of $2.4 million increasing or decreasing it to $363.8 million or $359.2 million, respectively. The reserve range represents a range of reasonably likely reserves, not a range of all possible reserves. Therefore, the ultimate liability may reach levels corresponding to reserve amounts beyond the stated figures. Given the growth since 2016, we believe evaluating sensitivity based on a hypothetical change of 10% is reflective of management’s best estimate and provides a range of variability in key assumptions.

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The following table summarizes our gross and net reserves for loss and LAE as of, December 31, 2019 and 2020, respectively:

	as of December 31, 2019
Loss and LAE reserves	Gross		% of Total			Net		% of Total
	($ in millions)
Case Reserves	$	26.6		51.1	%	$	8.9		38.0	%
IBNR		25.6		48.2	%		14.5		62.0	%
Total Reserves	$	52.2		100.0	%	$	23.4		100.0	%

	as of December 31, 2020
Loss and LAE reserves	Gross		% of Total			Net		% of Total
	($ in millions)
Case Reserves	$	29.4		51.5	%	$	7.2		31.1	%
IBNR		27.7		48.5	%		16.0		68.9	%
Total Reserves	$	57.1		100.0	%	$	23.2		100.0	%

Given the inherent complexity and uncertainty surrounding the estimation of our ultimate cost of settling claims, reserves are reviewed quarterly and periodically throughout the year by combining historical results and current actual results to calculate new development factors. In estimating loss and LAE reserves, our actuarial reserving group considers claim cycle time, claims settlement practices, adequacy of case reserves over time, and current economic conditions. Because actual experience can differ from key assumptions used in estimating reserves, there may be significant variation in the development of these reserves and the actual losses and LAE ultimately paid in the future. These adjustments to the loss and LAE reserves are recognized in our consolidated statement of operations in the period in which the change occurs.

The following table summarizes our gross losses and LAE, and net losses and LAE as of December 31, 2019 and 2020 respectively:

	Gross Ultimate Loss & LAE						Net Ultimate Loss & LAE
Accident Year	2019		2020		Change		2019		2020		Change
2016	$	3.0	$	3.2	$	0.2	$	3.0	$	3.2	$	0.2
2017		48.6		49.9		1.3		36.4		37.6		1.2
2018		73.9		76.2		2.3		36.5		38.7		2.2
2019		89.5		92.2		2.7		31.7		33.0		1.3
2020				68.5		68.5				16.1		16.1
Total	$	215.0	$	290.0	$	75.0	$	107.6	$	128.6	$	21.0

Premiums Receivable and Reinsurance Recoverable and Related Expenses

Premiums receivable represents premiums written but not yet collected. Generally, premiums are collected prior to providing risk coverage, minimizing our exposure to credit risk. A policy is considered past due on the first day after its due date and policies greater than 15 days past due are written off. We recognized premium write-offs of $1.7 million and $2.3 million for the periods ended December 31, 2019 and 2020, respectively.

Reinsurance assets consist of reinsurance recoverable on paid and unpaid losses and LAE from our reinsurance partners of which the estimates are based on the same reserving practices as described above. Our use of reinsurance does not extinguish our primary liability under the policies written. In the event that any of our reinsurance partners might not be able to fulfill their obligations under our reinsurance contracts, we would be liable for the amounts defaulted. The amounts recoverable from our reinsurance partners are therefore exposed to the credit risk of our reinsurance partners. Therefore, we regularly evaluate the financial condition of our reinsurers, the sufficiency of collateral posted by our reinsurance partners, and establish provisions for uncollectible reinsurance as appropriate.

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Capitalization of Internally Developed Software

We invest in research and development for the purpose of developing new functionality for our website, apps, and gathering and analyzing data received from the driving habits of our customers. We primarily develop software for internal use. For all internal use software, we account for software development costs under ASC 350-40, “Internal-Use Software; Computer Software Developed or Obtained for Internal Use.” With respect to internal use software, software and technology development activities generally fall into three stages:

1. Preliminary Project Phase includes activities, such as the determination of needed technology and the formulation, evaluation, and selection of alternatives of those needs;

2. Application Development Phase includes activities that focused on software design and configuration, coding, installation, testing, and parallel processing; and

3. Post-Implementation/Operating Phase includes activities that address training, administration, maintenance, and all other activities to operate developed software.

During the Preliminary Project Phase, we expense all costs to expense as incurred.

During the Application Development Phase, we capitalize costs for projects that we determine are probable of being completed.

During the Post-Implementation/Operating Phase we expense all costs related to such activities as incurred. However, upgrades and/or enhancements of existing software will be capitalized to the extent that we determine that such upgrades and/or enhancements will result in additional functionality. We define additional functionality as modifications that enable additional tasks that our software was previously incapable of performing which normally requires new software specifications or a change to all or a part of existing software. Internal costs incurred for upgrades and/or enhancements are expensed or capitalized based on the three stages of development noted above. We track projects individually, such that the beginning and ending of the capitalization can be appropriately established, as well as the amounts capitalized therein.

All capitalized software requires the ongoing assessment for recoverability which requires judgment by management with respect to certain external factors including, but not limited to, anticipated future gross revenues, estimated economic useful life, and changes in competing software technologies. We have determined that our internal-use software’s estimated useful life is three years.

For all software to be sold to third-party insurance carriers, we account for software development costs under ASC 985-20, “Costs of Software to be Sold, Leased, or Marketed.” Costs incurred to develop software to be sold to third parties are expensed as incurred until technological feasibility is reached. All costs incurred after technological feasibility is reached and prior to when the developed software is available for general release to our customers are capitalized. As of December 31, 2020, software costs to be capitalized under ASC 985-20 have not been significant.

Stock-based Compensation

Stock-Based compensation, inclusive of stock options with only a service condition and stock options with service and performance conditions, are awarded to our officers, directors, employees, and certain non-employees through approval from the compensation committee of the Board of Directors.

We account for stock-based compensation in accordance with ASC Topic 718, “Compensation — Stock Compensation.” Stock-based compensation is measured at the grant date based on the fair value of the award. Stock-based compensation for stock options with service conditions are recognized as expense over the requisite service period, which is generally the vesting period of the respective award. The expense recorded is based on awards ultimately expected to vest and, therefore, is reduced by estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For stock options with performance-based metrics, stock-based compensation is recognized when it is probable that the performance criteria are achieved.

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We calculate the fair value of stock options using the Black-Scholes option pricing model and recognize expense using the straight-line attribution approach. The fair value of stock options is determined on the grant date using the Black-Scholes Merton (“BSM”), option-pricing model. The BSM option pricing model requires inputs based on certain subjective assumptions, including the fair value of our common stock, expected stock price volatility, the expected term of the options, the risk-free interest rate for a period that approximates the expected term of the options and our expected dividend yield.

● Expected Term — The expected term is the period of time when granted options are expected to be outstanding. In determining the expected term of options, we utilized the midpoint between the vesting date and contractual expiration date.

● Risk-Free Interest Rate — The risk-free interest rate is based on the U.S. Treasury yield curve for zero-coupon U.S. Treasury notes with maturities similar to the option’s expected term as of the grant date.

● Volatility — Because our stock is not traded in an active market, we calculate volatility by using the historical stock prices of public companies that we consider to be comparable to our business.

● Forfeiture Rate — The weighted average forfeiture rate of unvested options.

● Expected Dividends — We assumed the expected dividend to be zero as we have no current expectations to be paying dividends in the foreseeable future.

● Common Stock Valuation — Given the absence of a public trading market of our common stock, our board of directors considered numerous subjective and objective factors to determine the best estimate of fair value of our common stock underlying the stock options granted to our employees and non-employees. The grant date fair value of our common stock was determined using valuation methodologies which utilize certain assumptions, including probability weighting events, volatility, time to liquidation, a risk-free interest rate, and an assumption for a discount for lack of marketability. We used a weighted average value determined through the Option Pricing Model (OPM) and the Probability-Weighted Expected Return Method (PWERM) for allocating our enterprise value. Application of these methods involves the use of estimates, judgments, and assumptions that are complex and subjective, such as those regarding our expected future revenue, expenses, and cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of future events.

● Fair Value — our board of directors determines the fair value of the common stock based on the closing price of the common stock on or around the date of grant.

Stock options issued to non-employees are accounted for at their estimated fair value determined using the Black-Scholes option pricing model. The fair value of the options granted to non-employees is remeasured as the options vest, and the resulting change in value, if any, is recognized as expense during the period the related services are rendered.

For more information, see Note 13, Stock Option Plan, to the audited consolidated financial statements filed as Exhibit 99.1 to this Current Report on Form 8-K/A.

Warrant Liability

We classify warrants to purchase shares of our preferred stock that are contingently puttable or redeemable as liabilities. Such warrants are measured and recognized at fair value and are subject to remeasurement at each balance sheet date. The fair value of our preferred stock warrant liability is measured using a Black-Scholes option-pricing model. Under the BSM option-pricing model, the fair value was measured using the following assumptions and inputs: exercise price, fair value of the underlying preferred stock, expected term, expected volatility, and risk-free interest rate.

At the end of each reporting period, changes in fair value during the period are recognized as a component of other expense within our consolidated statements of operations. We will continue to adjust the warrant liability for changes in the fair value until the earlier of the exercise or expiration of the warrants or the completion of a liquidation event, including completion of an initial public offering, at which time all such preferred stock warrants will automatically net exercise into common stock and the liability will be reclassified to additional paid-in capital. Immediately prior to the completion of the Merger, all outstanding warrants were exercised for shares of our preferred stock, which then converted into our common stock and were exchanged for INSU common stock in the Merger. We reflected the change in fair value of the warrant liability within our consolidated statement of operations. There are longer any warrants outstanding.

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New Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, to our audited consolidated financial statements filed as Exhibit 99.1 to this Current Report on Form 8-K/A.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain credit and interest rate risks as part of our ongoing business operations.

Credit Risk

We are exposed to credit risk on our investment portfolio and our reinsurance contracts. Investments that potentially subject us to credit risk consist principally of cash and marketable securities. We place our cash and cash equivalents with financial institutions with high credit standing and our excess cash in marketable investment grade securities. With respect to our reinsurance contracts, we are exposed to credit risk from reinsurance recoverables and prepaid reinsurance premiums, which is mitigated by using a diverse group of reinsurers and monitoring their financial strength ratings. For any reinsurance counterparties who are not rated, we require adequate levels of collateral in the form of a trust account or Letter of Credit.

Interest Rate Risk

Our consolidated balance sheets include assets and liabilities with estimated fair values that are subject to market risks. Our primary market risk has been interest rate risks which impacts the fair value of our liabilities as well as interest rate risks associated with our investments in fixed maturities.

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EX-99.3

Exhibit 99.3

SUMMARY UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL INFORMATION

The following summary unaudited pro forma condensed combined financial information has been derived from the unaudited pro forma condensed combined balance sheet as of December 31, 2020 and the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020, included in “Unaudited Pro Forma Condensed Combined Financial Information.”

The summary unaudited pro forma condensed combined financial information should be read in conjunction with the unaudited pro forma condensed combined balance sheet and the unaudited pro forma condensed combined statement of operations, and the accompanying notes. In addition, the unaudited condensed combined pro forma financial information was based on and should be read in conjunction with the audited historical financial statements of Metromile, Inc. (formerly, INSU Acquisition Corp. II (“INSU”)) including the accompanying notes, which are included elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Form 10-K”), as well as the audited historical financial statements of Metromile Operating Company (formerly, MetroMile, Inc., or “Legacy Metromile”) including the accompanying notes, which are filed as Exhibit 99.1 to this Current Report on Form 8-K/A (the “Form 8-K/A”).

On February 9, 2021, (the “Closing Date”), INSU and Legacy Metromile consummated the previously announced merger pursuant to that certain Agreement and Plan of Merger and Reorganization, dated November 24, 2020, and as amended on January 12, 2021 and February 8, 2021 (the “Merger Agreement”), by and among INSU II Merger Sub Corp., a wholly owned subsidiary of INSU incorporated in the State of Delaware (“Merger Sub”), and Legacy Metromile. Pursuant to the terms of the Merger Agreement, a business combination between INSU and Legacy Metromile was effected through the merger of Merger Sub with and into Legacy Metromile, with Legacy Metromile surviving as the surviving company and as a wholly owned subsidiary of INSU (the “Merger” and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”).

The unaudited pro forma condensed combined financial information is for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma condensed combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience. INSU and Legacy Metromile have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

The Business Combination will be accounted for as a reverse capitalization, with no goodwill or other intangible assets recorded, in accordance with U.S. GAAP. Under this method of accounting, INSU is treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the financial statements of the combined entity will represent a continuation of the financial statements of Legacy Metromile with the Business Combination being treated as the equivalent of Legacy Metromile issuing stock for the net assets of INSU, accompanied by a recapitalization. The net assets of INSU are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of Legacy Metromile.

The unaudited pro forma condensed combined financial information has been prepared assuming actual redemptions of 8,372 Class A ordinary shares of INSU for an aggregate redemption price of less than $0.1 million.

(in thousands except per share data)
Summary Unaudited Pro forma Condensed Combined
Statement of operations data
Year Ended December 31, 2020
Revenue	$	35,064
Net loss per share basic and diluted	$	(0.37	)
Weighted average shares- Class A-outstanding basic and diluted		130,213,454

(in thousands except per share data)
Summary Unaudited Pro forma Condensed Combined
Balance Sheet Data as of December 31, 2020
Total assets	$	505,992
Total liabilities	$	141,885
Total stockholders’ equity	$	364,107

Unaudited pro forma condensed combined financial information of INSU Acquisition Corp. II and
MetroMile, Inc. as of and for the year December 31, 2020.

Introduction

INSU is providing the following unaudited pro forma condensed combined financial information to aid you in your analysis of the financial aspects of the Business Combination, as described in Note 1. The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X and presents Legacy Metromile combined with INSU (as combined, the “Company”), on a pro forma basis.

The following unaudited pro forma condensed combined balance sheet of the Company as of December 31, 2020 and the unaudited pro forma condensed combined statements of operations of the Company for the year ended December 31, 2020 present the combination of the financial information of INSU and the historical consolidated balance sheet of Legacy Metromile on a pro forma basis after giving effect to the following transactions:

● the Business Combination;

● the PIPE Investment and related adjustments the holders of Legacy Metromile shares of preferred stock (“Legacy Metromile Preferred Stock”) converted their Legacy Metromile Preferred Stock into shares of Legacy Metromile common stock (“Legacy Metromile Common Stock”) utilizing the conversion ratio stipulated in Legacy Metromile’s Certificate of Incorporation, and subsequent exchange of such shares for Company common stock (“Company Common Stock”) in the Business Combination;

● Exercise of cash election by holders of 20.7 million shares of Legacy Metromile Common Stock (or an equivalent of 3.1 million shares of Company Common Stock) to receive cash for at the rate of approximately $10.15 per equivalent share of the Company;

● Conversion of remaining Legacy Metromile Common Stock into Company Common Stock;

● the redemption of 8,372 INSU Class A shares of common stock from INSU public stockholders who elected to have their shares redeemed in connection with the Business Combination for aggregate redemption price of less than $0.1 million;

● the vested portion and unvested portion of Legacy Metromile stock option awards outstanding have converted automatically into vested restricted stock units (“RSUs”) and unvested options, respectively of the Company;

● the causing to deliver an additional 10,000,000 Company Common Stock (“Additional Shares” ) to be allocated among the Legacy Metromile stockholders and holders of Legacy Metromile vested options (each, an “Earnout Participant”), as of immediately prior to the Effective Time, based on the proportion of each Earnout Participant’s shares relative to the aggregate of all Legacy Metromile Common Stock, excluding Legacy Metromile restricted shares (i.e., shares resulting from early exercise of options to acquire Legacy Metromile Common Stock since signing of the Merger Agreement) and vested RSU equivalents (i.e., with respect to each holder of vested options to acquire Legacy Metromile common stock, as of the determination date, a number of Company Shares equal to such holder’s Aggregate Option Spread divided by the Per Share Merger Consideration Value), held by all Legacy Metromile stockholders (the “Pro Rata Share”), subject to the Company’s share price being greater than $15.00 per share for 20 out of any 30 consecutive trading days at any time during the twenty-four months following the Closing;

● the repayment of indebtedness of Legacy Metromile, which includes the Loan and Security Agreement (the “2019 Loan Agreement”) with certain lenders and the loan under the Paycheck Protection Program offered by the Small Business Administration under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (the “PPP Loan”) but will exclude the senior secured subordinated debt with Hudson Structured Capital Management and an affiliate (the “2020 Hudson Loan”) and amounts payable to reinsurers.

The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give pro forma effect to events that are: (i) directly attributable to the Business Combination; (ii) factually supportable; and (iii) with respect to the statement of operations, expected to have a continuing impact on the Company’s results following the completion of the Business Combination.

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The unaudited pro forma condensed combined financial statements have been developed from and should be read in conjunction with:

● the (i) historical audited financial statements of Legacy Metromile for the year ended December 31, 2020, and (ii) historical audited financial statements of INSU as of and for the year December 31, 2020, and the related notes, in each case, included elsewhere in the Form 8-K/A and Form 10-K respectively;

● the disclosures and discussion in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information relating to INSU and Legacy Metromile contained in the Form 10-K and Exhibit 99.2 of the Form 8-K/A respectively, including the Merger Agreement and the description of certain terms thereof set forth under “Business Combination Proposal.”

The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only and do not necessarily reflect what the Company’s financial condition or results of operations would have been had the Business Combination occurred on the dates indicated. Further, the pro forma condensed combined financial information also may not be useful in predicting the future financial condition and results of operations of the Company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed.

Description of the Business Combination

On November 24, 2020, INSU, Merger Sub, and Legacy Metromile entered into the Merger Agreement, with the Business Combination completed on February 9, 2021.

Upon the Closing of the Merger, subject to the terms and conditions of the Merger Agreement, Merger Sub merged with and into Legacy Metromile, the separate corporate existence of Merger Sub ceased and Legacy Metromile is the surviving corporation and a direct, wholly owned subsidiary of INSU (the “Merger”). Following the Closing, INSU changed its name to “Metromile, Inc.” (referred to herein, together with its subsidiaries, as the Company”).

At the Effective Time, by virtue of the Merger and without any action on the part of INSU, Merger Sub, Legacy Metromile or the holders of any of the Company’s or Legacy Metromile’s securities:

a) the Preferred Stock Conversion was completed, pursuant to which each Legacy Metromile Preferred Share issued and outstanding immediately prior to the Effective Time was automatically converted into a number of Legacy Metromile Common Shares at the then-effective conversion rate as calculated pursuant to the terms of the organizational documents of Legacy Metromile.

b) each Legacy Metromile Common Share that was issued and outstanding immediately prior to the Effective Time (excluding any Legacy Metromile Restricted Shares), following the Preferred Stock Conversion, was converted into the right to receive the following:

i. if the calculation of the Cash Consideration (funds remaining in the Trust Account following the redemption (if any) of shares of INSU Common Stock, payment of Transaction Expenses and Repaid Indebtedness, plus PIPE proceeds, plus Cash as of 11:59 p.m. Pacific Time on the day immediately preceding the Closing Date, minus $294,000,000) resulted in a positive number (the “Minimum Cash Election Condition”) and the holder of such Legacy Metromile Common Share made a proper Cash Election in an amount in cash for such Cash Electing Share, without interest, equal to the Per Share Merger Consideration Value (the “Per Share Cash Consideration”). Per Share Merger Consideration Value (calculated to be approximately $10.1548) is defined as Merger Consideration Value (Equity Value, plus (b) Cash, and Aggregate Exercise Price from all outstanding options minus (c) Debt for Borrowed Money, or $874.7 million as of the date of the signing of the Merger Agreement) divided by the fully diluted Legacy Metromile Outstanding Shares (86.2 million equivalent shares). As of the Closing Date, holders of 20.7 million shares of common stock of Legacy Metromile exercised the above cash election option.

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ii. if the holder of such share made a proper Stock Election, the applicable Per Share Stock Consideration. Per Share Stock Consideration is defined as a number of shares of Parent Common Stock equal to the Per Share Merger Consideration Value divided by the Reference Price of $10.00 (calculated to be approximately 1.01548 shares of INSU Common Stock ).

c) the issuance and sale of 17,000,000 shares of the Company’s Common Stock for $10.00 per share and an aggregate purchase price of $170.0 million in the PIPE Investment pursuant to the Subscription Agreements;

d) the cancellation of 1,177,000 shares of INSU Class B Common Stock and the placement of transfer restrictions on 5,100,334 shares of INSU Class B Common Stock in accordance with the terms of the Sponsor Share Cancellation and Vesting Agreement, dated as of November 24, 2020, by and among INSU and Sponsor and conversion of 6,669,667 shares of INSU Class B Common Stock into 6,669,667 shares of the Company Common Stock in connection with the Business Combination in accordance with the terms of the Merger Agreement. The transfer restrictions on 2,550,167 shares held by the Sponsor shall be removed when the Company Common Share Price is greater than $15.00 for any period of 20 trading days out of 30 consecutive trading days, and 2,550,167 shares held by each Sponsor shall have the applicable transfer restrictions removed when the Company Common Share Price is greater than $17.00 for any period of 20 trading days out of 30 consecutive trading days;

e) each issued and outstanding share of common stock of Merger Sub was converted into and became one validly issued, fully paid and nonassessable share of common stock of the surviving corporation;

f) all Excluded Shares were canceled without any conversion thereof and no payment or distribution was made with respect thereto;

g) prior to the Effective Time, all Vested Legacy Metromile Options automatically converted into a number of Vested RSUs equal to such holder’s Aggregate Option Spread divided by the Reference Price (rounded down to the nearest whole share).

h) at the Effective Time, all Unvested Legacy Metromile Options automatically converted into Converted Options. For each Converted Option, (i) the number of shares of Company Common Stock subject to each such Converted Option was equal to the product (rounded down to the nearest whole share) of (A) the total number of Legacy Metromile Common Shares subject to such Unvested Legacy Metromile Option immediately prior to the Effective Time divided by (B) the Per Share Stock Consideration and (ii) the exercise price per share of Company Common Stock (equal the quotient (with the result rounded up to the nearest whole cent) of (A) the exercise price per Legacy Metromile Common Share of such Unvested Legacy Metromile Option immediately prior to the Effective Time divided by (B) the Per Share Stock Consideration). Each such Converted Option is be subject to the same terms and conditions, including the applicable vesting schedule, as applied to the corresponding Unvested Legacy Metromile Option immediately prior to the Effective Time.

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i) each Legacy Metromile Restricted Share was converted into Company Common Stock that is subject to the terms and conditions giving rise to a substantial risk of forfeiture that applied to such Legacy Metromile Restricted Shares immediately prior to the Effective Time to the extent consistent with the terms of such Legacy Metromile Restricted Shares.

j) each Legacy Metromile warrant outstanding at the Effective Time was exercised into a number of shares of Legacy Metromile capital stock in accordance with the terms of the warrant agreement amendment applicable to such Legacy Metromile Warrant (each, a “Warrant Agreement Amendment”) and the information set forth in the Merger Payment Schedule [and exchanged for Company Common Stock in the Business Combination].

k) if at any time during the twenty-four (24) months following the Closing the closing share price of the Company Common Stock is greater than $15.00 over any twenty (20) trading days within any thirty (30) trading day period, the Additional Shares will be payable to the Earnout Participants, as of immediately prior to the Effective Time based on the proportion of each Earnout Participant’s Pro Rata Share.

The Additional Shares may be also become payable upon certain acceleration or change of control events. As of the date of the signing of the Merger Agreement, the exchange ratio was approximately 1.01548.

The following information summarizes consideration transferred:

(in thousands, except per share data)
Shares transferred at closing (1)		83,012
Value per share	$	10.0
Share consideration (2)	$	830,120
Cash consideration (3)	$	32,000
Total consideration transferred	$	862,120

(1). The number of shares transferred to (or reserved for transfer to) Legacy Metromile equity holders upon consummation of the Business Combination include (i) 79.5 million shares of Company Common Stock for Legacy Metromile common stock and in respect of Legacy Metromile warrants exercised for shares of Legacy Metromile capital stock in accordance with the applicable Warrant Agreement Amendment immediately prior to the Effective Time; (ii) 1.3 million shares of Company Common Stock issued as vested RSUs for Legacy Metromile vested RSUs; and (iii) 2.2 million shares of Company Common Stock issued as unvested options for Legacy Metromile unvested options; and excludes 10.0 million Additional Shares as the trading price threshold has not been met.

(2). Share consideration is calculated using a $10.00 reference price.

(3). Cash election was oversubscribed by Legacy Metromile stockholders with a total of $32 million paid out in cash to stockholders, holding a total of 20.7 million Legacy Metromile shares converted into 3.1 million eligible shares, at a price of $10.15 per eligible share. Total consideration has been adjusted to reflect the consideration paid by cash. Total consideration transferred does not include $12.6 million to be received in the future from exercise of unvested options, which has been considered in the calculation of Merger Consideration Value of $874.7 million

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Unaudited Pro Forma Condensed Combined Balance Sheet
As of December 31, 2020
(in thousands, except share and per share amounts)

	INSU Acquisition Corp II (Historical)			MetroMile, Inc. (Historical)			Pro Forma Adjustments				Forma Pro Combined
ASSETS
Investments
Marketable securities		—			—			—				—
Marketable securities – restricted		—			24,651			—				24,651
Total investments		—			24,651			—				24,651
Cash and cash equivalents		331			19,150			306,872		(A)		326,353
Restricted cash and cash equivalents		—			31,038			—				31,038
Premiums receivable		—			16,329			—				16,329
Accounts receivable		—			4,999			—				4,999
Reinsurance recoverable on paid loss		—			8,475			—				8,475
Reinsurance recoverable on unpaid loss		—			33,941			—				33,941
Prepaid reinsurance premium		—			13,668			—				13,668
Prepaid expenses and other assets		206			7,059			—				7,265
Deferred transaction costs		—			3,581			(3,581	)	(G)		—
Deferred policy acquisition costs, net		—			656			—				656
Telematics devices, improvements and equipment, net		—			12,716			—				12,716
Website and software development costs, net		—			18,401			—				18,401
Intangible assets, net		—			7,500			—				7,500
Total current assets		537			202,164			303,291				505,992
Cash held in Trust Account		230,007			—			(230,007	)	(I)		—
Total assets		230,544			202,164			73,284				505,992
Loss and loss adjustment expense reserves		—			57,093			—				57,093
Ceded reinsurance premium payable		—			27,000			—				27,000
Payable to carriers – premiums and LAE, net		—			849			—				849
Unearned premium reserve		—			16,070			—				16,070
Deferred revenue		—			5,817			—				5,817
Accounts payable and accrued expenses		125			8,222			(3,481	)	(G)		4,866
Note payable		—			51,934			(30,298	)	(B)		21,636
Deferred underwriting fee payable		9,800			—			(9,800	)	(C)		—
Deferred tax liability		—			-			—				-
Warrant liability		—			83,652			(83,652	)	(D)		—
Other liabilities		—			8,554			—				8,554
Total liabilities		9,925			259,191			(127,231	)			141,885
Redeemable convertible preferred stock		—			304,469			(304,469	)	(E)		—
Common shares subject to possible redemption		215,619			—			(215,619	)	(F)		—
Stockholders’ equity (deficit):
INSU Acquisition Corp II Class A Common Stock		—			—			12		(D, E, F, H)		12
INSU Acquisition Corp II Class B Common Stock		1			—			(1	)	(F)		—
MetroMile, Inc. common stock		—			1			(1	)	(E)		—
Note receivable from executive		—			(415	)		415		(K)		—
Accumulated paid-in capital		5,571			5,482			726,871		(D, E, F, G, H, I, J, L, M, N)		737,924
Accumulated and other comprehensive gain		—			11			—				11
Accumulated deficit		(572	)		(366,575	)		(6,693	)	(B, C, D, K M, N)		(373,840	)
Total stockholders’ equity (deficit)		5,000			(361,496	)		720,603				364,107
Total liabilities, Convertible preferred stock and stockholders’ equity (deficit)		230,544			202,164			73,284				505,992

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Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2020
(in thousands, except share and per share amounts)

	INSU Acquisition Corp II (Historical)			MetroMile, Inc. (Historical)			Pro Forma Adjustments				Pro Forma Combined
Revenue:
Premiums earned, net		—			12,464			—				12,464
Investment income		—			523			—				523
Other revenue		—			22,077			—				22,077
Total Revenue		—			35,064			—				35,064
Costs and expenses
Cost of revenue
Losses and loss adjustment expenses		—			21,208			—				21,208
Policy servicing expense and other		—			16,813			—				16,813
Sales, marketing, and other acquisition costs		—			5,483			—				5,483
Research and development		—			8,211			—				8,211
Amortization of capitalized software		—			11,188			—				11,188
Formation and operating costs		578			—			—				578
Other operating expenses		—			16,981			—				16,981
Total costs and expenses		578			79,884			—				80,462
Loss from operations		(578	)		(44,820	)		—				(45,398	)
Other expense
Interest (income)/ expense		(7	)		6,067			(2,598	)	(AA)		3,462
Increase in fair value of stock warrant liability		—			69,294			(69,294	)	(BB)		---
Total other expense		(7	)		75,361			(71,892	)			3,462
Net loss before taxes		(571	)		(120,181	)		71,892				(48,860	)
Income tax benefit		—			(84	)		—				(84	)
Net loss		(571	)		(120,097	)		71,892				(48,776	)
Other comprehensive loss		—			(49	)		—				(49	)
Total comprehensive loss		(571	)		(120,146	)		71,892				(48,825	)
Weighted average shares outstanding of Class A redeemable common stock		23,000,000										130,213,454
Basic and diluted net loss per share, Class A redeemable common stock		(0.00	)								$	(0.37	)
Weighted average shares outstanding of Class A and Class B non-redeemable common stock		7,330,547										—
Basic and diluted net loss per share, Class A and Class B non-redeemable common stock		0.08	)									—
Weighted-average shares used in computing basic and diluted net loss per share		—			8,755,116							—
Net loss per share, basic and diluted		—			(13.72	)						—

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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

1. Basis of Presentation

The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give pro forma effect to events that are: (i) directly attributable to the Business Combination; (ii) factually supportable; and (iii) with respect to the statement of operations, expected to have a continuing impact on the Company’s results following the completion of the Business Combination. The adjustments are described in Note 2 below. The pro forma adjustments have been prepared as if the Business Combination had been consummated on December 31, 2020 in the case of the unaudited pro forma condensed combined balance sheet and on January 1, 2020, the beginning of the earliest period presented in the unaudited pro forma condensed combined statement of operations. INSU and Legacy Metromile have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

The unaudited pro forma condensed combined financial information has been prepared assuming the following methods of accounting in accordance with GAAP. Notwithstanding the legal form of the Business Combination pursuant to the Merger Agreement, the Business Combination will be accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, INSU will be treated as the acquired company and Legacy Metromile will be treated as the acquirer for financial statement reporting purposes. Legacy Metromile has been determined to be the accounting acquirer based on evaluation of the following facts and circumstances:

● The pre-combination equity holders of Legacy Metromile will hold a majority of the voting rights in the Company;

● Legacy Metromile has the ability to appoint the board of directors and the management of the Company;

● Senior management of Legacy Metromile will comprise the senior management of the Company; and

● Operations of Legacy Metromile will comprise the ongoing operations of the Company.

Accordingly, for accounting purposes, the financial statements of the Company will represent a continuation of the financial statements of Legacy Metromile with the acquisition being treated as the equivalent of Legacy Metromile issuing stock for the net assets of INSU, accompanied by a recapitalization. The net assets of INSU will be stated at historical cost, with no goodwill or other intangible assets recorded.

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One-time direct and incremental transaction costs anticipated to be incurred prior to, or concurrent with, the consummation is reflected in the unaudited pro forma condensed combined balance sheet as a direct reduction to Company additional paid-in capital and are assumed to be cash settled. The unaudited pro forma condensed combined financial information does not reflect the income tax effects of the pro forma adjustments. The Company’s management believes this unaudited pro forma condensed combined financial information to not be meaningful given Legacy Metromile incurred significant losses during the historical periods presented.

The Company’ management believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination based on information available to management at this time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial information. The unaudited pro forma condensed combined statements of operations are not necessarily indicative of what the actual results of operations would have been had the Business Combination taken place on the date indicated, nor are they indicative of the future consolidated results of operations of the Company. They should be read in conjunction with the historical consolidated financial statements and notes thereto of Legacy Metromile and INSU.

Based on its initial analysis, Company management did not identify any differences in accounting policies that would have a material impact on the unaudited pro forma condensed combined financial information. As a result, the unaudited pro forma condensed combined financial information does not assume any differences in accounting policies. Upon consummation of the Business Combination, Company management will perform a comprehensive review of the two entities’ accounting policies. As a result of the review, Company management may identify differences between the accounting policies of the two entities that, when conformed, could have a material impact on the Company’s financial statements.

The following summarizes the pro forma common stock ownership on December 31, 2020 on a combined basis:

	Pro Forma Combined
	Number of outstanding shares (in millions) (1)		Percentage of Outstanding Shares
INSU IPO Investors (1)		23.0		17.7	%
Sponsor Shares		6.7		5.1	%
Private Placement		0.5		0.4	%
Total INSU Shares		30.2		23.2	%
Shares Issued to Legacy Metromile Stockholders (2)		83.0		63.7	%
Total Target Shares		113.2		86.9	%
PIPE Shares Issued		17.0		13.1	%
Total PIPE Shares		17.0		13.1	%
Total Outstanding		130.2		100	%

(1) Reflects actual redemptions of shares totaling less than 0.1 million shares.

(2) The number of outstanding shares held by Legacy Metromile Stockholders excludes 10.0 million Additional Shares. The Additional Shares would further increase the ownership percentages of Legacy Metromile Stockholders in the Company and would dilute the ownership of all stockholders of the Company, as further discussed below.

The Company expects to enter into new equity awards with its employees upon the consummation of the Merger. The terms of these new equity awards have not been finalized and remain subject to change. Accordingly, no effect has been given to the unaudited pro forma condensed combined financial information for the new awards.

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The Additional Shares will be allocated among the Earnout Participants (post conversion of Legacy Metromile Preferred Stock and exercise of Legacy Metromile Warrants, described above), as of immediately prior to the Effective Time on the proportion of each Earnout Participant’s Pro Rata Share, and shall be issued to the Earnout Participants, if at any time during the twenty-four (24) months following the Closing, the closing share price of the Company’s Common Stock is greater than $15.00 over any twenty (20) Trading Days within any thirty (30) Trading Day period.

The issuance of such Additional Shares would dilute the value of all shares of Company Common Stock outstanding at that time. Assuming the current capitalization structure, the approximately 10.0 million Additional Shares that would be issued upon meeting the $15.00 threshold, would represent approximately 8% of total shares outstanding for the redemption scenarios set forth.

The Company’s management has concluded that the Additional Shares are equity-classified instruments. Additionally, as a portion of the Additional Shares related to net exercised warrants, the pro forma condensed combined balance sheet reflects a one-time, nonrecurring expense, as further discussed in Note 2(D), representing incremental fair value of modified Legacy Metromile Warrants. If the actual facts are different than these assumptions, the ownership percentage retained by Parent’s public stockholders in the post-combination company will be different from the above-stated ownership percentage.

2. Adjustments to Unaudited Pro Forma Condensed Combined Financial Information

Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet

The unaudited pro forma condensed combined balance sheet as of December 31, 2020 reflects the following adjustments:

(A) Represents pro forma adjustments to cash to reflect the following (in thousands):

INSU cash held in a trust account	$	230,007	(1)
Add: Proceeds from PIPE Investment		170,000	(2)
Add: Proceeds from exercises of share awards		2,347	(3)
Less: Payment of transaction-related fees		22,496	(4)
Less: Payment of deferred underwriter fees and deferred legal fees and other transaction-related fees		8,360	(5)
Less: Repayment of debt		32,542	(6)
Less: Payment for Legacy Metromile Cash Electing Shares		32,000	(7)
Less: Payment made to INSU public stockholders to redeem INSU common stock		84	(8)
		306,872

(1) Represents the reclassification of cash equivalents held in the trust account and to reflect that the cash equivalents are available to effectuate the transaction or to pay redeeming INSU public stockholders.

(2) Represents the proceeds of $170.0 million from the issuance and sale of 17,000,000 shares of Company Common Stock at $10.00 per share through the PIPE Investment.

(3) Represents the proceeds of $2.3 million from the issuance of Legacy Metromile common stock on exercise of Legacy Metromile share awards post December 31, 2020.

(4) Represents preliminary estimated transaction costs incurred by Legacy Metromile and INSU of approximately $13 million and $10 million, respectively, for legal, financial advisory and other professional fees incurred in consummating the Business Combination. The unaudited pro forma condensed combined balance sheet reflects these costs as a reduction of cash with a corresponding decrease in additional paid-in capital.

(5) Represents the payment of $8.4 million of deferred underwriter fees incurred during INSU’s initial public offering due upon completion of the Business Combination.

(6) Represents the repayment of Legacy Metromile Notes Payables and PPP Loan, in accordance with the Merger Agreement conditions to closing. Further, repayment also includes end of term payment totaling $0.6 million and a one-time prepayment charge of $0.8 million.

(7) Represents payment to Legacy Metromile common stockrholders holding a total of 20.7 million shares converted into 3.1 million eligible shares, that opted for the Cash Election, at the price of $10.15 per eligible share.

(8) Represents payment made to INSU public stockholders to redeem INSU common stock. A total of 8,372 shares were redeemed at a redemption price of $10 per share.

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(B) Represents the repayment of $31.2 million of Legacy Metromile Notes Payables and PPP Loan, in accordance with the Merger Agreement conditions to closing, including the recording of the one-time interest accretion of the remaining debt discount of $0.9 million as an adjustment to accumulated deficit. Further, repayment also includes end of term payment totaling $0.6 million and a one-time prepayment charge of $0.8 million. Does not include any potential payments or reduction of indebtedness attributable to Hudson notes, which would be expected to occur post close of the transaction.

(C) Represents settlement of $9.8 million deferred underwriter fees incurred during INSU’s initial public offering. Total amount paid on settlement was $8.4 million and excess accrual was reversed and included in Accumulated Deficit.

(D) Represents the net exercise of Legacy Metromile preferred stock warrants into Company Common Stock, pursuant to terms of the Merger Agreement, recorded as par value common stock and additional paid in capital. Legacy Metromile preferred stock warrants were previously contingently puttable or redeemable, resulting in Legacy Metromile classifying such warrants as liabilities in its historical financial statements. Prior to net exercise, Legacy Metromile was required to mark-to-market the warrant liability, an impact of $73.0 million which is recorded as an adjustment to accumulated deficit. Additionally, in line with the Merger Agreement, as part of the net exercise, the Legacy Metromile Warrant holders were also eligible to receive Additional Shares, resulting in an additional one-time, nonrecurring expense of $4.1 million, representing incremental fair value of modified Legacy Metromile Warrants on the date of modification.

(E) Represents conversion of Legacy Metromile redeemable preferred stock into Legacy Metromile common stock pursuant to the terms of the Merger Agreement, and as a result of the Legacy Metromile recapitalization, the conversion of the Legacy Metromile common stock into Company Common Stock resulting in an adjustment of $304.5 million from temporary equity to common stock par value and additional paid-in capital. The unaudited pro forma condensed balance sheet reflects the conversion with a corresponding increase of $304.5 million to additional paid in-capital and an increase of less than $0.1 million to Company Common Stock

(F) Represents the reclassification of $216.0 million of INSU public shares, subject to possible redemption, from mezzanine equity to permanent equity, as well as the reclassification of the INSU Class B shares, to Company Common Stock, assuming no redemptions. The unaudited pro forma condensed balance sheet reflects the reclassification with a corresponding increase of $216.0 million to additional paid in-capital and an increase of less than $0.1 million to Company Common Stock.

(G) Represents transaction costs incurred by Legacy Metromile and INSU of approximately $13 million and $10 million, respectively, for legal, financial advisory and other professional fees incurred in consummating the Business Combination. As December 31, 2020 the Company recorded expenses incurred up to the balance sheet date with Deferred Offering Costs totaling $3.5 million and paid $0.1 million through the balance sheet date. Balance amounts payable as at December 31, 2020 are included within Accounts payable and accrued expenses. The unaudited pro forma condensed combined balance sheet reflects these costs as a reduction of cash, reduction of deferred offering costs with a corresponding decrease in accounts payable and accrued expenses and in additional paid-in capital.

(H) Represents the proceeds of $170.0 million from the issuance and sale of 17,000,000 shares of Company Common Stock at $10.00 per share through the PIPE Investment. The unaudited pro forma balance sheet reflects the reclassification with a corresponding increase of $170.0 million to additional paid in-capital and an increase of less than $0.1 million to Company Common Stock.

(I) Represents the reclassification of cash equivalents held in the trust account and to reflect that the cash equivalents are available to effectuate the transaction or to pay redeeming INSU public stockholders.

(J) Represents the proceeds of $2.3 million from the issuance of 1,073,061 shares of Legacy Metromile common stock on exercise of Legacy Metromile share awards post December 31, 2020. The unaudited pro forma condensed balance sheet reflects the corresponding increase of $2.5 million to additional paid in-capital and an increase of less than $0.1 million to Company Common Stock.

(K) Represents the forgiveness of the note receivable from executive officer for shares exercised in accordance with terms of the merger agreement.

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(L) Represents the payment made to redeeming INSU public stockholders for 8,372 shares at the rate of $10 per share. The unaudited pro forma condensed balance sheet reflects the corresponding decrease of less than $0.1 million to additional paid in-capital and INSU Class B Shares

(M) Represents payments made to Legacy Metromile Common stockholders, holding a total of 20.7 million shares converted into 3.1 million eligible shares, that opted for the Cash Election, at the price of $10.15 per eligible share. The unaudited pro forma condensed balance sheet reflects the corresponding decrease of $32.0 million to additional paid in-capital and an increase of less than $0.1 million to Company Common Stock.

(N) Represents the recording of catch-up compensation expense attributable to modification of Chief Executive Officer’s performance award, totaling $1.3 million, due to performance condition being met, in accordance with the close of the Business Combination.

Adjustments to Unaudited Pro Forma Combined Statements of Operations:

The pro forma adjustments included in the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2020 are as follows:

(AA). Represents pro forma adjustment to eliminate interest expense related to the repaid Legacy Metromile Notes Payables and PPP Loan.

(BB) Represents the elimination of remeasurement losses on Legacy Metromile Preferred Stock warrant liability since the warrants have been net exercised pursuant to terms of the Merger Agreement

Loss per share:

Represents the net loss per share calculated using the historical weighted average shares outstanding, and the issuance of additional shares in connection with the Business Combination, assuming the shares were outstanding since January 1, 2020. As the Business Combination is being reflected as if it had occurred at the beginning of the periods presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issuable relating to the Business Combination have been outstanding for the entire periods presented. When assuming the redemption scenario described above, this calculation is adjusted to eliminate such shares for the entire periods.

	Year Ended December 31, 2020
	Pro Forma Combined
Pro Forma Net Loss	$	(48,776	)
Basic weighted average shares outstanding – Class A		130,213,454
Net loss per share – Basic and Diluted – Class A	$	(0.37	)
Basic weighted average shares outstanding – Class A
INSU Public Stockholders		23,531,628
PIPE Investors		17,000,000
Sponsor		6,669,667
Closing merger consideration payable in stock		83,012,159
Total		130,213,454

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